As filed with the Securities and Exchange Commission on December 19, 2017
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PlayAGS, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Nevada |
7993 | 46-3698600 | ||
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(IRS Employer
Identification Number) |
5475 S. Decatur Blvd., Ste #100
Las Vegas, NV 89118
(702) 722-6700
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
David Lopez
Chief Executive Officer
c/o PlayAGS, Inc.
5475 S. Decatur Blvd., Ste #100
Las Vegas, NV 89118
(702) 722-6700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
Monica K. Thurmond, Esq. Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 (212) 373-3000 |
Victor Gallo General Counsel c/o PlayAGS, Inc. 5475 S. Decatur Blvd., Ste #100 Las Vegas, NV 89118 (702) 722-6700 |
Michael A. Sherman, Esq. Marc R. Lashbrook, Esq. Cahill Gordon & Reindel LLP 80 Pine Street New York, NY 10005-1702 (212) 701-3000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ Accelerated filer ☐ | Smaller reporting company | ☐ | |||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of each Class of
Securities to be Registered |
Proposed
Maximum
Offering Price (1)(2) |
Amount of
Registration Fee |
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Common Stock, par value $0.01 per share |
$100,000,000 | $12,450 | ||
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(1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. |
(2) | Includes offering price of any additional shares that the underwriters have the option to purchase, if any. See “Underwriting (Conflicts of Interest).” |
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated December 19, 2017
PRELIMINARY PROSPECTUS
Shares
PlayAGS, Inc.
Common Stock
This is the initial public offering of shares of common stock, par value $0.01 per share, of PlayAGS, Inc., a Nevada corporation (the “Issuer”). We are offering shares of common stock.
We expect the public offering price to be between $ and $ per share. Prior to this offering, no public market exists for the shares. We intend to apply to list our common stock on the New York Stock Exchange under the symbol “AGS.” We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and are eligible for reduced public company reporting requirements. Please see “Prospectus Summary—Implications of being an Emerging Growth Company.” We will also be a “controlled company” under the corporate governance rules for New York Stock Exchange-listed companies and will be exempt from certain corporate governance requirements of the rules. See “Risk Factors—Risks Related to this Offering and Ownership of our Common Stock.”
Investing in the common stock involves risks that are described in the “ Risk Factors ” section beginning on page 23 of this prospectus.
Per
Share |
Total | |||||||
Public offering price |
$ | $ | ||||||
Underwriting discount (1) |
$ | $ | ||||||
Proceeds to us, before expenses |
$ | $ |
(1) | We refer you to the section “Underwriting (Conflicts of Interest)” of this prospectus for additional information regarding underwriting compensation. |
We have granted the underwriters an option to purchase up to an additional shares from us at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2018.
Joint Book-Running Managers
Credit Suisse |
Deutsche Bank Securities | |
Jefferies |
Macquarie Capital |
BofA Merrill Lynch |
Citigroup | |||
Nomura |
Stifel |
SunTrust Robinson |
||
Humphrey |
Co-Managers
Roth Capital Partners |
Union Gaming | The Williams Capital Group, L.P. | ||
Apollo Global Securities |
The date of this prospectus is , 2018.
WHAT WE DO LOCATIONS agS jpplil SLOT ;;*V, 550+ T MACHINES l|H|l employees around the globe & EQUIPMENT ‘ -SOp’ * Atlanta! SOCIAL PKJ ONLINE 3 CASINO Mexico City I I B2B&B2C | i * ”” * I agsmw 11 Sydney S6cD Studio REVENUE* — $197M lll i PRODUCT I up 20% y-o-y :|P FOOTPRINT** Interactive 4% m m m 22K+ i _ recurrinq revenue units Table Products 2% table game products 5 VJbP on lease 2017 MAJOR EVENTS n w3g qqq Official roll out of Orion™ portrait cabinet in Q2 17;+1,100 _ _ I units placed as of 03, marking the most successful product daily active users (DAU} launch in AGS history _ Highest-performing portfolio of casino-owned games for four Si A/I ; consecutive quarters (~1.75x HA)t installs Record revenue and AEBITDAin Q3 17 Sold Zxthe number of slot units in 1H 2017 than all of 2016 100+ Sonus Spins installed throughout NV, CA, MS, IA, Ml & OK *LTM9/3(V2017. Recognized as “Best & Brightest Com pan ies toWork For” t Pfer Ei=rB-FantiniQuartos,* IP Atlanta performance among non-tag 4 vendors.
UNTAPPED POTENTIAL »QQS qO’’ AGS represents • \A\, 1.4% of the total . Per Eilers: Gaming Supplier KPIs • 2Q2017. J US & Canada EG Ml 1 \T , , mafkatHL Every 11 % increase in market share equates to 9,750 incremental j units and nearly $87 million in revenue.* 20Ufl 1% MARKET TDM = -960,000 TDM = -970,000 TDM = -975,000 Q1—1 A DC — TAM = -400,000 TAM = -650,000 TAM = -725,000 ‘ “” AGS =7,720 AGS - 8,735 AGS -13,953 /v#W Wk H + 127 licenses 161 licenses 243 licenses M Incremental revenue calculation based on our FY 2016 Domestic RPD. MARKET SHARE IN TOP GAMING JURISDICTIONS Market Estimated AGS Estimated Penetration Stage Jurisdiction Units in State* Market Share Ramp Alabama 6,730 39.3% ® Mature Oklahoma 74,737 8.8% © Texas 4,087 40.2% ® California 72,575 1.4% © Ramping Florida 22,042 8.1% 0 Montana 17,145 2.2% © Louisiana 42,024 0.3% © Michigan 31,557 0.3% © Mississippi 30,532 0.6% © Early Entry Nevada 162,535 0.3% © New Mexico 20,506 0.4% © New York 34,754 0.6% © Canada 100,190 0.0% © Other 129,191 0.2% © Prospective Other 233,678 0.0% ©
EGM SOLD UNITS 3QS $34.1 $11.9 2,128 „ _ $6.1 $3.2 $1.6 t 465 § 123 255 2032013 2014 2015 2016 LTM 9/30/2017 EGM SALES REVENUE (IN MMs) EGM INSTALLED BASE* 24.7% 20,851 22,015 TOTAL CAGR++ ” .1 6-898 7’471 CAGRm 13,953 14,544 US 13,139 ‘ 14.3% 7 720 8,708 8,735 26 28 28 t f *0 19 STATES z 16 wrrH egm 3 PLACEMENTS 2012 2013 2014 2015 2016 9/30/2017 * Recurring revenue units; does not ndude sold units. Combined with Cadillac Jade installed base beginning 2015. tt 12/31/2012 vc 9/30/2017 Calculated from time of the Cadillac Jack acquisition. TABLE GAME INSTALLED BASE 92.7% 2’350 CAGR 1!M 815 t 387 D 2014 2015 2016 9/30/2017
COMBINED REVENUE* 3QS O Non-Recurring 17% $197 | [ $167 Recurring 83% $162 I £158 $144 Si53” Q AO/ I O.l/O | *136 CAGR 2012 2013 2014 2015 2016 LTM TOTAL REVENUE 9/30/2017 * Combined with revenues from Cadillac Jack and Rocket Play. Adjusted to exdude a large one-time equipment caie of approximately $8 6M EGM REVENUE $34.1 122*6% sii-» $151.9 CAGR Sfr $113.5 $3.3—[ *’*1 $68.9 z $57.8 $56.9 o _l s z 2012 2013 2014 2015 2016 LTM 9/30/2017 RECURRING REVENUE SALES REVENUE
TIMELINE »QQS _ September 2017 om-7 Acquisition of high-performing In Bet “ tflu ‘ , , , Gaming table game titles “ V Reback appointed EVP m » » BE • Former VP of Marketing at Konami _ , • 12+years of industry experience September Z01 5 iHBKiBSSWE Julia Boguslawski appointed CMO J* . . . T Former Chief of Staff at Scientific Games September 2015 • Previously VP of IR at SHFL L Purchase of intellectual • 9+years of industry experience f property for card shuffler September 2015 Acquisition of Buster Blackjack June 2015 Acquisition of social casino company, RocketPlay May 2015 Sigmund Lee appointed CTO Former CTO at Cadillac Jack 1 | |gw 2015 • Previously VP of engineering at Bally -* W ‘ . . . r i . j - i • 15+years of industry experience Acquistion of slot designer and supplier, Cadillac Jack March 2015 M Wg*\ lj ~. ... m Kimo Akiona appointed CFO tf.Tgfc January 2015 • Former SVP of Finance at SHFL 1;’ Robert Perry appointed • 18+years of industry experience _ of Sales “ * ~ JSHmjP * Former VP of Sales at Aristocrat l,rr,F e 14+ years of industry experience September 2014 I Rebrand to AGS September/October 2014 Acquisition of first table game titles i i . . August 2014 Jrl John Hemberger appointed I ~ SVP of Table Products Julv 2014 “ former Head of Table Games at SHFL . rii - 11 + years of industry experience * * Formation of table games division May 2014 Acquistion of game design Al February 2014 studio. Colossal Gaming 1M David Lopez appointed CEO , . * Former CEO at GCA wKmJujIs Previously COO at SHFL , t 20+years of industry experience December 2013 Purchased by funds 2005 affiliated with Apollo Founded and started supplying electronic gaming machinesi
Social Casino Specialty EGMs Big Red Core EGMs ICON Premium EGMs Orion Table Games Table Equipment
CASINO-OWNED GAME PERFORMANCE* HOUSEAVERAGE ACS INCREDIBLE ARISTOCRAT AINSWORTH EVERI NOVAMATIC SCI GAMES KONAMI IFT ARUZE PREMIUM LEASED GAME PERFORMANCE* HOUSE AVERAGE ARISTOCRAT ACS SCI GAMES INCREDIBLE IGT EVERI AINSWORHT INSPORED KONAMI ARUSE NOVAMATIC * Per elers fantini quarterly slot survey 3022017
For investors outside the United States: neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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F-1 |
You should rely only on the information contained in this prospectus and any related free writing prospectus that we may provide to you in connection with this offering. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
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TRADEMARKS, TRADE NAMES AND SERVICE MARKS
We use various trademarks, trade names and service marks in our business, including without limitation ICON ® , ORION ® , Big Red ® and ALORA ® . This prospectus contains references to our trademarks and service marks. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
INDUSTRY AND MARKET DATA
We include in this prospectus statements regarding factors that have impacted our and our customers’ industries. Such statements are statements of belief and are based on industry data and forecasts that we have obtained from industry publications and surveys, including those published by Eilers & Krejcik Gaming, LLC (“Eilers & Krejcik”). Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of such information. In addition, while we believe that the industry information included herein is generally reliable, such information is inherently imprecise. While we are not aware of any misstatements regarding the industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the caption “Risk Factors” in this prospectus.
PRESENTATION OF FINANCIAL INFORMATION
In this prospectus, unless otherwise indicated or the context otherwise requires, references to the “Company,” the “Issuer,” “we,” “us,” “our,” “PlayAGS” and “AP Gaming” refer to PlayAGS, Inc., a Nevada corporation, and its consolidated subsidiaries, including AGS Capital, LLC (“AGS Capital”) and AGS, LLC (“AGS”). References to “Apollo” and the “Sponsor” refer to Apollo Global Management, LLC and its subsidiaries as described under “—Our Sponsor.” References to “Apollo Group” refer to (a) Apollo Gaming Holdings, L.P., (b) Apollo Investment Fund VIII, L.P., (c) each of their respective affiliates (including, for avoidance of doubt, any syndication vehicles and excluding, for the avoidance of doubt, any portfolio companies of Apollo Management VIII, L.P. or its affiliates other than Holdings, AP Gaming VoteCo, LLC (“VoteCo”), the Company and their respective subsidiaries) to which any transfers of our common stock are made and (d) VoteCo to the extent that it has beneficial ownership of shares of our common stock pursuant to an irrevocable proxy to be entered into following the Reclassification. This prospectus contains financial statements of the Company for the years ended December 31, 2014, 2015 and 2016 and the period ended September 30, 2017. This prospectus also contains the financial statements of Amaya Americas Corporation (“Cadillac Jack”) for the year ended December 31, 2014 and the fiscal quarter ended March 31, 2015. We acquired Cadillac Jack on May 29, 2015.
We provide products in three distinct segments: Electronic Gaming Machines (“EGM”), Table Products (“Table Products”), and Interactive Social Casino Games (“Interactive”). Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of a distinct product line.
USE OF NON-GAAP FINANCIAL INFORMATION
We have provided total adjusted EBITDA in this prospectus because we believe such measure provides investors with additional information to measure our performance.
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We believe that the presentation of total adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items that we do not expect to continue at the same level in the future, as well as other items we do not consider indicative of our ongoing operating performance. Further, we believe total adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures. It also provides management and investors with additional information to estimate our value.
Total adjusted EBITDA is not a presentation made in accordance with GAAP. Our use of the term total adjusted EBITDA may vary from others in our industry. Total adjusted EBITDA should not be considered as an alternative to operating income or net income. Total adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute for the analysis of our results as reported under GAAP.
Our definition of total adjusted EBITDA allows us to add back certain non-cash charges that are deducted in calculating net income and to deduct certain gains that are included in calculating net income. However, these expenses and gains vary greatly, and are difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, in the case of charges or expenses, these items can represent the reduction of cash that could be used for other corporate purposes.
Due to these limitations, we rely primarily on our GAAP results, such as net loss, (loss) income from operations, EGM Adjusted EBITDA, Table Products Adjusted EBITDA or Interactive Adjusted EBITDA and use Total adjusted EBITDA only supplementally.
For more information on the use of Total adjusted EBITDA and a reconciliation to the nearest GAAP measure, see “Prospectus Summary—Summary Consolidated Historical Financial and Other Data.”
TERMS USED IN THIS PROSPECTUS
Unless otherwise indicated or the context otherwise requires, the following terms in this prospectus have the meanings set forth below:
• | Average Monthly Lease Price : Average monthly lease price is calculated by dividing (a) total revenues recognized and directly attributable to table products by (b) the number of Table Products Installed Base and by (c) the number of months in such period. |
• | Average Revenue per Daily Active User (ARPDAU) : ARPDAU is calculated by dividing (a) daily revenue by (b) the number of Daily Active Users. |
• | Average Sales Price : Average sales price is calculated by dividing (a) total revenues recognized and directly attributable to EGM unit sales in a period by (b) the number of EGM units sold over that same period. |
• | Business-to-Business (B2B) : B2B is the exchange of products, services and information between us and other businesses (i.e., casinos), rather than between us and end-user consumers. |
• | Business-to-Consumer (B2C) : B2C Social is the sale of products, services and information from us to end-user consumers of social casino apps. |
• | Class I Market : Class I gaming includes (i) traditional Native American gaming which may be part of Native American tribal ceremonies and celebrations (e.g. contests and games of skill) and (ii) social gaming for minimal prizes. Regulatory authority over Class I gaming is vested exclusively in Native American tribal governments and is not subject to IGRA requirements. |
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• | Class II Market : Class II gaming includes (i) the game of chance commonly known as bingo (whether or not electronic, computer, or other technological aids are used to facilitate play in connection therewith) and if played in the same location as bingo, also includes pull tabs, punch board, tip jars, instant bingo, and other games similar to bingo and (ii) non-bank card games (i.e., games that are played exclusively against other players rather than against the house or a player acting as a bank). Class II gaming excludes (i) slot machines and (ii) electronic facsimiles of Class III games. Regulatory authority over Class II gaming is vested in Native American tribes so long as (i) the state in which the Native American tribe is located permits such gaming for any purpose and (ii) the Native American tribal government adopts a gaming ordinance approved by the National Indian Gaming Commission and the laws of the Native American tribe conducting such gaming. |
• | Class III Market : Class III gaming includes all forms of gaming that do not fit into Class I or Class II markets. For instance, games commonly played at casinos, including but not limited to slot machines, blackjack, craps, roulette, wagering games and electronic facsimiles of any game of chance. |
• | Commercial EGM : A non-tribal gaming device, also referred to as a slot machine. |
• | Commercial Jurisdiction : A non-tribal gaming jurisdiction. |
• | Compound Annual Growth Rate (CAGR) : CAGR is the mean annual growth rate of an investment over a specified period of time longer than one year. |
• | D aily Active Users (DAU) : DAU is a count of daily unique visitors to a site. |
• | Domestic market : Domestic market means Commercial, Class II, and Class III market for EGM units in the United States and Canada. |
• | EGM Installed Base : EGM Installed Base is the number of EGM units installed on a specified date. |
• | EGM revenue per day (EGM RPD) : EGM RPD is calculated by dividing (a) total revenues over a specified period recognized and directly attributable to EGM units on lease (whether on a participation or daily fee arrangement) by (b) the number of EGM units installed over that period and by (c) the number of days in such period. |
• | Electronic Gaming Machines (EGM) : EGMs include but are not limited to slot machines, Class II machines, video poker and video lottery machines. |
• | Indian Gaming Regulatory Act of 1988 (IGRA) : IGRA is a federal act (25 U.S.C. §2701 et seq.) that regulates the conduct of gaming on Native American lands and establishes three classes of gaming markets with a separate regulatory scheme for each class – Class I Market, Class II Market and Class III Market. |
• | Johnson Act : The Johnson Act, as amended (15 U.S.C. § 1175), is a U.S. federal law that generally prohibits the manufacture, possession, use, sale, or transportation of any “gambling device” in Indian Country (as defined therein), the District of Columbia, and possessions of the United States. It also requires all persons manufacturing, using, selling, transporting, or providing for the use of others to register with the U.S. Department of Justice and certain disclosures when gambling devices are shipped. The Company registers annually with the U.S. Department of Justice as required under the Johnson Act. The IGRA includes an exception to the Johnson Act prohibition against gambling devices in Indian Country. |
• | M onthly Active Users (MAU) : MAU is a count of monthly unique visitors to a site. |
• | Progressive Bonusing Solution : A system whereby a player of a table game is able to make a wager that, when won, allows the player to spin a virtual wheel at the table for cash or experience based prizes. |
• | Real Money Gambling (RMG) : RMG involves gambling for real money. |
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• | Recurring Revenue : Recurring revenue includes revenues from (i) lease agreements (whereby we place EGMs, systems and table game products at a customer’s facility in return for either a share of the revenues that these products generate or a daily or monthly fee) and (ii) Interactive gaming operations. This amount is presented as “Gaming operations” on our statements of operations and comprehensive loss and our Consolidated Statement of Operations. |
• | Ship share : Ship share is the share of all slots sold in a specified period. |
• | Side-bets : Table game bets relating to a game within or related to the main card game that a player is permitted to wager on before the main game starts and may include cards from the player hand, dealer hand, or a combination thereof. |
• | Social Remote Gaming Server (Social RGS) : Social RGS is a type of remote gaming server which provides our slot game content to casino customers using either casino customer or third party solutions. |
• | Social White-Label-Casino (Social WLC) : Social WLC is a turn-key, free-to-play mobile app, which can incorporate a casino customer’s brand and style. Social WLC has meta game features and promotional capabilities. |
• | Table Products Installed Base : Table Products Installed Base is the number of table products installed on a specified date. |
• | TAM : Total addressable markets are markets in which we are currently licensed, or could be licensed with minimal effort, to place EGMs in the United States and Canada. |
• | TDM : Total US and Canadian EGM markets. |
• | Win per Day (WPD) : WPD is the total revenue generated by an EGM per day. |
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The following summary contains selected information about us and about this offering. It does not contain all of the information that is important to you and your investment decision. Before you make an investment decision, you should review this prospectus in its entirety, including matters set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The twelve month period ended September 30, 2017, is referred to as the “LTM period” in the following summary. Some of the statements in the following summary constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” Except as stated otherwise herein, the share data set forth in this prospectus reflects the reclassification of our capital stock as described below under “—The Reclassification.”
COMPANY OVERVIEW
We are a leading designer and supplier of electronic gaming machines (“EGMs”) and other products and services for the gaming industry. Founded in 2005, we historically focused on supplying EGMs, including slot machines, video bingo machines, and other electronic gaming devices, to the Native American gaming market, where we maintain an approximately 20% market share of all Class II EGMs. Since 2014, we have expanded our product line-up to include: (i) Class III EGMs for commercial and Native American casinos, (ii) table game products and (iii) interactive products, all of which we believe provide us with growth opportunities as we expand in markets where we currently have limited or no presence. Our expansion into Class III and ancillary product offerings has driven our strong growth and momentum in revenue, EGM adjusted EBITDA and our installed base, which have increased by 173%, 158% and 152%, respectively, since 2014. For the LTM period, approximately 83% of our total revenue was generated from recurring contracted lease agreements whereby we place EGMs and table game products at our customers’ gaming facilities under either a revenue sharing agreement (we receive a percentage of the revenues that these products generate) or fee-per-day agreement (we receive a daily or monthly fixed fee per EGM or table game product), or from recurring revenue generated by our Interactive gaming operations. We operate our business in three distinct segments: EGMs, Table Products (“Table Products”) and Interactive Social Casino Games (“Interactive”).
Electronic Gaming Machines
EGM is our largest segment, representing 94% of our revenue for the LTM period, which currently comes predominantly from Class II sources. We have a library of nearly 300 proprietary game titles that we deliver on several state-of-the-art EGM cabinets, including ICON (our core cabinet), Orion (our newly-introduced premium cabinet), and Big Red/Colossal Diamonds (our specialty large-format cabinet). We also have developed a new Latin-style bingo cabinet called ALORA, which we plan to use in select international markets, including the Philippines and Brazil. Our game titles are developed in-house and include a number of award-winning titles, including Golden Wins, Jade Wins, Buffalo Jackpots, Longhorn Jackpots, Colossal Diamonds and Fu Nan Fu Nu, as well as legacy titles with long-lasting playability that continue to appeal to players, such as Royal Reels and the So Hot family of games. We have released more than 40 new titles during the LTM period and we have over 50 titles set to launch.
Our cabinets and game titles are among the top performing premium leased games in the industry, demonstrated by Colossal Diamonds’ consistent ranking as a top-ten premium leased game, including as a top-five premium leased game in the third quarter of 2017, and consistently achieving win per day 2.0 times higher than the house average according to Eilers & Krejcik. In addition, according to Eilers & Krejcik, our premium leased games outperform most of the EGMs manufactured by our competitors, generating win per day
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that is 2.7 times higher than the average of all of the gaming machines in the casinos where we have our EGMs placed. Additionally, our Orion product has received positive recognition within the industry, including winning silver at the 2017 Global Gaming Business Annual Gaming & Technology Awards .
We have increased our installed base of EGMs every year from 2005 through the LTM period, and as of September 30, 2017, our total EGM footprint comprised 22,015 units (14,544 domestic and 7,471 international). We remain highly focused on continuing to expand our installed base of leased EGMs in markets that we currently serve as well as new jurisdictions where we do not presently have any EGMs installed. Since our founding, we have made significant progress in expanding the number of markets where we are licensed to sell or lease our EGMs. In 2005, we were licensed in three states (5 total licenses). Currently, we are licensed in 33 U.S. states and two foreign countries (253 total licenses). As of September 30, 2017, our installed base represented only approximately 2% of the total addressable market of approximately 980,000 EGMs installed throughout the United States and Canada. According to Eilers & Krejcik, U.S. casino operators expect to allocate approximately 5.5% of their 2018 EGM purchases to AGS products, which would result in ship share more than three times higher than our ship share in 2016. We believe we are positioned to gain significant ship share over the next several years.
We offer our customers the option of either leasing or purchasing our EGMs and associated gaming systems. Currently, we derive substantially all of our EGM revenues from EGMs installed under revenue sharing or fee-per-day lease agreements, also known as “participation” agreements, and we refer to such revenue generation as our “participation model”. As we expand into new gaming markets and roll out our new and proprietary cabinets and titles, we expect the sales of gaming machines and systems will play an increasingly important role in our business and will complement our core participation model.
Table Products
In addition to our portfolio of EGMs, we also offer our customers more than 25 unique table product offerings, including live felt table games, side bet offerings, progressives, signage and other ancillary table game equipment. Our table products are designed with the goal of enhancing the table games section of the casino floor (commonly known as “the pit”). Over the past 10 years, there has been a trend of introducing side-bets on blackjack tables to increase the game’s overall hold. Our Table Products segment offers a full suite of side-bets and specialty table games that capitalize on this trend, and we believe that this segment will serve as an important growth engine for our company, including by generating further cross-selling opportunities with our EGM offerings. As of September 30, 2017, we had placed 2,350 table products domestically and internationally and we believe we are presently a leading supplier of table products to the gaming industry based on number of products placed.
Our Table Products segment focuses on high margin recurring revenue generated by leases. Nearly all of the revenue we generate in this segment is recurring. We have acquired several proprietary table games and side-bets and developed others in-house. Our portfolio of table game products includes In-Bet, Buster Blackjack and Criss Cross Poker, all of which provide betting options that we believe enhance player excitement. Our table equipment offerings, including our single-deck card shuffler, Dex S, as well as our baccarat signage solution and our roulette readerboard, act as complementary offerings to our table games. We also offer a progressive bonusing solution for casino operators through Bonus Spin, which is a customizable virtual prize wheel that allows players to win an incremental jackpot of various cash prizes. Bonus Spin was recognized at the 2016 Casino Journal ’ s Annual Top 20 Most Innovative Gaming & Technology Product Awards. We believe that shufflers and progressive bonusing on table games is a category that provides us with substantial growth opportunities.
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Interactive Social Casino Games
We operate both business-to-consumer (B2C) social gaming interactive casino products and also provide business-to-business (B2B) social gaming interactive casino products. Our B2C social casino games include online versions of our popular EGM titles and are accessible to players worldwide on multiple mobile platforms, which we believe establishes brand recognition and cross-selling opportunities. Although free to play, our social games generate recurring revenue through the in-game sale of virtual goods and currency. We have recently expanded into the B2B space through our core app, Lucky Play Casino, whereby we white label our social game product and enable our land-based casino customers to brand the social gaming product with their own casino name. As of September 30, 2017, our combined B2C offerings reached approximately 38,000 daily active users (“DAU”) and we have had approximately 3.8 million lifetime installations of our social casino app.
Despite the expansion of our company and the diversification of our products, we continue to face significant competition across all segments. Many of our competitors have substantially greater financial resources and/or experience than we do, and may provide customers with greater amount of financing or better terms than we do. Our substantial indebtedness, coupled with our history of operating losses, may impede us from becoming profitable in the near future. Additionally, following this offering we will be a “controlled company” and will elect not to comply with certain corporate governance requirements. For more details on the risks and challenges we face, see “—Risk Factors” and “Risk Factors.” Our management team remains focused on assessing the effects that these risks and challenges may have on the operation of our company.
OUR INDUSTRY
We operate primarily in the North American gaming market, which includes U.S. commercial casinos, Native American casinos, Canadian casinos, video lottery terminals (“VLT”) and Mexican casinos. According to Eilers & Krejcik, as of June 30, 2017, there were approximately 980,000 EGMs installed throughout the United States and Canada and 120,000 EGMs in Mexico. Eilers & Krejcik estimates moderate growth in the U.S. and Canadian EGM installed base through 2019. In the United States, Native American casinos represent a significant portion of the EGM market, with over 360,000 Class II and Class III EGMs, and have historically been our main area of focus.
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Industry ship share
Consolidation across the gaming equipment industry over the last four years has resulted in the creation of the “Big-4” gaming suppliers, which we consider to be International Game Technology PLC (“IGT”), Scientific Games Corporation (“Scientific Games”), Konami Co. Ltd. (“Konami”) and Aristocrat Technologies Inc. (“Aristocrat”). We believe that many casino operators prefer to diversify their gaming floor mix rather than purchasing their EGMs only from the Big-4 suppliers. As evidenced in the graphs below, the ship share for Non-Big-4 suppliers has continued to grow over the past several years. According to Eilers & Krejcik, Non-Big-4 suppliers captured 24% ship share for all EGMs sold in the third quarter of 2017, of which AGS represented greater than 5% of the total purchases.
Source: Eilers & Krejcik Q3 2017 Slot Survey.
With respect to table games, we believe specialty table games have grown from approximately 1% of table games in the U.S. and Canadian casinos in 1997 to approximately 15% today. We expect this trend in table games to continue, and AGS has positioned itself to capture this growth through new offerings and titles.
Class II Market—Native American
Native American gaming is regulated under the IGRA, which classifies legalized gaming into three categories: Class I, Class II, and Class III. Class I gaming includes traditional Native American social and ceremonial games and is regulated exclusively at the Native American tribe level. We do not compete in the Class I industry. Class II gaming includes EGMs that utilize bingo, electronic aids to bingo, and, if played at the same location where bingo is offered, pull-tabs and other games similar to bingo. Class II gaming machines can be operated in states that permit bingo-style gaming without any agreement with the state and without any revenue sharing with the state, whereas Class III gaming requires Native American tribes to enter into a compact with the state in which their casino is located, which typically includes revenue sharing with the state. Class II games are an attractive option for Native American tribes because: (i) revenue generated from Class II gaming is not subject to revenue sharing or taxes, (ii) there are no limits on the number of Class II gaming machines that may be operated in any one facility; and (iii) a strong Class II alternative improves a tribe’s leverage when negotiating its Class III compact with the state.
As of September 30, 2017, the Native American Class II market consisted of approximately 60,000 EGMs, with AGS products representing over 16% of that market with approximately 10,000 recurring Class II EGMs placed in approximately 150 gaming facilities across 18 states. According to Eilers & Krejcik, the Class II market is expected to grow its installed base by approximately 2% over the next three years in the United States. Given the relatively small market size of the Class II market relative to the broader U.S. gaming market, the Class II market has historically not garnered the attention of larger gaming equipment manufacturers. We have been able to maintain our market share by partnering with our tribal customers to continually develop high-
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quality Class II titles that optimize the revenue generated at their casinos. The Class II market is highly relationship-based and we feel confident that we can maintain our current market position given the tenure and strength of our customer relationships.
Class III / Commercial U.S. and Canadian Markets
Class III machines can be found in commercial casinos and in Native American casinos that have entered into a state compact that permits a specified number of Class III machines. Currently, there are approximately 1,000 casinos throughout the U.S. and Canada with approximately 980,000 total EGMs. Excluding approximately 135,000 EGMs under route operations and approximately 60,000 Class II EGMs, there are 785,000 Class III EGMs throughout the U.S. and Canada, of which approximately 415,000 are in commercial casinos and approximately 370,000 are in tribal casinos. Eilers & Krejcik predict that the installed base of Class III/commercial game EGMs in the U.S. and Canada will grow by approximately 2%, or 16,000 units, over the next three years. In 2016, the number of installed Class III EGMs increased in 18 of the 24 states with legalized commercial gaming. While the specific drivers of this growth differ from market-to-market, the nationwide growth trend can be attributed to stronger consumer confidence, lower levels of unemployment and more available disposable income. As of September 30, 2017, we had placed only 4,000 recurring Class III units (1,200 of which were video lottery terminals) in over 300 casinos, which represents less than 1% of the total number of EGMs placed in the U.S. and Canadian Class III and commercial gaming markets. Given our very low penetration in Class III Native American and commercial casinos, these markets present a significant growth opportunity.
Mexico
With the acquisition of Cadillac Jack in 2015, we acquired a strong foothold in the Mexican gaming market. According to Eilers & Krejcik, the Mexican market consists of approximately 120,000 EGMs, and our approximately 7,400 units, located in nearly 200 gaming facilities, represent just over 5% of the total market. Revenue generated by our EGMs in Mexico represented about 12% of our total revenue in the LTM period, and we have consistently been growing our installed base in the region.
COMPETITIVE STRENGTHS
We have grown our revenue, adjusted EBITDA and installed base by consistently adding unique and differentiated products to offer to our players and casino operators while maintaining a consistent focus on customer service. In addition, we have a track record of completing and integrating acquisitions, expanding our product lines, and developing new content and gaming products to meet the needs of our customers. We believe that this track record differentiates us from our competition and, along with the following competitive strengths, has enabled us to become a leading designer and supplier of gaming equipment and services.
High-Margin , Recurring Revenue Model with Attractive Payback Periods on Newly Deployed Capital
Approximately 83% of our revenue in the LTM period was derived from products that we leased to our customers and recurring revenue from our Interactive gaming operations. This strong base of recurring, contracted, high-margin revenue generated a 56% EGM adjusted EBITDA margin, which reflects the strong performance and longevity of our game titles and long-term relationships with our key customers. The cash flow generated from our recurring revenue sources has provided us with a stable source of capital to grow our footprint both domestically and internationally. Given the high-margin, recurring-revenue nature of our new EGMs, we benefit from payback periods on our leased units of only approximately 12 months for our core units and approximately 8 months for our premium units.
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Best-in-Class R&D Teams that Produce Industry-Leading Products
Our R&D teams have demonstrated industry leadership by creating several top-performing titles and innovative hardware designs, such as our newly-introduced premium cabinet, Orion Slant, which features a unique slanted top that has a more comfortable ergonomic design for players. The innovative nature of our products has, in part, led to over half of our customer base electing to purchase at least one of our recently-released ICON or Orion cabinets. As reflected in the charts below, our casino-owned EGMs outperform those from all other suppliers, generating win per day 1.8 times higher than the house average. Our premium leased games were the second-best across the industry, delivering win per day that was 2.7 times higher than the average of the casino floors (up from 2.0 times higher in the previous quarter) where our machines are placed.
Premium Leased Game Performance—Domestic (1) | Casino Owned Game Performance—Domestic (1) | |
Source: Eilers & Krejcik Q3 2017 Slot Survey.
(1) | Domestic Class II and Class III performance per Eilers - Fantini Q3 2017 Quarterly Slot. |
In addition to the performance of the machines, we believe our products contribute to high levels of customer satisfaction as evidenced by our strong trial unit conversion metrics. For the LTM period, 99% of customer trial units resulted in conversion to a lease or sale. Additionally, our share of top performing casino-owned games improved to 3.0% in the third quarter of 2017 from 1.8% in the prior quarter, according to Eilers & Krejcik. The success of our products has led to several awards recognizing the excellence of our products in 2017, as voted by customers and industry experts, including a silver award at the Global Gaming Business Annual Gaming & Technology Awards for our new premium Orion product, and recognition at Casino Journal ’ s Annual Top 20 Most Innovative Gaming & Technology Product Awards for both Orion and our Bonus Spin table product.
Focus on the “Core Gambler” to Drive Profitability for Our Customers
We create slot machine titles predominantly for the “core gambler” (sometimes referred to as a “local player”), who we believe comprises 20% of the slot player demographic, but approximately 80% of the slot industry profits. The core gambler is an actively-engaged slot player, who typically gambles more frequently than a tourist visiting a destination market such as Las Vegas, and we believe this type of player represents an underserved, but highly-profitable demographic. Based on our internal research, we believe core gamblers visit casinos with high frequency and demonstrate strong loyalty to specific gaming titles. We design many of our games to appeal to this player base by creating high-volatility games that keep players invested and engaged during their gaming experience. We focus on building games that encourage players to spend more time on our devices and are designed to ensure the player has fun by providing various bonus triggers and multiple ways to win within the game. We believe that
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this strategic focus gives us a competitive edge because we are not distracted by spending a substantial amount of time, resources or development dollars to acquire expensive licenses and brands with limited shelf life for less frequent or less profitable gambler subsets.
Broad and Diverse Product Portfolio
We offer a wide variety of content and technology with hundreds of titles, and we aim to be a “one-stop shop” for our customers. We have recently expanded our EGM cabinet offerings to include cutting-edge premium products, such as Orion (introduced in May 2017), and unique formats that stand out on the casino floor, such as Big Red (introduced in September 2014). For table products, we have diversified content for poker, blackjack and roulette derivatives, as well as bonusing enhancements that offer new and exciting gaming experiences. Our table products also include a variety of ancillary equipment designed to create greater efficiency for our customers, such as our new Dex S single-deck shuffler. We strategically pursue acquisitions and utilize our broad, customer-focused distribution network to enhance our content, titles and overall installed base. An example of our strategy’s success was the Buster Blackjack side bet offering, in which we have increased our installed footprint by nearly four times since the acquisition. We will also continue to partner strategically with select developers to bring innovative and new product concepts to our customers by leveraging our distribution network as we have recently done with Alfastreet’s Royal Derby offering. Within our interactive segment, our B2C social games include online versions of our popular EGM game titles and are accessible to players worldwide on multiple mobile platforms, which we believe leads to establishing brand recognition and cross selling opportunities.
Unique and Value-Enhancing Culture that Attracts Top Talent
Our corporate culture is based on the core concepts of passion, performance and teamwork, which allows us to be nimble and flexible in our strategy and execution. We strive to cultivate a culture where employees care about our business and the specific work that they do, where they feel strongly that AGS is not just a place to work but is also a community. This philosophy starts in the recruiting process and continues with every business, social and cultural activity at AGS. The result is a unique culture that we believe sets us apart from other companies in our space and has been critical to our successful recruitment and retention of top talent. Because we offer a rewarding work environment and many employee-friendly benefits and perks that are not standard in the gaming industry, we believe AGS is known as a fun and open place to work. Through, among others, numerous wellness initiatives, benefits such as hands-on community volunteering activities, various events promoting team spirit, and frequent and direct executive-to-employee communication, we believe we have gained the reputation of being a top employer in the gaming industry. Our company has received numerous awards highlighting our culture of employee wellness, including being named one of Atlanta’s Best and Brightest Companies to Work For 2017 . As we grow and expand our business, we believe that our employee-centric culture will continue to attract high-caliber talent that will further enhance our team.
Experienced Management Team with a Strong Track Record of Execution
Our management team has significant experience in the gaming supply industry and has significant expertise in developing new products to serve our core customers and expand geographically. Our senior management team draws from prior work experience at SHFL entertainment, Inc., Bally Technologies, Konami, Global Cash Access and Scientific Games. Over the past three years, we have substantially upgraded much of the senior leadership team, which has nearly 100 years of combined experience in the gaming supply industry. In particular, we have enhanced our senior leadership team with the appointment of David Lopez as our CEO in 2014. David has over 20 years of industry experience, and was the former CEO of Global Cash Access and COO of SHFL entertainment, Inc. Under his leadership, we have substantially upgraded the senior leadership team with the additional appointment of Sigmund Lee as CTO (former CTO of Cadillac Jack and VP of Engineering at Bally
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Technologies, with over 15 years of industry experience). We believe our team is well-positioned to continue to deliver superior and highly-memorable gaming experiences, while executing on a substantial expansion in domestic and international markets.
Proven Ability to Successfully Integrate Acquisitions and Scale Our Platform
We have a strong track record of acquiring and integrating businesses with limited disruption to our core business. Over the past three years, we have effectively integrated over 20 acquisitions. The acquisition of Cadillac Jack demonstrated our ability to realize both cost and revenue synergies and, as a result of efficiently integrating two complementary businesses, to deliver strong financial results in 2016. We believe that our proven track record is the result of our ability to successfully identify businesses with products and cultures that are complementary to AGS.
Even though we face significant competition across all segments from companies with greater financial resources and experience, we believe that our competitive strengths differentiate us from such competitors and provide a foundation for our future position in the gaming industry.
GROWTH STRATEGIES
Build Momentum and Penetrate Class III and Commercial Jurisdictions
Expansion in Class III and commercial gaming jurisdictions represents a significant growth opportunity for us as there are many jurisdictions where we have only recently been licensed or allowed, including Indiana (2015), New Mexico (2017), Nevada (2014), Connecticut (2014), Iowa (2017), Mississippi (2015) and Louisiana (2017). Our third quarter 2017 ship share in many of these recently-licensed markets has been strong, with Indiana at 9%, Iowa at 10%, New Mexico at 9%, Nevada at 5%, Mississippi at 15% and Louisiana at 29%. We also have the opportunity to enter many of the large commercial gaming markets in the U.S. where we currently have no presence, including Colorado, Ohio and Pennsylvania and new gaming markets such as Massachusetts. These new markets provide us with a tremendous opportunity to expand our recurring installed base. According to Eilers & Krejcik, the total EGM market consists of 980,000 units. As of September 30, 2017, our total backlog of signed contracts for ICON and Orion EGMs represented approximately $10 million of EGM adjusted EBITDA (based on historic revenue per day, sales price and respective EGM adjusted EBITDA margins for Orion and ICON). We strategically allow our customers to purchase or lease our premium cabinets, whereas our competitors typically only lease (and will not sell) their premium products. We believe our willingness to sell our premium cabinets gives us a competitive advantage with our customers. As a result of our efforts, we have been able to attract a number of new customers over the past three years, including MGM, Caesars, Penn National Gaming and Las Vegas Sands.
Optimize Yield Across our Existing Footprint
We believe there is a significant opportunity to optimize the older EGMs in our existing installed base with newer, more profitable cabinets. By improving the performance of our installed base, we will generate incremental EGM adjusted EBITDA since our participation model enables us to share in the profitability of the EGMs that we place in our customers’ gaming facilities. We currently have an installed base of approximately 3,100 older cabinets that we believe, over time, can be upgraded with our newer cabinets to generate higher win per day. The typical refresh cycle for EGMs is approximately three years, which creates a natural, continuous driver of equipment sales and provides us with the ability to optimize our installed base by constantly refreshing it with newer cabinets. Over the past twelve months, we have optimized over 1,600 of our cabinets, which has led to approximately $4.5 million of incremental revenue, approximately 100% of which flows to EGM adjusted EBITDA.
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A specific example of this took place at the WinStar World Casino and Resort in Oklahoma, in which we optimized 28 underperforming legacy EGMs by replacing them with our new Orion cabinet, which resulted in a significant increase in incremental revenue. When annualized, the effect of this optimization results in an increase in incremental revenue of nearly $1.0 million. Another benefit of our yield optimization program is that we can take the older units from domestic casinos, refurbish them for approximately $1,500 and redeploy them in Mexico. These redeployed units broaden our international footprint and generate a high return on investment given the low cost to refurbish the units. Based on FY 2016 revenue per day and related refurbishment expenditure figures, we estimate that our return on investment for each refurbished unit that is leased into the Mexican market is 191%.
Expand Globally
We consider many factors when choosing to enter a new international market, including the size of the opportunity and the regulatory environment. Since 2015, we have implemented a renewed strategy in Mexico, which has improved our relationship with our customers and enabled us to grow our installed base to approximately 7,400 units in nearly 200 facilities, which represents over 5% of the market. As of September 30, 2017, we had 7,471 units placed in Mexico, which was up 8% from the 6,898 units that were installed at the end of 2016. These units currently generate approximately $8.40 of revenue per day and an EGM adjusted EBITDA margin of approximately 69%.
We intend to enter the Philippines market in early 2018, which we believe has a total market size of approximately 70,000 units. We are currently in the process of obtaining an operating license to enter this market, which we expect to obtain in the first quarter of 2018 and begin installing units on a recurring basis shortly thereafter. We intend to offer our new ALORA cabinet, which is based on Latin-style bingo, in this market and we estimate that we will be able to generate participation rates of 22-25% of win per day, which compares favorably to the 20% that we typically receive in other international markets. The Philippines market represents a significant untapped opportunity for us. We intend to establish a footprint of approximately 3,000 to 5,000 units over a three to five year period.
Additionally, over the past twelve months we have expanded our presence in Canada through EGM sales into that market and we recently introduced our table products content to the Australian gaming market. On the near-term horizon, we believe that certain parts of Asia and Europe present high-growth opportunities for our business given the types of gaming content that we create, which we believe resonates with players from both of these cultures.
We also believe there are several other markets, such as Brazil, that present a significant growth opportunity for us. Over the past several months, the Brazilian legislature has put forth key legislation to legalize regulated gaming. We have implemented a comprehensive strategy to enter the Brazilian market and we have already executed memoranda of understanding (“MOU”) with nine potential gaming operators to place approximately 8,700 EGMs in Brazil as soon as the country legalizes gaming. Upon the legalization of regulated gaming in Brazil, we intend to establish a footprint of approximately 8,000 to 10,000 units over a three to five year period.
Further Expand Our Class II Market Leadership and Continue Growth of our Recurring Revenue Base
We believe that our existing core Class II product offering is among the strongest in the industry and we are committed to growing our existing Class II installed base. Currently, we believe we are the second largest supplier of Class II games in the United States. We expect to continue gaining market share in our existing Class II jurisdictions as we introduce more games and new hardware, and we also intend to enter new Class II jurisdictions (we have acquired 68 new Class II licenses in the past three years). There is a sizable Native American casino scheduled to open in the first quarter of 2018 and our Class II placements at this property should add another 200 games to our installed base. We believe that the unique advantages
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offered by Class II gaming will result in Native American operators continuing to grow the number of Class II units that they have in their casinos. Given our existing leadership in the Class II market, we feel that we are very well-positioned to capture our share of this continued growth in Class II.
Focus on Innovation & New Product Verticals for the Next Generation of Casino Players
In 2014, we began developing table products through the acquisitions of War Blackjack and other related intellectual property with the objective of diversifying our product portfolio to include gaming experiences for a different gaming consumer profile. The extension of our business into table products, as well as our entry into the interactive social casino space, demonstrates our commitment to evolving our business to adapt to the preferences of the next-generation gambler. As of September 30, 2017, we had 2,350 table products leased to our customers. We plan to continue expanding our table products offerings through acquisitions and internal development and have high expectations for our newly launched Bonus Spin progressive technology and Dex S single-deck shuffler. We continue to convert our proven land-based casino content into online and mobile formats for social gaming. Our popular land-based slot machine games, such as Golden Wins, Jade Wins, Buffalo Jackpots and Firebull to name a few, have been among the strongest performers in our social casino game catalog. In addition to new game titles, we continue to explore other areas of growth for our Interactive segment including continued expansion of our newly launched B2B Social White Label Casino. The key benefit of our platform is that it has been battle-tested in the highly competitive social casino market, and is able to support casinos’ player-engagement initiatives, with powerful brand extension, communications, promotions, and monetization features. We believe in the potential of our powerful back end Customer Relationship Management (CRM) capabilities, our player segmentation platform, and our ability to customize and brand the product to meet each property’s unique requirements. We also believe that there are opportunities to offer real money gaming and other complementary products in certain markets in the future.
While the execution of our growth strategies may be delayed or prevented by significant factors that are beyond our control, see “—Risk Factors” and “Risk Factors,” our management team remains focused on identifying such factors and preventing their impact on our company through a commitment to product and customer expansion and diversification.
RECENT DEVELOPMENTS
Acquisition of Rocket Assets
On December 6, 2017, we acquired an installed base of approximately 1,600 networked Class II slot machines, together with related intellectual property, which were operated by Rocket Gaming Systems (“Rocket”), for $57 million. The acquired Class II slot machines are located across the United States, with significant presence in key markets such as California, Oklahoma, Montana, Washington and Texas. This all-cash asset purchase expanded our already extensive Class II footprint and positions us for further growth in the Class II market.
With the newly acquired assets, our installed base of recurring revenue slot machines grew to approximately 23,600 units. The Class II portfolio from Rocket includes wide-area progressive and standalone video and spinning-reel games and platforms, including Galaxy, Northstar and the player-favorite Gold Series , a suite of games that feature a $1 million-plus progressive prize and is the longest-standing million dollar wide-area progressive on tribal casino floors.
The acquisition of the Rocket assets enables us to increase our presence at many top performing Class II customers, such as the Chickasaw Nation. We expect to upgrade all Rocket games to AGS games over a
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five-year period. The transaction is immediately accretive to our earnings and cash flow. For the last-twelve month period ended September 30, 2017, the acquired assets from Rocket had revenues of approximately $16 million.
On December 6, 2017, AP Gaming I, LLC, one of our subsidiaries and the borrower under the senior secured credit facilities, incurred $65.0 million of incremental term loans under its new senior secured credit facilities, the net proceeds of which were used to finance the acquisition from Rocket, to pay fees and expenses in connection therewith and for general corporate purposes. The incremental term loans have the same terms as the Company’s term loans and will generate approximately $4.5 million additional annual interest expense. See “Liquidity and Capital Resources—Indebtedness—Senior Secured Credit Facilities” and “Description of Material Indebtedness—Senior Secured Credit Facilities.”
Preliminary Estimated Financials Results for the Three Months Ended December 31, 2017
Our financial results for the three months ended December 31, 2017 are not yet complete and will not be available until after the completion of this offering. Accordingly, we are presenting below certain preliminary estimated unaudited financial results for the three months ended December 31, 2017. The unaudited estimated financial results set forth below are preliminary and subject to revision based upon the completion of our year-end financial closing processes as well as the related external audit of the results of operations for the fiscal year ended December 31, 2017. Our estimated results are forward-looking statements based solely on information available to us as of the date of this prospectus and may differ materially from actual results. The information presented herein should not be considered a substitute for the financial information to be filed with the SEC in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 once it becomes available. For additional information, see “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”.
Our preliminary estimated results contained in this prospectus have been prepared in good faith by, and are the responsibility of, management based upon our internal reporting for the three months ended December 31, 2017. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or performed any procedures with respect to the following preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.
For the three months ended December 31, 2017, we expect to generate unaudited total revenue between $ and $ , which represents an increase between $ and $ , or between % and %, from total revenues of $42.7 million for the three months ended December 31, 2016.
For the three months ended December 31, 2017, we expect to generate unaudited EGM adjusted EBITDA between $ and $ , which represents an increase between $ and $ , or between % and %, from EGM adjusted EBITDA of $23.0 million for the three months ended December 31, 2016.
For the three months ended December 31, 2017, we expect to have an unaudited EGM installed base of , which represents an increase of units from our installed base as of December 31, 2017.
For the three months ended December 31, 2017, we expect to generate unaudited Table Products adjusted EBITDA between $ and $ , which represents an increase between $ and $ , or between % and %, from Table Products adjusted EBITDA of $(0.3) million for the three months ended December 31, 2016.
For the three months ended December 31, 2017, we expect to generate unaudited Interactive adjusted EBITDA between $ and $ , which represents an increase between $ and $ , or between % and %, from Interactive adjusted EBITDA of $(0.7) million for the three months ended December 31, 2016.
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THE REINCORPORATION
On December 13, 2017, we changed our state of incorporation from Delaware to Nevada (the “Reincorporation”) . The Reincorporation was unanimously approved by our stockholders. The Reincorporation resulted in a change in our name from AP Gaming Holdco, Inc. to PlayAGS, Inc. The Reincorporation did not result in any change in our capitalization, management, headquarters, business, management, location of offices, assets, liabilities or net worth, other than as a result of the costs incident to the Reincorporation.
THE RECLASSIFICATION
In connection with this offering, and upon receipt of the requisite regulatory approvals, we intend to (i) reclassify PlayAGS’s existing non-voting common stock into a new class of voting common stock, which will be the class of stock investors will receive in this offering, and (ii) cancel the existing class of non-economic voting common stock that is currently held by AP Gaming VoteCo, LLC (“VoteCo”). Concurrently with this reclassification, which we expect to be completed immediately prior to the consummation of this offering, we intend to effect a for split of PlayAGS’s new voting common stock such that PlayAGS’s then existing stockholders, including Apollo Gaming Holdings, L.P. (“Holdings” and, together with Apollo Investment Fund VIII, L.P. and each of their respective affiliates (including, for avoidance of doubt, any syndication vehicles and excluding, for the avoidance of doubt, any portfolio companies of Apollo Management VIII, L.P. or its affiliates other than Holdings, VoteCo, the Company and their respective subsidiaries) to which any transfers of our common stock are made, and VoteCo to the extent that it has beneficial ownership of shares of our common stock pursuant to an irrevocable proxy to be entered into following the Reclassification, the “Apollo Group”) and members of management, will each receive shares of the new voting common stock described above in clause (i) for each share of non-voting common stock they hold at that time. We refer to the foregoing as the “Reclassification.”
OUR SPONSOR
In December 2013, we were acquired by the Apollo Group. Founded in 1990, Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, Houston, Bethesda, Chicago, St. Louis, Toronto, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong and Shanghai. Apollo had assets under management of approximately $242 billion as of September 30, 2017 in its affiliated private equity, credit and real estate funds invested across a core group of nine industries where Apollo has considerable knowledge and resources. Apollo has a successful track record of managing investments in the gaming, site-based entertainment, and leisure industries, including ClubCorp, Gala Coral (now part of Ladbrokes Coral Group), Great Wolf Resorts, Diamond Resorts, Vail Resorts, AMC Entertainment, Outerwall (parent of Coinstar and Redbox Automated Retail), Chuck-E Cheese, Wyndham International and Norwegian Cruise Lines.
Following the Reclassification, all shares held by Holdings, representing % of our outstanding common stock, will be subject to an irrevocable proxy that gives VoteCo, the members of which are comprised of individuals affiliated with Apollo, sole voting and sole dispositive power with respect to such shares.
An affiliate of our Sponsor, Apollo Global Securities, LLC, is acting as an underwriter in connection with this offering and will receive customary underwriting commissions and discounts in connection with the offering.
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RISK FACTORS
Participating in this offering involves substantial risk. Our ability to execute our strategy also is subject to certain risks. The risks described under the heading “Risk Factors” immediately following this summary may cause us not to realize the full benefits of our competitive strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges and risks we face include the following:
• | our history of operating losses and the uncertainty of achieving profitability in the future; |
• | changing regulations, new interpretations of existing laws and difficulties and delays in obtaining or maintaining required licenses or approvals; |
• | our ability to raise additional capital, fund operations, react to changes in the economy, or make debt service payments due to our substantial indebtedness; |
• | our ability to successfully offer, develop, enhance and/or introduce products that keep pace with evolving technology related to our business; |
• | our ability to protect our intellectual property and proprietary information and to license intellectual property from third parties; |
• | our ability to effectively compete with numerous domestic and foreign businesses across all our segments, some of which have substantially greater financial resources and/or experience than we do, and may provide customers with greater amount of financing or better terms than we do; and |
• | our inability to complete future acquisitions and integrate those businesses successfully into our future growth. |
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or “JOBS Act” enacted in April 2012. As an “emerging growth company,” we have elected to take advantage of specified reduced reporting and other requirements that are otherwise applicable to public companies. These provisions include, among other things:
• | exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting; |
• | exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; |
• | exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board (United States), requiring mandatory audit firm rotation or a supplement to our auditor’s report in which the auditor would be required to provide additional information about the audit and our financial statements; |
• | an exemption from the requirement to seek non-binding advisory votes on executive compensation and golden parachute arrangements; and |
• | reduced disclosure about executive compensation arrangements. |
We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an “emerging growth company.” We will cease to be an “emerging growth company” if we have $1.0 billion or more in “total annual gross revenues”
13
during our most recently completed fiscal year, if we become a “large accelerated filer” with a market capitalization of $700 million or more, or as of any date on which we have issued more than $1.0 billion in non-convertible debt over the three-year period to such date. We may choose to take advantage of some, but not all, of these reduced burdens. For example, we have taken advantage of the reduced reporting requirement with respect to disclosure regarding our executive compensation arrangements and expect to take advantage of the exemption from auditor attestation on the effectiveness of our internal control over financial reporting. For as long as we take advantage of the reduced reporting obligations, the information that we provide stockholders may be different from information provided by other public companies. We are irrevocably electing to “opt out” of the extended transition period relating to the exemption from new or revised financial accounting standards and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-”emerging growth companies.”
In addition, upon the closing of this offering, we will be a “controlled company” within the meaning of the corporate governance standards because more than 50% of our voting common stock will be beneficially owned by the Apollo Group. For further information on the implications of this distinction, see “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock” and “Management—Board Committees.”
CORPORATE INFORMATION
Our principal executive office is located at 5475 S. Decatur Blvd., Ste #100, Las Vegas, NV 89118, and our telephone number is (702) 722-6700. Our website address is www.playags.com. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and are not considered part of, this prospectus. You should not rely on our website or any such information in making your decision whether to purchase shares of our common stock.
14
The Offering
Issuer |
PlayAGS, Inc. |
Common stock offered by us |
shares (or shares, if the underwriters exercise in full their option to purchase additional shares as described below). |
Option to purchase additional shares |
We have granted the underwriters an option to purchase up to an additional shares. The underwriters may exercise this option at any time within 30 days from the date of this prospectus. See “Underwriting (Conflicts of Interest).” |
Common stock outstanding after giving effect to this offering |
shares (or shares if the underwriters exercise their option to purchase additional shares in full). |
Use of proceeds |
We estimate that our net proceeds from this offering will be approximately $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares in full), after deducting underwriting discounts and commissions, based on an assumed initial offering price of $ per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). |
We intend to use approximately $ million of the net proceeds of this offering to redeem in full the PIK notes. For a description of the PIK notes, see “Description of Material Indebtedness – PIK Notes.” |
The remaining net proceeds will be used to pay fees and expenses related to the offering, and for general corporate purposes.
Controlled company |
Upon completion of this offering, the Apollo Group will continue to beneficially own more than 50% of our outstanding common stock. As a result, we intend to avail ourselves of the “controlled company” exemptions under the rules of the New York Stock Exchange, including exemptions from certain of the corporate governance listing requirements. See “Management—Controlled Company.” |
Voting rights |
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. |
Dividend policy |
We do not currently intend to pay dividends on our common stock. We plan to retain any earnings for use in the operation of our business and to fund future growth. See “Dividend Policy.” |
Listing |
We have applied to list our common stock on the New York Stock Exchange under the symbol “AGS.” |
Risk Factors |
You should read the section titled “Risk Factors” beginning on page 23 of, and the other information included in, this prospectus for a discussion of some of the risks and uncertainties you should carefully consider before deciding to invest in our common stock. |
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Conflicts of interest |
Deutsche Bank AG, an affiliate of Deutsche Bank Securities Inc., one of the underwriters in this Offering, owns the aggregate outstanding principal amount of the PIK Notes and, therefore, will receive in excess of 5% of the net proceeds of this Offering, not including underwriting compensation. As a result, Deutsche Bank Securities Inc. is deemed to have a “conflict of interest” with us within the meaning of Rule 5121 of the Financial Industry Regulation Authority (“Rule 5121”). Therefore, this Offering will be conducted in accordance with Rule 5121, which requires that a qualified independent underwriter (“QIU”) as defined in Rule 5121 participate in the preparation of the registration statement of which this prospectus forms a part and perform its usual standard of due diligence with respect thereto. Credit Suisse Securities (USA) LLC has agreed to act as QIU for this Offering. Deutsche Bank Securities Inc. will not make sales to discretionary accounts without the prior written consent of the account holder. We have agreed to indemnify against certain liabilities incurred in connection with acting as QIU for this Offering, including liabilities under the Securities Act or contribute to payments that the underwriters may be required to make in that respect. In addition, Apollo Global Securities, LLC, an underwriter of this Offering, is an affiliate of Apollo, our controlling stockholder. Since Apollo beneficially owns more than 10% of our outstanding common stock, a “conflict of interest” is deemed to exist under Rule 5121(f)(5)(B) of the Financial Industry Regulation Authority. Accordingly, this Offering will be made in compliance with the application provisions of Rule 5121. The appointment of a QIU is not required in connection with the “conflict of interest” with respect to Apollo Global Securities, LLC, as Apollo Global Securities, LLC is not one of the members primarily responsible for managing the Offering. Apollo Global Securities, LLC will not make sales to discretionary accounts with the prior written consent of the account holder. See “Underwriting (Conflicts of Interest)”. |
Directed Share Program |
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 3% of the common stock offered by this prospectus for sale to our directors, director nominees, officers and certain of our employees and other persons associated with us. The sales will be made by , an underwriter of this offering, through a Directed Share Program. If these persons purchase common stock it will reduce the number of shares of common stock available for sale to the general public. Any reserved shares of common stock that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock offered by this prospectus. |
The number of shares of our common stock to be outstanding immediately after the closing of this offering is based on shares of common stock outstanding as of September 30, 2017 and, except as otherwise indicated, all information in this prospectus:
• | assumes the Reclassification has been consummated; |
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• | assumes an initial public offering price of $ per share of common stock, the midpoint of the price range on the cover of this prospectus; |
• | assumes no exercise of the underwriters’ option to purchase additional shares of common stock in this offering; and |
• | does not reflect an additional shares of our common stock reserved for future grant under our new equity incentive plan, which we expect to adopt in connection with this offering. |
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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA
The following tables present our summary consolidated financial and other data as of and for the periods indicated.
The summary consolidated statements of operations data for the fiscal years ended December 31, 2014, 2015, and 2016, and the summary consolidated balance sheet data as of December 31, 2015 and 2016 are derived from our annual consolidated financial statements included elsewhere in this prospectus. The data for the nine months ended September 30, 2016 and 2017 and the balance sheet for September 30, 2017 has been derived from unaudited financial statements also appearing herein and which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. The summary consolidated statements of operations data for the last twelve months ended September 30, 2017 have been derived by deducting the unaudited consolidated statement of operations data for the nine months ended September 30, 2016 from the audited statement of operations data for the year ended December 31, 2016, and then adding thereto the unaudited consolidated statement of operations data for the nine months ended September 30, 2017. Our historical results are not necessarily indicative of the results that should be expected in any future period.
The summary historical financial data presented below does not purport to project our financial position or results of operations for any future date or period and should be read together with “Selected Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.
Year Ended
December 31, |
Nine Months Ended
September 30, |
LTM
September 30, 2017 |
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(in thousands) | 2014 | 2015 | 2016 | 2016 | 2017 | |||||||||||||||||||
Consolidated Statement of Operations Data: |
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Revenues |
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EGM gaming operations |
$ | 68,869 | $ | 113,496 | $ | 144,510 | $ | 109,214 | $ | 116,587 | $ | 151,883 | ||||||||||||
EGM equipment sales |
3,159 | 6,121 | 11,897 | 6,939 | 29,160 | 34,118 | ||||||||||||||||||
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EGM revenues (1) |
72,028 | 119,617 | 156,407 | 116,153 | 145,747 | 186,001 | ||||||||||||||||||
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Table products revenues |
112 | 1,672 | 2,674 | 2,005 | 2,442 | 3,111 | ||||||||||||||||||
Interactive revenues |
— | 2,003 | 7,725 | 5,903 | 6,105 | 7,927 | ||||||||||||||||||
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Total revenues |
72,140 | 123,292 | 166,806 | 124,061 | 154,294 | 197,039 | ||||||||||||||||||
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Operating expenses |
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Cost of gaming operations (2) |
14,169 | 23,291 | 26,736 | 19,627 | 21,794 | 28,903 | ||||||||||||||||||
Cost of equipment sales (2) |
1,607 | 1,548 | 6,237 | 4,244 | 14,326 | 16,319 | ||||||||||||||||||
Selling, general and administrative |
19,456 | 40,088 | 46,108 | 36,654 | 30,368 | 39,822 | ||||||||||||||||||
Research and development |
4,856 | 14,376 | 21,346 | 16,517 | 17,912 | 22,741 | ||||||||||||||||||
Write downs and other charges |
7,068 | 11,766 | 3,262 | 2,153 | 2,655 | 3,764 | ||||||||||||||||||
Depreciation and amortization |
33,405 | 61,662 | 80,181 | 60,527 | 53,598 | 73,252 | ||||||||||||||||||
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Total operating expenses |
80,561 | 152,731 | 183,870 | 139,722 | 140,653 | 184,801 | ||||||||||||||||||
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(Loss) income from operations |
(8,421 | ) | (29,439 | ) | (17,064 | ) | (15,661 | ) | 13,641 | 12,238 | ||||||||||||||
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(1) | Total EGM revenues include the results from Cadillac Jack since the acquisition on May 29, 2015. If the revenue from the Company and Cadillac Jack were combined for all periods presented the combined EGM revenues of the Company and Cadillac Jack would have been $159,157, $152,950, and $156,407 for the years ended December 31, 2014, 2015, and 2016, respectively. |
(2) | Exclusive of depreciation and amortization. |
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Year Ended December 31, |
Nine Months Ended
September 30, |
LTM
September 30, 2017 |
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(in thousands, except for percentages and
operational and other data) |
2014 | 2015 | 2016 | 2016 | 2017 | |||||||||||||||||||
Consolidated Balance Sheet Data (end of period): |
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Total assets |
$ | 256,152 | $ | 711,147 | $ | 634,092 | $ | 648,469 | $ | 639,761 | $ | 639,761 | ||||||||||||
Total liabilities |
192,396 | 610,610 | 617,664 | 611,209 | 659,212 | 659,212 | ||||||||||||||||||
Total stockholders’ equity/member’s deficit |
63,756 | 100,537 | 16,428 | 37,260 | (19,451 | ) | (19,451 | ) | ||||||||||||||||
Net Debt (1) |
$ | 161,012 | $ | 526,513 | $ | 554,386 | $ | 543,049 | $ | 586,611 | $ | 586,611 | ||||||||||||
Other Financial Data: (2) |
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EGM adjusted EBITDA |
$ | 40,552 | $ | 66,267 | $ | 91,729 | $ | 68,704 | $ | 81,450 | $ | 104,475 | ||||||||||||
Interactive adjusted EBITDA |
— | (2,518 | ) | (4,727 | ) | (4,071 | ) | (337 | ) | (993 | ) | |||||||||||||
Table products adjusted EBITDA |
(343 | ) | (1,402 | ) | (1,663 | ) | (1,395 | ) | (721 | ) | (989 | ) | ||||||||||||
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Total adjusted EBITDA (3) |
$ | 40,209 | $ | 62,347 | $ | 85,339 | $ | 63,238 | $ | 80,392 | $ | 102,493 | ||||||||||||
EGM adjusted EBITDA margin % (4) |
56 | % | 55 | % | 59 | % | 59 | % | 56 | % | 56 | % | ||||||||||||
Table products adjusted EBITDA margin % (4)(5) |
n/m | n/m | n/m | n/m | n/m | n/m | ||||||||||||||||||
Interactive adjusted EBITDA % (4)(5) |
n/a | n/m | n/m | n/m | n/m | n/m | ||||||||||||||||||
Total adjusted EBITDA margin % (6) |
56 | % | 51 | % | 51 | % | 51 | % | 52 | % | 52 | % | ||||||||||||
Operational and Other Data: |
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EGM segment |
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Domestic installed base units |
8,735 | 13,139 | 13,953 | 13,651 | 14,544 | 14,544 | ||||||||||||||||||
International installed base units |
— | 6,112 | 6,898 | 6,457 | 7,471 | 7,471 | ||||||||||||||||||
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Total installed base units |
8,735 | 19,251 | 20,851 | 20,108 | 22,015 | 22,015 | ||||||||||||||||||
Domestic revenue per day |
$ | 21.23 | $ | 24.33 | $ | 24.74 | $ | 25.19 | $ | 25.73 | $ | 25.16 | ||||||||||||
International revenue per day |
— | 9.83 | 9.23 | 9.50 | 8.37 | 8.40 | ||||||||||||||||||
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Total revenue per day |
$ | 21.23 | $ | 20.93 | $ | 19.78 | $ | 20.20 | $ | 19.86 | $ | 19.55 | ||||||||||||
EGM units sold |
255 | 203 | 465 | 205 | 1,868 | 2,128 | ||||||||||||||||||
Average sales price |
$ | 9,497 | $ | 16,498 | $ | 14,897 | 14,630 | 15,835 | 15,746 | |||||||||||||||
Table products segment |
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Table products install base, end of period |
387 | 815 | 1,500 | 1,205 | 2,350 | 2,350 | ||||||||||||||||||
Average monthly lease price |
$ | 24 | $ | 171 | $ | 149 | $ | 185 | $ | 111 | $ | 135 | ||||||||||||
Interactive segment |
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Average MAU (7) |
N/A | 158,376 | 237,782 | 210,783 | 190,237 | 194,430 | ||||||||||||||||||
Average DAU (8) |
N/A | 29,768 | 45,909 | 41,809 | 37,544 | 38,280 | ||||||||||||||||||
ARPDAU (9) |
$ | N/A | $ | 0.35 | $ | 0.46 | $ | 0.48 | $ | 0.58 | $ | 0.56 |
(1) | Net debt is the sum of the principal amount of debt less cash and cash equivalents. |
(2) | For more detail regarding adjusted EBITDA and each of our segments, see “Management’s Discussion and Analysis—Segment Operating Results,” Note 15 to our audited financial statements contained elsewhere herein and Note 14 to our unaudited financial statements contained elsewhere herein. |
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(3) | Total adjusted EBITDA is a non-GAAP measure and is subject to the limitations described above in the section “Use of Non-GAAP Financial Information.” The following table presents a reconciliation of net loss to total adjusted EBITDA (which is consistent with or derived from reconciliations of adjusted EBITDA of each of our segments as set forth in Note 15 to our audited financial statements contained elsewhere herein and Note 14 to our unaudited financial statements contained elsewhere herein). |
Year ended December 31, |
Nine months ended
September 30, |
LTM
September 30, 2017 |
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2014 | 2015 | 2016 | 2016 | 2017 | ||||||||||||||||||||
Net loss |
$ | (28,376 | ) | $ | (38,545 | ) | $ | (81,374 | ) | $ | (61,140 | ) | $ | (36,586 | ) | $ | (56,820 | ) | ||||||
Income tax expense (benefit) |
2,189 | (36,089 | ) | (3,000 | ) | (4,935 | ) | 4,603 | 6,538 | |||||||||||||||
Depreciation and amortization |
33,405 | 61,662 | 80,181 | 60,527 | 53,598 | 73,252 | ||||||||||||||||||
Write downs and other: |
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Loss on disposal of long lived assets |
1,937 | 1,275 | 978 | 558 | 3,000 | 3,420 | ||||||||||||||||||
Impairment of long lived assets |
2,327 | 4,993 | 5,295 | 4,606 | 285 | 974 | ||||||||||||||||||
Fair value adjustments to contingent consideration and other items |
— | (2,667 | ) | (3,000 | ) | (3,000 | ) | (630 | ) | (630 | ) | |||||||||||||
Acquisition costs |
2,804 | 8,165 | (11 | ) | (11 | ) | — | — | ||||||||||||||||
Other expense (income) |
573 | 3,635 | 7,404 | 6,314 | (4,805 | ) | (3,715 | ) | ||||||||||||||||
Interest income |
(42 | ) | (82 | ) | (57 | ) | (51 | ) | (80 | ) | (86 | ) | ||||||||||||
Interest expense |
17,235 | 41,642 | 59,963 | 44,151 | 42,380 | 58,192 | ||||||||||||||||||
Loss on extinguishment and modification of debt (a) |
— | — | — | — | 8,129 | 8,129 | ||||||||||||||||||
Other adjustments (b) |
2,597 | 1,286 | 1,809 | 1,650 | 2,067 | 2,226 | ||||||||||||||||||
Other non-cash charges (c) |
1,262 | 2,171 | 8,860 | 7,083 | 5,462 | 7,239 | ||||||||||||||||||
New jurisdictions and regulatory licensing costs (d) |
266 | 256 | 1,315 | 957 | 1,304 | 1,662 | ||||||||||||||||||
Legal & litigation expenses including settlement payments (e) |
450 | 1,916 | 1,565 | 1,495 | 766 | 836 | ||||||||||||||||||
Acquisitions & integration related costs including restructuring & severance (f) |
3,582 | 7,818 | 5,411 | 5,034 | 899 | 1,276 | ||||||||||||||||||
Non-cash stock compensation (g) |
— | 4,911 | — | — | — | — | ||||||||||||||||||
Total adjusted EBITDA |
$ | 40,209 | $ | 62,347 | $ | 85,339 | $ | 63,238 | $ | 80,392 | $ | 102,493 | ||||||||||||
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(a) | Relates primarily to the refinancing of our long-term debt, as described in Note 6 to our unaudited financial statements. Approximately $3.3 million of deferred loan costs and discounts related to our old senior secured credit facilities were written off as a portion of the loss on extinguishment and modification of debt and $4.8 million in debt issuance costs related to the first lien credit facilities were expensed. |
(b) | Relates primarily to professional fees incurred for projects, corporate and public filing compliance, contract cancellation fees and other transaction costs deemed to be non-operating in nature. |
(c) | Relates primarily to: |
(i) | non-cash charges and losses on the disposition of assets (primarily composed of the net book value of EGMs sold into secondary markets which were previously leased to customers and sold at substantially lower average selling prices) and additional non-cash inventory obsolescence charges of $0.7 million for the year ended December 31, 2014, $0.2 million for the year ended December 31, 2015, $2.5 million for the year ended December 31, 2016, $2.4 million for the nine months ended September 30, 2016, $0.7 million for the nine months ended September 30, 2017 and $0.8 million for the twelve months ended September 30, 2017; |
(ii) |
non-cash charge on capitalized installation and delivery (primarily composed of the costs to acquire contracts that are expensed over the estimated life of each contract) of $0.6 million for the year ended December 31, 2014, $1.4 million for the year ended December 31, 2015, $1.7 million for the year ended |
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December 31, 2016, $1.2 million for the nine months ended September 30, 2016, $1.3 million for the nine months ended September 30, 2017 and $1.8 million for the twelve months ended September 30, 2017; and |
(iii) | non-cash item related to the accretion of contract rights under development agreements and placement fees of $0.06 million for the year ended December 31, 2014, $0.5 million for the year ended December 31, 2015, $4.7 million for the year ended December 31, 2016, $3.5 million for the nine months ended September 30, 2016, $3.5 million for the nine months ended September 30, 2017 and $4.7 million for the twelve months ended September 30, 2017. |
(d) | Relates primarily to one-time non-operating costs incurred to obtain new licenses and develop products for new jurisdictions. |
(e) | Legal and litigation related costs consist of payments to law firms and settlements for matters that are outside the normal course of business. These costs related to litigation and matters that were not significant individually. |
(f) | Acquisitions & integration related costs primarily relate to costs incurred after the purchase of businesses, such as the acquisitions of Cadillac Jack and AGSi, to integrate operations. Restructuring and severance costs primarily relate to costs incurred through the restructuring of our former operations in Toronto, Canada and other employee severance costs recognized in the periods presented. |
(g) | Non-cash expense related to the value of stock options held by employees of Cadillac Jack. The stock options entitled the holder to purchase shares of Amaya Inc., the former global parent of Cadillac Jack, based on the holder’s continued employment at Cadillac Jack through the vesting date, which was November 29, 2015. |
(4) | Adjusted EBITDA margin % is equal to (a) adjusted EBITDA for each segment divided by (b) revenues for such segment. |
(5) | n/m = not meaningful. |
(6) | Total adjusted EBITDA margin % is equal to (a) total adjusted EBITDA divided by (b) total revenues. |
(7) | MAU = Monthly Active Users and is a count of unique visitors to our sites during a month. |
(8) | DAU = Daily Active Users, a count of unique visitors to our sites during a day. |
(9) | ARPDAU = Average daily revenue per DAU is calculated by dividing revenue for a period by the DAU for the period by the number of days for the period. |
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You should carefully consider the risks and uncertainties described below, as well as the other information contained in this prospectus, including `our consolidated financial statements and the related notes thereto included elsewhere in this prospectus, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our common stock. Any of the following risks could adversely affect our business, financial condition and results of operations, in which case the trading price of our common stock could decline and you could lose all or part of your investment.
Risks Related to Our Business and Industry
We operate in highly competitive industries and our success depends on our ability to effectively compete with numerous domestic and foreign businesses.
We face significant competition in our businesses and in the evolving interactive gaming industry, not only from our traditional competitors but also from a number of other domestic and foreign providers (or, in some cases, the operators themselves), some of which have substantially greater financial resources and/or experience than we do. Many of our competitors are large, well-established companies with substantially larger operating staffs and greater capital resources and have been engaged in the design, manufacture and operation of electronic gaming equipment business for many years. In addition, we cannot assure you that our products and services will be successful or that we will be able to attract and retain players as our products and services compete with the products and services of others, which may impact the results of our operations.
Our business faces significant competition, including from illegal operators. There are a limited number of gaming operators and many established companies offer competing products. We compete on the basis of the content, features, quality, functionality, responsiveness and price of our products and services. Consolidation of casino operators and other operators, increased competition among operators and economic conditions causing reductions in capital expenditures by operators have significantly increased the level of competition among gaming suppliers.
We also face high levels of competition in the supply of products and services for newly legalized gaming jurisdictions and for openings of new or expanded casinos. Our success is dependent on our ability to successfully enter new markets and compete successfully for new business especially in the face of declining demand for electronic gaming machine replacements.
We also compete to obtain space and favorable placement on casino gaming floors. Casino operators focus on performance, longevity, player appeal and price when making their purchasing and leasing decisions. Competitors with a larger installed base of electronic gaming machines and more game themes than ours may have an advantage in obtaining and retaining placements in casinos.
We have offered customers discounts, free trials and free gaming equipment, including conversion kits (and, in some cases, free electronic gaming machines) in connection with the sale or placement of our products and services. In addition, we have, in some cases, agreed to modify pricing and other contractual terms in connection with the sale or placement of our products. In select instances, we may pay for the right to place electronic gaming machines on a casino’s floor and increased fee requirements from such casino operators may greatly reduce our profitability. There can be no assurance that competitive pressure will not cause us to increase the incentives that we offer to our customers or agree to modify contractual terms in ways that are unfavorable to us, which could adversely impact the results of our operations.
Our competitors may provide a greater amount of financing or better terms than we do and this may impact demand for our products and services.
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Competition for table game content is focused on player appeal, brand recognition and price. We compete on this basis, as well as on the extent of our sales, service, marketing and distribution channels. We also compete with several companies that primarily develop and license table games, as well as with non-proprietary table games such as blackjack and baccarat.
Our interactive social gaming business is subject to significant competition. We have expanded into interactive social gaming as have several of our competitors and our customers. This expansion causes us to compete with social gaming companies that have no connection to traditional regulated gaming markets and many of those companies have a base of existing users that is larger than ours. In order to stay competitive in our interactive social gaming businesses, we will need to continue to create and market game content that attracts players and invest in new and emerging technologies.
Our success is dependent upon our ability to adapt to and offer products that keep pace with evolving technology related to our businesses.
The success of our products and services is affected by changing technology and evolving industry standards. Our ability to anticipate or respond to such changes and to develop and introduce new and enhanced products and services, including, but not limited to, gaming content, electronic gaming machines, table products and interactive gaming products and services, on a timely basis or at all is a significant factor affecting our ability to remain competitive, retain existing contracts or business and expand and attract new customers and players. There can be no assurance that we will achieve the necessary technological advances or have the financial resources needed to introduce new products or services on a timely basis or at all.
Our success depends upon our ability to respond to dynamic customer and player demand by producing new and innovative products and services. The process of developing new products and systems is inherently complex and uncertain. It requires accurate anticipation of changing customer needs and player preferences as well as emerging technological trends. If our competitors develop new game content and technologically innovative products and we fail to keep pace, our business could be adversely affected. If we fail to accurately anticipate customer needs and player preferences through the development of new products and technologies, we could lose business to our competitors, which would adversely affect our results of operations.
We may experience manufacturing, operational or design problems that could delay or prevent the launch of new products or services. Introducing new and innovative products and services requires us to adapt and refine our manufacturing, operations and delivery capabilities to meet the needs of our product innovation. If we cannot efficiently adapt our manufacturing infrastructure to meet the needs associated with our product innovations, or if we are unable to upgrade our production capacity in a timely manner, our business could be negatively impacted. In the past, we have experienced delays in launching new products and services due to the complex or innovative technologies embedded in our products and services. Such delays can adversely impact our results of operations.
In addition, the social gaming landscape is rapidly evolving and is characterized by major fluctuations in the popularity of social products and platforms, such as mobile. We may be unable to develop products at a rate necessary to respond to these changes, or at all, or that anticipate the interests of social players. Likewise, our social gaming offerings operate largely through Facebook, Google Play for Android devices and Apple’s iOS platform. If alternative platforms increase in popularity, we could be adversely impacted if we fail to timely create compatible versions of our products.
Our success also depends on creating products and services with strong and sustained player appeal. We are under continuous pressure to anticipate player reactions to, and acceptance of, our new products while continuing to provide successful products that generate a high level of play. In some cases, a new game or electronic gaming machine will only be accepted by our casino or interactive gaming customers if we can demonstrate that it is likely to produce more revenue and/or has more player appeal than our existing products and services or our competitors’ products and services.
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We have invested, and may continue to invest, significant resources in research and development efforts. We invest in a number of areas, including product development for game and system-based hardware, software and game content. In addition, because of the sophistication of our newer products and the resources committed to their development, they are generally more expensive to produce. If our new products do not gain market acceptance or the increase in the average selling or leasing price of these new products is not proportionate to the increase in production cost, in each case as compared to our prior products, or if the average cost of production does not go down over time, whether by reason of long-term customer acceptance, our ability to find greater efficiencies in the manufacturing process as we refine our production capabilities or a general decrease in the cost of the technology, our margins will suffer and could negatively impact our business and results of operations. There can be no assurance that our investment in research and development will lead to successful new technologies or products. If a new product is not successful, we may not recover our development, regulatory approval or promotion costs.
Our success depends in part on our ability to develop, enhance and/or introduce successful gaming concepts and game content. Demand for our products and the level of play of our products could be adversely affected by changes in player and operator preferences.
We believe that creative and appealing game content produces more revenue for our electronic gaming machine customers and provides them with a competitive advantage, which in turn enhances our revenue and our ability to attract new business and to retain existing business. There can be no assurance that we will be able to sustain the success of our existing game content or effectively develop or obtain from third parties game content or licensed brands that will be widely accepted both by our customers and players. As a supplier of gaming equipment, we must offer themes and products that appeal to gaming operators and players. Our revenues are dependent on the earning power and life span of our games. We therefore face continuous pressure to design and deploy new and successful game themes and technologically innovative products to maintain our revenue and remain competitive. If we are unable to anticipate or react timely to any significant changes in player preferences, the demand for our gaming products and the level of play of our gaming products could decline. Further, we could fail to meet certain minimum performance levels, or operators may reduce revenue sharing arrangements with us, each of which could negatively impact our sales and financial results. In addition, general changes in consumer behavior, such as reduced travel activity or redirection of entertainment dollars to other venues, could result in reduced demand and reduced play levels for our gaming products.
Our business is vulnerable to changing economic conditions and to other factors that adversely affect the casino industry, which have negatively impacted and could continue to negatively impact the play levels of our participation games, our product sales and our ability to collect outstanding receivables from our customers.
Demand for our products and services depends largely upon favorable conditions in the casino industry, which is highly sensitive to casino patrons’ disposable incomes and gaming activities. Discretionary spending on entertainment activities could further decline for reasons beyond our control, such as natural disasters, acts of war, terrorism, transportation disruptions or the results of adverse weather conditions. Additionally, disposable income available for discretionary spending may be reduced by higher housing, energy, interest, or other costs, or where the actual or perceived wealth of customers has decreased because of circumstances such as lower residential real estate values, increased foreclosure rates, inflation, increased tax rates, or other economic disruptions. Any prolonged or significant decrease in consumer spending on entertainment activities could result in reduced play levels on our participation games, causing our cash flows and revenues from a large share of our recurring revenue products to decline.
We have incurred, and may continue to incur, additional provisions for bad debt related to credit concerns on certain receivables.
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Our ability to operate in our existing markets or expand into new jurisdictions could be adversely affected by changing regulations, new interpretations of existing laws, and difficulties or delays in obtaining or maintaining required licenses or approvals.
We operate only in jurisdictions where gaming is legal. The gaming industry is subject to extensive governmental regulation by U.S. federal, state and local governments, as well as Native American tribal governments, and foreign governments. While the regulatory requirements vary by jurisdiction, most require:
• | licenses and/or permits; |
• | documentation of qualifications, including evidence of financial stability; |
• | other required approvals for companies who design, assemble, supply or distribute gaming equipment and services; and |
• | individual suitability of officers, directors, major equity holders, lenders, key employees and business partners. |
Any license, permit, approval or finding of suitability may be revoked, suspended or conditioned at any time. We may not be able to obtain or maintain all necessary registrations, licenses, permits or approvals, or could experience delays related to the licensing process which could adversely affect our operations and our ability to retain key employees.
To expand into new jurisdictions, in most cases, we will need to be licensed, obtain approvals of our products and/or seek licensure of our officers, directors, major equity holders, key employees or business partners and potentially lenders. If we fail to obtain a license required in a particular jurisdiction for our games and electronic gaming machines, hardware or software or have such license revoked, we will not be able to expand into, or continue doing business in, such jurisdiction. Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing markets or into new jurisdictions can negatively affect our opportunities for growth. In addition, the failure of our officers, directors, key employees or business partners, equity holders, or lenders to obtain or receive licenses in one or more jurisdictions may require us to modify or terminate our relationship with such officers, directors, key employees or business partners, equity holders, or lenders, or forego doing business in such jurisdiction.
Although we plan to maintain our compliance with applicable laws as they evolve, there can be no assurance that we will do so and that law enforcement or gaming regulatory authorities will not seek to restrict our business in their jurisdictions or institute enforcement proceedings if we are not compliant. Moreover, in addition to the risk of enforcement action, we are also at risk of loss of business reputation in the event of any potential legal or regulatory investigation whether or not we are ultimately accused of or found to have committed any violation. A negative regulatory finding or ruling in one jurisdiction could have adverse consequences in other jurisdictions, including with gaming regulators. Furthermore, the failure to become licensed, or the loss or conditioning of a license, in one market may have the adverse effect of preventing licensing in other markets or the revocation of licenses we already maintain.
Further, changes in existing gaming regulations or new interpretations of existing gaming laws may hinder or prevent us from continuing to operate in those jurisdictions where we currently do business, which would harm our operating results. In particular, the enactment of unfavorable legislation or government efforts affecting or directed at manufacturers or gaming operators, such as referendums to increase gaming taxes or requirements to use local distributors, would likely have a negative impact on our operations. Gaming regulations in Mexico have not been formalized and although we believe that we are compliant with the current informal regulations, if there are changes or new interpretations of the regulations in that jurisdiction we may be prevented or hindered from operating our business in Mexico.
Many jurisdictions also require extensive personal and financial disclosure and background checks from persons and entities beneficially owning a specified percentage (typically 5% or more) of our equity securities
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and may require the same from our lenders. The failure of these beneficial owners or lenders to submit to such background checks and provide required disclosure could jeopardize our ability to obtain or maintain licensure in such jurisdictions.
Smoking bans in casinos may reduce player traffic and affect our revenues.
Some U.S. jurisdictions have recently introduced or proposed smoking bans in public venues, including casinos, which may reduce player traffic in the facilities of our current and prospective customers, which may reduce revenues on our participation electronic gaming machines or impair our future growth prospects and therefore may adversely impact our revenues in those jurisdictions. Other participants in the gaming industry have reported declines in gaming revenues following the introduction of a smoking ban in jurisdictions in which they operate and we cannot predict the magnitude or timing of any decrease in revenues resulting from the introduction of a smoking ban in any jurisdiction in which we operate.
We have a history of operating losses and a significant accumulated deficit, and we may not achieve or maintain profitability in the future.
We have not been profitable and cannot predict when we will achieve profitability, if ever. As of September 30, 2017, we had an accumulated deficit of approximately $193.0 million, as a result of historical operating losses. These losses have resulted principally from depreciation and amortization, interest, research and development, sales and marketing and administrative expenses. We also expect our costs to increase in future periods. For example, we intend to expend significant funds to expand our sales and marketing operations, develop new products, meet the increased compliance requirements associated with our transition to and operation as a public company, and expand into new markets, and we may not be able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of other reasons, including the other risks described in this prospectus, and unforeseen expenses, difficulties, complications and delays, and other unknown events. While we believe our growth strategy will help us achieve profitability, there can be no guarantee. If we are unable to achieve and sustain profitability, our stock price may significantly decrease.
We derive a significant portion of our revenue from Native American tribal customers, and our ability to effectively operate in Native American gaming markets is vulnerable to legal and regulatory uncertainties, including the ability to enforce contractual rights on Native American land.
We derive a significant amount of our revenue from participation agreements with Native American gaming operators. Native American tribes are independent governments with sovereign powers and, in the absence of a specific grant of authority by Congress to a state or a specific compact or agreement between a tribal entity and a state that would allow the state to regulate activities taking place on Native American lands, they can enact their own laws and regulate gaming operations and contracts subject to the IGRA. In this capacity, Native American tribes generally enjoy sovereign immunity from lawsuits similar to that of the individual states and the United States. Accordingly, before we can seek to enforce contract rights with a Native American tribe, or an agency or instrumentality of a Native American tribe, we must obtain from the Native American tribe a waiver of its sovereign immunity with respect to the matter in dispute, which we are not always able to do. Without a limited waiver of sovereign immunity, or if such waiver is held to be ineffective, we could be precluded from judicially enforcing any rights or remedies against a Native American tribe, including the right to enter Native American lands to retrieve our property in the event of a breach of contract by the tribal party to that contract. Even if the waiver of sovereign immunity by a Native American tribe is deemed effective, there could be an issue as to the forum in which a lawsuit may be brought against the Native American tribe. Federal courts are courts of limited jurisdiction and generally do not have jurisdiction to hear civil cases relating to Native American tribes, and we may be unable to enforce any arbitration decision effectively. Although we attempt to agree upon governing law and venue provisions in our contracts with Native American tribal customers, these provisions vary widely and may not be enforceable.
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Certain of our agreements with Native American tribes are subject to review by regulatory authorities. For example, our development agreements may be subject to review by the NIGC, and any such review could require substantial modifications to our agreements or result in the determination that we have a proprietary interest in a Native American tribe’s gaming activity (which is prohibited), which could materially and adversely affect the terms on which we conduct our business. The NIGC may also reinterpret applicable laws and regulations, which could affect our agreements with Native American tribes. We could also be affected by alternative interpretations of the Johnson Act as the Native American tribes, who are the customers for our Class II games, could be subject to significant fines and penalties if it is ultimately determined they are offering an illegal game, and an adverse regulatory or judicial determination regarding the legal status of our products could have material adverse consequences for our results of operations.
Government enforcement, regulatory action, judicial decisions and proposed legislative action have in the past, and will likely continue to affect our business and prospects in Native American tribal lands. The legal and regulatory uncertainties surrounding our Native American tribal agreements could result in a significant and immediate material adverse effect on our results of operations. Additionally, such uncertainties could increase our cost of doing business and could take management’s attention away from operations. Regulatory action against our customers or equipment in these or other markets could result in machine seizures and significant revenue disruptions, among other adverse consequences. Moreover, Native American tribal policies and procedures, as well as tribal selection of gaming vendors, are subject to the political and governance environment within each Native American tribe. Changes in tribal leadership or tribal political pressure can affect our business relationships within Native American markets.
We may not realize satisfactory returns on money lent to new and existing customers to develop or expand gaming facilities or to acquire gaming routes.
We enter into agreements to provide financing for construction, expansion, or remodeling of gaming facilities, primarily in the state of Oklahoma, and also have agreements in other jurisdictions where we provide loans and advances to route operators to acquire location contracts and fund working capital. Under these agreements, we secure long-term contracts for game placements under either a revenue share or daily fee basis in exchange for the loans and advances. We may not, however, realize the anticipated benefits of any of these strategic relationships or financings as our success in these ventures is dependent upon the timely completion of the gaming facility, the placement of our electronic gaming machines, and a favorable regulatory environment.
These activities may result in unforeseen operating difficulties, financial risks, or required expenditures that could adversely affect our liquidity. In connection with one or more of these transactions, and to obtain the necessary funds to enter these agreements, we may need to extend secured and unsecured credit to potential or existing customers that may not be repaid, incur debt on terms unfavorable to us or that we are unable to repay, or incur other contingent liabilities.
The failure to maintain controls and processes related to billing and collecting accounts receivable or the deterioration of the financial condition of our customers could negatively impact our business. As a result of these agreements, the collection of notes receivable has become a matter of greater significance. While we believe the increased level of these specific receivables has allowed us to grow our business, it has also required direct, additional focus of and involvement by management. Further, and especially due to the current downturn in the economy, some of our customers may not pay the notes receivable when due.
We rely on information technology and other systems and any failures in our systems could disrupt our business and adversely impact our results.
We rely on information technology systems that are important to the operation of our business, some of which are managed by third parties. These systems are used to process, transmit and store electronic information, to manage and support our business operations and to maintain internal controls over our financial reporting. We
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could encounter difficulties in developing new systems, maintaining and upgrading current systems and preventing security breaches. Among other things, our systems are susceptible to outages due to fire, floods, power loss, break-ins, cyber-attacks, network penetration, denial of service attacks and similar events. While we have and will continue to implement network security measures and data protection safeguards, our servers and other computer systems are vulnerable to viruses, malicious software, hacking, break-ins or theft, data privacy or security breaches, third-party security breaches, employee error or malfeasance and similar events. Failures in our systems or services or unauthorized access to or tampering with our systems and databases could have a material adverse effect on our business, reputation and results of operations. Any failures in our computer systems or telecommunications services could affect our ability to operate our linked games or otherwise conduct business.
Portions of our information technology infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive. Such disruptions could materially and adversely impact our ability to deliver products to customers and interrupt other processes. If our information systems do not allow us to transmit accurate information, even for a short period of time, to key decision makers, the ability to manage our business could be disrupted and our results of operations could be materially and adversely affected. Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could materially and adversely affect our reputation, competitive position and results of operations.
Slow growth in the development of new gaming jurisdictions or the number of new casinos, declines in the rate of replacement of existing electronic gaming machines and ownership changes and consolidation in the casino industry could limit or reduce our future prospects.
Demand for our new participation electronic gaming machine placements and game sales is partially driven by the development of new gaming jurisdictions, the addition of new casinos or expansion of existing casinos within existing gaming jurisdictions and the replacement of existing electronic gaming machines. The establishment or expansion of gaming in any jurisdiction typically requires a public referendum or other legislative action. As a result, gaming continues to be the subject of public debate, and there are numerous active organizations that oppose gaming. There can be no assurances that new gaming jurisdictions will be established in the future or that existing jurisdictions will expand gaming, and, thus, our growth strategy could be negatively impacted.
To the extent new gaming jurisdictions are established or expanded, we cannot guarantee we will be successful penetrating such new jurisdictions or expanding our business in line with the growth of existing jurisdictions. As we enter into new markets, we may encounter legal and regulatory challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market opportunity. If we are unable to effectively develop and operate within these new markets, then our business, operating results and financial condition would be impaired. Furthermore, as we attempt to generate new streams of revenue by placing our participation electronic gaming machines with new customers we may have difficulty implementing an effective placement strategy for jurisdictional specific games. Our failure to successfully implement an effective placement strategy could cause our future operating results to vary materially from what management has forecasted.
In addition, the construction of new casinos or expansion of existing casinos fluctuates with demand, general economic conditions and the availability of financing. We believe the rate of gaming growth in North America has decelerated and machine replacements are at historically low levels. Slow growth in the establishment of new gaming jurisdictions or delays in the opening of new or expanded casinos and continued declines in, or low levels of demand for, electronic gaming machine replacements could reduce the demand for our products and our future profits. Our business could be negatively affected if one or more of our customers is
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sold to or merges with another entity that utilizes more of the products and services of one of our competitors or that reduces spending on our products or causes downward pricing pressures. Such consolidations could lead to order cancellations, a slowing in the rate of electronic gaming machine replacements, or require our current customers to switch to our competitors’ products, any of which could negatively impact our results of operations.
States and other jurisdictions may amend or repeal gaming enabling legislation which could materially impact our business.
States and other jurisdictions may amend or repeal gaming enabling legislation which could materially impact our business. Changes to gaming enabling legislation could increase our operating expenses and compliance costs or decrease the profitability of our operations. Repeal of gaming enabling legislation could result in losses of capital investments and revenue, limit future growth opportunities and have a material adverse impact in our financial condition and results of operations. If any jurisdiction in which we operate were to repeal gaming enabling legislation, there could be no assurance that we could sufficiently increase our revenue in other markets to maintain operations or service our existing indebtedness.
The intellectual property rights of others may prevent us from developing new products and services, entering new markets or may expose us to liability or costly litigation and litigation regarding our intellectual property could have a material adverse effect on the results of our business or intellectual property.
Our success depends in part on our ability to continually adapt our products to incorporate new technologies and to expand into markets that may be created by new technologies. If technologies are protected by the intellectual property rights of others, including our competitors, we may be prevented from introducing products based on these technologies or expanding into markets created by these technologies. If the intellectual property rights of others prevent us from taking advantage of innovative technologies, our prospects and results of operations may be adversely affected.
There can be no assurance that our business activities, games, products, services and systems will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against us. In addition to infringement claims, third parties may allege claims of invalidity or unenforceability against us or against our licensees or manufacturers in connection with their use of our technology. A successful challenge to, or invalidation of, one of our intellectual property interests, a successful claim of infringement by a third party against us, our products or services, or one of our licensees in connection with the use of our technologies, or an unsuccessful claim of infringement made by us against a third party or its products or services could adversely affect our business or cause us financial harm. Any such claim and any resulting litigation, should it occur, could:
• | be expensive and time consuming to defend or require us to pay significant amounts in damages; |
• | invalidate our proprietary rights; |
• | cause us to cease making, licensing or using products or services that incorporate the challenged intellectual property; |
• | require us to redesign, reengineer or rebrand our products or services or limit our ability to bring new products and services to the market in the future; |
• | require us to enter into costly or burdensome royalty, licensing or settlement agreements in order to obtain the right to use a product, process or component; |
• | impact the commercial viability of the products and services that are the subject of the claim during the pendency of such claim; or |
• | require us by way of injunction to remove products or services on lease or stop selling or leasing new products or services. |
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A significant portion of our success depends on the protection of our intellectual property. In the future we may make, claims of infringement, invalidity or enforceability against third parties. This enforcement could:
• | cause us to incur greater costs and expenses in the protection of our intellectual property; |
• | potentially negatively impact our intellectual property rights; |
• | cause one or more of our patents, trademarks, copyrights or other intellectual property interests to be ruled or rendered unenforceable or invalid; or |
• | divert management’s attention and our resources. |
Our inability to complete future acquisitions and integrate those businesses successfully could limit our future growth.
From time to time, we pursue strategic acquisitions in support of our strategic goals. In connection with any such acquisitions, we could face significant challenges in managing and integrating our expanded or combined operations, including acquired assets, operations and personnel. There can be no assurance that acquisition opportunities will be available on acceptable terms or at all or that we will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions. Our ability to succeed in implementing our strategy will depend to some degree upon the ability of our management to identify, complete and successfully integrate commercially viable acquisitions. Acquisition transactions may disrupt our ongoing business and distract management from other responsibilities.
In addition, there can be no assurance regarding when or the extent to which we will be able to realize any anticipated financial or operational benefits, synergies or cost savings from these acquisitions. We may also incur greater costs than estimated to achieve all of the synergies and other benefits from an acquisition. Integration may also be difficult, unpredictable and subject to delay because of possible company culture conflicts and different opinions on technical decisions and product roadmaps. We may be required to integrate or, in some cases, replace, numerous systems, such as those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll, data privacy and security and regulatory compliance.
Our business is dependent on the security and integrity of the systems and products we offer.
We believe that our success depends, in part, on providing secure products, services and systems to our customers. Attempts to penetrate security measures may come from various combinations of customers, retailers, vendors, employees and others. Our ability to prevent anomalies and monitor and ensure the quality and integrity of our products and services is periodically reviewed and enhanced. Similarly, we regularly assess the adequacy of our security systems to protect against any material loss to any of our customers and the integrity of our products and services to players. Expanded utilization of the internet and other interactive technologies may result in increased security risks for us and our customers. There can be no assurance that our business will not be affected by a security breach or lapse, which could have a material adverse impact on our results of operations.
Our success depends on our ability to avoid, detect, replicate and correct software and hardware anomalies and fraudulent manipulation of our electronic gaming machines. We incorporate security features into the design of our electronic gaming machines and other systems, which are designed to prevent us, our customers and players from being defrauded. We also monitor our software and hardware to avoid, detect and correct any technical errors. However, there can be no guarantee that our security features or technical efforts will continue to be effective in the future. If our security systems fail to prevent fraud or if we experience any significant technical difficulties, our operating results could be adversely affected. Additionally, if third parties breach our security systems and defraud players, or if our hardware or software experiences any technical anomalies, our customers and the public may lose confidence in our electronic gaming machines and operations, or we could become subject to legal claims by our customers or to investigation by gaming authorities.
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Our EGMs have experienced anomalies and fraudulent manipulation in the past. Games and EGMs may be replaced by casinos and other electronic gaming machine operators if they do not perform according to expectations or they may be shut down by regulators. The occurrence of anomalies in, or fraudulent manipulation of, our electronic gaming machines or our other gaming products and services (including our interactive products and services), may give rise to claims from players and claims for lost revenue and profits and related litigation by our customers and may subject us to investigation or other action by regulatory authorities, including suspension or revocation of our licenses or other disciplinary action. Additionally, in the event of the occurrence of any such issues with our products and services, substantial engineering and marketing resources may be diverted from other projects to correct these issues, which may delay other projects and the achievement of our strategic objectives.
Although our network is private, it is susceptible to outages due to fire, floods, power loss, break-ins, cyberattacks and similar events. We have back-up capabilities for our services in the event of any such occurrence. Despite our implementation of network security measures, our servers are vulnerable to computer viruses and break-ins. Similar disruptions from unauthorized tampering with our computer systems in any such event could have a material adverse effect on our business, operating results and financial condition.
The results of our operations could be affected by natural events in the locations in which we or our customers, suppliers or regulators operate.
We may be impacted by severe weather and other geological events, including hurricanes, earthquakes, floods or tsunamis that could disrupt our operations or the operations of our customers, suppliers, data service providers and regulators. Natural disasters or other disruptions at any of our facilities or our suppliers’ facilities may impair or delay delivery of our products and services. Additionally, disruptions experienced by our regulators due to natural disasters or otherwise could delay our introduction of new products or entry into new jurisdictions where regulatory approval is necessary. Adverse weather conditions, particularly flooding, tornadoes, heavy snowfall and other extreme weather conditions often deter our customer’s players from traveling, or make it difficult for them to frequent the sites where our games are installed. If any of those sites experienced prolonged adverse weather conditions, or if the sites in Oklahoma, where a significant number of our games are installed, simultaneously experienced adverse weather conditions, our results of operations and financial condition would be materially and adversely affected. While we insure against certain business interruption risks, we cannot provide any assurance that such insurance will compensate us for any losses incurred as a result of natural or other disasters. Any serious disruption to our operations, or those of our customers, our suppliers or our regulators, could have a material adverse effect on the results of our operations.
We are dependent on our suppliers and contract manufacturers and any failure of these parties to meet our performance and quality standards or requirements could cause us to incur additional costs or lose customers.
The manufacturing, assembling and designing of our electronic gaming machines depends upon a continuous supply of raw materials and components, such as source cabinets, which we currently source primarily from a limited number of suppliers. Our operating results could be adversely affected by an interruption or cessation in the supply of these items or a serious quality assurance lapse, including as a result of the insolvency of any of our key suppliers. We may be unable to find adequate replacements for our suppliers within a reasonable time frame, on favorable commercial terms or at all. Further, manufacturing costs may unexpectedly increase and we may not be able to successfully recover any or all of such cost increases.
The risks related to operations in foreign countries and outside of traditional U.S jurisdictions could negatively affect our results.
We operate in jurisdictions outside of the United States, principally in Mexico and on tribal lands of Native American tribes. The developments noted below, among others, could adversely affect our financial condition and results of operations:
• | social, political or economic instability; |
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• | additional costs of compliance with international laws or unexpected changes in regulatory requirements; |
• | tariffs and other trade barriers; |
• | fluctuations in foreign exchange rates outside the United States; |
• | adverse changes in the creditworthiness of parties with whom we have significant receivables or forward currency exchange contracts; |
• | expropriation, nationalization and restrictions on repatriation of funds or assets; |
• | difficulty protecting our intellectual property; |
• | recessions in foreign economies; |
• | difficulties in maintaining foreign operations; |
• | changes in consumer tastes and trends; |
• | risks associated with compliance with anti-corruption laws; |
• | acts of war or terrorism; and |
• | U.S. government requirements for export. |
In addition, our ability to expand successfully in foreign jurisdictions involves other risks, including difficulties in integrating foreign operations, risks associated with entering jurisdictions in which we may have little experience and the day-to-day management of a growing and increasingly geographically diverse company. Our investment in foreign jurisdictions often entails partnering or other business relationships with locally based entities, which can involve additional risks arising from our lack of sole decision-making authority, our reliance on a partner’s financial condition, inconsistency between our business interests or goals and those of our partners and disputes between us and our partners.
Foreign currency exchange rate fluctuations and other risks could impact our business.
For the twelve months ended September 30, 2017, we derived approximately 15% of our revenue from customers outside of the United States. Our consolidated financial results are affected by foreign currency exchange rate fluctuations. Foreign currency exchange rate exposures arise from current transactions and anticipated transactions denominated in currencies other than U.S. dollars and from the translation of foreign currency denominated balance sheet accounts into U.S. dollar-denominated balance sheet accounts. We are exposed to currency exchange rate fluctuations because portions of our revenue and expenses are denominated in currencies other than the U.S. dollar, particularly the Mexican Peso. If a foreign currency is devalued in a jurisdiction in which we are paid in such currency, we may require our customers to pay higher amounts for our products, which they may be unable or unwilling to pay.
Our business is subject to quarterly fluctuation.
Historically, our operating results have been highest during the first and second quarters and lowest in our third and fourth quarters, primarily due to the seasonality of player demand. Our quarterly operating results may vary based on the timing of the opening of new gaming jurisdictions, the opening or closing of casinos, the expansion or contraction of existing casinos, approval or denial of our products and corporate licenses under gaming regulations, the introduction of new products, the seasonality of customer capital budgets, the mix of domestic versus international sales and the mix of lease and royalty revenue versus sales and service revenue. As a result, our operating results could be volatile, particularly on a quarterly basis.
In light of the foregoing, results for any quarter are not necessarily indicative of the results that may be achieved in another quarter or for the full fiscal year. There can be no assurance that the seasonal trends and other factors that have impacted our historical results will repeat in future periods as we cannot influence or forecast many of these factors.
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We could face risks associated with, or arising out of, environmental, health and safety laws and regulations.
We are subject to various U.S. federal, state and local laws and regulations that (i) regulate certain activities and operations that may have environmental or health and safety effects, such as the use of regulated materials in the manufacture of our products by third parties or our disposal of materials, substances or wastes, (ii) impose liability for costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site, or other releases of hazardous materials or regulated substances, and (iii) regulate workplace safety. Compliance with these laws and regulations could increase our and our third-party manufacturers’ costs and impact the availability of components required to manufacture our products. Violation of these laws may subject us to significant fines, penalties or disposal costs, which could negatively impact our results of operations. We could be responsible for the investigation and remediation of environmental conditions at currently or formerly operated or leased sites, as well as for associated liabilities, including liabilities for natural resource damages, third party property damage or personal injury resulting from lawsuits that could be brought by the government or private litigants, relating to our operations, the operations of facilities or the land on which our facilities are located. We may be subject to these liabilities regardless of whether we lease or own the facility, and regardless of whether such environmental conditions were created by us or by a prior owner or tenant, or by a third party or a neighboring facility whose operations may have affected such facility or land. That is because liability for contamination under certain environmental laws can be imposed on current or past owners or operators of a site without regard to fault. We cannot assure you that environmental conditions relating to our prior, existing or future sites or those of predecessor companies whose liabilities we may have assumed or acquired will not have a material adverse effect on our business.
If our products contain defects, we may be liable for product defects or other claims, our reputation could be harmed and our results of operations adversely affected.
Our products could be defective, fail to perform as designed or otherwise cause harm to our customers, their equipment or their products. If any of our products are defective, we may be required to recall the products and/or repair or replace them, which could result in substantial expenses and affect our profitability. Any problem with the performance of our products, such as a false jackpot or other prize, could harm our reputation, which could result in a loss of sales to customers and/or potential customers and in turn termination of leases, cancellation of orders, product returns and diversion of our resources. In addition, the occurrence of errors in, or fraudulent manipulation of, our products or software may give rise to claims by our customers or by our customers’ players, including claims by our customers for lost revenues and related litigation that could result in significant liability. Any claims brought against us by customers may result in diversion of management’s time and attention, expenditure of large amounts of cash on legal fees and payment of damages, lower demand for our products or services, or injury to our reputation. Our insurance may not sufficiently cover a judgment against us or a settlement payment and is subject to customary deductibles, limits and exclusions. In addition, a judgment against us or a settlement could make it difficult for us to obtain insurance in the coverage amounts necessary to adequately insure our businesses, or at all, and could materially increase our insurance premiums and deductibles in the future. In addition, software bugs or malfunctions, errors in distribution or installation of our software, failure of our products to perform as approved by the appropriate regulatory bodies or other errors or malfunctions, may subject us to investigation or other action by gaming regulatory authorities, including fines. Any of these occurrences could also result in the loss of or delay in market acceptance of our products and loss of revenue.
Our revenues are vulnerable to the impact of changes to the Class II regulatory scheme.
Our Native American tribal customers that operate Class II games under the IGRA are subject to regulation by the National Indian Gaming Commission (NIGC). The NIGC has conducted and is expected to again conduct consultations with industry participants regarding Native American gaming activities, including the clarification of regulations regarding Class II electronic gaming machines. It is possible that any such changes in regulations, when finally enacted, could cause us to modify our Class II games to comply with the new regulations, which may result in our products becoming less competitive. Any required conversion of games pursuant to changing regulatory schemes could cause a disruption to our business. In addition, we could lose market share to
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competitors who offer games that do not appear to comply with published regulatory restrictions on Class II games and therefore offer features not available in our products.
State compacts with our existing Native American tribal customers to allow Class III gaming could reduce demand for our Class II games and our entry into the Class III market may be difficult as we compete against larger companies in the tribal Class III market.
Most of our Class II Native American tribal customers have entered into compacts with the states in which they operate to permit the operation of Class III games. While we seek to also provide Class III alternatives in these markets, we believe the number of our Class II game machine placements in those customers’ facilities could decline, and our operating results could be materially and adversely affected. As our Native American tribal customers continue to transition to gaming under compacts with the state, we continue to face significant uncertainty in the market that makes our business in these states difficult to manage and predict and we may be forced to compete with larger companies that specialize in Class III gaming. We believe the establishment of state compacts depends on a number of political, social, and economic factors that are inherently difficult to ascertain. Accordingly, although we attempt to closely monitor state legislative developments that could affect our business, we may not be able to timely predict if or when a compact could be entered into by one or more of our Native American tribal customers. For example, in Oklahoma, the continued introduction of Class III games since the passage of the tribal gaming compact in 2004 may put pressure on our revenue and unit market share and our revenue share percentages and may result in a shift in the market from revenue share arrangements to a “for sale” model.
The participation share rates for gaming revenue we receive pursuant to our participation agreements with our Native American tribal customers has, on average, decreased in recent years and may continue to decrease in the future.
The percentage of gaming revenue we receive pursuant to our participation agreements, or our participation share rates, with our Native American tribal customers has, on average, decreased in recent years, negatively affecting our profit margins. There can be no assurance that participation rates will not decrease further in the future. In addition, our Native American tribal customers may adopt policies or insist upon additional business terms during the renewal of our existing participation agreements that negatively affect the profitability of those relationships. In addition, any participation agreements we may enter into in the future with new customers or in new jurisdictions may not have terms as favorable as our existing participation agreements.
For the last twelve months ended September 30, 2017, two customers were each responsible for approximately 11% of our total revenue and we generated approximately 24% and 11% of our total revenue in the states of Oklahoma and Alabama, respectively.
For the last twelve months ended September 30, 2017, approximately 24% of our total revenue was derived from gaming operations in Oklahoma, and approximately 11% of our total revenue was from one Native American gaming tribe in that state. Additionally, for the last twelve months ended September 30, 2017, approximately 11% of our total revenue was derived from gaming operations in Alabama, and approximately 11% of our total revenue was from one Native American gaming tribe in that state. The significant concentration of our revenue in Oklahoma and Alabama means that local economic, regulatory and licensing changes in Oklahoma or Alabama may adversely affect our business disproportionately to changes in national economic conditions, including adverse economic declines or slower economic recovery from prior declines. While we continue to seek to diversify the markets in which we operate, changes to our business, operations, game performance and customer relationships in Oklahoma or Alabama, due to changing gaming regulations or licensing requirements, higher taxes, increased competition, declines in market revenue share percentages or otherwise, could have a material and adverse effect on or financial condition and results of operations. In addition, changes in our relationship with our two largest customers, including any disagreements or disputes, a decrease in revenue share, removal of electronic gaming machines or non-renewal of contracts, could have a material and adverse effect on our financial condition and results of operations.
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Moreover, neighboring states such as Kansas, Texas and Arkansas have passed or could pass gaming legislation, which could take market share from Oklahoma gaming facilities or otherwise negatively impact the Oklahoma gaming market and, as a result, negatively impact our results of operations.
Our business depends on the protection of our intellectual property and proprietary information and on our ability to license intellectual property from third parties.
We believe that our success depends, in part, on protecting our intellectual property in the U.S. and in foreign countries and our ability to license intellectual property from third parties on commercially reasonable terms. The patent, trademark and trade secret laws of some countries may not protect our intellectual property rights to the same extent as the laws of the United States Our intellectual property includes certain patents, trademarks and copyrights relating to our products and services (including electronic gaming machines, interactive gaming products, table games, card shufflers and accessories ), as well as proprietary or confidential information that is not subject to patent or similar protection. Our success may depend, in part, on our ability to obtain protection for the trademarks, names, logos or symbols under which we market our products and to obtain copyright and patent protection for our proprietary technologies, intellectual property and innovations. There can be no assurance that we will be able to build and maintain consumer value in our trademarks, obtain patent, trademark or copyright protection or that any trademark, copyright or patent will provide us with competitive advantages. In particular, a recent U.S. Supreme Court decision tightened the standard for patent eligibility of software patents and other court decisions in recent years have trended towards a narrowing of patentable subject matter. A change in view at the United States Patent and Trademark Office (the “USPTO”) has resulted in Patents for table games having been put into serious doubt by the USPTO. Thus, our ability to protect table games with patents can impact our ability to sustain a competitive advantage. Furthermore, at least one federal court has held that United States patent, trademark and trade secret laws of general application are not binding on Native American tribes absent a binding waiver of sovereign immunity. These and similar decisions in the future may negatively impact the validity or enforceability of certain of our patents, our ability to protect our inventions, innovations and new technology and the value of our substantial patent portfolio.
Our intellectual property protects the integrity of our games and services. Competitors may independently develop similar or superior products or software, which could negatively impact the results of our operations. We have a limited ability to prevent others from creating materially similar products. Despite our efforts to protect these proprietary rights, unauthorized parties may try to copy our gaming products, business models or systems, use certain of our confidential information to develop competing products, or develop independently or otherwise obtain and use our gaming products or technology. In cases where our technology or product is not protected by enforceable intellectual property rights, such independent development may result in a significant diminution in the value of such technology or product.
We rely on products, technologies and intellectual property that we license from third parties for our businesses. The future success of our business may depend, in part, on our ability to obtain, retain and/or expand licenses for popular technologies and games in a competitive market. There can be no assurance that these third-party licenses, or support for such licensed products and technologies, will continue to be available to us on commercially reasonable terms, if at all. In the event that we cannot renew and/or expand existing licenses, we may be required to discontinue or limit our use of the products that include or incorporate the licensed intellectual property. Certain of our license agreements grant the licensor rights to audit our use of their intellectual property. Disputes with licensors over uses or terms could result in the payment of additional royalties or penalties by us, cancellation or non-renewal of the underlying license or litigation.
We also rely on trade secrets and proprietary know-how. We enter into confidentiality agreements with our employees and independent contractors regarding our trade secrets and proprietary information, but we cannot assure you that the obligation to maintain the confidentiality of our trade secrets and proprietary information will be honored. If these agreements are breached, it is unlikely that the remedies available to us will be sufficient to compensate us for the damages suffered. Additionally, despite various confidentiality agreements and other trade
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secret protections, our trade secrets and proprietary know-how could become known to, or independently developed by, competitors. Moreover, if our competitors independently develop equivalent knowledge, methods or know-how, it will be more difficult for us to enforce our rights and our business could be harmed.
Failure to attract, retain and motivate key employees may adversely affect our ability to compete.
Our success depends largely on recruiting and retaining talented employees. The market for qualified, licensable executives and highly skilled, technical workers, such as content developers, is intensely competitive. The loss of key employees or an inability to hire a sufficient number of technical workers could limit our ability to develop successful products, cause delays in getting new products to market, cause disruptions to our customer relationships or otherwise adversely affect our business.
Some of our products contain open source software which may be subject to restrictive open source licenses, requiring us to make our source code available to third parties and potentially granting third parties certain rights to the software.
Some of our products contain open source software which may be subject to restrictive open source licenses. Some of these licenses may require that we make our source code governed by the open source software licenses available to third parties and/or license such software under the terms of a particular open source license, potentially granting third parties certain rights to our software. We may incur legal expenses in defending against claims that we did not abide by such licenses. If our defenses are unsuccessful, we may be enjoined from distributing products containing such open source software, be required to make the relevant source code available to third parties, be required to grant third parties certain rights to the software, be subject to potential damages or be required to remove the open source software from our products. Any of these outcomes could disrupt our distribution and sale of related products and adversely affect our business.
We rely on hardware, software and games licensed from third parties, and on technology provided by third-party vendors, the loss of which could materially and adversely affect our business, increase our costs and delay deployment or suspend development of our electronic gaming machines, games and systems.
We have entered into license agreements with third parties for the exclusive use of their technology and intellectual property rights in the gaming industry and we also rely on third-party manufacturers to manufacture certain gaming equipment. We rely on these other parties to maintain and protect this technology and the related intellectual property rights. If our licensors fail to protect their intellectual property rights in material that we license and we are unable to protect such intellectual property rights, the value of our licenses may diminish significantly and our business could be significantly harmed.
In addition, if these agreements expire and we are unable to renew them, or if the manufacturers of this software or hardware, or functional equivalents of this software or hardware, were either no longer available to us or no longer offered to us on commercially reasonable terms, we may lose a valuable competitive advantage and our business could be harmed.
Acts of God, adverse weather and shipping difficulties, particularly with respect to international third-party suppliers of our components, could cause significant production delays. If we are unable to obtain these components from our established third-party vendors, we could be required to either redesign our product to function with alternate third-party products or to develop or manufacture these components ourselves, which would result in increased costs and could result in delays in the deployment of our electronic gaming machines, games and systems. Furthermore, we might be forced to limit the features available in our current or future offerings.
We rely on intellectual property licenses from one or more third-party competitors, the loss of which could materially and adversely affect our business and the sale or placement of our products. Various third-party
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gaming manufacturers with which we compete are much larger than us and have substantially larger intellectual property assets. The gaming manufacturer industry is very competitive and litigious, and a lawsuit brought by one of our larger competitors, whether or not well-founded, may have a material adverse effect on our business, financial condition, operations or cash flows and our ability to sell or place our products.
Continued operation and our ability to service several of our installed electronic gaming machines depends upon our relationships with service providers, and changes in those relationships could negatively impact our business.
We operate many electronic gaming machines that utilize third party software for which we do not own or control the underlying software code. Further, we enter into arrangements with third party vendors, from time to time, for the provision of services related to development and operation of our products. Consequently, our operations, growth prospects and future revenues could be dependent on our continued relationships with third party vendors. While we have historically maintained good relationships with third party vendors, our business would suffer if we are unable to continue these relationships in the future. Our third party vendors may have economic or business interests or goals that are inconsistent with our interests and goals, take actions contrary to our objectives or policies, undergo a change of control, experience financial and other difficulties or be unable or unwilling to fulfill their obligations under our arrangements. The failure to avoid or mitigate the risks described above or other risks associated with such arrangements could have a material adverse effect on our results of operations.
We are continuing to improve our internal controls over financial reporting.
Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act, which at the latest would be the end of the fiscal year following the fifth anniversary of the initial public offering. At such time, our internal controls over financial reporting may be insufficiently documented, designed or operating, which may cause our independent registered public accounting firm to issue a report that is adverse.
Certain contracts with our customers are on a month-to-month basis, and if we are unable to maintain our current customers on terms that are favorable to us, our business, financial condition, or results of operations may suffer a detrimental effect.
Certain contracts with our customers are generally on a month-to-month basis, except for customers with whom we have entered into development and placement fee agreements. We do not rely upon the stated term of our gaming device contracts to retain the business of our customers. We rely instead upon providing competitive electronic gaming machines, games and systems to give our customers the incentive to continue doing business with us. At any point in time, a significant portion of our gaming device business is subject to nonrenewal, which may have a detrimental effect on our earnings, financial condition and cash flows. To renew or extend any of our customer contracts generally, we may be required to accept financial and other terms that are less favorable to us than the terms of the expired contracts. In addition, we may not succeed in renewing customer contracts when they expire. If we are required to agree to other less favorable terms to retain our customers or we are not able to renew our relationships with our customers upon the expiration of our contracts, our business, financial condition or results of operations may suffer a detrimental effect.
We may not successfully enter new markets and potential new markets may not develop quickly or at all.
If and as new and developing domestic markets develop, competition among providers of gaming-related products and services will intensify. We will face a number of hurdles in our attempts to enter these markets, including the need to expand our sales and marketing presence, compete against pre-existing relationships that our target customers may have with our competitors, the uncertainty of compliance with new or developing
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regulatory regimes (including regulatory regimes relating to internet gaming) with which we are not currently familiar, and oversight by regulators that are not familiar with us or our businesses. Each of these risks could materially impair our ability to successfully expand our operations into these new and developing domestic markets.
In addition, as we attempt to sell our gaming-related products and services into international markets in which we have not previously operated, we may become exposed to political, economic, tax, legal and regulatory risks not faced by businesses that operate only in the United States. The legal and regulatory regimes of foreign markets and their ramifications on our business are less certain. Our international operations are subject to a variety of risks, including different regulatory requirements and interpretations, trade barriers, difficulties in staffing and managing foreign operations, higher rates of fraud, compliance with anti-corruption and export control laws, fluctuations in currency exchange rates, difficulty in enforcing or interpreting contracts or legislation, political and economic instability and potentially adverse tax consequences. Difficulties in obtaining approvals, licenses or waivers from the gaming authorities of other jurisdictions, in addition to other potential regulatory and quasi-regulatory issues that we have not yet ascertained, may arise in international jurisdictions into which we attempt to enter. In these new markets, our operations will rely on an infrastructure of, among other things, financial services and telecommunications facilities that may not be sufficient to support our business needs. In these new markets, we may additionally provide services based upon interpretations of applicable law, which interpretation may be subject to regulatory or judicial review. These risks, among others, could materially and adversely affect our business, financial condition and operations. In connection with our expansion into new international markets, we may forge strategic relationships with business partners to assist us. The success of our expansion into these markets therefore may depend in part upon the success of the business partners with whom we forge these strategic relationships. If we do not successfully form strategic relationships with the right business partners or if we are not able to overcome cultural or business practice differences, our ability to penetrate these new international markets could suffer.
We may not be able to capitalize on the expansion of internet or other forms of interactive gaming or other trends and changes in the gaming industries, including due to laws and regulations governing these industries.
We participate in the new and evolving interactive gaming industry through our social and interactive gaming products. Part of our strategy is to take advantage of the liberalization of interactive gaming, both within the U.S. and internationally. These industries involve significant risks and uncertainties, including legal, business and financial risks. The success of these industries and of our interactive gaming products and services may be affected by future developments in social networks, including Apple, Google or Facebook developments, mobile platforms, regulatory developments, data privacy laws and other factors that we are unable to predict and are beyond our control. This fast-changing environment can make it difficult to plan strategically and can provide opportunities for competitors to grow their businesses at our expense. Consequently, the future results of our operations relating to our interactive gaming products and services are difficult to predict and may not grow at the rates we expect, and we cannot provide assurance that these products and services will be successful in the long term.
In general, our ability to successfully pursue our interactive gaming strategy depends on the laws and regulations relating to our gaming activities through interactive channels.
With respect to our interactive gaming business, although largely unregulated at this time, there are movements in some jurisdictions to review social gaming and possibly implement social gaming regulations. We cannot predict the likelihood, timing, scope or terms of any such regulation or the extent to which they may affect our social gaming business. The social business is subject to evolving regulations and the status of any particular jurisdiction may change at any time. The regulatory structure surrounding certain aspects of these businesses is currently in flux in certain jurisdictions.
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In jurisdictions that authorize internet gaming, there can be no assurance that we will be successful in offering our technology, content and services to internet gaming operators as we expect to face intense competition from our traditional competitors in the gaming industry as well as a number of other domestic and foreign providers (or, in some cases, the operators themselves), some of which have substantially greater financial resources and/or experience in this area than we do. In addition, there is a risk that the authorization of the sale of gaming offerings via interactive channels in a particular jurisdiction could, under certain circumstances, adversely impact our gaming offerings through traditional channels in such jurisdiction. Any such adverse impact would be magnified to the extent we are not involved in, and generating revenue from, the provision of interactive gaming products or services in such jurisdiction. Know-your-customer and geo-location programs and technologies supplied by third parties are an important aspect of certain internet and mobile gaming products and services because they confirm certain information with respect to players and prospective players, such as age, identity and location. Payment processing programs and technologies, typically provided by third parties, are also a necessary feature of interactive wagering products and services. These programs and technologies are costly and may have an adverse impact on the results of our operations. Additionally, there can be no assurance that products containing these programs and technologies will be available to us on commercially reasonable terms, if at all, or that they will perform accurately or otherwise in accordance with our required specifications.
Our social gaming business is largely dependent upon our relationships with key channels and changes in those relationships could negatively impact our social gaming business.
In our social gaming business, our services operate largely through Facebook, Google Play for Android devices and Apple’s iOS platforms. Consequently, our expansion and prospects of our social gaming offerings are dependent on our continued relationships with these channels (and any emerging app store channels). Our relationships with Facebook, Google and Apple are not governed by contracts but rather by the channel’s standard terms and conditions for app developers. Our social gaming business will be adversely impacted if we are unable to continue these relationships in the future or if the terms and conditions offered by these channels are altered to our disadvantage. For instance, if any of these channels were to increase their fees, the results of our operations would suffer. Likewise, if Facebook, Google or Apple were to alter their operating platforms, we could be adversely impacted as our offerings may not be compatible with the altered platforms or may require significant and costly modifications in order to become compatible. If Facebook, Google or Apple were to develop competitive offerings, either on their own or in cooperation with one or more competitors, our growth prospects would be negatively impacted.
Changes in tax regulation and results of tax audits could affect results of operations of our business.
We are subject to taxation in the United States, Canada, Mexico, United Kingdom, Brazil, Australia and Israel. Significant judgment is required to determine and estimate tax liabilities and there are many transactions and calculations where the ultimate tax determination is uncertain. Our future annual and quarterly effective tax rates could be affected by numerous factors, including changes in the applicable tax laws; the composition of pre-tax income in jurisdictions with differing tax rates; the valuation of or valuation allowances against our deferred tax assets and liabilities and substantive changes to tax rules and the application thereof by United States federal, state, local and foreign governments, all of which could result in materially higher corporate taxes than would be incurred under existing tax law or interpretation and could adversely affect our profitability. It is possible that future tax audits or changes in tax regulation may require us to change our prior period tax returns and also to incur additional costs. This may negatively affect future period results.
Further, our determination of our tax liability is always subject to audit and review by applicable domestic and foreign tax authorities. Any adverse outcome of any such audit or review could have an adverse effect on our business and reduce our profits to the extent potential tax liabilities exceed our reserves, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made, as well as future periods. We
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assess the likelihood of favorable or unfavorable outcomes resulting from examinations by the Internal Revenue Service and state, local and foreign tax authorities to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.
Possible U.S. federal income tax reform could adversely affect us.
The new U.S. administration and certain members of the U.S. House of Representatives have stated that one of their top legislative priorities is significant reform of the Internal Revenue Code. Proposals by members of Congress have included, among other things, changes to U.S. federal tax rates, the imposition of significant additional limitations on the deductibility of interest, a limit on the use of net operating losses to offset future taxable income, the allowance of the expensing of capital expenditures, the migration from a “worldwide” system of taxation to a territorial system, and the use of certain border adjustments. There is uncertainty regarding both the timing and the details of any such tax reform. The impact of any potential tax reform on our business and on holders of our common shares is uncertain and could be adverse.
Risks Related to Our Capital Structure
Our substantial indebtedness could adversely affect our ability to raise additional capital or to fund our operations, expose us to interest rate risk to the extent of our variable rate debt, limit our ability to react to changes in the economy, and prevent us from making debt service payments.
We are a highly leveraged company. As of September 30, 2017, we had $596.6 million aggregate principal amount of outstanding indebtedness, in addition to $30.0 million available for borrowing under the revolving credit facility at that date. For the twelve months ended September 30, 2017, we had debt service costs of $42.3 million.
Our substantial indebtedness could have important consequences for us, including, but not limited to, the following:
• | limit our ability to borrow money for our working capital, capital expenditures, debt service requirements, strategic initiatives or other purposes; |
• | make it more difficult for us to satisfy our obligations, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness; |
• | require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing funds available to us for other purposes; |
• | limit our flexibility in planning for, or reacting to, changes in our operations or business and the industry in which we operate; |
• | place us at a competitive disadvantage compared to our competitors that are less leveraged and that, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploring; |
• | impact our rent expense on leased space, which could be significant; |
• | increase our vulnerability to general adverse economic industry and competitive conditions; |
• | restrict us from making strategic acquisitions, engaging in development activities, introducing new technologies, or exploiting business opportunities; |
• | cause us to make non-strategic divestitures; |
• | limit, along with the financial and other restrictive covenants in the agreements governing our indebtedness, among other things, our ability to borrow additional funds or dispose of assets; |
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• | limit our ability to repurchase shares and pay cash dividends; and |
• | expose us to the risk of increased interest rates, as certain of our borrowings are at variable rates of interest. |
In addition, our senior secured credit agreement and the PIK notes (as defined below) contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of substantially all of our indebtedness.
We may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in the credit facility and the PIK notes. If new indebtedness is added to our current debt levels, the related risks described above could intensify.
We may not be able to generate sufficient cash to service all of our indebtedness, and we may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.
Our ability to pay principal and interest on our debt obligations will depend upon, among other things, (a) our future financial and operating performance (including the realization of any cost savings described herein), which will be affected by prevailing economic, industry and competitive conditions and financial, business, legislative, regulatory and other factors, many of which are beyond our control; and (b) our future ability to borrow under the revolving credit facility, the availability of which depends on, among other things, our complying with the covenants in the credit agreement governing such facility.
We cannot assure you that our business will generate cash flow from operations, or that we will be able to draw under the revolving credit facility or otherwise, in an amount sufficient to fund our liquidity needs, including the payment of principal and interest on our debt. If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital, or restructure or refinance our indebtedness, including the PIK notes. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due. Apollo and its affiliates, including Apollo Funds, have no continuing obligation to provide us with debt or equity financing. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, could have a material adverse effect on our business, results of operations, and financial condition, and could negatively impact our ability to satisfy our debt obligations.
If we cannot make scheduled payments on our indebtedness, we will be in default, and holders of our PIK notes could declare all outstanding principal and interest to be due and payable, the lenders under the senior secured credit facilities could terminate their commitments to loan money, our secured lenders could foreclose against the assets securing their loans, and we could be forced into bankruptcy or liquidation.
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Risks Related to This Offering and Ownership of Our Common Stock
Our stock price may fluctuate significantly.
The market price of our common stock could vary significantly as a result of a number of factors, some of which are beyond our control. In the event of a drop in the market price of our common stock, you could lose a substantial part or all of your investment in our common stock. The following factors could affect our stock price:
• | our operating and financial performance; |
• | quarterly variations in the rate of growth (if any) of our financial indicators, such as net income per share, net income and revenues; |
• | the public reaction to our press releases, our other public announcements and our filings with the SEC; |
• | strategic actions by our competitors; |
• | changes in operating performance and the stock market valuations of other companies; |
• | announcements related to litigation; |
• | our failure to meet revenue or earnings estimates made by research analysts or other investors; |
• | changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts; |
• | speculation in the press or investment community; |
• | sales of our common stock by us or our stockholders, or the perception that such sales may occur; |
• | changes in accounting principles, policies, guidance, interpretations or standards; |
• | additions or departures of key management personnel; |
• | actions by our stockholders; |
• | general market conditions; |
• | domestic and international economic, legal and regulatory factors unrelated to our performance; and |
• | the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future. |
The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, financial condition and results of operations.
We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we
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become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (iii) the last day of our fiscal year following the fifth anniversary of the date of this offering, and (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will incur significant costs and devote substantial management time as a result of operating as a public company, particularly after we are no longer an “emerging growth company.”
As a public company, we will continue to incur significant legal, accounting and other expenses. For example, we will be required to comply with certain of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the Securities and Exchange Commission, and the New York Stock Exchange, our stock exchange, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to continue incurring significant expenses and devote substantial management effort toward ensuring compliance with the requirements of the Sarbanes-Oxley Act. In that regard, we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”
After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
We continue to be controlled by Apollo, and Apollo’s interests may conflict with our interests and the interests of other stockholders.
After giving effect to the Reincorporation and the Reclassification, VoteCo, an entity owned and controlled by individuals affiliated with Apollo, will beneficially own % of our common equity (or % if the underwriters exercise their option to purchase additional shares in full) pursuant to an irrevocable proxy, which will provide VoteCo with sole voting and sole dispositive power over all shares beneficially owned by the Apollo
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Group. As a result, VoteCo will have the power to elect all of our directors. Therefore, individuals affiliated with Apollo will have effective control over the outcome of votes on all matters requiring approval by our stockholders, including entering into significant corporate transactions such as mergers, tender offers and the sale of all or substantially all of our assets and issuance of additional debt or equity. The interests of Apollo and its affiliates, including the Apollo Group, could conflict with or differ from our interests or the interests of our other stockholders. For example, the concentration of ownership held by the Apollo Group could delay, defer or prevent a change of control of our company or impede a merger, takeover or other business combination which may otherwise be favorable for us. Additionally, Apollo and its affiliates are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete, directly or indirectly with us. Apollo and its affiliates may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as the Apollo Group continues to directly or indirectly own a significant amount of our equity, even if such amount is less than 50%, Apollo and its affiliates will continue to be able to substantially influence or effectively control our ability to enter into corporate transactions.
We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, qualify for and intend to rely on exemptions from certain corporate governance requirements.
After giving effect to the Reincorporation and the Reclassification, the Apollo Group will continue to control a majority of the voting power of our outstanding voting stock, and as a result we will be a controlled company within the meaning of the New York Stock Exchange corporate governance standards. Under the New York Stock Exchange rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that:
• | a majority of the board of directors consist of independent directors; |
• | the nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; |
• | the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
• | there be an annual performance evaluation of the nominating and corporate governance and compensation committees. |
These requirements will not apply to us as long as we remain a controlled company. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the .
Our amended and restated articles of incorporation will contain a provision renouncing our interest and expectancy in certain corporate opportunities.
Under our amended and restated articles of incorporation, neither Apollo, its portfolio companies, funds or other affiliates, nor any of their officers, directors, agents, stockholders, members or partners will have any duty to refrain from engaging, directly or indirectly, in the same business activities, similar business activities or lines of business in which we operate. In addition, our amended and restated articles of incorporation provide that, to the fullest extent permitted by law, we waive and must indemnify any officer or director of ours who is also an officer, director, employee, managing director or other affiliate of Apollo against any claim that any such individual is liable to us or our stockholders for breach of any fiduciary duty solely by reason of the fact that such individual directs a corporate opportunity to Apollo instead of us, or does not communicate information regarding a corporate opportunity to us that the officer, director, employee, managing director or other affiliate has directed to Apollo. For instance, a director of our company who also serves as a director, officer or employee of Apollo or any of its portfolio companies, funds or other affiliates may pursue certain acquisitions or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities
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may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by Apollo to itself or its portfolio companies, funds or other affiliates instead of to us. The terms of our amended and restated articles of incorporation are more fully described in “Description of Capital Stock.”
Our amended and restated articles of incorporation provide that the Eighth Judicial District Court of Clark County, Nevada will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
After giving effect to the Reincorporation, our amended and restated articles of incorporation now provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by applicable law the Eighth Judicial District Court of Clark County, Nevada is the sole and exclusive forum for any or all actions, suits or proceedings, whether civil, administrative or investigative or that asserts any claim or counterclaim: (a) brought in our name or right or on our behalf; (b) asserting a claim for breach of any fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders; (c) arising or asserting a claim arising pursuant to any provision of the Nevada Revised Statutes (the “NRS”) Chapters 78 or 92A or any provision of our amended and restated articles of incorporation or our amended and restated bylaws; (d) to interpret, apply, enforce or determine the validity of our amended and restated articles of incorporation or our amended and restated bylaws; or (e) asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated articles of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.
Our organizational documents may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their shares.
Provisions of our amended and restated articles of incorporation, our amended and restated bylaws and our Stockholders Agreement (see “Certain Relationships and Related Party Transactions—Stockholders Agreements”) may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our board of directors. These provisions include:
• | having a classified board of directors; |
• | prohibiting cumulative voting in the election of directors; |
• | empowering only the board to fill any vacancy on our board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise, and requiring that, until the first time the Apollo Group ceases to beneficially own at least 5% of our common stock, any vacancy resulting from the death, removal or resignation of a director nominated by Holdings pursuant to the Stockholders Agreement (see “Management—Apollo Group Approval of Certain Matters and Rights to Nominate Certain Directors”) be filled by a nominee of Holdings; |
• | authorizing “blank check” preferred stock, the terms and issuance of which can be determined by our board of directors without any need for action by stockholders; |
• | authorizing stockholders to act by written consent or to call special meetings only until the first time Apollo Group ceases to beneficially own at least 50% of the voting power of our outstanding stock; |
• | requiring the approval of Holdings to approve certain business combinations and certain other significant matters until the first time the Apollo Group ceases to beneficially own at least 33 1/3% of our common stock; and |
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• | establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings. |
An issuance of shares of preferred stock could delay or prevent a change in control of us. Our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of our preferred stock may have the effect of delaying, deferring or preventing a change in control without further action by the stockholders, even where stockholders are offered a premium for their shares.
Our Stockholders Agreement will also require the approval of Holdings for certain important matters, including mergers and acquisitions, issuances of equity and the incurrence of debt, until the first time Apollo Group ceases to beneficially own at least 33 1/3% of our common stock. In addition, until the first time the Apollo Group ceases to beneficially own at least 50% of our common stock, the Apollo Group will be able to control all matters requiring stockholder approval, including the election of directors, amendment of our articles of incorporation and certain corporate transactions. See “Management—Apollo Approval of Certain Matters and Rights to Nominate Certain Directors.” Together, these articles of incorporation, bylaws, and contractual provisions could make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions, as well as the significant common stock beneficially owned by the Apollo Group and Holdings’ rights to nominate a specified number of directors in certain circumstances, could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of us, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries, and limitations on payment of dividends and distributions under applicable law, impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.” The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us.
Investors in this offering will experience immediate and substantial dilution.
Based on our pro forma net tangible book value per share as of September 30, 2017 and an assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover of this prospectus), purchasers of our common stock in this offering will experience an immediate and substantial dilution of $ per share, representing the difference between our pro forma net tangible book value per share and the assumed initial public offering price. This dilution is due in large part to earlier investors having paid substantially less than the initial public offering price when they purchased their shares. See “Dilution.”
You may be diluted by the future issuance of additional common stock or convertible securities in connection with our incentive plans, acquisitions or otherwise, which could adversely affect our stock price.
After the completion of the Reincorporation, the Reclassification and this offering, we will have shares of common stock authorized but unissued (assuming no exercise of the underwriters’ option to
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purchase additional shares). Our amended and restated articles of incorporation authorize us to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. We have reserved shares for issuance upon exercise of outstanding stock options and for issuances under our new equity incentive plan. See “Compensation Discussion and Analysis—2018 Omnibus Incentive Plan.” Any common stock that we issue, including under our new equity incentive plan or other equity incentive plans that we may adopt in the future, as well as under outstanding options would dilute the percentage ownership held by the investors who purchase common stock in this offering.
From time to time in the future, we may also issue additional shares of our common stock or securities convertible into common stock pursuant to a variety of transactions, including acquisitions. Our issuance of additional shares of our common stock or securities convertible into our common stock would dilute your ownership of us and the sale of a significant amount of such shares in the public market could adversely affect prevailing market prices of our common stock.
Future sales of our common stock in the public market, or the perception in the public market that such sales may occur, could reduce our stock price.
After the completion of the Reincorporation, the Reclassification and this offering, we will have outstanding shares of common stock. The number of outstanding shares of common stock includes shares, including shares controlled by Apollo, that are “restricted securities,” as defined under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), and eligible for sale in the public market subject to the requirements of Rule 144. We, each of our officers and directors, Apollo and substantially all of our existing stockholders have agreed that (subject to certain exceptions), for a period of 180 days after the date of this prospectus, we and they will not, without the prior written consent of , dispose of any shares or any securities convertible into or exchangeable for our common stock, see “Underwriting (Conflicts of Interest).” Following the expiration of the applicable lock-up period, all of the issued and outstanding shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding periods and other limitations of Rule 144. Sales of significant amounts of stock in the public market could adversely affect prevailing market prices of our common stock. See “Shares Eligible for Future Sale” for a discussion of the shares of common stock that may be sold into the public market in the future.
There can be no assurances that a viable public market for our common stock will develop.
Prior to this offering, our common stock was not traded on any market. An active, liquid and orderly trading market for our common stock may not develop or be maintained after this offering. Active, liquid and orderly trading markets usually result in less price volatility and more efficiency in carrying out investors’ purchase and sale orders. We cannot predict the extent to which investor interest in our common stock will lead to the development of an active trading market on the or otherwise or how liquid that market might become. If an active public market for our common stock does not develop, or is not sustained, it may be difficult for you to sell your shares at a price that is attractive to you or at all.
The initial public offering price of our common stock may not be indicative of the market price of our common stock after this offering.
The initial public offering price was determined by negotiations between us and representatives of the underwriters, based on numerous factors which we discuss in “Underwriting (Conflicts of Interest)” and may not be indicative of the market price of our common stock after this offering. If you purchase our common stock, you may not be able to resell those shares at or above the initial public offering price.
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We do not anticipate paying dividends on our common stock in the foreseeable future.
We do not anticipate paying any dividends in the foreseeable future on our common stock. We intend to retain all future earnings for the operation and expansion of our business and the repayment of outstanding debt. Our senior secured credit facilities contain, and any future indebtedness likely will contain, restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to pay dividends and make other restricted payments. As a result, capital appreciation, if any, of our common stock may be your major source of gain for the foreseeable future. While we may change this policy at some point in the future, we cannot assure you that we will make such a change. See “Dividend Policy.”
If securities or industry analysts do not publish research or reports about our business or publish negative reports, our stock price could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our common stock or if our operating results do not meet their expectations, our stock price could decline.
We may issue preferred stock, the terms of which could adversely affect the voting power or value of our common stock.
Our amended and restated articles of incorporation authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which involve risks and uncertainties, are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and include, among other things, statements relating to:
• | our future financial position, future revenue, and projected costs; |
• | objectives of management; |
• | our strategy, outlook and growth prospects; |
• | our operational and financial targets and dividend policy; |
• | our planned expansion of the venue base and the implementation of the new design in our existing venues; |
• | general economic trends and trends in the industry and markets; and |
• | the competitive environment in which we operate. |
These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to:
• | our ability to effectively compete with numerous domestic and foreign businesses; |
• | our ability to provide financing on favorable terms compared with our competitors; |
• | our ability to adapt to and offer products that keep pace with evolving technology related to our businesses; |
• | our ability to develop, enhance and/or introduce successful gaming concepts and game content, and changes in player and operator preferences in participation games, which may adversely affect demand for our products; |
• | changing economic conditions and other factors that adversely affect the casino and gaming industry, the play levels of our participation games, product sales and our ability to collect outstanding receivables from our customers; |
• | the effect of our substantial indebtedness on our ability to raise additional capital to fund our operations, and our ability to react to changes in the economy or our industry and make debt service payments; |
• | changing regulations, new interpretations of existing laws, or delays in obtaining or maintaining required licenses or approvals, which may affect our ability to operate in existing markets or expand into new jurisdictions; |
• | our history of operating losses and a significant accumulated deficit; |
• | changes in the legal and regulatory scheme governing Native American gaming markets, including the ability to enforce contractual rights on Native American land, which could adversely affect revenues; |
• | our ability to realize satisfactory returns on money lent to new and existing customers to develop or expand gaming facilities or to acquire gaming routes; |
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• | failures in our systems or information technology, which could disrupt our business and adversely impact our results; |
• | slow growth in the development of new gaming jurisdictions or the number of new casinos, declines in the rate of replacement of existing gaming machines, and ownership changes and consolidation in the casino industry; |
• | legislation in states and other jurisdictions which may amend or repeal existing gaming legislation; |
• | intellectual property rights of others, which may prevent us from developing new products and services, entering new markets, or may expose use to liability or costly litigation; |
• | our ability to complete future acquisitions and integrate those businesses successfully; |
• | our dependence on the security and integrity of our systems and products; |
• | the effect of natural events in the locations in which we or our customers, suppliers or regulators operate; |
• | failure of our suppliers and contract manufacturers to meet our performance and quality standards or requirements could result in additional costs or loss of customers; |
• | risks related to operations in foreign countries and outside of traditional U.S. jurisdictions; |
• | foreign currency exchange rate fluctuations; |
• | quarterly fluctuation of our business; |
• | risks associated with, or arising out of, environmental, health and safety laws and regulations; |
• | product defects which could damage our reputation and our results of operations; |
• | changes to the Class II regulatory scheme; |
• | state compacts with our existing Native American tribal customers, which may reduce demand for our Class II game and make it difficult to compete against larger companies in the tribal Class III market; |
• | decreases in our revenue share percentage in our participation agreements with Native American tribal customers; |
• | adverse local economic, regulatory or licensing changes in Oklahoma or Alabama, the states in which the majority of our revenue has been derived, or material decreases in our revenue with our two largest customers, which states and customers comprised approximately 24% and 11%, respectively total revenue for the last twelve months ended September 30, 2017; |
• | dependence on the protection of our intellectual property and proprietary information and our ability to license intellectual property from third parties; |
• | failure to attract, retain and motivate key employees; |
• | certain restrictive open source licenses requiring us to make the source code of some of our products available to third parties and potentially granting third parties certain rights to the software; |
• | reliance on hardware, software and games licensed from third parties, and on technology provided by third-party vendors; |
• | dependence on our relationships with service providers; |
• | improving internal controls over financial reporting; |
• | our ability to maintain current customers on favorable terms; |
• | our ability to enter new markets and potential new markets; |
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• | our ability to capitalize on the expansion of internet or other forms of interactive gaming or other trends and changes in the gaming industries; |
• | our social gaming business is largely dependent upon our relationships with key channels; |
• | changes in tax regulation and results of tax audits, which could affect results of operations; |
• | our ability to generate sufficient cash to serve all of our indebtedness in the future; and |
• | other risks, uncertainties and factors set forth in this prospectus, including those set forth under “Risk Factors.” |
These forward-looking statements reflect our views with respect to future events as of the date of this prospectus and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this prospectus and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. You should read this prospectus and the documents filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.
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We expect to receive approximately $ million of net proceeds (based upon the assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus) from the sale of the common stock offered by us, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the public offering would increase (decrease) our net proceeds by approximately $ million.
We intend to use approximately $ million of the net proceeds from this offering to pay fees and expenses we shall incur in connection with this offering, which shall include legal and accounting fees, SEC and FINRA registration fees, printing expenses and other similar fees and expenses. We intend to use approximately $ million of the net proceeds of this offering to redeem in full the PIK notes. The PIK notes bear interest at 11.25% per annum and mature on May 20, 2024. They were originally issued on May 29, 2015, at an issue price of 97% of their principal amount. The proceeds from the issuance of the PIK notes were used to pay part of the consideration for the Cadillac Jack acquisition. The PIK notes were amended on May 30, 2017 in connection with the repayment of the Seller Notes.
Deutsche Bank AG owns the aggregate outstanding principal amount of the PIK Notes. As a result, Deutsche Bank AG will receive approximately $ million of the net proceeds of this Offering, in connection with the redemption of the PIK Notes. As a result, one of the underwriters in this Offering, Deutsche Bank Securities Inc., an affiliate of Deutsche Bank AG, is deemed to have a “conflict of interest” with us within the meaning of Rule 5121. See “Underwriting (Conflicts of Interest)”.
The remaining net proceeds will be used for general corporate purposes. While we currently have no specific plan for the use of the net proceeds of this offering, we anticipate using a significant portion of these proceeds to implement our growth strategies, generate funds for working capital and opportunistically repay outstanding indebtedness. Our management team will retain broad discretion to allocate the net proceeds of this offering. The precise amounts and timing of our use of the net proceeds will depend upon market conditions, among other factors.
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We currently do not plan to declare cash dividends on shares of our common stock in the foreseeable future. We expect that we will retain all of our future earnings for use in the operation and expansion of our business. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements, including our senior secured credit facilities and PIK notes, and any other factors deemed relevant by our board of directors. As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of restrictions on their ability to pay dividends to us under our senior secured credit facilities and PIK notes and under future indebtedness that we or they may incur. See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
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The following table sets forth our cash and cash equivalents and our capitalization as of September 30, 2017, on:
• | an actual basis; |
• | an as-adjusted basis to give effect to the incurrence of the incremental term loans in connection with the acquisition of the Rocket assets, see “Prospectus Summary – Recent Developments;” and |
• | a pro forma basis to give effect to this offering and the application the sale of shares of the common stock we are offering at the initial public offering price of $ per share, which is the midpoint of the estimated price range shown on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us of approximately $ million. Also, on a pro forma basis, $ of the net proceeds of this offering will be used to redeem in full the PIK notes, as described under the “Use of Proceeds.” The pro forma as-adjusted column assumes no exercise by the underwriters of their over-allotment option. |
You should read this table together with the information included elsewhere in this prospectus, including “Prospectus Summary—Summary Consolidated Financial Data,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto.
As of September 30, 2017 | ||||||||||||
Actual | As-Adjusted | Pro Forma | ||||||||||
(in thousands, except share and per share data) |
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Cash and cash equivalents |
$ | 10,025 | $ | 15,386 | $ | |||||||
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Debt: |
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Revolving credit facility (1) |
$ | — | $ | — | $ | |||||||
Term loan facility (1) |
435,150 | 500,150 | ||||||||||
PIK notes (2) |
141,328 | 141,328 | ||||||||||
Equipment long-term note payable and capital leases |
3,264 | 3,264 | ||||||||||
Equity: |
||||||||||||
Common stock at $0.01 par value; 30,000,100 shares authorized 100 Class A Shares issued and outstanding at September 30, 2017 |
149 | 149 | — | |||||||||
14,931,529 Class B Shares issued and outstanding at September 30, 2017 |
— | — | — | |||||||||
Common shares issued and outstanding following the Reorganization Transactions and pro forma for this offering |
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Additional paid-in capital |
177,276 | 177,276 | ||||||||||
Accumulated other comprehensive income (loss) |
(3,839 | ) | (3,839 | ) | ||||||||
Accumulated deficit |
(193,037 | ) | (193,037 | ) | ||||||||
Total stockholders’ equity |
(19,451 | ) | (19,451 | ) | ||||||||
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Total capitalization |
$ | 560,291 | $ | 625,291 | $ | |||||||
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(1) |
As of September 30, 2017, the Company’s consolidated senior secured financing included (i) a $448.9 million term loan facility with a maturity date of February 15, 2024 (the “term loan facility”) and (ii) a $30.0 million senior secured revolving credit facility with a maturity date of June 6, 2022, which includes a letter of credit sub-facility and a $5.0 million swingline loan sub-facility (the “revolving credit facility” and together with the term loan facility, the “senior secured credit facilities”). As of September 30, |
55
2017, the Company did not have any letters of credit issued but undrawn under the senior secured credit facilities. On December 6, 2017, AP Gaming I, LLC (the “Borrower”) entered into an incremental assumption agreement that amended new senior secured credit facilities to provide for the incurrence by the Borrower of incremental term loans in an aggregate principal amount of $65.0 million. The net proceeds of the incremental term loans were used to finance the acquisition of Class II electronic gaming machines and related assets operated by Rocket for approximately $57 million (see “Prospectus Summary – Recent Developments”), to pay fees and expenses in connection therewith of approximately $2.6 million and the remaining proceeds will be used for general corporate purposes. The incremental term loans have the same terms as the Borrower’s term loans. |
The Company and all of its material wholly owned domestic subsidiaries, subject to certain exceptions, guaranteed the senior secured credit facilities. The Company has pledged its capital stock and substantially all of its assets and those of each subsidiary guarantor, including capital stock of the subsidiary guarantors and 65% of the capital stock of the first-tier foreign subsidiaries that are not subsidiary guarantors, in each case subject to exceptions. See “Description of Material Indebtedness—Senior Secured Credit Facilities” for a description of the senior secured credit facilities.
(2) | The Company intends to use approximately $ million of the net proceeds of this offering to redeem in full the PIK notes. The redemption of the PIK notes will result in a pro forma reduction of $ million in annual interest expense for the year ended December 31, 2016 and a reduction of $ million for the nine month period ended September 30, 2017 on a pro forma basis. |
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Purchasers of the common stock in this offering will experience immediate and substantial dilution to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock as of September 30, 2017.
Our historical net tangible book value as of September 30, 2017 was $(489.1) million, or $(32.75) per share. Our historical net tangible book value represents the amount of our total tangible assets (total assets less goodwill and total intangible assets) less total liabilities. Historical net tangible book value per share represents historical net tangible book value divided by the number of shares of common stock issued and outstanding as of September 30, 2017.
Our pro forma net tangible book value (deficit) as of September 30, 2017 was $ million, or $ per share of our common stock. Pro forma net tangible book value (deficit) per share represents our pro forma net tangible book value (deficit) divided by the total number of shares outstanding as of September 30, 2017, after giving effect to the sale of shares of common stock in this offering at the assumed initial public offering price of $ per share (the midpoint of the estimated price range on the cover page of this prospectus) and the application of the net proceeds from this offering.
The following table illustrates the dilution per share of our common stock, assuming the underwriters do not exercise their option to purchase additional shares of our common stock:
Assumed initial public offering price per share |
$ | |||||||
Historical net tangible book value per share as of September 30, 2017 |
$ | (32.75 | ) | |||||
Increase per share attributable to the pro forma adjustments described above |
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Pro forma net tangible book value per share after this offering |
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Dilution in net tangible book value per share |
$ | |||||||
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Dilution is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share of common stock.
The following table summarizes, as of September 30, 2017, the total number of shares of common stock owned by existing stockholders and to be owned by new investors, the total consideration paid, and the average price per share paid by our existing stockholders and to be paid by new investors in this offering at the assumed initial public offering price of $ per share, calculated before deduction of estimated underwriting discounts and commissions.
Shares Purchased | Total Consideration |
Average
Price per Share |
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Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders |
% | $ | % | $ | ||||||||||||||||
Investors in the offering |
% | % | ||||||||||||||||||
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Total |
100 | % | $ | 100 | % | $ | ||||||||||||||
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To the extent the underwriters’ option to purchase additional shares is exercised, there will be further dilution to new investors.
A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by new investors by $ million, $ million and $ per share, respectively.
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If the underwriters were to fully exercise their option to purchase additional shares of our common stock, the percentage of common stock held by existing investors would be %, and the percentage of shares of common stock held by new investors would be %.
The foregoing tables and calculations are based on shares of our common stock outstanding as of September 30, 2017, and except as otherwise indicated:
• | assumes the Reclassification has been consummated; |
• | assumes an initial public offering price of $ per share of common stock, the midpoint of the price range on the cover of this prospectus; |
• | assumes no exercise of the underwriters’ option to purchase additional shares of common stock in this offering; and |
• | does not reflect an additional shares of our common stock reserved for future grant under our new equity incentive plan, which we expect to adopt in connection with this offering. |
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present our selected consolidated financial and other data as of and for the periods indicated.
The selected consolidated statements of operations data for the fiscal years ended December 31, 2012, 2014, 2015 and 2016, the period from December 21, 2013 through December 31, 2013 (the “Successor Period”), the period from January 1, 2013 to December 21, 2013 (the “Predecessor Period”), and the selected consolidated balance sheet data as of December 31, 2012, December 31, 2013, December 31, 2014, December 31, 2015 and December 31, 2016 are derived from our annual consolidated financial statements. The data for the nine months ended September 30, 2016 and 2017 and the balance sheet for September 30, 2017 has been derived from unaudited financial statements also appearing herein and which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. The selected consolidated statements of operations data for the last twelve months ended September 30, 2017 have been derived by deducting the unaudited consolidated statement of operations data for the nine months ended September 30, 2016 from the audited statement of operations data for the year ended December 31, 2016, and then adding thereto the unaudited consolidated statement of operations data for the nine months ended September 30, 2017. Our historical results are not necessarily indicative of the results that should be expected in any future period.
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The selected historical financial data presented below does not purport to project our financial position or results of operations for any future date or period and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.
Fiscal Year |
Nine Months
Ended September 30, |
LTM
September 30, |
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Predecessor | Successor | |||||||||||||||||||||||||||||||||||||||
1/1/13-
12/20/13 |
12/21/13-
12/31/13 |
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(in thousands, except share and per
share data and Key Performance Indicators) |
2012 | 2013 | 2013 | 2014 | 2015 | 2016 | 2016 | 2017 | 2017 | |||||||||||||||||||||||||||||||
Consolidated Statements of Operations: |
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Gaming operations |
$ | 57,792 | $ | 54,903 | $ | 1,953 | $ | 68,981 | $ | 117,013 | $ | 154,857 | $ | 117,093 | $ | 125,040 | $ | 162,804 | ||||||||||||||||||||||
Equipment sales |
763 | 1,558 | — | 3,159 | 6,279 | 11,949 | 6,968 | 29,254 | 34,235 | |||||||||||||||||||||||||||||||
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Total revenues |
58,555 | 56,461 | 1,953 | 72,140 | 123,292 | 166,806 | 124,061 | 154,294 | 197,039 | |||||||||||||||||||||||||||||||
Operating expenses |
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Cost of gaming operations (1) |
13,798 | 12,001 | 320 | 14,169 | 23,291 | 26,736 | 19,627 | 21,794 | 28,903 | |||||||||||||||||||||||||||||||
Cost of equipment sales (1) |
395 | 893 | — | 1,607 | 1,548 | 6,237 | 4,244 | 14,326 | 16,319 | |||||||||||||||||||||||||||||||
Selling, general and administrative |
12,756 | 14,343 | 807 | 19,456 | 40,088 | 46,108 | 36,654 | 30,368 | 39,822 | |||||||||||||||||||||||||||||||
Research and development |
3,608 | 3,042 | 50 | 4,856 | 14,376 | 21,346 | 16,517 | 17,912 | 22,741 | |||||||||||||||||||||||||||||||
Write downs and other charges |
29,845 | 10,326 | 7,469 | 7,068 | 11,766 | 3,262 | 2,153 | 2,655 | 3,764 | |||||||||||||||||||||||||||||||
Depreciation and amortization |
29,586 | 27,660 | 930 | 33,405 | 61,662 | 80,181 | 60,527 | 53,598 | 73,252 | |||||||||||||||||||||||||||||||
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Total operating expenses |
89,988 | 68,265 | 9,576 | 80,561 | 152,731 | 183,870 | 139,722 | 140,653 | 184,801 | |||||||||||||||||||||||||||||||
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Loss from operations |
(31,433 | ) | (11,804 | ) | (7,623 | ) | (8,421 | ) | (29,439 | ) | (17,064 | ) | (15,661 | ) | 13,641 | 12,238 | ||||||||||||||||||||||||
Interest expense |
10,270 | 17,116 | 485 | 17,235 | 41,642 | 59,963 | 44,151 | 42,380 | 58,192 | |||||||||||||||||||||||||||||||
Interest income |
(439 | ) | (1,410 | ) | — | (42 | ) | (82 | ) | (57 | ) | (51 | ) | (80 | ) | (86 | ) | |||||||||||||||||||||||
Loss on extinguishment and modification of debt |
— | 14,661 | — | — | — | — | — | 8,129 | 8,129 | |||||||||||||||||||||||||||||||
Other expense (income) |
(66 | ) | 5 | (6 | ) | 573 | 3,635 | 7,404 | 6,314 | (4,805 | ) | (3,715 | ) | |||||||||||||||||||||||||||
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Loss before income taxes |
(41,198 | ) | (42,176 | ) | (8,102 | ) | (26,187 | ) | (74,634 | ) | (84,374 | ) | (66,075 | ) | (31,983 | ) | (50,282 | ) | ||||||||||||||||||||||
Income tax benefit (expense) |
— | — | (54 | ) | (2,189 | ) | 36,089 | 3,000 | 4,935 | (4,603 | ) | (6,538 | ) | |||||||||||||||||||||||||||
Net loss |
(41,198 | ) | (42,176 | ) | (8,156 | ) | (28,376 | ) | (38,545 | ) | (81,374 | ) | (61,140 | ) | (36,586 | ) | (56,820 | ) | ||||||||||||||||||||||
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Basic and diluted loss per common share: |
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Basic |
N/A | N/A | (0.82 | ) | (2.84 | ) | (2.98 | ) | (5.45 | ) | (4.09 | ) | (2.45 | ) | (3.81 | ) | ||||||||||||||||||||||||
Diluted |
N/A | N/A | (0.82 | ) | (2.84 | ) | (2.98 | ) | (5.45 | ) | (4.09 | ) | (2.45 | ) | (3.81 | ) | ||||||||||||||||||||||||
Weighted average common shares outstanding: |
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Basic |
N/A | N/A | 10,000 | 10,000 | 12,918 | 14,932 | 14,932 | 14,932 | 14,932 | |||||||||||||||||||||||||||||||
Diluted |
N/A | N/A | 10,000 | 10,000 | 12,918 | 14,932 | 14,932 | 14,932 | 14,932 | |||||||||||||||||||||||||||||||
Key Performance Indicators: |
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Domestic installed base |
7,720 | 8,708 | 8,708 | 8,735 | 13,139 | 13,953 | 13,651 | 14,544 | 14,544 | |||||||||||||||||||||||||||||||
International installed base |
— | — | — | — | 6,112 | 6,898 | 6,457 | 7,471 | 7,471 | |||||||||||||||||||||||||||||||
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Total installed base |
7,720 | 8,708 | 8,708 | 8,735 | 19,251 | 20,851 | 20,108 | 22,015 | 22,015 | |||||||||||||||||||||||||||||||
Domestic revenue per day |
$ | 21.34 | $ | 20.36 | $ | 19.03 | $ | 21.23 | $ | 24.33 | $ | 24.74 | $ | 25.19 | $ | 25.73 | $ | 25.16 | ||||||||||||||||||||||
International revenue per day |
— | — | — | 9.83 | 9.23 | 9.50 | 8.37 | 8.40 | ||||||||||||||||||||||||||||||||
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Total revenue per day |
$ | 21.34 | $ | 20.36 | $ | 19.03 | $ | 21.23 | $ | 20.93 | $ | 19.78 | $ | 20.20 | $ | 19.86 | $ | 19.55 | ||||||||||||||||||||||
EGM units sold |
35 | 115 | 8 | 255 | 203 | 465 | 205 | 1,868 | 2,128 | |||||||||||||||||||||||||||||||
Average sales price |
$ | 16,805 | $ | 10,761 | $ | 19,999 | $ | 9,497 | $ | 16,498 | $ | 14,897 | $ | 14,630 | $ | 15,835 | $ | 15,746 |
As of December 31, |
As of
September 30, |
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2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||
Consolidated Balance Sheet |
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Total assets |
$ | 253,828 | $ | 256,152 | $ | 711,147 | $ | 634,092 | 639,761 | |||||||||||
Total liabilities |
161,985 | 192,396 | 610,610 | 617,664 | 659,212 | |||||||||||||||
Total stockholders’ equity |
91,843 | 63,756 | 100,537 | 16,428 | (19,451 | ) |
(1) | Exclusive of amortization and depreciation. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this prospectus, as well as the information presented under “Selected Historical Consolidated Financial and Other Data.” The following discussion contains forward-looking statements that reflect our plans, estimates and assumptions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause such differences are discussed in the sections of this prospectus titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Executive Summary
Overview
We are a leading designer and supplier of EGMs and other products and services for the gaming industry. Founded in 2005, we historically focused on supplying EGMs, including slot machines, video bingo machines, and other electronic gaming devices, to the Native American gaming market, where we maintain an approximately 20% market share of all Class II EGMs. Since 2014, we have expanded our product line-up to include: (i) Class III EGMs for commercial and Native American casinos, (ii) table game products and (iii) interactive products, all of which we believe provide us with growth opportunities as we expand in markets where we currently have limited or no presence. Our expansion into Class III and ancillary product offerings has driven our strong growth and momentum in revenue, EGM adjusted EBITDA and our installed base, which have increased by 173%, 158% and 152%, respectively, since 2014. For the LTM period, approximately 83% of our total revenue was generated through recurring contracted lease agreements whereby we place EGMs and table game products at our customers’ gaming facilities under either a revenue sharing agreement (we receive a percentage of the revenues that these products generate) or fee-per-day agreement (we receive a daily or monthly fixed fee per EGM or table game product), or recurring revenue from our Interactive gaming operations. We operate our business in three distinct segments: EGMs, Table Products and Interactive.
As of September 30, 2017, we had 22,015 EGM units installed under revenue sharing or fee-per-day agreements, approximately 10,500 of which are attributable to the inclusion of Cadillac Jack. The majority of our systems are used by Native American gaming operators in both Class II and Class III jurisdictions as well as commercial casinos in Mexico. We currently derive a substantial portion of our gaming revenues from lease agreements whereby we place EGMs and systems at a customer’s facility in return for either a daily fee or a share of the revenues that these machines and systems generate, which we refer to as “participation agreements” and as our “participation model.”
Since 2014, we have significantly broadened and diversified our product portfolio through both organic development and strategic acquisitions. In October 2017, we acquired a library of specialty table game offerings from In Bet Gaming, which increased our table product installed base by approximately 500 units and was our largest table game investment to date. In May 2015, we acquired Cadillac Jack, which greatly expanded our games library and EGM offerings. We also acquired online developer Gamingo Limited in June 2015, expanding our offerings to include interactive products such as social casino games, available to play on desktop and mobile devices. We also maintain R&D centers in Atlanta and more recently, in Australia to continue to facilitate growth in our games library.
Business Outlook
The poor macro-economic environment in the late 2000s and the resulting decrease in consumer discretionary spending caused the U.S. gaming industry to experience its first ever year-over-year declines in gross gaming revenue in 2008 and 2009. While the recessionary pressures were felt in most markets, the core
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destination markets of the Las Vegas Strip and Atlantic City were among the hardest hit due to the negative effects of both the recession and increased regional competition, while other commercial markets and the Native American markets were not as adversely impacted. During 2010, we began to see improvements in regional commercial gaming jurisdictions, which have continued through 2016.
We believe the current economic environment presents multiple opportunities for our business. We believe the improving economy should lead to increases in consumer discretionary spending, which should in turn drive higher revenues in existing gaming locations. In addition, state budget deficits have ballooned and many states with fiscal difficulties are turning to gaming as a source of revenue enhancement, which we believe presents us with continued long-term growth opportunities.
We believe our participation model offers an attractive value proposition to casino and other facility operators; especially in the current economic environment. By leasing our gaming machines to customers, we enable our customers to introduce new games in their facilities with minimal cost and financial risk. We also strategically allow our customers to purchase our premium cabinets, whereas our competitors typically only lease (and will not sell) their premium products. We believe our willingness to sell our premium cabinets gives us a competitive advantage with our customers. In addition, our selective use of development agreements to secure incremental game placements under long-term contracts provides customers with additional capital to help expand their operations.
The following points should be noted as they relate to each of our segments:
Electronic Gaming Machines
• | Our EGM segment is primarily a lease model, and we expect to continue to realize the majority of our EGM revenues through leases in markets such as the United States and Mexico, as well as other markets that make strategic sense. |
• | We also offer sales of our EGMs, although it currently constitutes a smaller portion of our EGM revenues. We expect that EGM sales will grow as a proportion of our total revenues in the future. |
• | We expect growth in the United States, Latin America and other new international jurisdictions that we are in the process of entering, such as the Philippines. In the current year, we have grown our footprint in Latin America and the United States and expect continued growth in these markets. |
Table Products
• | The majority of our Table Products segment revenue is derived from royalties and leases primarily in the United States. We are constantly looking to expand our proprietary table product footprint through the acquisition or development of new games. |
• | We also pursue opportunities to place Table Products in new properties and jurisdictions in the United States. In the past few years, several jurisdictions have either opened new casino properties or approved live table games, and we have seen placements of our table products in those new jurisdictions. |
• | We intend to increase our Table Products content through development and acquisition of new proprietary titles. By increasing our footprint with new titles, we hope to increase our market penetration. |
Interactive
• | Currently, our interactive social gaming revenue is generated from a high volume of consumers’ purchases of virtual coins which are used to play the games. |
• | We expect to begin offering Business-to-Business (“B2B”) social casino products available to land-based casino customers. |
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• | We expect to devote substantial resources to the ongoing maintenance and development of our Interactive gaming segment. |
Key Drivers of Our Business
Our revenues are impacted by the following key factors:
• | the amount of money spent by consumers on our domestic revenue share installed base; |
• | the amount of the daily fee and selling price of our participation electronic gaming machines; |
• | our revenue share percentage with customers; |
• | the capital budgets of our customers; |
• | the level of replacement of existing electronic gaming machines in existing casinos; |
• | expansion of existing casino floor share; |
• | development of new casinos; |
• | opening of new gaming jurisdictions both in the United States and internationally; |
• | our ability to obtain and maintain gaming licenses in various jurisdictions; |
• | the relative competitiveness and popularity of our electronic gaming machines compared to competitive products offered in the same facilities; and |
• | general macro-economic factors, including levels of and changes to consumer disposable income and personal consumption spending. |
Our expenses are impacted by the following key factors:
• | fluctuations in the cost of labor relating to productivity; |
• | overtime and training; |
• | fluctuations in the price of components for gaming equipment; |
• | fluctuations in energy prices; |
• | changes in the cost of obtaining and maintaining gaming licenses; and |
• | fluctuations in the level of maintenance expense required on gaming equipment. |
Variations in our selling, general and administrative expenses, or SG&A, and research and development, or R&D are primarily due to changes in employment and salaries and related fringe benefits.
Acquisitions and Divestitures
We have made several strategic acquisitions over the past three years.
Rocket
On December 6, 2017, we acquired an installed base of approximately 1,600 networked Class II slot machines, together with related intellectual property, which were operated by Rocket Gaming Systems (“Rocket”) for $57 million. The acquired Class II slot machines are located across the United States, with significant presence in key markets such as California, Oklahoma, Montana, Washington and Texas. The Class II portfolio from Rocket includes wide-area progressive and standalone video and spinning-reel games and platforms, including Galaxy , Northstar and the player-favorite Gold Series, a suite of games that feature a $1 million-plus progressive prize and is the longest-standing million dollar wide-area progressive on tribal casino floors. See “Prospectus Summary—Recent Developments.”
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In Bet Gaming
In August 2017, we acquired five dynamic, new games from New Jersey-based In Bet Gaming (“In Bet”), including Super 4, Blackjack Match Progressive, Jackpot Blackjack, Royal 9, and Jackpot Baccarat ™ . These games have approximately 500 installs worldwide and the acquisition represents our largest table game investment to date. Each of these games features a simple, rewarding side bet that extends the winning experience in interactive ways and further engages players. The acquisition of In Bet strategically combined In Bet’s innovative table game side bet technology with our expertise in table game progressive technology to deliver players and operators unmatched gaming play.
Gamingo Limited
On June 15, 2015, we purchased 100% of the equity of Gamingo Limited (formerly known as “RocketPlay”, currently known as “AGSi”), a leading gaming company developing social casino titles for mobile devices. With primary offices in San Francisco and Tel Aviv, AGSi’s flagship product, Lucky Play Casino, gives players a casino-quality experience with EGMs, table products, tournaments, and live events. The total consideration of $8.8 million included an estimated $5.0 million of contingent consideration payable based on the operating results of AGSi during a twelve-month measurement period that ended in December 2016. The amount of the contingent consideration recorded was estimated at the purchase date and was recorded in other long-term liabilities in the consolidated balance sheet. As of December 31, 2015 the recorded value of the contingent consideration was written off in full (included in write downs and other charges) based on the estimated fair value on that date.
Cadillac Jack
On May 29, 2015, the Company acquired 100% of the equity of Amaya Americas Corporation (“Cadillac Jack”), a leading provider of Class II gaming machines for the North American tribal gaming market, with key regions of operation within Alabama, Mexico, and Wisconsin. The acquisition of Cadillac Jack demonstrated our ability to recognize both cost and revenue synergies and, as a result of efficiently integrating two complementary businesses, to deliver record financial results in 2016. The acquisition created growth opportunities in Class II and Class III jurisdictions and expanded the Company’s geographic footprint. The combined management teams are complementary and possess years of combined experience that is expected to allow us to effectively grow and improve our business.
The consideration for the acquisition of Cadillac Jack comprised of approximately $370.0 million in cash, subject to certain adjustments and a promissory note to the seller, Amaya Inc., for $12.0 million, as well as a contingent receivable that was recorded at its estimated fair value on the date of the acquisition. The cash consideration was funded primarily from cash proceeds of incremental borrowings on the Company’s existing term loans, the issuance of senior secured PIK notes and the issuance of additional common stock. The contingent receivable related to a clause in the stock purchase agreement allowing for a refund of up to $25.0 million if certain deactivated gaming machines in Mexico are not in operation by November 29, 2016. As of December 31, 2016, the estimated fair value of the contingent receivable recorded in other long-term assets. In the first quarter of 2017, the Company reached an agreement with Amaya, Inc. to receive $5.1 million for the contingent receivable. The promissory note to Amaya Inc. was fully paid and terminated in June 2017.
Casino War Blackjack, Inc.
On July 1, 2014, a wholly owned subsidiary of the Company entered into an agreement to purchase 100% of the equity of War Blackjack for approximately $1.3 million in cash, subject to terms outlined in the Stock Purchase Agreement, dated July 1, 2014. We believe the acquisition of Casino War Blackjack enabled us to extend our business into table products, as well as our entry into the interactive social casino space. This demonstrated our commitment to evolving our business to adapt to the preferences of the next-generation gambler. The acquisition closed on July 18, 2014 and was funded by available cash on hand. War Blackjack is an innovative manufacturer and developer of table and electronic games based in Las Vegas, Nevada.
64
C2 Gaming, LLC
On May 6, 2014, a wholly owned subsidiary of the Company entered into an agreement to purchase 100% of the equity of C2 Gaming, LLC (“C2 Gaming”) for $23.3 million in cash, subject to terms outlined in the Equity Purchase Agreement dated May 6, 2014 (“C2 Acquisition Agreement”). The acquisition was funded by an initial cash payment and an agreement to pay the sellers $9.0 million on the one-year anniversary of the closing of the acquisition, which was paid during the quarter ended June 30, 2015. The acquisition also included an amount of contingent consideration of $3.0 million that was payable upon the satisfaction of certain milestones, including the submission and approval of video slot platforms to various jurisdictions as outlined in the C2 Acquisition Agreement. During the year ended December 31, 2014, the Company paid $0.5 million of the contingent consideration. In May 2015, the C2 Acquisition Agreement was amended to reduce the remaining contingent consideration liability of $2.5 million to $2.1 million and to acknowledge that the milestones of the C2 Acquisition Agreement were satisfied. In July 2015, the Company paid $1.0 million of the contingent consideration, reducing the balance to $1.1 million, which was paid and terminated in January 2016. As of December 31, 2016, no balance remained.
Intellectual Property Acquisitions
During the quarter ended September 30, 2015, the Company acquired certain intangible assets related to the purchase of table products and table product related intellectual property. Some of the acquisitions were accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our estimates of their fair values at the acquisition dates. The total consideration of $10.0 million includes an estimated $1.5 million of contingent consideration that is payable periodically based on a percentage of product revenue earned on the related table products. The amount of the contingent consideration recorded was estimated at the purchase date and is subject to change based on changes in the estimated product revenue and has been recorded in other long-term liabilities in the consolidated balance sheet.
65
Results of Operations
Year Ended December 31, 2014 compared to the Year Ended December 31, 2015
The following table sets forth certain selected consolidated financial data derived from our annual consolidated financial statements for the periods indicated (in thousands, except percentages):
Year ended December 31, |
$
Change |
%
Change |
||||||||||||||
2014 | 2015 | |||||||||||||||
Consolidated Statements of Operations: |
||||||||||||||||
Revenues |
||||||||||||||||
Gaming operations |
$ | 68,981 | $ | 117,013 | $ | 48,032 | 69.6 | % | ||||||||
Equipment sales |
3,159 | 6,279 | 3,120 | 98.8 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
72,140 | 123,292 | 51,152 | 70.9 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses |
||||||||||||||||
Cost of gaming operations |
14,169 | 23,291 | 9,122 | 64.4 | % | |||||||||||
Cost of equipment sales |
1,607 | 1,548 | (59 | ) | (3.7 | )% | ||||||||||
Selling, general and administrative |
19,456 | 40,088 | 20,632 | 106.0 | % | |||||||||||
Research and development |
4,856 | 14,376 | 9,520 | 196.0 | % | |||||||||||
Write downs and other charges |
7,068 | 11,766 | 4,698 | 66.5 | % | |||||||||||
Depreciation and amortization |
33,405 | 61,662 | 28,257 | 84.6 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
80,561 | 152,731 | 72,170 | 89.6 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(8,421 | ) | (29,439 | ) | (21,018 | ) | (249.6 | )% | ||||||||
Other expense (income) |
||||||||||||||||
Interest expense |
17,235 | 41,642 | 24,407 | 141.6 | % | |||||||||||
Interest income |
(42 | ) | (82 | ) | (40 | ) | (95.2 | )% | ||||||||
Other expense |
573 | 3,635 | 3,062 | 534.4 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(26,187 | ) | (74,634 | ) | (48,447 | ) | (185.0 | )% | ||||||||
Income tax benefit (expense) |
(2,189 | ) | 36,089 | 38,278 | 1,748.7 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (28,376 | ) | $ | (38,545 | ) | $ | (10,169 | ) | (35.8 | )% | |||||
|
|
|
|
|
|
|
|
Revenues
Gaming Operations . For the year ended December 31, 2015, revenues from gaming operations increased by $48.0 million as compared to the prior year period. Of this increase, $41.4 million and $2.0 million is attributable to the inclusion of Cadillac Jack and AGSi, respectively. The inclusion of Cadillac Jack, increased our EGM installed base by approximately 10,500 units in May of 2015, when Cadillac Jack was acquired. The remaining increase in revenues was driven primarily by improved game performance and a 150% increase in the installed base of our Big Red slot machine, which has historically been our best performing game. Although the Company has experienced a decrease in participation share rates for gaming revenue received pursuant to participation agreements with Native American tribal customers, player demand, driven by the Company’s newer and more competitive game content, has increased and offset the effects of decreased participation share rates. Total EGM revenue per day decreased $0.30 to $20.93 compared to the prior year. The decrease is primarily attributable to the inclusion of the Cadillac Jack’s Mexico installed base of approximately 6,100 units, which generates lower revenues per day than the Company’s historical installed base.
Equipment Sales . The increase in equipment sales is primarily due to the sale of a nontransferable and nonexclusive licenses of certain licensed game content to a third party in 2015 for $2.2 million that was not present in 2014. The remaining increase in equipment sales is attributable to the higher average sales price of $16,498 for the 203 units sold for the year ended December 31, 2015, compared to an average sales price of $9,497 for the 255 units sold in the prior year period.
66
Operating Expenses
Cost of gaming operations . The inclusion of Cadillac Jack and AGSi increased the cost of gaming operations expenses by $8.5 million and $0.6 million, respectively, for the year ended December 31, 2015, compared to the prior year period.
Cost of Equipment Sales . The decrease in cost of equipment sales is attributable to the decrease in the number of EGM units sold in the year ended December 31, 2015, compared to the prior year period.
Selling, general and administrative . The inclusion of Cadillac Jack and AGSi increased selling, general and administrative expenses by $9.3 million and $3.1 million, respectively, for the year ended December 31, 2015, compared to the prior year period. The remaining increase is primarily due to increases in professional fees of $3.7 million. The increase is also attributable to payroll and related expenses of $2.2 million driven by increased headcount for corporate operations and our new table products division, trade shows and marketing expenses increased $1.0 million driven by our new table products division and increases in rent expense of $0.6 million related to our new corporate headquarters in Las Vegas, Nevada and our new facility in Oklahoma City, Oklahoma.
Research and development . The increase in research and development costs was primarily due to the inclusion of Cadillac Jack and AGSi, which accounted for $8.9 million and $0.8 million of the increase, respectively, for the year ended December 31, 2015, compared to the prior year period, offset by decreased salary expense of $0.4 million related to reduced headcount from the closure of our Toronto location.
Write downs and other charges . During the year ended December 31, 2014, the Company recognized $7.1 million in write-downs and other charges primarily related to acquisition charges of $2.8 million, losses from the disposal of assets of $1.9 million, an impairment to intangible assets of $1.4 million and the impairment of long-lived assets of $0.8 million.
During the year ended December 31, 2015, the Company recognized $11.8 million in write-downs and other charges primarily related to acquisition charges of $8.2 million. The Company also recognized an impairment to intangible assets of $3.4 million related to game titles and write-offs related to prepaid royalties of $1.3 million, losses from the disposal of assets of $1.3 million and the impairment of long-lived assets of $0.2 million, partially offset by net write downs of primarily contingent consideration $2.7 million that is described in Note 2 of our consolidated financial statements.
Depreciation and amortization . The increase in depreciation and amortization was primarily due to the inclusion of Cadillac Jack and AGSi, which accounted for $26.7 million and $1.0 million, respectively, for the year ended December 31, 2015, compared to the prior year period. For the year ended December 31, 2015, the aggregate amount of property and equipment on which depreciation is based was $104.3 million compared to $57.2 million in the prior year period. The remaining increase was due to an increase in capital expenditures during 2014.
Other Expense (Income), net
Interest expense . The increase is primarily attributed to an increase in the average principal amounts outstanding under the senior secured credit facilities of $153.5 million at December 31, 2014 compared to $414.9 million at December 31, 2015, the issuance of senior secured PIK notes for $115.0 million and the Seller Notes for $12.0 million during the year ended December 31, 2015, compared to the prior year period. The proceeds of the incremental term loans and PIK notes were used primarily to pay the consideration for the Cadillac Jack acquisition.
Other expense . The increase in other expense was primarily due to the inclusion of Cadillac Jack, which accounted for $2.8 million for the year ended December 31, 2015, compared to the prior year period. The remaining increase was due to unfavorable changes in foreign currency exchange rates.
67
Income Taxes
The Company’s effective income tax rate for the year ended December 31, 2014 was an expense of 8.4%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the year ended December 31, 2014 was primarily due to valuation allowance considerations and amortization of indefinite life intangibles. The Company’s effective income tax rate for the year ended December 31, 2015, was a benefit of 48.4%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the year ended December 31, 2015, was primarily due to the income tax benefit recorded from the reversal of our valuation allowance on deferred tax assets as a result of the net deferred tax liabilities assumed in the Cadillac Jack acquisition.
Year Ended December 31, 2015 compared to the Year Ended December 31, 2016
The following table sets forth certain selected consolidated financial data derived from our annual consolidated financial statements for the periods indicated (in thousands, except percentages):
Year ended December 31, |
$
Change |
%
Change |
||||||||||||||
2015 | 2016 | |||||||||||||||
Consolidated Statements of Operations: |
||||||||||||||||
Revenues |
||||||||||||||||
Gaming operations |
$ | 117,013 | $ | 154,857 | $ | 37,844 | 32.3 | % | ||||||||
Equipment sales |
6,279 | 11,949 | 5,670 | 90.3 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
123,292 | 166,806 | 43,514 | 35.3 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses |
||||||||||||||||
Cost of gaming operations |
23,291 | 26,736 | 3,445 | 14.8 | % | |||||||||||
Cost of equipment sales |
1,548 | 6,237 | 4,689 | 302.9 | % | |||||||||||
Selling, general and administrative |
40,088 | 46,108 | 6,020 | 15.0 | % | |||||||||||
Research and development |
14,376 | 21,346 | 6,970 | 48.5 | % | |||||||||||
Write downs and other charges |
11,766 | 3,262 | (8,504 | ) | (72.3 | )% | ||||||||||
Depreciation and amortization |
61,662 | 80,181 | 18,519 | 30.0 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
152,731 | 183,870 | 31,139 | 20.4 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(29,439 | ) | (17,064 | ) | 12,375 | 42.0 | % | |||||||||
Other expense (income) |
||||||||||||||||
Interest expense |
41,642 | 59,963 | 18,321 | 44.0 | % | |||||||||||
Interest income |
(82 | ) | (57 | ) | 25 | 30.5 | % | |||||||||
Other expense |
3,635 | 7,404 | 3,769 | 103.7 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(74,634 | ) | (84,374 | ) | (9,740 | ) | (13.1 | )% | ||||||||
Income tax benefit |
36,089 | 3,000 | (33,089 | ) | (91.7 | )% | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (38,545 | ) | $ | (81,374 | ) | $ | (42,829 | ) | 111.1 | % | |||||
|
|
|
|
|
|
|
|
Revenues
Gaming Operations . The increase in gaming operations is primarily attributable to the inclusion of Cadillac Jack for the entire year ended December 31, 2016, compared to just seven months in the prior year period. The inclusion of Cadillac Jack increased our EGM installed base by approximately 10,500 units in May of 2015 when it was acquired. The increase was also attributable to a year over year increase of over 1,600 units in the Company’s total EGM installed base. The Company’s domestic installed base increased over 800 units compared to the prior year period, which is primarily attributable to the popularity of the Company’s new ICON cabinets, as well as revenue synergies through the optimization of the Company’s installed base by installing newer and more competitive game content on the Company’s EGMs. To a lesser extent, the increase in revenue was
68
attributable to an increase in domestic revenue per day from $24.33 to $24.74, offset by a decrease in international revenue per day from $9.83 to $9.23. EGM revenue per day decreased in total. The decrease is primarily attributable to the inclusion of Cadillac Jack’s Mexico installed base, which generates lower revenues per day than the Company’s historical installed base. Although the Company has experienced a decrease in domestic participation share rates for gaming revenue received pursuant to participation agreements with Native American tribal customers, player demand, driven by newer and more competitive game content, has offset the effects of decreased participation share rates.
The increase was also attributable to the inclusion of AGSi for the entire year ended December 31, 2016, compared to just six months in the prior year period when acquired in June of 2015, which accounted for an increase of $5.7 million. Table Games revenue increased by $1.0 million attributable to the increase in the table product installed base, which increased to 1,500 units at December 31, 2016 compared to 815 at December 31, 2015.
Current period results have been negatively impacted by $3.6 million relating to foreign currency fluctuations compared to the prior year period.
Equipment Sales . The increase in equipment sales is due to the sale of 465 units in the year ended December 31, 2016, compared to 203 units in the prior year period, offset by a 9.7% decrease in the average sales prices of units sold. Equipment sales also increased due to an increase in revenues from the sale of nontransferable and nonexclusive licenses of certain licensed game content to a third party for $4.3 million in 2016 compared to $2.2 million in 2015. The increase in the number of units sold is primarily attributable to the success of our new ICON cabinet and our growth in the Class III market in which many customers prefer to buy rather than lease EGMs.
Operating Expenses
Cost of gaming operations . The increase is primarily attributable to the inclusion of Cadillac Jack for the entire year ended December 31, 2016, compared to just seven months in the prior year period. The inclusion of AGSi accounted for approximately $1.6 million of the increase for the year ended December 31, 2016 compared to the prior year period. To a lesser extent, the increased installed base of 20,851 EGM units compared to 19,251 units in the prior year period, as well as the increased installed base of 1,500 table products compared to 815 in the prior year period resulted in higher maintenance costs. As a percentage of gaming operations revenue, costs of gaming operations was 17.3% for the year ended December 31, 2016 compared to 20.0% for the prior year period due to improved game performance and benefits from cost synergies resulting from integration activities.
Cost of Equipment Sales . The increase in cost of equipment sales is attributable to the increase of 262 EGM units sold. Cost of equipment sales as a percentage of sales increased compared to the prior year period, primarily due to the sale of approximately 850 older generation gaming machines in secondary markets in 2016. These gaming machines were previously leased to customers and sold at substantially lower average selling prices. There were no sales of this nature in 2015.
Selling, general and administrative . The increase in selling, general and administrative costs is primarily due to the inclusion of Cadillac Jack for the entire year ended December 31, 2016, compared to just seven months in the prior year period. The inclusion of AGSi for the additional six months in 2016 compared to the prior year period accounted for approximately $5.2 million of the increase in selling, general and administrative costs. Additionally, as a result of the Company’s expansion into Mexico in 2016 pursuant to the Cadillac Jack acquisition, the Company’s bad debt expense increased approximately $2.2 million in the year ended December 31, 2016 as compared to the prior year period, as the Company started analyzing the collectability of its credit in that market. To a lesser extent, the increase in the Company’s bad debt was due to specifically identified customer accounts in the U.S. that were deemed to be uncollectible. These increases were offset by a reduction in non-cash stock compensation of $2.5 million associated with the stock options of Amaya, Inc.
69
described in Note 2 and decreased professional fees related to prior year acquisitions of $1.1 million. As a percentage of total revenues, selling, general and administrative expense decreased to 27.6% for the year ended December 31, 2016, compared to 32.5% for the prior year period due to benefits from cost synergies resulting from integration activities and increased revenues.
Research and development . The increase in research and development costs is primarily due to the inclusion of Cadillac Jack for a full year compared to just seven months in the prior year period. The inclusion of AGSi for the additional six months in 2016 compared to the prior year period accounted for approximately $0.9 million of the increase. These increases were offset by a reduction in non-cash stock compensation of $2.2 million associated with the stock options of Amaya, Inc. described in Note 2 and a $1.1 million decrease in expenses from the closure of our Toronto location. As a percentage of total revenues, research and development expense was 12.8% for year ended December 31, 2016, compared to 11.7% for the prior year period. The increase was due to the Company’s strategy to invest in the research and development of new game titles and EGM cabinets.
Write downs and other charges . During the year ended December 31, 2015, the Company recognized $11.8 million in write-downs and other charges primarily related to acquisition charges of $8.2 million. The Company also recognized an impairment to intangible assets of $3.4 million related to game titles and write-offs related to prepaid royalties of $1.3 million, losses from the disposal of assets of $1.3 million and the impairment of long-lived assets of $0.2 million, partially offset by net write downs of primarily contingent consideration $2.7 million that is described in Note 2 to our consolidated financial statements.
During the year ended December 31, 2016, the Company recognized $3.3 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that the Company expects will provide less benefit than originally estimated from the Cadillac Jack acquisition, write-down of long-lived assets of $2.0 million related to older generation gaming machines, and losses from the disposal of assets of $1.0 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition.
Depreciation and amortization . The increase in depreciation and amortization is primarily due to the inclusion of assets acquired from Cadillac Jack and AGSi, for the year ended December 31, 2016, compared to the prior year period. For the year ended December 31, 2016, the aggregate amount of property and equipment on which depreciation is based was $122.5 million compared to $104.3 million in the prior year period. The remaining increase was due to an increase in capital expenditures during 2016 compared to the prior year period.
Other Expense (Income), net
Interest expense . The increase is primarily attributed to the increase in the principal amounts outstanding under the senior secured credit facilities, primarily the incremental term loan of $265.0 million and the senior secured PIK notes of $115.0 million, both issued in May 2015, which the Company incurred a full year of interest expense in 2016 compared to seven months in 2015. The proceeds of the incremental term loans and PIK notes were used primarily to pay the consideration for the Cadillac Jack acquisition.
Other expense . The increase primarily relates to a $3.0 million change in the balance of the tax indemnification receivable recorded in connection with the acquisition of Cadillac Jack. To a lesser extent, the balance also includes the effect of foreign currency fluctuation on trade payables and receivables denominated in foreign currencies which accounted for approximately $0.7 million for the year ended December 31, 2016, compared to the prior year period.
Income Taxes
The Company’s effective income tax rate for the year ended December 31, 2015 was a benefit of 48.4%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the year
70
ended December 31, 2015 was primarily due to the income tax benefit recorded from the reversal of our valuation allowance on deferred tax assets as a result of the net deferred tax liabilities assumed in the Cadillac Jack acquisition. The Company’s effective income tax rate for the year ended December 31, 2016, was a benefit of 3.6%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the year ended December 31, 2016 was primarily due to changes in our valuation allowance on deferred tax assets.
Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2017
The following table sets forth certain selected unaudited condensed consolidated financial data for the periods indicated (in thousands, except percentages):
Nine months ended
September 30, |
$
Change |
%
Change |
||||||||||||||
2016 | 2017 | |||||||||||||||
Consolidated Statements of Operations: |
||||||||||||||||
Revenues |
||||||||||||||||
Gaming operations |
$ | 117,093 | $ | 125,040 | $ | 7,947 | 6.8 | % | ||||||||
Equipment sales |
6,968 | 29,254 | 22,286 | 319.8 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
124,061 | 154,294 | 30,233 | 24.4 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses |
||||||||||||||||
Cost of gaming operations |
19,627 | 21,794 | 2,167 | 11.0 | % | |||||||||||
Cost of equipment sales |
4,244 | 14,326 | 10,082 | 237.6 | % | |||||||||||
Selling, general and administrative |
36,654 | 30,368 | (6,286 | ) | (17.1 | )% | ||||||||||
Research and development |
16,517 | 17,912 | 1,395 | 8.4 | % | |||||||||||
Write downs and other charges |
2,153 | 2,655 | 502 | 23.3 | % | |||||||||||
Depreciation and amortization |
60,527 | 53,598 | (6,929 | ) | (11.4 | )% | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
139,722 | 140,653 | 931 | 0.7 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
I ncome from operations |
(15,661 | ) | 13,641 | 29,302 | 187.1 | % | ||||||||||
Other expense |
||||||||||||||||
Interest expense |
44,151 | 42,380 | (1,771 | ) | (4.0 | )% | ||||||||||
Interest income |
(51 | ) | (80 | ) | (29 | ) | (56.9 | )% | ||||||||
Loss on extinguishment and modification of debt |
— | 8,129 | 8,129 | — | % | |||||||||||
Other expense (income) |
6,314 | (4,805 | ) | (11,119 | ) | (176.1 | )% | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(66,075 | ) | (31,983 | ) | 34,092 | 51.6 | % | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income tax (expense) benefit |
4,935 | (4,603 | ) | (9,538 | ) | (193.3 | )% | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (61,140 | ) | $ | (36,586 | ) | $ | 24,554 | 40.2 | % | ||||||
|
|
|
|
|
|
|
|
Revenues
Gaming Operations. The increase in gaming operations revenue was primarily due to the increase in our EGM installed base of approximately 900 U.S. units, which is primarily attributable to the popularity of our new ICON and Orion cabinets and approximately 1,000 Mexico units, which is attributable to our gaining market share in under serviced markets within Mexico. We also had a 2.1%, or $0.54, increase in our U.S. EGM revenue per day through the optimization of our installed base by installing our newer and more competitive game content on our EGMs. Although the Company has experienced a decrease in participation share rates for gaming revenue received pursuant to participation agreements with Native American tribal customers, player demand, driven by the Company’s newer and more competitive game content, has offset the effects of decreased participation share rates and U.S. EGM revenue per day has increased in total. Current period results have been negatively impacted by $1.0 million relating to foreign currency fluctuations compared to the prior year period.
71
Additionally, we had a $0.2 million increase in Interactive revenue driven by Business-to-Consumer (“B2C”) arrangements when compared to the prior year period.
Equipment Sales. The increase in equipment sales is due to the sale of 1,868 units in the nine months ended September 30, 2017, compared to 205 units in the prior year period. The increase in the number of units sold is primarily attributable to the success of our new ICON and Orion cabinets and our growth in the Class III market in which many customers prefer to buy rather than lease EGMs. The increase was also attributable to a $1,205, or 8.2%, increase the average sales price compared to the prior year period. The increase in equipment sales was offset by a decrease in revenues from the sale of nontransferable and nonexclusive licenses of certain licensed game content to a third party for $3.2 million in the prior year period that was not present in the current year period.
Operating Expenses
Cost of gaming operations. The increase in costs of gaming operations was the result of our increased installed base of 22,015 EGM units compared to 20,108 units in the prior year period, as well as increased table games installed base that increased 95.0% compared to the prior year period. As a percentage of gaming operations revenue, costs of gaming operations was 17.4% for the nine months ended September 30, 2017 compared to 16.8% for the prior year period.
Cost of Equipment Sales. The increase in cost of equipment sales is attributable to the increase of 1,868 EGM units sold for the nine months ended September 30, 2017 compared to 205 in prior year period.
Selling, general and administrative. The decrease in selling, general and administrative expenses is primarily due to decreased user acquisition fees of $2.8 million from our Interactive segment in efforts to optimize marketing spend, the resolution in the prior year period of a $2.0 million customer liability related to the Cadillac Jack acquisition, $0.8 million in trade show and related marketing costs due to the timing of trade shows, and $0.8 million in legal and litigation expenses including settlement payments in the prior year period.
Research and development. The increase in research and development expenses is driven by increased salary and benefit costs of $2.3 million due to higher headcount and protype parts of $1.2 million associated with the development of our new Orion and Orion Slant cabinets, which are offset by decreased professional fees related to software testing and compliance of $2.1 million. As a percentage of total revenue, research and development expense was 11.6% for the nine months ended September 30, 2017 compared to 13.3% for the prior year period.
Write downs and other charges. During the nine months ended September 30, 2016, the Company recognized $2.2 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition (a level 3 fair value measurement based on a decrease in projected cash flows). The value of the intangible asset was written down to $1.1 million at an interim date and subsequently fully amortized by December 31, 2016. Additionally, a write-down of long-lived assets of $1.3 million related to aged gaming machines, and losses from the disposal of assets of $0.6 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition.
During the nine months ended September 30, 2017, the Company recognized $2.7 million in write-downs and other charges driven by losses from the disposal of assets of $3.0 million, the full impairment of certain intangible assets of $0.3 million (level 3 fair value measurement based on projected cash flows for the specific game titles), offset by a fair value adjustment to an acquisition contingent receivable of $0.6 million (level 3 fair value measurements based on projected cash flows). The contingency was resolved in the quarter ending March 31, 2017. See Note 6 to our consolidated financial statements for a detailed discussion regarding the resolution of the contingency described above.
72
Due to the changing nature of our write downs and other charges, we describe the composition of the balances as opposed to providing a year over year comparison.
Depreciation and amortization. The decrease was primarily due to a $5.8 million decrease in amortization driven by certain intangible assets that have reached the end of their useful lives. Secondarily, the decrease was due to a $1.2 million decrease in depreciation driven by assets that have reached the end of their useful lives. These assets were fully depreciated at the beginning of the current period and therefore had no depreciation for the nine months ended September 30, 2017.
Other Expense (Income), net
Interest expense . The decrease in interest expense is primarily attributed to the termination of our senior secured credit facilities and seller notes and entering into a first lien credit agreement on June 6, 2017. See Note 6 to our consolidated financial statements for a detailed discussion regarding long-term debt. These transactions resulted in a lower weighted average interest rate. These decreases were partially offset by an increase in the average principal amounts outstanding under the senior secured PIK notes of $15.0 million as of September 30, 2017, compared to the amount outstanding at September 30, 2016.
Loss on extinguishment and modification of debt . The increase is attributed to the refinancing of the Company’s long-term debt, as described in Note 6 to our consolidated financial statements. Approximately $3.3 million of deferred loan costs and discounts related to our old senior secured credit facilities were written off as a portion of the loss on extinguishment and modification of debt and $4.8 million in debt issuance costs related to the first lien credit facilities were expensed.
Other (income) expense . The increase is primarily attributed to effect of foreign currency fluctuation on trade payables and receivables denominated in foreign currencies. To a lesser extent, the change was due to a $4.8 million change in the balance of the tax indemnification receivable recorded in connection with the acquisition of Cadillac Jack.
Income Taxes
The Company’s effective income tax rate for the nine months ended September 30, 2016, was a benefit of 7.5%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the nine months ended September 30, 2016, was primarily due to an increase in our valuation allowance on deferred tax assets. The Company’s effective income tax rate for the nine months ended September 30, 2017, was an expense of 14.4%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the nine months ended September 30, 2017, was primarily due to changes in our valuation allowance on deferred tax assets.
Segment Operating Results
In the fourth quarter of fiscal year 2016, we revised our business segment disclosures to report results by segment in accordance with the “management approach.” The management approach designates the internal reporting used by our chief operating decision maker, who is our Chief Executive Officer, for making decisions and assessing performance of our reportable segments.
See Note 1 to our audited financial statements contained elsewhere herein for a detailed discussion of our three segments. Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its product lines. We evaluate the performance of our operating segments based on revenues and segment adjusted EBITDA.
Segment revenues include leasing, licensing or selling of products within each reportable segment. We measure segment performance in terms of revenue, segment-specific adjusted EBITDA and unit placements. We
73
believe that unit placements are an important gauge of segment performance for EGM’s and Table Products because it measures historical market placements of leased and sold units and provides insight into potential markets for next-generation products and service. We do not present a cumulative installed base, as previously sold units may no longer be in use by our customers or may have been replaced by other models or products. For our Interactive segment, we view the number of unique players and revenues provided by players on a daily or monthly basis.
The following tables provide reconciliations of segment financial information to our consolidated statement of operations. We have included revenues, operating expenses and other adjustments by segment which we believe are important to understanding the operating results of our segment:
Year Ended December 31, 2014 | ||||||||||||||||
EGM |
Table
Products |
Interactive | Total | |||||||||||||
Revenues |
||||||||||||||||
Gaming operations |
$ | 68,869 | $ | 112 | $ | — | $ | 68,981 | ||||||||
Equipment sales |
3,159 | — | — | 3,159 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
72,028 | 112 | — | 72,140 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of gaming operations (1) |
14,153 | 16 | — | 14,169 | ||||||||||||
Cost of equipment sales (1) |
1,607 | — | — | 1,607 | ||||||||||||
Selling, general and administrative |
18,778 | 678 | — | 19,456 | ||||||||||||
Research and development |
4,299 | 557 | — | 4,856 | ||||||||||||
Write downs and other charges |
7,068 | — | — | 7,068 | ||||||||||||
Depreciation and amortization |
33,272 | 133 | — | 33,405 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
$ | 79,177 | $ | 1,384 | $ | — | $ | 80,561 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Write downs and other |
||||||||||||||||
Loss on disposal of long lived assets |
$ | 1,937 | $ | — | $ | — | ||||||||||
Impairment of long lived assets |
2,327 | — | — | |||||||||||||
Fair value adjustments to contingent consideration and other items |
— | — | — | |||||||||||||
Acquisition costs |
2,804 | — | — | |||||||||||||
Depreciation and amortization |
33,272 | 133 | — | |||||||||||||
Accretion of placement fees (2) |
58 | — | — | |||||||||||||
Acquisitions & integration related costs including restructuring & severance (3) |
3,069 | 513 | — | |||||||||||||
Legal & litigation expenses including settlement payments (4) |
167 | 283 | — | |||||||||||||
New jurisdictions and regulatory licensing costs (5) |
266 | — | — | |||||||||||||
Non-cash charge on capitalized installation and delivery (6) |
643 | — | — | |||||||||||||
Non-cash charges and loss on disposition of assets (7) |
561 | — | — | |||||||||||||
Other adjustments (8) |
2,597 | — | — | |||||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 40,552 | $ | (343 | ) | $ | — | |||||||||
|
|
|
|
|
|
(1) | Exclusive of depreciation and amortization. |
(2) | Non-cash expense related to the accretion of contract rights under development agreements and placement fees. |
(3) | Acquisitions & integration related costs primarily relate to costs incurred after the purchase of businesses, such as the acquisitions of Cadillac Jack and AGSi, to integrate operations and obtain costs synergies. Restructuring and severance costs primarily relate to costs incurred through the restructuring of the Company’s former operations in Toronto, Canada and other employee severance costs recognized in the periods presented. |
74
(4) | Legal and litigation related costs consist of payments to law firms and settlements for matters that are outside the normal course of business. These costs related to litigation and matters that were not significant individually. |
(5) | New jurisdictions and regulatory licensing costs primarily relate to the costs the Company incurred to obtain licenses and develop products for new jurisdictions. |
(6) | Non-cash charge on capitalized installation and delivery primarily include the costs to acquire contracts that are expensed over the estimated life of each contract. |
(7) | Non-cash charges and loss on disposition of assets are primarily composed of the net book value of electronic gaming machines sold into secondary markets. These gaming machines were previously leased to customers and sold at substantially lower average selling prices. Additional non-cash inventory obsolescence charges are also included. |
(8) | Other adjustments are primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance, contract cancellation fees, and other costs deemed to be non-recurring in nature. |
Year Ended December 31, 2015 | ||||||||||||||||
EGM |
Table
Products |
Interactive | Total | |||||||||||||
Revenues |
||||||||||||||||
Gaming operations |
$ | 113,496 | $ | 1,514 | $ | 2,003 | $ | 117,013 | ||||||||
Equipment sales |
6,121 | 158 | — | 6,279 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
119,617 | 1,672 | 2,003 | 123,292 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of gaming operations (1) |
21,872 | 803 | 616 | 23,291 | ||||||||||||
Cost of equipment sales (1) |
1,548 | — | — | 1,548 | ||||||||||||
Selling, general and administrative |
33,885 | 3,182 | 3,021 | 40,088 | ||||||||||||
Research and development |
13,040 | 524 | 812 | 14,376 | ||||||||||||
Write downs and other charges |
14,882 | — | (3,116 | ) | 11,766 | |||||||||||
Depreciation and amortization |
59,899 | 770 | 993 | 61,662 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
$ | 145,126 | $ | 5,279 | $ | 2,326 | $ | 152,731 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Write downs and other |
||||||||||||||||
Loss on disposal of long lived assets |
$ | 1,275 | $ | — | $ | — | ||||||||||
Impairment of long lived assets |
4,993 | — | — | |||||||||||||
Fair value adjustments to contingent consideration and other items |
2,814 | — | (5,481 | ) | ||||||||||||
Acquisition costs |
5,800 | — | 2,365 | |||||||||||||
Depreciation and amortization |
59,899 | 770 | 993 | |||||||||||||
Accretion of placement fees (2) |
496 | — | — | |||||||||||||
Non-cash stock compensation expense (3) |
4,911 | — | — | |||||||||||||
Acquisitions & integration related costs including restructuring & severance (4) |
7,818 | — | — | |||||||||||||
Legal & litigation expenses including settlement payments (5) |
481 | 1,435 | — | |||||||||||||
New jurisdictions and regulatory licensing costs (6) |
256 | — | — | |||||||||||||
Non-cash charge on capitalized installation and delivery (7) |
1,441 | — | — | |||||||||||||
Non-cash charges and loss on disposition of assets (8) |
234 | — | — | |||||||||||||
Other adjustments (9) |
1,358 | — | (72 | ) | ||||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 66,267 | $ | (1,402 | ) | $ | (2,518 | ) | ||||||||
|
|
|
|
|
|
(1) | Exclusive of depreciation and amortization. |
(2) | Non-cash expense related to the accretion of contract rights under development agreements and placement fees. |
75
(3) | Non-cash expense related to the value of stock options held by employees of Cadillac Jack. The stock options entitled the holder to purchase shares of Amaya Inc., the former global parent of Cadillac Jack, based on the holder’s continued employment at Cadillac Jack through the vesting date, which was November 29, 2015. |
(4) | Acquisitions & integration related costs primarily relate to costs incurred after the purchase of businesses, such as the purchase of Cadillac Jack and AGSi, to integrate operations and obtain costs synergies. Restructuring and severance costs primarily relate to costs incurred through the restructuring of the Company’s former operations in Toronto, Canada and other employee severance costs recognized in the periods presented. |
(5) | Legal and litigation related costs consist of payments to law firms and settlements for matters that are outside the normal course of business. These costs related to litigation and matters that were not significant individually. |
(6) | New jurisdictions and regulatory licensing costs primarily relate to the costs the Company incurred to obtain licenses and develop products for new jurisdictions. |
(7) | Non-cash charge on capitalized installation and delivery primarily include the costs to acquire contracts that are expensed over the estimated life of each contract. |
(8) | Non-cash charges and loss on disposition of assets are primarily composed of the net book value of electronic gaming machines sold into secondary markets. These gaming machines were previously leased to customers and sold at substantially lower average selling prices. Additional non-cash inventory obsolescence charges are also included. |
76
(9) | Other adjustments are primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance, contract cancellation fees, and other costs deemed to be non-recurring in nature. |
Year Ended December 31, 2016 | ||||||||||||||||
EGM |
Table
Products |
Interactive | Total | |||||||||||||
Revenues |
||||||||||||||||
Gaming operations |
$ | 144,510 | $ | 2,622 | $ | 7,725 | $ | 154,857 | ||||||||
Equipment sales |
11,897 | 52 | — | 11,949 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
156,407 | 2,674 | 7,725 | 166,806 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of gaming operations (1) |
23,195 | 1,277 | 2,264 | 26,736 | ||||||||||||
Cost of equipment sales (1) |
6,237 | — | — | 6,237 | ||||||||||||
Selling, general and administrative |
34,901 | 2,942 | 8,265 | 46,108 | ||||||||||||
Research and development |
17,951 | 1,722 | 1,673 | 21,346 | ||||||||||||
Write downs and other charges |
3,271 | — | (9 | ) | 3,262 | |||||||||||
Depreciation and amortization |
77,232 | 1,657 | 1,292 | 80,181 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
162,787 | 7,598 | 13,485 | 183,870 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Write downs and other |
||||||||||||||||
Loss on disposal of long lived assets |
978 | — | — | |||||||||||||
Impairment of long lived assets |
5,295 | — | — | |||||||||||||
Fair value adjustments to contingent consideration and other items |
(3,000 | ) | — | — | ||||||||||||
Acquisition costs |
(2 | ) | — | (9 | ) | |||||||||||
Depreciation and amortization |
77,232 | 1,657 | 1,292 | |||||||||||||
Accretion of placement fees |
4,702 | — | — | |||||||||||||
Acquisitions & integration related costs including restructuring & severance (2) |
5,107 | 554 | (250 | ) | ||||||||||||
Legal & litigation expenses including settlement payments (3) |
545 | 1,020 | — | |||||||||||||
New jurisdictions and regulatory licensing costs (4) |
1,285 | 30 | — | |||||||||||||
Non-cash charge on capitalized installation and delivery (5) |
1,680 | — | — | |||||||||||||
Non-cash charges and loss on disposition of assets (6) |
2,478 | — | — | |||||||||||||
Other adjustments (7) |
1,809 | — | — | |||||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 91,729 | $ | (1,663 | ) | $ | (4,727 | ) | ||||||||
|
|
|
|
|
|
(1) | Exclusive of depreciation and amortization. |
(2) | Acquisitions & integration related costs primarily relate to costs incurred after the purchase of businesses, such as the purchase of Cadillac Jack and AGSi, to integrate operations and obtain costs synergies. Restructuring and severance costs primarily relate to costs incurred through the restructuring of the Company’s former operations in Toronto, Canada and other employee severance costs recognized in the periods presented. |
(3) | Legal and litigation related costs consist of payments to law firms and settlements for matters that are outside the normal course of business. These costs related to litigation and matters that were not significant individually |
(4) | New jurisdictions and regulatory licensing costs primarily relate to the costs the Company incurred to obtain licenses and develop products for new jurisdictions. |
(5) | Non-cash charge on capitalized installation and delivery primarily include the costs to acquire contracts that are expensed over the estimated life of each contract. |
(6) |
Non-cash charges and loss on disposition of assets are primarily composed of the net book value of electronic gaming machines sold into secondary markets. These gaming machines were previously leased to |
77
customers and sold at substantially lower average selling prices. Additional non-cash inventory obsolescence charges are also included. |
(7) | Other adjustments are primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance, contract cancellation fees, and other costs deemed to be non-recurring in nature. |
Nine months ended September 30, 2016 | ||||||||||||||||
EGM |
Table
Products |
Interactive | Total | |||||||||||||
Revenues |
||||||||||||||||
Gaming operations |
$ | 109,214 | $ | 1,976 | $ | 5,903 | $ | 117,093 | ||||||||
Equipment sales |
6,939 | 29 | — | 6,968 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
116,153 | 2,005 | 5,903 | 124,061 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of gaming operations (1) |
16,913 | 997 | 1,717 | 19,627 | ||||||||||||
Cost of equipment sales (1) |
4,244 | — | — | 4,244 | ||||||||||||
Selling, general and administrative |
27,352 | 2,557 | 6,745 | 36,654 | ||||||||||||
Research and development |
13,652 | 1,353 | 1,512 | 16,517 | ||||||||||||
Write downs and other charges |
2,162 | — | (9 | ) | 2,153 | |||||||||||
Depreciation and amortization |
58,193 | 1,251 | 1,083 | 60,527 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
122,516 | 6,158 | 11,048 | 139,722 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Write downs and other |
||||||||||||||||
Loss on disposal of long lived assets |
558 | — | — | |||||||||||||
Impairment of long lived assets |
4,606 | — | — | |||||||||||||
Fair value adjustments to contingent consideration and other items |
(3,000 | ) | — | — | ||||||||||||
Acquisition costs |
(2 | ) | (9 | ) | ||||||||||||
Depreciation and amortization |
58,193 | 1,251 | 1,083 | |||||||||||||
Accretion of placement fees (2) |
3,538 | — | — | |||||||||||||
Acquisitions & integration related costs including restructuring & severance (3) |
4,574 | 460 | — | |||||||||||||
Legal & litigation expenses including settlement payments (4) |
478 | 1,017 | — | |||||||||||||
New jurisdictions and regulatory licensing costs (5) |
927 | 30 | — | |||||||||||||
Non-cash charge on capitalized installation and delivery (6) |
1,193 | — | — | |||||||||||||
Non-cash charges and loss on disposition of assets (7) |
2,352 | — | — | |||||||||||||
Other adjustments (8) |
1,650 | — | — | |||||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 68,704 | $ | (1,395 | ) | $ | (4,071 | ) | ||||||||
|
|
|
|
|
|
(1) | Exclusive of depreciation and amortization. |
(2) | Non-cash item related to the accretion of contract rights under development agreements and placement fees. |
(3) | Acquisitions & integration related costs primarily relate to costs incurred after the purchase of businesses, such as the purchase of Cadillac Jack and AGSi, to integrate operations and obtain costs synergies. Restructuring and severance costs primarily relate to costs incurred through the restructuring of the Company’s operations from time to time and other employee severance costs recognized in the periods presented. |
(4) | Legal and litigation related costs consist of payments to law firms and settlements for matters that are outside the normal course of business. These costs related to litigation and matters that were not significant individually. |
(5) | New jurisdictions and regulatory licensing costs primarily relate to the costs the Company incurred to obtain licenses and develop products for new jurisdictions. |
78
(6) | Non-cash charge on capitalized installation and delivery primarily include the costs to acquire contracts that are expensed over the estimated life of each contract. |
(7) | Non-cash charges and loss on disposition of assets are primarily composed of the net book value of electronic gaming machines sold into secondary markets. These gaming machines were previously leased to customers and sold at substantially lower average selling prices. Additional non-cash inventory obsolescence charges are also included. |
(8) | Other adjustments are primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance, contract cancellation fees, and other costs deemed to be non-recurring in nature. |
Nine months ended September 30, 2017 | ||||||||||||||||
EGM |
Table
Products |
Interactive | Total | |||||||||||||
Revenues |
||||||||||||||||
Gaming operations |
$ | 116,587 | $ | 2,348 | $ | 6,105 | $ | 125,040 | ||||||||
Equipment sales |
29,160 | 94 | — | 29,254 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
145,747 | 2,442 | 6,105 | 154,294 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of gaming operations (1) |
19,188 | 798 | 1,808 | 21,794 | ||||||||||||
Cost of equipment sales (1) |
14,318 | 8 | — | 14,326 | ||||||||||||
Selling, general and administrative |
25,490 | 1,424 | 3,454 | 30,368 | ||||||||||||
Research and development |
15,652 | 1,277 | 983 | 17,912 | ||||||||||||
Write downs and other charges |
2,655 | — | — | 2,655 | ||||||||||||
Depreciation and amortization |
51,603 | 1,012 | 983 | 53,598 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
128,906 | 4,519 | 7,228 | 140,653 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Write downs and other |
||||||||||||||||
Loss on disposal of long lived assets |
3,000 | — | — | |||||||||||||
Impairment of long lived assets |
285 | — | — | |||||||||||||
Fair value adjustments to contingent consideration and other items |
(630 | ) | — | — | ||||||||||||
Acquisition costs |
— | — | — | |||||||||||||
Depreciation and amortization |
51,603 | 1,012 | 983 | |||||||||||||
Accretion of placement fees (2) |
3,492 | — | — | |||||||||||||
Acquisitions & integration related costs including restructuring & severance (3) |
952 | 164 | (217 | ) | ||||||||||||
Legal & litigation expenses including settlement payments (4) |
766 | — | — | |||||||||||||
New jurisdictions and regulatory licensing costs (5) |
1,293 | 11 | — | |||||||||||||
Non-cash charge on capitalized installation and delivery (6) |
1,284 | — | — | |||||||||||||
Non-cash charges and loss on disposition of assets (7) |
686 | — | — | |||||||||||||
Other adjustments (8) |
1,878 | 169 | 20 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 81,450 | $ | (721 | ) | $ | (337 | ) | ||||||||
|
|
|
|
|
|
(1) | Exclusive of depreciation and amortization. |
(2) | Non-cash item related to the accretion of contract rights under development agreements and placement fees. |
(3) | Acquisitions & integration related costs primarily relate to costs incurred after the purchase of businesses, such as the purchase of Cadillac Jack and AGSi, to integrate operations and obtain costs synergies. Restructuring and severance costs primarily relate to costs incurred through the restructuring of the Company’s operations from time to time and other employee severance costs recognized in the periods presented. |
(4) | Legal and litigation related costs consist of payments to law firms and settlements for matters that are outside the normal course of business. These costs related to litigation and matters that were not significant individually. |
79
(5) | New jurisdictions and regulatory licensing costs primarily relate to the costs the Company incurred to obtain licenses and develop products for new jurisdictions. |
(6) | Non-cash charge on capitalized installation and delivery primarily include the costs to acquire contracts that are expensed over the estimated life of each contract. |
(7) | Non-cash charges and loss on disposition of assets are primarily composed of the net book value of electronic gaming machines sold into secondary markets. These gaming machines were previously leased to customers and sold at substantially lower average selling prices. Additional non-cash inventory obsolescence charges are also included. |
(8) | Other adjustments are primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance, contract cancellation fees, and other costs deemed to be non-recurring in nature. |
Electronic Gaming Machines
Year Ended December 31, 2014 compared to the Year Ended December 31, 2015
The following table sets forth certain selected consolidated financial data derived from our annual consolidated financial statements for the periods indicated (in thousands, except EGM unit information and percentages):
Year ended
December 31, |
$ | % | ||||||||||||||
2014 | 2015 | Change | Change | |||||||||||||
EGM Segment Revenue: |
||||||||||||||||
Gaming operations |
$ | 68,869 | $ | 113,496 | $ | 44,627 | 64.8 | % | ||||||||
Equipment sales |
3,159 | 6,121 | 2,962 | 93.8 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total EGM revenues |
$ | 72,028 | $ | 119,617 | $ | 47,589 | 66.1 | % | ||||||||
|
|
|
|
|
|
|||||||||||
EGM adjusted EBITDA |
$ | 40,552 | $ | 66,267 | $ | 25,715 | 63.4 | % | ||||||||
|
|
|
|
|
|
|||||||||||
EGM unit information: |
||||||||||||||||
Domestic installed base, end of period |
8,735 | 13,139 | 4,404 | 50.4 | % | |||||||||||
International installed base, end of period |
— | 6,112 | 6,112 | — | % | |||||||||||
Total installed base, end of period |
8,735 | 19,251 | 10,516 | 120.4 | % | |||||||||||
Domestic revenue per day |
$ | 21.23 | $ | 24.33 | $ | 3.1 | 14.6 | % | ||||||||
International revenue per day |
$ | — | $ | 9.83 | $ | 9.83 | — | % | ||||||||
Total revenue per day |
$ | 21.23 | $ | 20.93 | $ | (0.30 | ) | (1.4 | )% | |||||||
EGM units sold |
255 | 203 | (52 | ) | (20.4 | )% | ||||||||||
Average sales price |
$ | 9,497 | $ | 16,498 | $ | 7,001 | 73.7 | % |
Gaming Operations Revenue
For the year ended December 31, 2015, revenues from gaming operations increased by $44.6 million as compared to the prior year period. Of this increase, $41.4 million is attributable to the inclusion of Cadillac Jack in the last seven months of 2015. The inclusion of Cadillac Jack increased our EGM installed base by approximately 10,500 units in May of 2015, when Cadillac Jack was acquired. The remaining increase in revenues was driven by improved game performance and a 150% increase in the installed base of our Big Red slot machine, which has historically been our best performing game. Total EGM revenue per day decreased $0.30 to $20.93 compared to the prior year. The decrease is primarily attributable to the inclusion of the Cadillac Jack’s Mexico installed base of approximately 6,100 units, which has returned lower revenues per day than the Company’s historical installed base. Although we have experienced a decrease in participation share rates for gaming revenue received pursuant to participation agreements with Native American tribal customers, player demand, driven by our newer and more competitive game content, has increased and offset the effects of decreased participation share rates.
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Equipment Sales
The increase in equipment sales is primarily due to the sale of a nontransferable and nonexclusive licenses of certain licensed game content to a third party in 2015 for $2.2 million that was not present in 2014. The remaining increase in equipment sales is attributable to the higher average sales price of $16,498 for the 203 units sold for the year ended December 31, 2015, compared to an average sales price of $9,497 for the 255 units sold in the prior year period.
EGM Adjusted EBITDA
EGM adjusted EBITDA includes the revenues and operating expenses from the EGM segment adjusted for depreciation, amortization, write downs and other charges, accretion of placement fees, non-cash stock-compensation expense, as well as other costs. See Note 15 to our audited historical financial statements included elsewhere in this prospectus for a further explanation of adjustments. The increase in EGM adjusted EBITDA is attributable to the inclusion of Cadillac Jack after it was acquired in May 2015. The inclusion of Cadillac Jack increased our revenues as discussed above, which was offset by related increases in our adjusted operating expenses.
Year Ended December 31, 2015 compared to the Year Ended December 31, 2016
The following table sets forth certain selected consolidated financial data derived from our annual consolidated financial statements for the periods indicated (in thousands, except EGM unit information and percentages):
Year ended December 31, | $ | % | ||||||||||||||
2015 | 2016 | Change | Change | |||||||||||||
EGM Segment Revenue: |
||||||||||||||||
Gaming operations |
$ | 113,496 | $ | 144,510 | $ | 31,014 | 27.3 | % | ||||||||
Equipment sales |
6,121 | 11,897 | 5,776 | 94.4 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total EGM revenues |
$ | 119,617 | $ | 156,407 | $ | 36,790 | 30.8 | % | ||||||||
|
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|
|
|
|
|||||||||||
EGM adjusted EBITDA |
$ | 66,267 | $ | 91,729 | $ | 25,462 | 38.4 | % | ||||||||
|
|
|
|
|
|
|||||||||||
EGM unit information: |
||||||||||||||||
Domestic installed base, end of period |
13,139 | 13,953 | 814 | 6.2 | % | |||||||||||
International installed base, end of period |
6,112 | 6,898 | 786 | 12.9 | % | |||||||||||
Total installed base, end of period |
19,251 | 20,851 | 1,600 | 8.3 | % | |||||||||||
Domestic revenue per day |
$ | 24.33 | $ | 24.74 | $ | 0.41 | 1.7 | % | ||||||||
International revenue per day |
$ | 9.83 | $ | 9.23 | $ | (0.60 | ) | (6.1 | )% | |||||||
Total revenue per day |
$ | 20.93 | $ | 19.78 | $ | (1.15 | ) | (5.5 | )% | |||||||
EGM units sold (1) |
203 | 465 | 262 | 129.1 | % | |||||||||||
Average sales price (1) |
$ | 16,498 | $ | 14,897 | $ | (1,601 | ) | (9.7 | )% |
(1) | Does not include the sale of approximately 850 older generation gaming machines in secondary markets in 2016. |
Gaming Operations Revenue
The increase in gaming operations is primarily attributable to the inclusion of Cadillac Jack for the entire year ended December 31, 2016, compared to just seven months in the prior year period. The inclusion of Cadillac Jack increased our EGM installed base by approximately 10,500 units in May of 2015 when it was acquired. The increase was also attributable to a year over year increase of over 1,600 units in the Company’s total EGM installed base. The Company’s domestic installed base increased over 800 units compared to the prior year
81
period, which is primarily attributable to the popularity of the Company’s new ICON cabinets, as well as revenue synergies through the optimization of the Company’s installed base by installing newer and more competitive game content on the Company’s EGMs. To a lesser extent, the increase in revenue was attributable to an increase in domestic revenue per day from $24.33 to $24.74, offset by a decrease in international revenue per day from $9.83 to $9.23. EGM revenue per day decreased in total. The decrease is primarily attributable to the inclusion of Cadillac Jack’s Mexico installed base, which generates lower revenues per day than the Company’s historical installed base. Although the Company has experienced a decrease in domestic participation share rates for gaming revenue received pursuant to participation agreements with Native American tribal customers, player demand, driven by newer and more competitive game content, has offset the effects of decreased participation share rates. Current period results have been negatively impacted by $3.6 million relating to foreign currency fluctuations compared to the prior year period.
Equipment Sales
The increase in equipment sales is primarily due to the sale of 465 units in the in 2016, compared to 203 units in the prior year period, offset by a 9.7% decrease in the average sales prices of units sold. Equipment sales also increased due to an increase in revenues from the sale of nontransferable and nonexclusive licenses of certain licensed game content to a third party for $4.3 million in 2016 compared to $2.2 million in 2015. The increase in the number of units sold is primarily attributable to the success of our new ICON cabinet and our growth in the Class III market in which many customers prefer to buy rather than lease EGMs.
EGM Adjusted EBITDA
EGM adjusted EBITDA includes the revenues and operating expenses from the EGM segment adjusted for depreciation, amortization, write downs and other charges, accretion of placement fees, non-cash stock-compensation expense, as well as other costs. See Note 15 to our audited historical financial statements included elsewhere in this prospectus for a further explanation of adjustments. The increase in EGM adjusted EBITDA is attributable to the inclusion of Cadillac Jack for the entire year of 2016, compared to just seven months in the prior year period. The inclusion of Cadillac Jack increased our revenues as discussed above, which was offset by related increases in our adjusted operating expenses. To a lesser extent, the increased installed base of 20,851 EGM units compared to 19,251 units in the prior year period, as well as increased installed base of 1,500 table games compared to 203 in the prior year period resulted in higher maintenance costs. Since the acquisition of Cadillac Jack, we have implemented several integration-related initiatives and have realized synergies in revenues and operating expenses, which has also increased our EGM adjusted EBITDA.
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Nine Months Ended September 30, 2016 compared to Nine Months Ended September 30, 2017
The following table sets forth certain selected unaudited consolidated financial data for the periods indicated (in thousands, except EGM unit information and percentages):
Nine months ended
September 30, |
$ | % | ||||||||||||||
2016 | 2017 | Change | Change | |||||||||||||
EGM Segment Revenue: |
||||||||||||||||
Gaming operations |
$ | 109,214 | $ | 116,587 | $ | 7,373 | 6.8 | % | ||||||||
Equipment sales |
6,939 | 29,190 | $ | 22,251 | 320.7 | % | ||||||||||
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|
|
|
|||||||||||
Total EGM revenues |
$ | 116,153 | $ | 145,747 | $ | 29,594 | 25.5 | % | ||||||||
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|
|
|
|||||||||||
EGM adjusted EBITDA |
$ | 68,704 | $ | 81,450 | $ | 12,746 | 18.6 | % | ||||||||
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|
|
|
|||||||||||
EGM unit information: |
||||||||||||||||
Domestic installed base, end of period |
13,651 | 14,544 | 893 | 6.5 | % | |||||||||||
International installed base, end of period |
6,457 | 7,471 | 1,014 | 15.7 | % | |||||||||||
Total installed base, end of period |
20,108 | 22,015 | 1,907 | 9.5 | % | |||||||||||
Domestic revenue per day |
$ | 25.19 | $ | 25.73 | $ | 0.54 | 2.1 | % | ||||||||
International revenue per day |
$ | 9.50 | $ | 8.37 | $ | (1.13 | ) | (11.9 | )% | |||||||
Total revenue per day |
$ | 20.20 | $ | 19.86 | $ | (0.34 | ) | (1.7 | )% | |||||||
EGM units sold (1) |
205 | 1,868 | 1,663 | 811.2 | % | |||||||||||
Average sales price (1) |
$ | 14,630 | $ | 15,835 | $ | 1,205 | 8.2 | % |
(1) | Does not include the sale of approximately 850 older generation gaming machines in secondary markets in 2016. |
Gaming Operations Revenue
The increase in gaming operations revenue was primarily due to the increase in our EGM installed base of approximately 900 U.S. units, which is primarily attributable to the popularity of our new ICON and Orion cabinets and approximately 1,000 Mexico units, which is attributable to our gaining market share in under serviced markets within Mexico. We also had a 2.1%, or $0.54, increase in our U.S. EGM revenue per day through the optimization of our installed base by installing our newer and more competitive game content on our EGMs. Although the Company has experienced a decrease in participation share rates for gaming revenue received pursuant to participation agreements with Native American tribal customers, player demand, driven by the Company’s newer and more competitive game content, has offset the effects of decreased participation share rates and U.S. EGM revenue per day has increased in total. Current period results have been negatively impacted by $1.0 million relating to foreign currency fluctuations compared to the prior year period.
Equipment Sales
The increase in equipment sales is due to the sale of 1,868 units in the nine months ended September 30, 2017, compared to 205 units in the prior year period. The increase in the number of units sold is primarily attributable to the success of our new ICON and Orion cabinets and our growth in the Class III market in which many customers prefer to buy rather than lease EGMs. The increase was also attributable to an approximate $1,205, or 8.2%, increase in the average sales price compared to the prior year period. The increase in equipment sales was offset by a decrease in revenues from the sale of nontransferable and nonexclusive licenses of certain licensed game content to a third party for $3.2 million in the prior year period that was not present in the current year period.
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EGM Adjusted EBITDA
EGM adjusted EBITDA includes the revenues and operating expenses from the EGM segment adjusted for depreciation, amortization, write downs and other charges, accretion of placement fees, as well as other costs. See Note 6 to our consolidated financial statements for further explanation of adjustments. The increase in EGM adjusted EBITDA is attributable to the increases in revenue described above offset by increased adjusted cost of equipment sales of $12.4 million due to higher sales volume and an increase in adjusted operating expenses of $2.8 million due to increased headcount and prototype parts associated with the development of our new Orion and Orion Slant cabinets. Increases in adjusted operating expenses were offset by decreased professional fees and marketing costs due to the timing of tradeshows.
Table Products
Year Ended December 31, 2014 compared to the Year Ended December 31, 2015
The following table sets forth certain selected consolidated financial data derived from our annual consolidated financial statements for the periods indicated (in thousands, except Table Products unit information and percentages):
Year ended December 31, | $ | % | ||||||||||||||
2014 | 2015 | Change | Change | |||||||||||||
Table Products Segment Revenue: |
||||||||||||||||
Gaming operations |
$ | 112 | $ | 1,514 | $ | 1,402 | 1,251.8 | % | ||||||||
Equipment sales |
— | 158 | 158 | — | % | |||||||||||
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Total table products revenues |
$ | 112 | $ | 1,672 | $ | 1,560 | 1,392.9 | % | ||||||||
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Table Products adjusted EBITDA |
$ | (343 | ) | $ | (1,402 | ) | $ | (1,059 | ) | (308.7 | )% | |||||
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Table Products unit information: |
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Table products install base, end of period |
387 | 815 | 428 | 110.6 | % | |||||||||||
Average monthly lease price |
$ | 24 | $ | 171 | $ | 147 | 612.5 | % |
Gaming Operations Revenue
The increase in Table Products gaming operations revenue is attributable to the increase in the Table Products installed base to 815 units compared to 387 units in the prior year period. The increase is also attributable to the increased average monthly lease price of $171 compared to $24 in the prior year period.
Table Products Adjusted EBITDA
Table Products adjusted EBITDA includes the revenues and operating expenses from the Table Products segment adjusted for depreciation, amortization, write downs and other charges, as well as other costs. See Note 15 to our audited historical financial statements included elsewhere in this prospectus for a further explanation of adjustments. The decrease in Table Products adjusted EBITDA is attributable to an increase in adjusted operating expenses of $1.8 million, driven by a $0.8 million increase in adjusted professional and consulting fees, $0.6 million increase in adjusted salary and benefits expense as a result of additional headcount in the sales, service, and research and development staff, $0.2 million in sales and marketing expense, and $0.2 million in travel expenses. The decrease in Table Products adjusted EBITDA was also attributable to a $0.8 million increase in adjusted cost of goods sold (“COGS”) related to the increased installed base. The Table Products segment began its operations in mid-2014 and it has continued to grow through the addition of headcount and purchases of intellectual property from third parties. These increases in adjusted operating expenses were offset by the increase in gaming operations revenues discussed above.
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Year Ended December 31, 2015 compared to the Year Ended December 31, 2016
The following table sets forth certain selected consolidated financial data derived from our annual consolidated financial statements for the periods indicated (in thousands, except Table Products unit information and percentages):
Year ended December 31, | $ | % | ||||||||||||||
2015 | 2016 | Change | Change | |||||||||||||
Table Products Segment Revenue: |
||||||||||||||||
Gaming operations |
$ | 1,514 | $ | 2,622 | $ | 1,108 | 73.2 | % | ||||||||
Equipment sales |
158 | 52 | (106 | ) | (67.1 | )% | ||||||||||
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|
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Total Table Products revenues |
$ | 1,672 | $ | 2,674 | $ | 1,002 | 59.9 | % | ||||||||
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Table Products adjusted EBITDA |
$ | (1,402 | ) | $ | (1,663 | ) | $ | (261 | ) | (18.6 | )% | |||||
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Table Products unit information: |
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Table products installed base, end of period |
815 | 1,500 | 685 | 84.0 | % | |||||||||||
Average monthly lease price |
$ | 171 | $ | 149 | $ | (22 | ) | (12.9 | )% |
Gaming Operations Revenue
The increase in tables gaming operations revenue is attributable to the increase in the table product installed base, which increased to 1,500 units at December 31, 2016 compared to 815 at December 31, 2015. Our side bets, and most notably Buster Blackjack, are the primary driver of the increase in the Table Products installed base year over year.
Table Products Adjusted EBITDA
Table Products adjusted EBITDA includes the revenues and operating expenses from the Table Products segment adjusted for depreciation, amortization, write downs and other charges, as well as other costs. See Note 15 to our audited historical financial statements included elsewhere in this prospectus for a further explanation of adjustments. The decrease in Table Products adjusted EBITDA is attributable to an increase in adjusted operating expenses of $0.8 million, driven by $0.5 million increase in adjusted salary and benefits expense as a result of additional headcount in the sales, service, and research and development staff of this segment and $0.3 million increase in adjusted professional and consulting fees. The decrease in Table Products adjusted EBITDA was also attributable to a $0.5 million increase in adjusted COGS related to the increased installed base. During 2016, we incurred development time and expenses related to our newly introduced card shuffler, “DEX.” The Table Products segment began its operations in mid-2014 and it has continued to grow through the addition of headcount and purchases of intellectual property from third parties. These increases in expenses were offset by the increase in gaming operations revenues discussed above.
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Nine Months Ended September 30, 2016 compared to Nine Months Ended September 30, 2017
The following table sets forth certain selected unaudited consolidated financial data for the periods indicated (in thousands, except Table Products unit information and percentages):
Nine Months Ended
September 30, |
$ | % | ||||||||||||||
2016 | 2017 | Change | Change | |||||||||||||
Table Products Segment Revenue: |
||||||||||||||||
Gaming operations |
$ | 1,976 | $ | 2,348 | $ | 372 | 18.8 | % | ||||||||
Equipment sales |
29 | 94 | 65 | 224.1 | % | |||||||||||
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|
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Total Table Products revenues |
$ | 2,005 | $ | 2,442 | $ | 437 | 21.8 | % | ||||||||
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|
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Table Products adjusted EBITDA |
$ | (1,395 | ) | $ | (721 | ) | $ | 674 | 48.3 | % | ||||||
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Table Products unit information: |
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Table products installed base, end of period |
1,205 | 2,350 | 1,145 | 95.0 | % | |||||||||||
Average monthly lease price |
$ | 185 | $ | 111 | $ | (74 | ) | (40.0 | )% |
Gaming Operations Revenue
The increase in Table Products gaming operations revenue is attributable to the increase in the Table Products installed base to 2,350 units compared to 1,205 units in the prior year period. The newly acquired 493 installs from the In Bet acquisition, our side bets, and most notably Buster Blackjack, are the primary driver of the increase in the Table Products revenue and installed base compared to the prior year period. See Note 2 to our consolidated financial statements for a description of the acquisition. The increase is offset by a decrease in the average monthly lease price of $74 compared to $185 in the prior year period.
Table Products Adjusted EBITDA
Table Products adjusted EBITDA includes the revenues and operating expenses from the Table Products segment adjusted for depreciation, amortization, write downs and other charges, as well as other costs. See Note 14 to our consolidated financial statements for further explanation of adjustments. The increase in Table Products adjusted EBITDA is attributable to the increases in revenue described above and a decrease in adjusted cost of gaming operations and equipment sales of $0.3 million. The Table Products segment began its operations in mid-2014 and it has continued to grow through the addition of headcount and purchases of intellectual property from third parties.
Interactive
Year Ended December 31, 2014 compared to the Year Ended December 31, 2015
This segment was created through the purchase of AGSi and therefore had no operations prior to June 2015.
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Year Ended December 31, 2015 compared to the Year Ended December 31, 2016
The following table sets forth certain selected consolidated financial data derived from our annual consolidated financial statements for the periods indicated (in thousands, except Interactive unit information and percentages):
Year ended December 31, | $ | % | ||||||||||||||
2015 | 2016 | Change | Change | |||||||||||||
Interactive Segment Revenue: |
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Gaming operations |
$ | 2,003 | $ | 7,725 | $ | 5,722 | 285.7 | % | ||||||||
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|
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Total Interactive revenues |
$ | 2,003 | $ | 7,725 | $ | 5,722 | 285.7 | % | ||||||||
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Interactive adjusted EBITDA |
$ | (2,518 | ) | $ | (4,727 | ) | $ | (2,209 | ) | (87.7 | )% | |||||
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|
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Interactive unit information: |
||||||||||||||||
Average MAU (1) |
158,376 | 237,782 | 79,406 | 50.1 | % | |||||||||||
Average DAU (2) |
29,768 | 45,909 | 16,141 | 54.2 | % | |||||||||||
ARPDAU (3) |
$ | 0.35 | $ | 0.46 | $ | 0.11 | 31.4 | % |
Gaming Operations Revenue
The increase in interactive gaming operations revenue is attributable to the purchase of AGSi in June 2015. This segment was created through the purchase of AGSi and therefore had no operations prior to June 2015. The increase is attributable to the inclusion of AGSi for twelve months in 2016 compared to six months in the prior year period, as well as the combined effect of an increase in active users and average daily revenue. Additionally, gaming operations revenue has also grown due to the use of traditional EGM content in our Interactive social casino apps, such as Lucky Play Casino.
Interactive Adjusted EBITDA
Interactive adjusted EBITDA includes the revenues and operating expenses from the Interactive segment adjusted for depreciation, amortization, write downs and other charges, as well as other costs. See Note 15 to our audited historical financial statements included elsewhere in this prospectus for a further explanation of adjustments. The decrease in Interactive adjusted EBITDA is attributable to the inclusion of AGSi for the entire year ended December 31, 2016, compared to just six months in the prior year period. The decrease in interactive adjusted EBITDA is also attributable to an increase in adjusted operating expenses of $6.3 million, driven by increases in user acquisition and marketing costs to attract active users of our apps of $4.9 million, increases in salary expenses of $1.0 million and increases in professional and consulting fees of $0.8 million. The decrease was also due to increases in cost of gaming operations of $1.6 million, which is related to increased platform provider fees. These increases in adjusted operating expenses were offset by the increase in gaming operations revenues discussed above.
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Nine Months Ended September 30, 2016 compared to Nine Months Ended September 30, 2017
The following table sets forth certain selected unaudited consolidated financial data for the periods indicated (in thousands, except operational data and percentages):
Nine Months Ended
September 30, |
$ | % | ||||||||||||||
2016 | 2017 | Change | Change | |||||||||||||
Interactive Segment Revenue: |
||||||||||||||||
Gaming operations |
$ | 5,903 | $ | 6,105 | $ | 202 | 3.4 | % | ||||||||
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|
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Total Interactive revenues |
$ | 5,903 | $ | 6,105 | $ | 202 | 3.4 | % | ||||||||
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Interactive adjusted EBITDA |
$ | (4,071 | ) | $ | (337 | ) | $ | 3,734 | 91.7 | % | ||||||
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Interactive unit information: |
||||||||||||||||
Average MAU (1) |
210,783 | 190,237 | (20,546 | ) | (9.7 | )% | ||||||||||
Average DAU (2) |
41,809 | 37,544 | (4,265 | ) | (10.2 | )% | ||||||||||
ARPDAU (3) |
$ | 0.48 | $ | 0.58 | $ | 0.10 | 20.8 | % |
(1) | MAU = Monthly Active Users and is a count of unique visitors to our sites during a month |
(2) | DAU = Daily Active Users, a count of unique visitors to our sites during a day |
(3) | ARPDAU = Average daily revenue per DAU is calculated by dividing revenue for a period by the DAU for the period by the number of days for the period |
Gaming Operations Revenue
The increase in interactive gaming operations revenue is attributable to increases in Business-to-Consumer
(“B2C”) revenue driven by a 20.8% increase in ARPDAU for the nine months ended September 30, 2017 when compared to the prior year period. These increases were offset by a decrease of 14.1% in average DAU driven by decreased user acquisition costs in efforts to optimize marketing spend.
Interactive Adjusted EBITDA
Interactive adjusted EBITDA includes the revenues and operating expenses from the Interactive segment adjusted for depreciation, amortization, write downs and other charges, as well as other costs. See Note 14 to our consolidated financial statements for further explanation of adjustments. The increase in interactive adjusted EBITDA is attributable to a decrease in adjusted operating expenses of $3.6 million primarily driven by decreased marketing and user acquisition costs. These decreases in adjusted operating expenses were complimented by the increase in gaming operations revenues discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
We expect that primary ongoing liquidity requirements for the twelve months ending September 30, 2018 will be for operating capital expenditures for the purchase of property and equipment (“PP&E”) of between $40 million and $50 million, software development and other expenditures of approximately $10 million, working capital, debt servicing, operating expenses and other customer acquisition activities. Our PP&E capital expenditures include growth expenditures related to manufacturing new product for lease, maintenance expenditures to refurbish existing leased cabinets and the remainder for corporate-level capital expenditure needs. We expect to finance these liquidity requirements through a combination of cash on hand and cash flows from operating activities.
Part of our overall strategy includes consideration of expansion opportunities and acquisition and other strategic opportunities that may arise periodically. We may require additional funds in order to execute on such strategic growth, and may incur additional debt or issue additional equity to finance any such transactions. We cannot assure you that we will be able to obtain such debt or issue any such additional equity on acceptable terms or at all.
As of September 30, 2017, we had $10.0 million in cash and cash equivalents and $30.0 million available under our revolving credit facility, all of which could have been drawn without violating the covenants under our debt agreements. Based on our current business plan, we believe that our existing cash balances, cash generated from operations and availability under the revolving credit facility will be sufficient to meet our anticipated cash needs for at least the next twelve months. As of September 30, 2017, we are in compliance with the required covenants of our debt instruments, including the maximum net first lien leverage ratio. However, our future cash requirements could be higher than we currently expect as a result of various factors. Our ability to meet our liquidity needs could be adversely affected if we suffer adverse results of operations, or if we violate the covenants and restrictions to which we are subject under our debt instruments. Additionally, our ability to generate sufficient cash from our operating activities is subject to general economic, political, regulatory, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us under our existing credit facility in an amount sufficient to enable us to pay our service or repay our indebtedness or to fund our other liquidity needs, and we may be required to seek additional financing through credit facilities with other lenders or institutions or seek additional capital through private placements or public offerings of equity or debt securities.
Indebtedness
Senior Secured Credit Facilities
On December 20, 2013, AP Gaming I, LLC (the “Borrower”), a wholly owned indirect subsidiary of the Company, entered into senior secured credit facilities, which consisted of $155.0 million in term loans and a $25.0 million revolving credit facility (collectively, the “old senior secured credit facilities”). On May 29, 2015, the Borrower entered into incremental facilities for $265.0 million in term loans and on June 1, 2015, the Borrower entered into an incremental agreement for an additional $15.0 million of incremental revolving commitments. The proceeds of the incremental term loans were used primarily to pay the consideration for the Cadillac Jack acquisition.
On June 6, 2017, the Borrower entered into a first lien credit agreement, providing for $450.0 million in term loans and a $30.0 million revolving credit facility (collectively, the “new senior secured credit facilities”). The proceeds of the term loans were used primarily to repay the old senior secured credit facilities and the three seller notes (the “Seller Notes”), as described in Note 6 to our annual consolidated financial statements included elsewhere in this prospectus, and to pay for the fees and expenses incurred in connection with the foregoing and otherwise for general corporate purposes.
On December 6, 2017, the Borrower entered into an incremental assumption agreement that amended the new senior secured credit facilities to provide for the incurrence by the Borrower of incremental term loans in an
89
aggregate principal amount of $65.0 million. The net proceeds of the incremental term loans were used to finance the acquisition of Class II electronic gaming machines and related assets operated by Rocket (see “Prospectus Summary—Recent Developments”), to pay fees and expenses in connection therewith and for general corporate purposes. The incremental term loans have the same terms as the Borrower’s term loans.
The term loans will mature on February 15, 2024, and the revolving credit facility will mature on June 6, 2022. Starting with the first full quarter after June 6, 2017, the term loans require scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity. Borrowings under the term loans bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. Borrowings under the revolving credit facility bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate plus an applicable margin rate. In addition, on a quarterly basis, the Borrower is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.
The new senior secured credit facilities are guaranteed by AP Gaming Holdings, LLC, the Borrower’s material, wholly owned domestic subsidiaries (subject to certain exceptions), and are secured by a pledge by AP Gaming Holdings, LLC of the Borrower’s equity interest directly held by AP Gaming Holdings, LLC and a pledge of substantially all of the existing and future property and assets of the Borrower and the subsidiary guarantors, subject to certain exceptions. The new senior secured credit facilities require that the Borrower maintain a maximum net first lien leverage ratio set at a maximum of 6.0 to 1.0, which is measured on the basis of pro forma adjusted EBITDA, as this measure is defined in the new senior secured credit facilities. To demonstrate its compliance with the maximum net first lien leverage ratio requirement, from time to time the Borrower provides its calculation of the credit agreement-defined pro forma adjusted EBITDA to the lenders under its new senior secured credit facilities. Our management does not use this measure for any other purpose, including in evaluating our business performance or conducting its operations.
The new senior secured credit facilities also contain customary affirmative covenants and negative covenants that limit our ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) create liens on certain assets; (iii) make certain loans or investments (including acquisitions); (iv) pay dividends on or make distributions in respect of our capital stock or make other restricted payments; (v) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; (vi) sell assets; (vii) enter into certain transactions with our affiliates; (viii) enter into sale-leaseback transactions; (ix) change our lines of business; (x) restrict dividends from our subsidiaries or restrict liens; (xi) change our fiscal year; and (xii) modify the terms of certain debt or organizational agreements. The new senior secured credit facilities also contain customary events of default included in similar financing transactions, including, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments.
The Borrower was in compliance with the covenants of the new senior secured facilities at September 30, 2017. For the twelve months ended September 30, 2017, our first lien leverage ratio was 3.9 to 1.0. As of September 30, 2017, the Borrower could incur the entire $30.0 million of unused borrowing capacity under the new revolving credit facility without violating any of its covenants under its debt agreements.
Senior Secured PIK Notes
On May 29, 2015, the Company entered into a note purchase agreement with AP Gaming Holdings, LLC, as subsidiary guarantor (the “Subsidiary Guarantor”), Deutsche Bank AG, London Branch, as purchaser (the “Purchaser”), and Deutsche Bank Trust Company Americas, as collateral agent. Pursuant to the agreement, the Company issued $115.0 million of its 11.25% senior secured PIK notes due 2021 (the “PIK notes”) at an issue price of 97% of the principal amount thereof to the Purchaser in a private placement exempt from registration under the Securities Act of 1933, as amended. The PIK notes are secured by the Company’s equity in its
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subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are unconditionally guaranteed by the Subsidiary Guarantor.
On May 30, 2017, the Company entered into an amended and restated note purchase agreement (the “A&R Note Purchase Agreement”) with the Subsidiary Guarantor, Deutsche Bank AG, London Branch, as holder (the “Holder”), and Deutsche Bank Trust Company Americas, as collateral agent, which amended and restated the note purchase agreement, dated as of May 29, 2015. The A&R Note Purchase Agreement extended the maturity of the PIK notes from May 28, 2021 to May 20, 2024, and modified the terms of the PIK notes to, among other things, account for the repayment of the Seller Notes.
Interest on the PIK notes accrues at a rate of 11.25% per annum. The Company may elect to pay interest due on the PIK notes in cash, by increasing the principal of the outstanding PIK notes or by issuing new PIK notes (“PIK interest”) for the entire amount of the interest payment or by paying interest partially in cash and partially in PIK interest. Interest on the PIK notes accrues from the date of issuance and are payable on the dates described in more detail in the agreement. The net proceeds of the PIK notes were used primarily to finance the Cadillac Jack acquisition.
The PIK notes contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The PIK notes also contains customary events of default included in similar transactions, including, among others, failure to make payments when due, acceleration of other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. At September 30, 2017, the PIK notes totaled $141.3 million, which includes capitalized interest of $29.6 million.
Equipment Long Term Note Payable and Capital Leases
The Company has entered into a financing agreement to purchase certain gaming devices, systems and related equipment and has entered into leases for servers and equipment that are accounted for as capital leases.
The following table summarizes our historical cash flows (in thousands):
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Cash Flow Information: |
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Net cash provided by operating activities |
$ | 12,482 | $ | 9,403 | $ | 34,493 | ||||||
Net cash used in investing activities |
(33,922 | ) | (401,850 | ) | (40,629 | ) | ||||||
Net cash provided by (used in) financing activities |
9,860 | 417,547 | (11,603 | ) | ||||||||
Effect of exchange rates on cash and cash equivalents |
518 | (58 | ) | (6 | ) | |||||||
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(Decrease) increase in cash and cash equivalents |
$ | (11,062 | ) | $ | 25,042 | $ | (17,745 | ) | ||||
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Operating activities
The Company has historically produced a loss from operations, which is primarily due to the capital nature of the business and the resulting depreciation and amortization expense. For the year ended December 31, 2015, net cash provided by operating activities was $9.4 million compared to $12.5 million for the year ended December 31, 2014, representing a decrease of $3.1 million. The decrease is primarily due to an $10.5 million decrease in income from operating activities excluding non-cash expenses. The increased use of cash for operating activities in the period is primarily related to the transaction related expenses for the Cadillac Jack and AGSi acquisitions.
In 2016, net cash provided by operating activities increased by $25.1 million, from $9.4 million for the year ended December 31, 2015 to $34.5 million for the year ended December 31, 2016. This increase is primarily due
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to changes in net working capital, which were driven by several factors. Increased production activity and purchases of gaming equipment resulted in a $17.3 million change in accounts payable and accrued liabilities, a change in deposits and other assets of $11.8 million was primarily related to the expensing of the $8.3 million asset related to the value of stock options held by employees of Cadillac Jack that is described in Note 2 of our audited consolidated financial statements and other working capital changes, and income from operating activities excluding non-cash expenses increased by $20.2 million. In the prior year we incurred transaction related expenses for the Cadillac Jack and AGSi acquisitions.
Investing activities
Net cash used in investing activities for the year ended December 31, 2015 was $401.9 million, compared to $33.9 million for the year ended December 31, 2014, representing an increase of $367.9 million. The increase was primarily due to the acquisition of Cadillac Jack, AGSi and table products related IP for $374.3 million, net of cash acquired. Purchases of property and equipment increased by $5.5 million, which was partially offset by a decrease in the purchase of intangible assets of $3.2 million. We also paid $27.9 million for capital expenditures during the year ended December 31, 2015, of which $2.8 million was for maintenance capital expenditures.
Net cash used in investing activities for the year ended December 31, 2016, was $40.6 million compared to $401.9 million for the year ended December 31, 2015, representing a decrease of $361.2 million. The decrease was primarily due to decreases in business acquisitions, net of cash acquired, purchases of intangible assets of $4.8 million offset by increases in the purchase of property and equipment of $17.6 million. In the prior year, we conducted two significant business acquisitions, as described in Note 2 to our audited financial statements contained elsewhere herein. We also paid $40.7 million for capital expenditures during the year ended December 31, 2016, of which $7.7 million was for maintenance capital expenditures.
Financing activities
Net cash provided by financing activities for the year ended December 31, 2015 increased $407.7 million to $417.5 million compared to $9.9 million for the same period in 2014. The increase was primarily due to the increase in the senior secured credit facilities of $265.0 million in incremental term loans entered into on May 29, 2015, the issuances of $115.0 million in senior secured PIK notes, cash provided by the issuance of common stock of $77.4 million, partially offset by a net pay down of the revolving credit facility of $10.0 million, payments for previous acquisition obligations of $10.0 million, $3.8 million paid in deferred financing costs associated with the issuance of new debt and payments on debt of $4.7 million.
Net cash used in financing activities for the year ended December 31, 2016 was $11.6 million compared to cash provided by financing activities of $417.5 million for the year ended December 31, 2015. The decrease was primarily due to the decreases in proceeds from debt issuances of $369.4 million, proceeds from the issuance of common stock of $77.4 million, increases in the payment of placement fee obligations of $3.5 million offset by decreases in the net pay down of the revolving credit facility of $10.0 million and decreases in the payment for previous acquisition payments of $8.9 million. The funds received from the 2015 issuance of common stock were used, in addition to the proceeds from the issuance of long-term debt, to fund the business acquisitions we conducted in 2015.
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The following table summarizes our historical cash flows (in thousands):
Nine months ended
September 30, |
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2016 | 2017 | |||||||
Cash Flow Information: |
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Net cash provided by operating activities |
$ | 25,261 | $ | 26,293 | ||||
Net cash used in investing activities |
(27,970 | ) | (49,689 | ) | ||||
Net cash provided by (used in) financing activities |
(9,818 | ) | 15,436 | |||||
Effect of exchange rates on cash and cash equivalents |
(45 | ) | 8 | |||||
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Net decrease in cash and cash equivalents |
$ | (12,572 | ) | $ | (7,952 | ) | ||
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Operating activities
The Company has historically produced a loss from operations, which is primarily due to the capital nature of the business and the resulting depreciation and amortization expense. Net cash provided for the nine months ended September 30, 2017, was $26.3 million compared to $25.3 million in the prior year period, representing an increase of $1.0 million. This increase is primarily due to changes in net working capital, which were driven by several factors. Increased sales volume contributed to a $9.1 million change in accounts receivable. Additionally, increased production activity and purchases of gaming equipment resulted in a $6.8 million change in accounts payable and accrued liabilities, and to a lesser extent, a $2.8 million change in prepaid expenses and a $1.6 million change in inventory. A change in other non-current assets of $2.7 million was primarily related to tax related accruals. Other working capital changes and income from operating activities excluding non-cash expenses increased by $24.4 million.
Investing activities
Net cash used in investing activities for the nine months ended September 30, 2017, was $49.7 million compared to $28.0 million in the prior year period, representing an increase of $21.7 million. The increase was primarily due to the purchase of property and equipment of $14.1 million and software development and other expenditures of $0.7 million. Additionally, the Company acquired certain intangible assets related to the purchase of table games and table game related intellectual property of $7.0 million, as described in Note 2 to our consolidated financial statements. We also paid $28.1 million and $42.9 million for capital expenditures (of which $5.7 million and $0.8 million was for maintenance capital expenditures) during the nine-months ended September 30, 2016 and September 30, 2017, respectively.
Financing activities
Net cash provided by financing activities for the nine months ended September 30, 2017, was $15.4 million compared to cash used of $9.8 million for the nine months ended September 30, 2016, representing an increase of $25.3 million. The increase was primarily due to proceeds from the issuance of our term loans of our First Lien Credit Facilities of $448.7 million offset by the repayment of our Existing Credit Facilities of $407.5 million, repayment of our Sellers Notes of $12.4 million, payments on deferred loan costs of $3.1 million, deferred offering costs paid of $1.2 million, and principle payments on our first lien credit facilities of $1.1 million.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, we are required to make estimates incorporating judgments and assumptions we believe are reasonable based on our historical experience, contract terms, trends in our company and the industry as a whole, as well as information available from other outside sources. Our estimates affect amounts recorded in our consolidated financial statements and there can be no assurance that actual results will not differ from initial estimates. Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions. Our accounting policies are more fully described in Note 1 to the consolidated financial statements, Description of Business and Summary of Significant Accounting Policies.
We consider the following accounting policies to be the most important to understanding and evaluating our financial results. These policies require management to make subjective and complex judgments that are inherently uncertain or variable.
Management considers an accounting estimate to be critical if:
• | It requires assumptions to be made that were uncertain at the time the estimate was made, and |
• | Changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operation or financial condition. |
Business Combinations
We apply the provisions of ASC 805, Business Combinations, in the accounting for business acquisitions, such as the acquisitions of Cadillac Jack and AGSi. We recognize separately from goodwill the assets acquired and the liabilities assumed, at their acquisition date fair values and goodwill is defined as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. The valuations relating to the acquisitions of Cadillac Jack and AGSi included significant estimates in the valuation of intangible assets that included trade names, brand names, customer relationships, and gaming software and technology platforms. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate (Assumption #1) and projection of the cash flows (Assumption #2) associated with each acquired asset. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. In addition, deferred tax assets, deferred tax liabilities, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date and any adjustments to its preliminary estimates are recorded to goodwill if identified within the measurement period. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Assumptions/Approach used for Assumption #1 : Fair value of identifiable tangible and intangible assets is based upon forecasted revenues and cash flows as well as the selected discount rate. In determining the appropriate discount rate, we incorporate assumptions regarding capital structure and return on equity and debt capital consistent with peer and industry companies.
Effect if Different Assumptions used for Assumption #1 : Valuation of identifiable tangible and intangible assets requires judgment, including the selection of an appropriate discount rate. While we believe our estimates used to select an appropriate discount rate are reasonable, different assumptions could materially affect the
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measurement of fair value. The acquisitions of Cadillac Jack, AGSi, as well as historical acquisitions of the Company, have contained significant amounts of intangible assets and goodwill and a change in the discount rates used in the valuations of intangible assets in these acquisitions could have resulted in a change to intangible assets with an offsetting impact to goodwill.
Assumptions/Approach used for Assumption #2 : Fair value of identifiable tangible and intangible assets is based upon forecasted revenues and cash flows. In developing estimated cash flows, we incorporate assumptions regarding future performance, including estimations of revenues, costs, and capital expenditures.
Effect if Different Assumptions used for Assumption #2 : Valuation of identifiable tangible and intangible assets requires judgment, including estimations of cash flows, and determinations of fair value. In the Company’s valuation of intangible assets, we allocated the estimated cash flows of each business acquisition to the several individual intangible assets. While we believe our estimates of future cash flows are reasonable, different assumptions could materially affect the measurement of fair value. A change in the total estimated cash flows as well as the allocation of those cash flows to each intangible asset could have resulted in a change to the value assigned to intangible assets with an offsetting impact to goodwill.
Revenue Recognition
We evaluate the recognition of revenue based on the criteria set forth in the accounting guidance as more fully described in Note 1 to the consolidated financial statements, which contains a description of our revenue recognition policy for our revenue streams.
For the sale of gaming machines recorded in equipment sales revenue, judgment is often required to determine whether an arrangement consists of multiple deliverables, whether the delivered item has value to the customer on a standalone basis and, if applicable, the relative selling price used to allocate the arrangement fee to each deliverable. Certain sales arrangements of the Company may include the sale of gaming machines and the sale of game content conversion kits that may be delivered separately. Both deliverables have value to the customer on a standalone basis. The relative selling price of the undelivered elements, which is typically the game content conversion kits, is deferred and the remaining portion is allocated to the delivered item and is recognized as revenue. Such determination affects the timing of revenue recognition. In most arrangements, we establish a relative selling price of the delivered and undelivered elements based on our historical sales experience of the separate elements, for which we have historical standalone sales. We evaluate the primary use and functionality of each deliverable in determining whether a delivered item has standalone value and qualifies as a separate unit of accounting.
Judgment is required to determine whether there is sufficient history to prove assurance of collectability and whether pricing is fixed or determinable. Factors that we consider include the nature of our customers, our historical collection experience with the specific customer, the terms of the arrangement and the nature of the product being sold. Our product sales contracts do not include specific performance, cancellation, termination or refund-type provisions.
Determining whether certain of our products are within the scope of software revenue recognition and whether the software and non-software elements of these products function together to deliver the essential functionality can require judgment. Our determination dictates whether general revenue recognition guidance or software revenue recognition guidance applies and could impact the timing of revenue recognition. Our EGM hardware and game content software function together to deliver the product’s essential functionality and therefore we currently recognize revenue under general U.S. GAAP revenue recognition guidance.
Equipment leases
Gaming operations revenue is earned by providing customers with gaming machines, gaming machine content licenses, back-office equipment and linked progressive systems, which are collectively referred to as
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gaming equipment, under participation arrangements. The participation arrangements convey the right to use the equipment (i.e. gaming machines and related integral software) for a stated period of time, which typically ranges from one to three years and then the contract continues on a month-to-month basis thereafter. In some instances, the Company will enter arrangements for longer periods of time; however, many of these arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders the contracts effectively month-to-month contracts. Primarily due to these factors, our participation arrangements are accounted for as operating leases.
To a lesser extent, the Company has entered into lease arrangements with customers that contain minimum lease terms of greater than 75 percent of the economic life of the gaming machines, for which the present value of the minimum lease payments exceeds 90 percent of the fair value of the gaming machines, or that contain a bargain purchase option. These arrangements are also accounted for as operating leases due to the facts and circumstances surrounding each lease agreement that include the Company’s determination that the collectability of the minimum lease payments is not reasonably predictable or that there are important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the Company in the form of extended maintenance that the Company provides throughout the term of the lease.
The majority of the Company’s leases require the Company to provide maintenance throughout the entire term of the lease. In some cases, a performance guarantee exists that, if not met, provides the customer with the right to return the gaming machines to the Company. This performance guarantee is considered a cancellation clause, a provision which renders their contracts effectively month-to-month contracts. Accordingly, the Company accounts for these contracts in a similar manner with its other operating leases as described above. Whether contractually required or not, the Company develops and provides new gaming titles throughout the life of the lease.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts related to our accounts and notes receivable deemed to have a high risk of collectability. We review our receivables on a monthly basis to determine if any receivables will potentially be uncollectible. We analyze historical collection trends and changes in our customers’ payment patterns, customer concentration and credit worthiness when evaluating the adequacy of our allowance for doubtful accounts (Assumption #1). A large percentage of receivables are with Native American tribes that have their reservations and gaming operations in Oklahoma and Alabama as well as customers in Mexico, and we have concentrations of credit risk with several tribes. We include any receivable balances that are determined to be uncollectible in our overall allowance for doubtful accounts. Changes in our assumptions or estimates reflecting the collectability of certain accounts could materially affect our allowance for both trade and notes receivable.
Assumptions/Approach used for Assumption #1 : We estimate our allowance for doubtful accounts based on historical collection trends, changes in our customers’ payment patterns, customer concentration and credit worthiness.
Effect if Different Assumptions used for Assumption #1 : Recording an allowance for doubtful accounts requires judgment. While we believe our estimates are reasonable, if actual cash collections fall below our expectations, we may need to record additional bad debt expense, which will increase our selling, general and administrative expense.
Inventories
Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment. Inventories are stated at the lower of cost or market. Cost of inventories is determined using the first-in, first-out method for all components of inventory. We regularly review inventory quantities and update
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estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products (Assumption #1), the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimation could materially affect the inventory carrying value.
Assumptions/Approach used for Assumption #1 : Our estimates of net realizable value of inventory take into account projected usage including lease and sales levels that will utilize the existing inventory to assist in determining the net realizable value of the inventory at a balance sheet date. If inventory has no projected usage, it is written down to current market values (less costs to sell and dispose).
Effect if Different Assumptions used for Assumption #1 : Although we believe our estimate of inventory usage are reasonable, different assumptions could materially affect the inventories net realizable value. If actual inventory usage is lower than our projections, additional inventory write-downs may be required, which will be recorded as a reduction to inventories and additional expense to the cost of gaming operations.
Property and Equipment
The cost of property and equipment, consisting of gaming machines, file servers and other support equipment as well as leasehold improvements, office and other equipment, is depreciated over their estimated useful lives, using the straight-line method. Repairs and maintenance costs are expensed as incurred. We routinely evaluate the estimated lives used to depreciate assets (Assumption #1). Upon the occurrence of a triggering event, we measure recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset (Assumption #2). Our policy is to impair, when necessary, excess or obsolete gaming terminals on hand that we do not expect to be used. Impairment is based upon several factors, including estimated forecast of gaming terminal demand for placement into casinos. There were no events or circumstances noted in the year ended December 31, 2016 that indicated that the carrying amount of property and equipment may not be recoverable other than the write-down of older generation gaming machines described in Note 8 to our audited financial statements contained elsewhere herein.
Assumptions/Approach used for Assumption #1 : The carrying value of the asset is determined based upon management’s assumptions as to the useful life of the asset, where the assets are depreciated over the estimated life on a straight line basis.
Effect if different assumptions used for Assumption #1 : While we believe the useful lives that we use are reasonable, different assumptions could materially affect the carrying value of property and equipment, net, as well as the depreciation and amortization expense.
Assumptions/Approach used for Assumption #2 : When we identify a triggering event, we estimate cash flows directly associated with the use of the gaming equipment to test recoverability and remaining useful lives based upon forecasted product revenues and cash flows. In developing estimated cash flows, we incorporate assumptions regarding future performance, including estimations of win per day and estimated installed units on lease. When the carrying amount exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the asset, we then compare the carrying amount to its current fair value. We recognize an impairment loss if the carrying amount of the asset exceeds its fair value.
Effect if Different Assumptions used for Assumption #2 : Impairment testing requires judgment, including estimates of cash flows, and determinations of fair value. While we believe our estimates of future revenues and cash flows are reasonable, different assumptions such as projected win per day and projected installed units on lease could materially affect the measurement of the recoverability and fair value of property and equipment. If actual cash flows fall below initial forecasts, we may need to record additional amortization and/or impairment charges.
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Valuation of Intangible Assets and Goodwill
We group our intangible assets at the lowest level for which there are identifiable cash flows. The nature of our intangible assets is primarily described as follows:
• | Trade and brand names —intangible assets related to business and corporate trade names that were purchased in business acquisitions as well as the brand names of product franchise titles. This category includes both definite- and indefinite-lived intangible assets. |
• | Customer relationships —intangible assets that represent primarily the value that has been assigned to customer relationships as a result of business acquisitions. |
• | Contract rights under development and placement fees —intangible assets that relate to our purchase of the right to secure floor space from our customers under lease agreements for our gaming machines and to a lesser extent we record intangible assets from the discounts on development notes receivable loans that have been extended to customers at interest rates that are deemed below market in exchange for a fixed number of gaming terminal placements in the customer’s facility. |
• | Gaming software and technology platforms —these intangible assets represent software development costs that are capitalized once technological feasibility has been established and are amortized when the software is placed into service. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. This category also includes the game content libraries and technology platforms that were purchased as part of business acquisitions. |
• | Intellectual property —these intangible assets represent the platform and titles acquired through business acquisitions and standalone purchases of patents and related technology. |
Definite-lived Intangible Asset Impairment
The Company reviews its definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These indicators can include the loss of a key customer or jurisdiction or cancellation of a specific product line where there is no alternative future use for the intangible asset.
When the estimated undiscounted cash flows are not sufficient to recover the intangible asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount. There were no events or circumstances noted in the year ended December 31, 2016 that indicated that the carrying amount of definite-lived intangible assets may not be recoverable other than those described in Note 8 to our audited financial statements contained elsewhere herein.
Indefinite-lived Intangible Asset Impairment
The “American Gaming Systems” trade name and related derivations such as “AGS” and “PlayAGS” have an indefinite useful life. We do not amortize the indefinite lived trade name, but instead test for possible impairment at least annually or when circumstances warrant. For the trade name and any other indefinite-lived intangible asset we can perform a qualitative assessment to determine if it is more likely than not that the fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than not that the fair value of the asset is less than its carrying amount, a quantitative impairment test is required. The quantitative test compares the fair value of the asset to its carrying amount and any excess carrying amount over the fair value is recorded as an impairment loss.
The Company performed a qualitative assessment to determine if it was more likely than not that the fair value of the trade name was less than its carrying amount. In the assessment, we relied on several qualitative factors such as industry and macroeconomic conditions, as well as current projected cash flows and the prior year quantitative analysis, that concluded with a $21.9 million or 180% excess fair value over carrying value.
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Costs of Capitalized Computer Software
Internally developed gaming software represents our internal costs to develop gaming titles to utilize on our gaming terminals. Internally developed gaming software is stated at cost, which is amortized over the estimated useful lives of the software, using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. Generally, the computer software we develop reaches technological feasibility when a working model of the computer software is available. After the product is complete and commercialized, any software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software developments costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.
On a quarterly basis, or more frequently if circumstances warrant, we compare the net book value of our internally developed computer software to the net realizable value on a title or group of titles basis. The net realizable value is determined based upon certain assumptions, including the expected future revenues and net cash flows of the gaming titles or group of gaming titles utilizing that software, if applicable (Assumption #1).
Assumptions/Approach used for Assumption #1 : We estimate the revenues and net cash flows from our internally developed software intangible on a product by product basis to compare net book value to net realizable value. In developing estimated revenues and cash flows, we incorporate assumptions regarding future performance, including estimations of win per day and estimated units. When the carrying amount exceeds the net realizable value, the excess is written off.
Effect if Different Assumptions used for Assumption #1 : Determining net realizable value requires judgment, including estimations of forecasted revenue and cash flows. While we believe our estimates of future revenues and cash flows are reasonable, different assumptions could materially affect the measurement of net realizable value.
Goodwill
The excess of the purchase price of entities that are considered to be purchases of businesses over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. Goodwill is reviewed for possible impairment annually on October 1 or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable (Assumption #1). The Company has the option to begin with a qualitative assessment, commonly referred to as Step 0, to determine whether it is more-likely-than-not that the reporting units fair value is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines the reporting unit is not at risk of failing the qualitative assessment no impairment testing is required. If the Company determines that it is at risk of failing the qualitative assessment, the Company is required to perform an annual goodwill impairment test, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to results from operations when its carrying amount exceeds its estimated fair value.
Assumptions/Approach used for Assumption #1 : In the first step of the goodwill impairment test, we estimate the fair value of our reporting units and compare that to the carrying value. Fair value is based upon forecasted product revenues and cash flows. In developing estimated cash flows, we incorporate assumptions regarding future performance, including estimations of revenues, costs, and capital expenditures. When the carrying amount exceeds fair value, we then compare the carrying amount of goodwill to the implied fair value of goodwill. We recognize an impairment loss if the carrying amount exceeds the implied fair value.
Effect if Different Assumptions used for Assumption #1 : Impairment testing requires judgment, including estimations of cash flows, and determinations of fair value. While we believe our estimates of future cash flows
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are reasonable, different assumptions could materially affect the measurement of fair value. If actual cash flows fall below initial forecasts, we may need to record additional impairment charges.
The Company performed an annual impairment test on each of its reporting units as of October 1, 2016. For the EGM and Table Product reporting units we began with a qualitative assessment, commonly referred to as “Step 0”, and determined it is not more likely than not that the EGM and Table Product reporting units’ fair value of goodwill are less than their carrying value. This qualitative assessment primarily relied on the significant amount of cushion determined in the quantitative analyses performed on October 31, 2015, favorable current forecasts compared to those used in the prior year analysis, the general economic environment and industry and market conditions. Consistent with the Company’s expectations, the Table Product reporting unit’s adjusted EBITDA has decreased in each year since its inception as the reporting unit is in an investment and startup phase and its value is projected to be realized in future years through positive results.
For the Interactive reporting unit, which has a goodwill carrying value of $4.8 million, the Company performed a quantitative, or “Step 1” analysis. In performing the interim Step 1 goodwill impairment test for our Interactive reporting unit, we estimated the fair value of the Interactive reporting unit using an income approach that analyzed projected discounted cash flows. We used projections of revenues and operating costs with estimated growth rates during the forecast period, capital expenditures and cash flows that considered historical and estimated future results and general economic and market conditions, as well as the estimated impact of planned business and operational strategies. Consistent with the Company’s budgets, the historical results of this reporting unit have shown a declining adjusted EBITDA, which was expected due to the startup phase of this reporting unit. In future years, when the business of this reporting unit is expected to generate positive results, the present value of projected cash flows exceeds its carrying value. The estimates and assumptions used in the discounted cash flow analysis included a terminal year long-term growth rate of 4.0% and an overall discount rate of 15% based on our weighted average cost of capital for the Company and premiums for the small size of the reporting unit and forecast risk.
The Step 1 analysis determined that the Interactive reporting unit’s fair value was greater than its carrying value. The difference between the fair value and the carrying value (“excess fair value”) was approximately 22% of the carrying value. If the discount rate were increased to 16% the excess fair value would have been 9% of the carrying value. Some of the estimates and assumptions used by the Company are outside of the control of management. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the Interactive reporting unit it is possible a material change could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair value, we may be required to perform the second step, which could result in an impairment to the Interactive reporting unit goodwill.
Income Taxes
We conduct business globally and are subject to income taxes in U.S. federal, state, local, and foreign jurisdictions. Determination of the appropriate amount and classification of income taxes depends on several factors, including estimates of the timing and probability of realization of deferred income taxes, reserves for uncertain income tax positions and income tax payment timing.
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Taxes on income of our foreign subsidiaries are provided at the tax rates applicable to the tax jurisdictions in which they are located. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than not and a valuation allowance is established for deferred tax assets which do not meet this threshold.
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The recoverability of certain deferred tax assets is based in part on estimates of future income and the timing of temporary differences, and the failure to fully realize such deferred tax assets could result in a higher tax provision in future periods.
We apply the accounting guidance to our uncertain tax positions and under the guidance, we may recognize a tax benefit from an uncertain position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized in the financial statements is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement.
We are required to make significant judgments when evaluating our uncertain tax positions and the related tax benefits. We believe our assumptions are reasonable; however, there is no guarantee that the final outcome of the related matters will not differ from the amounts reflected in our income tax provisions and accruals. We adjust our liability for uncertain tax positions based on changes in facts and circumstances such as the closing of a tax audit or changes in estimates. Our income tax provision may be impacted to the extent that the final outcome of these tax positions is different than the amounts recorded.
Contingencies
We assess our exposures to loss contingencies, including claims and legal proceedings, and accrue a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from our estimate, there could be a material impact on our results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.
Recently adopted accounting pronouncements
For a description of recently adopted accounting pronouncements, see Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies, included elsewhere in this prospectus.
Recently issued accounting pronouncements not yet adopted
For a description of recently issued accounting pronouncements not yet adopted, see Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies, included elsewhere in this prospectus.
Contractual Obligations
The following table contains information on our contractual obligations and commitments as of December 31, 2016 (in thousands):
Payments Due by Period | ||||||||||||||||||||
Total |
Less than
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2-3 years | 4-5 years |
More than
5 years |
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Long term debt |
$ | 572,363 | $ | 6,536 | $ | 10,956 | $ | 541,873 | $ | 12,998 | ||||||||||
Interest payments |
235,996 | 38,906 | 75,033 | 117,208 | 4,849 | |||||||||||||||
Operating leases |
5,661 | 1,533 | 2,231 | 1,740 | 157 | |||||||||||||||
Other (1) |
12,440 | 3,973 | 5,317 | 219 | 2,931 | |||||||||||||||
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Total |
$ | 826,460 | $ | 50,948 | $ | 93,537 | $ | 661,040 | $ | 20,935 | ||||||||||
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(1) | “Other” includes Wide Area Progressive jackpot liabilities, employee severances, contingent consideration to business combinations and placement fees payable described below. |
$30.2 million of unrecognized tax benefits as of December 31, 2016 were not included in the table above. Due to the inherent uncertainty of the underlying tax positions, it is not practicable to assign this liability to any particular year.
Estimated interest payments on our debt as of December 31, 2016 are based on principal amounts outstanding, the stated interest rate as of December 31, 2016 and required principal payments through the maturity of the debt.
Quantitative and Qualitative Disclosures about Market Risk
We are subject to certain market risks and uncertainties inherent in our operations. These market risks generally arise from transactions in the normal course of business. Our primary market risk exposures relate to interest rate risk and foreign currency exchange risks.
Interest Rates
Our primary exposure to market risk is interest rate risk associated with our long-term debt, which accrues interest at variable rates. Certain of our debt instruments accrue interest at LIBOR or the base rate, at our election, subject to an interest rate floor plus an applicable margin rate. In the normal course of business, we are exposed to fluctuations in interest rates as we seek debt and equity capital to sustain our operations. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes. As of September 30, 2017, approximately 25% of our debt were fixed-rate instruments. Assuming a constant outstanding balance for our variable-rate long term debt, a hypothetical 1% decrease in interest rates would decrease interest expense $1.1 million given our LIBOR floor on related debt, while a hypothetical 1% increase in interest rates would increase interest expense approximately $4.5 million.
Foreign Currency Risk
We are exposed to foreign currency exchange rate risk that is inherent to our foreign operations. We currently transact business in Mexico using the local currency. Our settlement of inter-company trade balances requires the exchange of currencies, which results in the recognition of foreign currency fluctuations. We expect that certain operations will continue to be denominated in foreign currencies. As such, we expect our cash flows and earnings to continue to be exposed to the risks that may arise from fluctuations in foreign currency exchange rates.
We derived approximately 12% of our revenue from customers in Mexico. To date, we have not engaged in hedging activities intended to protect against foreign currency risk.
Jumpstart Our Business Startups Act of 2012 (JOBS Act)
In April 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies. Section 107 of the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable.
We have chosen to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company” we are not
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required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (United States) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. We may remain an “emerging growth company” until the last day of the fiscal year following the fifth anniversary of the completion of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue equals or exceeds $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an “emerging growth company” prior to the end of such five-year period.
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We operate primarily in the $85 billion North American gaming market, which includes U.S. commercial casinos, Native American casinos, Canadian casinos, video lottery terminals (“VLT”) and Mexican casinos. According to Eilers & Krejcik, as of June 30, 2017, there were approximately 980,000 EGMs installed throughout the United States and Canada and 120,000 EGMs in Mexico. Eilers & Krejcik estimates moderate growth in the North American EGM installed base through 2019. In the United States, Native American casinos represent a significant portion of the gaming market with over 360,000 Class II and Class III EGMs, and have historically been our main area of focus.
Industry Ship Share
Consolidation across the gaming equipment industry over the last four years has resulted in the creation of the “Big-4” gaming suppliers, which we consider to be IGT, Scientific Games, Konami, and Aristocrat. We believe that many casino operators prefer to diversify their gaming floor mix rather than purchasing their EGMs only from the Big-4 suppliers. As evidenced in the graphs below, the ship share for Non-Big-4 suppliers has continued to grow over the past several years. According to Eilers & Krejcik, Non-Big-4 suppliers captured 24% ship share for all EGMs sold in the third quarter of 2017, of which AGS represented greater than 5% of the total purchases.
Source: Eilers & Krejcik Q3 2017 Slot Survey.
With respect to table games, specialty table games have grown from approximately 1% of table games in U.S. and Canadian casinos in 1997 to approximately 15% today. We expect this trend in table games to continue, and AGS has positioned itself to capture this growth through new offerings and titles.
Class II Market—Native American
Native American gaming is regulated under the Indian Gaming Regulatory Act of 1988, which classifies legalized gaming into three categories: Class I, Class II, and Class III. Class I gaming includes traditional Native American social and ceremonial games and is regulated exclusively at the Native American tribe level. We do not compete in the Class I industry. Class II gaming includes EGMs that utilize bingo, electronic aids to bingo, and, if played at the same location where bingo is offered, pull-tabs and other games similar to bingo. Class II gaming machines can be operated in states that permit bingo-style gaming without any agreement with the state and without any revenue sharing with the state, whereas Class III gaming requires Native American tribes to enter into a compact with the state in which their casino is located, which typically includes revenue sharing with the state. Class II games are an attractive option for Native American tribes because: (i) revenue generated from Class II gaming is not subject to revenue sharing or taxes, (ii) there are no limits on the number of Class II gaming machines that may be operated in any one facility; and (iii) a strong Class II alternative improves a tribe’s leverage when negotiating its Class III compact with the state.
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As of September 30, 2017, the Native American Class II market consisted of approximately 60,000 EGMs, with AGS products representing over 20% of that market with approximately 10,000 recurring Class II EGMs placed in approximately 150 gaming facilities across 18 states. The states with the largest number of Class II units are Oklahoma, Alabama and California, in which we had an approximate 17%, 40% and 4% market share, respectively, as of September 30, 2017. Oklahoma is the largest tribal market in the U.S. with approximately 40,000 Class II and 30,000 Class III EGMs as of September 30, 2017. We have significantly increased our installed base of EGMs in Oklahoma, which has grown from 2,685 in 2004 to over 6,500 units as of September 30, 2017. In 2016, Native American casino revenues grew 4.4 percent to a record high of $31.2 billion. According to Eilers & Krejcik, the Class II market is expected to grow its installed base by approximately 2% over the next three years. Given the relatively small market size of the Class II market relative to the broader U.S. gaming market, the Class II market has historically not garnered the attention of larger gaming equipment manufacturers. We have been able to maintain our market share by partnering with our tribal customers to continually develop high-quality Class II titles that optimize the revenue generated at their casinos. The Class II market is highly relationship-based and we feel confident that we can maintain our current market penetration given the tenure and strength of our customer relationships.
Class III / Commercial U.S. and Canadian Markets
Class III machines can be found in commercial casinos and in Native American casinos that have entered into a state compact that permits a specified number of Class III machines. Currently, there are approximately 1,000 casinos throughout the U.S. and Canada with approximately 980,000 total EGMs. Excluding approximately 135,000 EGMs under route operations and approximately 60,000 Class II EGMs, there are 785,000 Class III EGMs throughout the U.S. and Canada, of which approximately 415,000 are in commercial casinos and approximately 370,000 are in tribal casinos. Eilers & Krejcik predict that the installed base of Class III and commercial units in the U.S. and Canada will grow by approximately 2%, or 16,000 units, over the next three years. In 2016, the number of installed Class III EGMs increased in 18 of the 24 states with legalized commercial gaming. While the specific drivers of this growth differ from market-to-market, we believe the nationwide growth trend can be attributed to stronger consumer confidence, lower levels of unemployment and more available disposable income. As of September 30, 2017, we had placed only 4,000 recurring Class III units (1,200 of which were video lottery terminals) in over 300 casinos, which represents less than 1% of the total number of EGMs placed in the U.S. and Canadian Class III and commercial gaming markets. Given our very low penetration in Class III and commercial casinos, these markets present a significant growth opportunity.
We believe significant potential exists for us to further penetrate the Class III and commercial markets, driven by three main growth drivers:
• | Expansion —over the last four years, we have aggressively secured licenses in some of these key Class III and commercial markets. As a result of our investments, we have nearly doubled our addressable markets to up to 640,000 EGMs, or 80% of the Class III and commercial TAM. |
• | Customer Sentiment Towards Smaller Suppliers —as a result of the recent consolidation that has taken place among gaming suppliers, we believe that operators are seeking more diversified floors and have demonstrated greater willingness to embrace smaller suppliers for diversity and for responsiveness to the operators’ service needs. |
• | Replacement —over the past few years, we have increased our share in the Class III market to approximately 4,000 units (1,200 of which were video lottery terminals), which represents less than 1% of the total U.S. and Canada Class III EGM market, driven mainly by our customers’ decisions to replace older, lower-performing competitive products with higher-performing AGS machines. With less than 1% of the market, we believe there is significant opportunity to continue growing our share as a result of our product’s performance. |
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Mexico
With the acquisition of Cadillac Jack in 2015, we acquired a strong foothold in the Mexican gaming market. The Mexican market consists of approximately 120,000 EGMs, and our approximately 7,400 units, located in nearly 200 gaming facilities, represent just over 5% of the total market. Revenue generated by our EGMs in Mexico represented about 12% of our total revenue in the LTM period, and we have consistently been growing our installed base in the region.
Philippines Market
We intend to enter the Philippines market in early 2018, which is a legalized market that we believe has a total size of approximately 70,000 units. We are currently in the process of obtaining an operating license to enter this market, which we expect to obtain in early 2018. We intend to offer our new ALORA cabinet, which is based on Latin-style bingo, in this market and we estimate that we will be able to generate participation rates of 22-25% of win per day, which compares favorably to the 20% that we typically receive in other international markets.
Brazil Market Potential
Considered one of the last major “frontiers” in gaming, Brazil potentially presents a significant opportunity for us. To date, Brazil only allows lotteries under the federal bank (Caixa Econômica Federal), as well as state lotteries, racing and tournament poker games. As a means to help raise government revenues, Bill no. 186/2014 was introduced in May 2015 proposing to expand the gambling market in Brazil. In December 2015, the bill passed the Senate’s Special Committee on National Economic Development. The bill would allow land-based casinos, online casino games, and more than, we believe, 550 bingo halls in major cities, among other things. Assuming the maximum number of bingo halls and casinos are built, we believe up to 500,000 gaming machines could be introduced in the country as a result.
We have made careful preparations and implemented a plan to be in a strong position to enter the market quickly if the gaming bill should pass. We have formed key strategic alliances in Brazil, including partnering with Brazilian entrepreneur Marcus Fortunato, developer of one of the world’s leading video-bingo products. Our Brazilian team is currently developing a library of games specific to the Brazilian market, which includes both new bingo-centric titles and familiar classics. We will offer our newly designed ALORA cabinet to the Brazilian market to ensure we are poised to build a meaningful footprint as soon as gaming is legalized. We believe that the groundwork we have implemented and product roadmaps we have designed over the past twelve months position us as a viable, reputable supplier for the Brazilian gaming market. We currently have memorandums of understanding with nine potential gaming operators to place approximately 8,700 EGMs on participation agreements, which would represent only 1.7% of a market that we estimate to be at approximately 500,000 units.
Other Potential International Markets
Regulated gaming exists in many regions across the globe, presenting significant long-term opportunities for AGS given that our focus has predominantly been in North and Latin America. We believe over the next several years, we will gain entry into more international markets, including:
• | Asia —the EGM market in Asia is growing, particularly in markets such as Macau, Japan and Singapore. Given our popular Asian-themed games and bonuses, we believe our content would perform well in these markets. |
• | Australia —there is a significant EGM market in Australia. According to Eilers & Krejcik, there is a stable annual replacement cycle of approximately 20,000 units. Many of our most popular, high-performing titles, such as our Golden Wins family of games, combine high-volatility game dynamics with Australian math models. For these reasons, we believe our content would perform well in the Australian market. |
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• | Europe —the EGM market in Europe is a mature market, but we believe that opportunity exists for European operators to replace older, less profitable products with our high-performing content. |
Table Products
According to Eilers & Krejcik, the total number of table games in North America is approximately 30,000 units. This includes public domain games, proprietary table games, poker room tables, and non-card based table games such as roulette, craps and sic bo. AGS has approximately 2,350 proprietary table games installed in North America, which represents approximately 8% of the total market.
We believe that there are three key market opportunities for us to grow our footprint in table products.
• | Proprietary Table Games Growth —the proprietary table game section of the casino has continued to steadily grow over the past 20 years. In 1997, we believe proprietary table games represented only 1% of table games in North American casinos; today, that number has grown, on average, to approximately 15%. We believe that this portion of table games will continue to grow as proprietary table games have a higher hold percentage and thus are more profitable to casino operators than standard public domain titles. |
• | Opportunity to Optimize Performance on Blackjack —with approximately 13,000 units, we believe blackjack represents the greatest number of table games in North America. A growing trend over the past 10 years has been the introduction of side-bets on blackjack tables to increase the overall hold of the game. We believe we have one of the industry’s most popular blackjack side-bets in our table game library, Buster Blackjack. We have nearly quadrupled the installed base of this side-bet since acquiring it and anticipate further growth. With approximately 10% of blackjack tables upgraded with our side-bets, we believe there is considerable opportunity for further penetration. Additionally, operators have recently increased the number of side-bets and progressive bonuses on blackjack tables, adding two or even three side-bets to appeal to various gambler preferences. This paradigm shift has given us the ability to gain real estate on blackjack tables that have a competitor’s side-bet. |
• | Penetration on Poker Tables —According to Eilers & Krejcik, there are roughly 7,400 poker tables in North America. We recently introduced the Dex S card shuffler specifically for poker tables. We believe a significant number of these tables do not have a card shuffler and are viable targets for Dex S. We also believe that—given the Dex S value proposition of being an economical, low-maintenance shuffling alternative—opportunity exists to convert some number of poker tables that are currently using a competitive shuffler product. |
In addition to targeting North America, we believe we have the right kind of product mix to penetrate international markets such as Australia, Latin America, Europe and Asia.
Drivers of Customer Demand
Casino and other legal gaming operators continuously seek to increase their revenue growth and profitability. The importance of gaming machine revenue to a casino operator’s profitability has created demand for gaming machines that have the ability to generate superior daily net win. Casino operators also seek ways to appeal to various player preferences by offering table products such as blackjack, poker, roulette and derivatives of these games. In addition to both EGMs and table products, operators also seek efficiency-enhancing products that help increase productivity and security on their floors, such as card shufflers. As a result, gaming equipment manufacturers have increasingly focused on enhancing the overall entertainment value and appeal of games and gaming machines, which drives the demand for the replacement of older games and gaming machines. We believe that earnings performance of our products is the primary driver of customer demand.
The typical refresh cycle for EGMs creates a natural, continuous driver of equipment sales and provides us with the ability to optimize our installed base by constantly refreshing it with newer product. According to
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Eilers & Krejcik, casino operators plan to replace an average of 7.8% of the casino owned games on their floors over the next 12 months. Additionally, Tribal markets and international casino operators continue to replace games at a much higher rate than U.S. commercial casinos although U.S. commercial casinos are the primary driver for the overall improvement in the average replacement rate.
Demand for our products and services is also driven by:
• | Casino expansions and new casino openings; |
• | Opening of new gaming jurisdictions; |
• | Expansion of our product line and introduction of new technologies; |
• | Entering new distribution channels and markets not previously served; and |
• | Our reputation, reliability and after-sales service support. |
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We are a leading designer and supplier of EGMs and other products and services for the gaming industry. Founded in 2005, we historically focused on supplying EGMs, including slot machines, video bingo machines, and other electronic gaming devices, to the Native American gaming market, where we maintain an approximately 20% market share of all Class II EGMs. Since 2014, we have expanded our product line-up to include: (i) Class III EGMs for commercial and Native American casinos permitted to operate Class III EGMs, (ii) table game products and (iii) interactive products, all of which we believe provide us with growth opportunities as we expand in markets where we currently have limited or no presence. Our expansion into Class III and ancillary product offerings has driven our strong growth and momentum in revenue, EGM adjusted EBITDA and our installed base, which have increased by 173%, 158% and 152%, respectively, since 2014. For the LTM period, approximately 83% of our total revenue was generated through recurring contracted lease agreements whereby we place EGMs and table game products at our customers’ gaming facilities under either a revenue sharing agreement (we receive a percentage of the revenues that these products generate) or fee-per-day agreement (we receive a daily or monthly fixed fee per EGM or table game product), or recurring revenue from our Interactive gaming operations. We operate our business in three distinct segments: EGMs, Table Products and Interactive.
We are a Nevada corporation that was formed in August 2013 to acquire, through one of our indirect wholly owned subsidiaries, 100% of the equity in AGS Capital, LLC (“AGS Capital”, “Predecessor”) from AGS Holdings, LLC (“AGS Holdings”). AGS Capital was a supplier of EGMs primarily to Class II Native American gaming jurisdictions. On December 13, 2017, we changed our state of incorporation from Delaware to Nevada under the applicable provisions of the General Corporation Law of the State of Delaware and the NRS. The Reincorporation resulted in a change in our name from AP Gaming Holdco, Inc. to PlayAGS, Inc.
Products
We provide our casino customers with high-performing Class II and Class III EGMs for the Native American and commercial gaming markets, approximately 25 unique table products offerings, ancillary table products equipment, systems software, computer hardware, signage and other equipment for operation within their gaming facilities. We also offer a vast library of casino-themed social and mobile games as well as business to business social casino products available to land-based casino customers.
EGM segment
EGMs constitute our largest segment, representing 94% of our revenue for the LTM period. We have a library of nearly 300 proprietary game titles that we deliver on several state-of-the-art EGM cabinets, including ICON (our core cabinet), Orion (our newly-introduced premium cabinet), and Big Red/Colossal Diamonds (our specialty large-format cabinet). We also have developed a new Latin-style bingo cabinet called ALORA, which we plan to use in select international markets, including the Philippines and Brazil.
Our cabinets and game titles are among the top performing premium leased games in the industry. We design all of our cabinets with the intention of capturing the attention of players on casino floors while aiming to maximize operator profits with our premium leased games outperforming most of the EGMs manufactured by our competitors, generating win per day that is 2.7 times higher than the average of all of the gaming machines in the casinos where we have our EGMs placed.
We have increased our installed base of EGMs every year from 2005 through the LTM period, and as of September 30, 2017, our total EGM footprint comprised 22,015 units (14,544 domestic and 7,471 international). We remain highly focused on continuing to expand our installed base of leased EGMs in markets that we currently serve as well as new jurisdictions where we do not presently have any EGMs installed. Since our founding, we have made significant progress in expanding the number of markets where we are licensed to sell or
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lease our EGMs. In 2005, we were licensed in three states (5 total licenses) and currently we are licensed in 33 U.S. states and two foreign countries (253 total licenses). As of September 30, 2017, our installed base represented only approximately 2% of the total addressable market of approximately 980,000 EGMs installed throughout the United States and Canada. According to Eilers & Krejcik, U.S. casino operators expect to allocate approximately 5.5% of their 2018 EGM purchases to AGS products, which is more than three times higher than our ship share in 2016 and we believe we are positioned to gain significant market share over the next several years.
We offer our customers the option of either leasing or purchasing our EGMs and associated gaming systems. Currently, we derive substantially all of our gaming revenues from EGMs installed under revenue sharing or fee-per-day lease agreements, also known as “participation” agreements, and we refer to such revenue generation as our “participation model”. As we expand into new gaming markets and roll out our new and proprietary cabinets and titles, we expect the sales of gaming machines and systems will play an increasingly important role in our business and will complement our core participation model.
Below are a few of our more significant cabinets:
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Our ICON cabinet offers modern design with seamless integration of light and sound, ergonomic design, and stunning visual effects to complement our premium game content and play mechanics. The ICON is equipped with two flush mounted 23” HD LCDs, integrated sound system, and two subtle light panels surround the LCD monitors and react to on-screen events, enhancing game features, building anticipation, celebrating big wins, and highlighting bonus events. The ICON has served as our “workhorse” since its introduction, serving as the single biggest growth driver for our business due to its reliability and deep portfolio of games available. The ICON has helped us build success stories in new markets, and we expect to build even more momentum in the coming months of 2017 due to its proven performance. We currently have over 2,500 ICON cabinets installed on a recurring revenue basis. The current revenue per day for each ICON cabinet is approximately $25.00. |
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Our Orion cabinet is a premium cabinet focused on performance, flexibility, and style. Engineered for multiple configurations, this cabinet powered by a common platform, available in Class II and Class III, and benefits from easy servicing. Powered by our Atlas operating platform, Orion’s self-contained logic and use of a common platform eliminate the need for multiple servers. Full-color LED lights surround Orion’s 42” HD LCD touchscreen monitor, capable of changing colors and patterns on each machine or across entire banks in a manner that corresponds to each feature within the game. We unveiled Orion at the Global Gaming Expo in late 2016 to positive customer feedback. Additionally, our Orion product received positive recognition within the industry, including winning silver at the 2017 Global Gaming Business Annual Gaming & Technology Awards . We believe our Orion cabinet will help us build momentum in Class III and newly addressable markets, and will be a material driver of our equipment sales business. As of October 31, 2017, there were 1,400 installed Orion EGMs in 199 casinos. The current revenue per day for each Orion cabinet is approximately $50.00. |
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Big Red is a premium, specialty cabinet focused on simple, classic gameplay. At 8’ tall and 8’ wide, its massive size and bright red color commands attention on the casino floor and creates a community-style gaming experience. Currently available with our top-performing game title Colossal Diamonds, Big Red is engineered for both Class II and Class III formats. With one of the highest returns on invested capital in the slot business, Big Red has consistently been listed as one of the top-ten performing premium leased games in the Eilers & Krejcik Quarterly Slot Surveys. Strategic engineering advancements are currently underway that will allow progressive capabilities and signage features to maximize game play in Colossal Diamonds, as well as support new game titles under development. We currently have approximately 250 Big Red cabinets installed on a recurring revenue basis. |
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Our legacy Halo cabinet offers competitive Class II hardware to enhance the player experience with vivid graphics and lighting. It’s equipped with two 22” wide-screen, hi-resolution LCDs. Designed for easy servicing and aesthetic appeal, Halo also complements our Core game title library by allowing us to easily convert high-performing game titles built for Premium cabinets onto Halo’s legacy hardware. This flexibility allows us to stabilize and grow the existing footprint in key Class II markets, such as Mexico, Oklahoma, and California, and provides substantial opportunities for future hardware replacements while still allowing customers to offer our top-performing titles. We currently have approximately 3,800 Halo cabinets installed on a recurring revenue basis. |
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Alora is a specialty cabinet designed specifically for the Latin-style bingo player. Designed by a team of Brazilians for the potential Brazil market opening, the cabinet will be deployed in the Philippines and Mexico, both of which currently have mature and stable Latin-style bingo markets. The Alora platform supports dual screen 23.8” monitors and features a unique foot pedal that gives players the option to play without using the button panel. Each game theme offered on this platform supports instant bonuses, stand-alone progressives and a community progressive. We believe that Latin-style bingo game titles have a longer life span as compared to traditional EGMs. Currently, we have six game titles for the Alora, such as Bingolandia, Show de Balla and Go Bananas, and are developing four additional titles, which we expect will be commercially available in early 2018. |
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We have strategically shifted our focus to create new internal content and leverage our Atlas operating platform, obtained through the Cadillac Jack Acquisition, as a conduit for our current and future products. Currently, our ICON and Orion cabinets run on the Atlas operating platform. We will continue porting our legacy games onto the Atlas platform, enhancing both our Class II and III offerings. We expect internally-generated content to be a larger source of our installed base going forward.
We categorize our EGM titles into two main groups: “Core” and “Premium and Specialty”. Our Atlanta game development studio is responsible for creating Core video EGM content as well as new hardware designs and concepts. Our Las Vegas development team focuses primarily on Premium and Specialty games. Our Core titles have a proven track record of success and are targeted at maintaining and growing our current installed base. Our Premium titles include unique and niche titles that provide a distinctive player experience and are targeted at increasing floor space in both existing and new jurisdictions. Specialty titles describe our jumbo games, such as Colossal Diamonds, and games made specifically for high-limit winnings. In total, our development teams have the capabilities to produce approximately 50 games per year. We believe this strategy of producing diversified content will allow us to maintain and grow our market leadership within our current Class II base, as well as expand into Class III casinos in other key jurisdictions.
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Our Core titles, offered on our ICON and Halo cabinets, include Jade Wins, Golden Wins, White Buffalo Dreamcatcher, Shadow Fox Dreamcatcher, Gold Dragon Red Dragon, Buffalo Jackpots, Longhorn Jackpots, and the So Hot family of games, which are some of the top-performing Class II games in the market today. These titles have historically been the highest-gross earners in our product portfolio and, as of September 30, 2017, represented the majority of our total revenue. We design our Core titles to provide a universal appeal to players while helping to maximize our customer’s operations. |
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Our Premium and Specialty titles, offered on ICON, Orion and Big Red, include an assortment of compelling features that maximize the capabilities of their hardware. Top-performing titles include Colossal Diamonds, Wolf Queen, Fu Nan Fu Nu, and Fire Wolf II. These titles are premium in nature because they include dynamic play mechanics such as Pick ‘em Progressives, Must-Hit-By Progressives, Streaming Stacks, Reel Surges, Free Spin Bonuses, and much more. Their main game features are wrapped inside crisp graphics and sounds that maximize the hardware’s capabilities to provide universal player appeal that helps optimize our customer’s operations. |
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Table Products
In addition to our existing portfolio of EGMs, we also offer our customers more than 25 unique table product offerings, including live felt table games, side bet offerings, progressives, signage and other ancillary table game equipment. Our table products are designed with the goal of enhancing the table games section of the casino floor (commonly known as “the pit”). Over the past 10 years, there has been a trend of introducing side-bets on blackjack tables to increase the game’s overall hold. Our table products segments offers a full suite of side-bets and specialty table games that capitalize on this trend, and we believe that this segment will serve as an important growth engine for our company, including by generating further cross-selling opportunities with our EGM offerings. As of September 30, 2017, we had placed 2,350 table products domestically and internationally and we believe we are presently a leading supplier of table products to the gaming industry based on number of products placed.
Our Table Products segment focuses on high margin recurring revenue generated by leases. Nearly all of the revenue we generate in this segment is recurring. We have acquired several proprietary table games and side-bets and developed others in-house.
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Our premium game titles include Chase the Flush, Criss Cross Poker, Mega Blackjack, and Five Card PurSUIT, among others. This segment of the table product business provides an area for growth and expansion in the marketplace, as the industry’s revenues are currently dominated by a single competitor, and we have recently expanded our sales efforts to cover greater territory. The game mechanics of our premium titles take classic public domain games and offer a twist on game play that increases volatility while simultaneously increasing hold for operators. This means players experience larger wins, which keeps them engaged in the games for longer periods of time, and operators experience potential incremental revenue. |
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As one of the fastest growing bonus bets in the world, Buster Blackjack headlines our side-bets product category, nearly quadrupling its installed base since acquiring it. Most recently, Buster Blackjack has been installed in Australia at the Crown Melbourne Casino. In addition to Buster Blackjack, we have other top-performing side-bet games such as War Blackjack, In-Bet, Push Your Luck, and Deuces Wild. These bonus bets include a mix of pre- and post-bet mechanics, a growing trend in the table products space. These pre- and post-bets make it easier for both dealers and players to understand and do not interrupt or slow down basic game play, meaning more hands per hour and a potential increase in hold. |
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We also recently acquired five dynamic, new games, including Super 4, Blackjack Match Progressive, Jackpot Blackjack, Royal 9, and Jackpot Baccarat. These games have approximately 500 installs worldwide and feature a simple, rewarding side bet that extends the winning experience in interactive ways and further engages players. These games complement core table game offerings and serve to make traditional play more exciting, benefitting both players and operators. |
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As one of the newer areas of our Table Products business, our equipment offerings are ancillary to table games, such as card shufflers and table signage, and provide casino operators a greater variety of choice in the marketplace. This product segment includes our highly-anticipated single-card shuffler, Dex S, as well as our Baccarat Signage solution and Roulette Readerboard. We believe this area of the business holds many opportunities for growth, as the technology currently installed in the signage and readerboard areas are in a replacement cycle.
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In September 2015, we announced the acquisition of critical card shuffler intellectual property and technology. The Dex S card shuffler is a byproduct of this acquisition. A single-deck, commercial-grade shuffler featuring a streamlined design with fewer moving parts, Dex S is exceptionally functional and economical. It shuffles a single deck of cards in less than 45 seconds and requires much less servicing than traditional shufflers for increased up-time and efficiency. We believe Dex S could be a potential growth driver in 2017 and beyond, as it provides an alternative to both hand-shuffling and to shufflers produced by other manufacturers such as Scientific Games, which we believe to be the worldwide market-leader in shufflers. |
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We offer casinos alternative ways to increase play and attract players’ attention with our Baccarat Display and Roulette Readerboard solutions. The purpose of these products is to show trends, results, and statistics to help drive more play at baccarat and roulette wheels. They offer double-sided, high-definition systems that allow operators to customize the screens, including min/max limits, fonts, colors, and more. As these products are for table games offering baccarat and roulette, this area of our business offers growth potential as operators search for new options to replace their outdated technology. |
After acquiring intellectual property around progressive bonusing systems, our Table Products segment has taken the base systems and heavily expanded on it to now offer customers a bonusing solution for casino operators. We believe progressive bonusing on table products is a growing trend with substantial growth opportunities. We continue to develop and expand our core system to offer new and exciting bonusing and progressive products for the marketplace.
Bonus Spin is a first-of-its kind wheel-based table products progressive solution that uses built-in, light-up bet sensors, a tablet-style dealer interface, and a progressive engine that’s fully customizable. Operators can offer anything from a progressive top prize, a fixed top prize, or an experience-based prize as the top award. Sophisticated 3D graphics and a double-sided display draw players into the game and show prizes, results, and bet limits. By adding Bonus Spin to any of their table products, we believe operators can instantly be more effective at marketing their games by offering customizable prizes that target specific player segments, resulting in more player excitement, interaction, and a potential increase in revenues and visits. In addition, Bonus Spin can be easily added to any of our table products, providing substantial growth opportunities. Bonus Spin was recognized at the Casino Journal’s Annual Top 20 Most Innovative Gaming & Technology Product Awards. As of September 30, 2017, and in less than one year since its launch, we have placed more than 100 Bonus Spin units. |
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Interactive Social Casino Products
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Our B2C social casino games include online versions of our popular EGM titles and are accessible to players worldwide on multiple mobile platforms, which we believe establishes brand recognition and cross-selling opportunities. Our B2C Social games operate on a free to play model, whereby game players may collect virtual currency or other virtual consumable goods (collectively referred to as “virtual goods” or “virtual currency”) free of charge, through the passage of time or through targeted marketing promotions. Additionally, players have the ability to send free “gifts” of virtual goods to their friends through interactions with certain social platforms. If a game player wishes to obtain virtual goods above and beyond the level of free virtual goods available to that player, the player may purchase additional virtual goods. Once obtained, virtual currency (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than game play. |
We design our portfolio of B2C games to appeal to the interests of the broad group of people who like to play casino-themed social and mobile games. Our B2C games leverage the global connectivity and distribution of Facebook, as well as mobile platforms such as the Apple App Store and Google Play Store.
We have recently expanded into the B2B space through our core app, Lucky Play Casino, whereby we white label our social game product and enable our land-based casino customers to brand the social gaming product with their own casino name. Currently, our B2C Social games consist of our mobile apps, Lucky Play Casino, Wild Vegas Casino, Buffalo Jackpot Casino, and Vegas Fever. The apps contain numerous AGS game titles available for consumers to play for fun or with chips they purchase in the app. Some of our most popular social games include content that is also popular in land-based settings such as Fire Wolf, Gold Dragon Red Dragon, Legend of the White Buffalo, Royal Reels, Colossal Diamonds, So Hot, Monkey in the Bank, and many more.
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We offer two distinct B2B social casino products available to land-based casino customers. The first product is Social White Label Casino (“Social WLC”), a white label version of Lucky Play Casino that contains the same slot games, meta game features and promotional capabilities branded with the casino customer’s brand and style. While we will not directly launch any new B2C Social casino apps in 2017, we anticipate launching multiple Social WLC apps on behalf of our casino customers. The second product is Social RGS, a remote gaming server specifically used to provide AGS slot game content to casino customers using either their own or a third-party’s social casino solution. |
Competitive Strengths
We have grown our revenue, adjusted EBITDA and installed base by consistently adding to the unique and differentiated products that we offer to our players and casino operators while maintaining a consistent focus on customer service. We have a track record of completing and integrating acquisitions, expanding our product lines, and developing new content and gaming products to meet the needs of our customers. We believe that this track record differentiates us from our competition and, along with the following competitive strengths, has enabled us to become a leading designer and supplier of gaming equipment and services.
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High-Margin , Recurring Revenue Model with Attractive Payback Periods on Newly Deployed Capital
Approximately 83% of our revenue in the LTM period was derived from products that we leased to our customers and recurring revenue from our Interactive gaming operations. This strong base of recurring, contracted, high-margin revenue generated a 56% EGM adjusted EBITDA margin, which reflects the strong performance and longevity of our game titles and long-term relationships with our key customers. The cash flow generated from our recurring revenue sources has provided us with a stable source of capital to grow our footprint both domestically and internationally. Given the high-margin, recurring-revenue nature of our new EGMs, we benefit from payback periods on our leased units of only approximately 12 months for our core units and approximately 8 months for our premium units.
Best-in-Class R&D Teams that Produce Industry-Leading Products
Our R&D teams have demonstrated industry leadership by creating several top-performing titles and innovative hardware designs, such as our newly-introduced premium cabinet, Orion Slant, which features a unique slanted top that has a more comfortable ergonomic design for slot machine players. The innovative nature of our products has, in part, led to 75% of our customer base electing to purchase at least one of our recently-released ICON or Orion cabinets. As reflected in the charts below, our casino-owned EGMs outperform those from all other suppliers, generating win per day 1.8 times higher than the house average. Our premium leased games were the second-best across the industry, delivering win per day that was 2.7 times higher than the average of the casino floors (up from 2.0 times higher in the previous quarter) where our machines are placed.
Premium Leased Game Performance—Domestic (1) | Casino Owned Game Performance—Domestic (1) | |
Source: Eilers & Krejcik Q3 2017 Slot Survey.
(1) | Domestic Class II and Class III performance per Eilers - Fantini Q3 2017 Quarterly Slot. |
In addition to the performance of the machines, we believe our products contribute to high levels of customer satisfaction as evidenced by our strong trial unit conversion metrics. For the LTM period, 99% of customer trial units resulted in conversion to a lease or sale. Additionally, our share of top performing casino-owned games improved to 3.0% in the third quarter of 2017 from 1.8% in the prior quarter, according to Eilers & Krejcik. The success of our products has led to several awards recognizing the excellence of our products in 2017, as voted by customers and industry experts, including a silver award at the Global Gaming Business Annual Gaming & Technology Awards for our new premium Orion product, and recognition at Casino Journal ’ s Annual Top 20 Most Innovative Gaming & Technology Product Awards for both Orion and our Bonus Spin table product.
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Focus on the “Core Gambler” to Drive Profitability for Our Customers
We create slot machine titles predominantly for the “core gambler” (sometimes referred to as a “local player”), who we believe comprises 20% of the slot player demographic, but approximately 80% of the slot industry profits. The core gambler is an actively-engaged slot player, who typically gambles more frequently than a tourist visiting a destination market such as Las Vegas, and we believe this type of player represents an underserved, but highly-profitable demographic. Based on our internal research, we believe core gamblers visit casinos with high frequency and demonstrate strong loyalty to specific gaming titles. We design many of our games to appeal to this player base by creating high-volatility games that keep players invested and engaged during their gaming experience. We focus on building games that encourage players to spend more time on our devices and are designed to ensure the player has fun by providing various bonus triggers and multiple ways to win within the game. We believe that this strategic focus gives us a competitive edge because we are not distracted by spending a substantial amount of time, resources or development dollars to acquire expensive licenses and brands with limited shelf life for less frequent or less profitable gambler subsets.
Broad and Diverse Product Portfolio
We offer a wide variety of content and technology with hundreds of titles, and we aim to be a “one-stop shop” for our customers. We have recently expanded our EGM cabinet offerings to include cutting-edge premium products, such as Orion (introduced in May 2017), and unique formats that stand out on the casino floor, such as Big Red (introduced in September 2014). For table products, we have diversified content for poker, blackjack and roulette derivatives, as well as bonusing enhancements that offer new and exciting gaming experiences. Our table products also include a variety of ancillary equipment designed to create greater efficiency for our customers, such as our new Dex S single-deck shuffler. We strategically pursue acquisitions and our broad, customer-focused distribution network to enhance our content, titles and overall installed base. An example of our strategy’s success was the Buster Blackjack side bet offering, in which we have increased our installed footprint by nearly four times since the acquisition. We will also continue to partner strategically with select developers to bring innovative and new product concepts to our customers by leveraging our distribution network as we have recently done with Alfastreet’s Royal Derby offering. Within our interactive segment, our B2C social games include online versions of our popular EGM game titles and are accessible to players worldwide on multiple mobile platforms, which we believe leads to establishing brand recognition and cross selling opportunities.
Unique and Value-Enhancing Culture that Attracts Top Talent
Our corporate culture is based on the core concepts of passion, performance and teamwork, which allows us to be nimble and flexible in our strategy and execution. We strive to cultivate a culture where employees care about our business and the specific work that they do, where they feel strongly that AGS is not just a place to work but is also a community. This philosophy starts in the recruiting process and continues with every business, social and cultural activity at AGS. The result is a unique culture that we believe sets us apart from other companies in our space and has been critical to our successful recruitment and retention of top talent. Because we offer a rewarding work environment and many employee-friendly benefits and perks that are not standard in the gaming industry, we believe AGS is known as a fun and open place to work. Through, among others, numerous wellness initiatives, benefits such as hands-on community volunteering activities, various events promoting team spirit, and frequent and direct executive-to-employee communication, we believe we have gained the reputation of being a top employer in the gaming industry. Our company has received numerous awards highlighting our culture of employee wellness, including being named one of Atlanta’s Best and Brightest Companies to Work For 2017 . As we grow and expand our business, we believe that our employee-centric culture will continue to attract high-caliber talent that will further enhance our team.
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Experienced Management Team with a Strong Track Record of Execution
Our management team has significant experience in the gaming supply industry and has significant expertise in developing new products to serve our core customers and expand geographically. Our senior management team draws from prior work experience at SHFL entertainment, Inc., Bally Technologies, Konami, Global Cash Access and Scientific Games. Over the past three years, we have substantially upgraded much of the senior leadership team, which has nearly 100 years of combined experience in the gaming supply industry. In particular, we have enhanced our senior leadership team with the appointment of David Lopez as our CEO in 2014. David has over 20 years of industry experience, and was the former CEO of Global Cash Access and COO of SHFL entertainment, Inc. Under his leadership, we have substantially upgraded the senior leadership team with the additional appointment of Sigmund Lee as CTO (former CTO of Cadillac Jack and VP of Engineering at Bally Technologies, with over 15 years of industry experience). We believe our team is well-positioned to continue to deliver superior and highly-memorable gaming experiences, while executing on a substantial expansion in domestic and international markets.
Proven Ability to Successfully Integrate Acquisitions and Scale Our Platform
We have a strong track record of acquiring and integrating businesses with limited disruption to our core business. Over the past three years, we have effectively integrated over 20 acquisitions. The acquisition of Cadillac Jack demonstrated our ability to recognize both cost and revenue synergies and, as a result of efficiently integrating two complementary businesses, to deliver record financial results in 2016. We believe that our proven track record is the result of our ability to successfully identify businesses with products and cultures that are complementary to AGS.
Even though we face significant competition across all segments from companies with greater financial resources, experience and financing resources, we believe that our competitive strengths differentiate us from such competitors and provide a foundation for our future position in the gaming industry.
Growth Strategies
Build Momentum and Penetrate Class III and Commercial Jurisdictions
Expansion in Class III and commercial gaming jurisdictions represents a significant growth opportunity for us as there are many jurisdictions where we have only recently been licensed or allowed, including Indiana (2015), New Mexico (2017), Nevada (2014), Connecticut (2014), Iowa (2017), Mississippi (2015) and Louisiana (2017). Our third quarter 2017 ship share in many of these recently-licensed markets has been strong, with Indiana at 9%, Iowa at 10%, New Mexico at 9%, Nevada at 5%, Mississippi at 15% and Louisiana at 29%. We also have the opportunity to enter many of the large commercial gaming markets in the U.S. where we currently have no presence, including Colorado, Ohio and Pennsylvania and new gaming markets such as Massachusetts. These new markets provide us with a tremendous opportunity to expand our recurring installed base. According to Eilers & Krejcik, the total EGM market consists of 980,000 units. As of September 30, 2017, our total backlog of signed contracts for ICON and Orion EGMs represented approximately $10 million of EGM adjusted EBITDA (based on historic revenue per day, sales price and respective EGM adjusted EBITDA margins for Orion and ICON). We strategically allow our customers to purchase or lease our premium cabinets, whereas our competitors typically only lease (and will not sell) their premium products. We believe our willingness to sell our premium cabinets gives us a competitive advantage with our customers. As a result of our efforts, we have been able to attract a number of new customers over the past three years, including MGM, Caesars, Penn National Gaming and Las Vegas Sands.
Optimize Yield Across our Existing Footprint
We believe there is a significant opportunity to optimize the older EGMs in our existing installed base with newer, more profitable cabinets. By improving the performance of our installed base, we will
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generate incremental EGM adjusted EBITDA since our participation model enables us to share in the profitability of the EGMs that we place in our customers’ gaming facilities. We currently have an installed base of approximately 3,100 older cabinets that we believe, over time, can be upgraded with our newer cabinets to generate higher win per day. The typical refresh cycle for EGMs is approximately three years, which creates a natural, continuous driver of equipment sales and provides us with the ability to optimize our installed base by constantly refreshing it with newer cabinets. Over the past twelve months, we have optimized over 1,600 of our cabinets, which has led to approximately $4.5 million of incremental run-rate revenue, approximately 100% of which flows to EGM adjusted EBITDA. A specific example of this took place at the Winstar casino in Oklahoma, in which we optimized 28 underperforming legacy EGMs by replacing them with our new Orion cabinet, which resulted in a significant increase in incremental run-rate revenue. When annualized, the effect of this optimization results in an increase in incremental run-rate revenue of nearly $1.0 million. Another benefit of our yield optimization program is that we can take the older units from domestic casinos, refurbish them for approximately $1,500 and redeploy them in Mexico. These redeployed units broaden our international footprint and generate a high return on investment given the low cost to refurbish the units. Based on FY 2016 revenue per day and related refurbishment expenditure figures, we estimate that our return on investment for each refurbished unit that is leased into the Mexican market is 191%.
Expand Globally
We consider many factors when choosing to enter a new international market, including the size of the opportunity and the regulatory environment. Since 2015, we have implemented a renewed strategy in Mexico, which has improved our relationship with our customers and enabled us to grow our installed base to approximately 7,400 units in nearly 200 facilities, which represents over 5% of the market. As of September 30, 2017, we had 7,471 units placed in Mexico, which was up 8% from the 6,898 units that were installed at the end of 2016. These units generate approximately $8.40 of revenue per day and an EGM adjusted EBITDA margin of approximately 69%.
We intend to enter the Philippines market in early 2018, which we believe has a total market size of approximately 70,000 units. We are currently in the process of obtaining an operating license to enter this market, which we expect to obtain in the first quarter of 2018 and begin installing units on a recurring basis shortly thereafter. We intend to offer our new ALORA cabinet, which is based on Latin-style bingo, in this market and we estimate that we will be able to generate participation rates of 22-25% of win per day, which compares favorably to the 20% that we typically receive in other international markets. The Philippines market represents a significant untapped opportunity for us. We intend to establish a footprint of approximately 3,000 to 5,000 units over a three to five year period.
Additionally, over the past twelve months we have expanded our presence in Canada through EGM sales into that market and we recently introduced our table products content to the Australian gaming market. On the near-term horizon, we believe that certain parts of Asia and Europe present high-growth opportunities for our business given the types of gaming content that we create, which we believe resonates with players from both of these cultures.
We also believe there are several other markets, such as Brazil, that present a significant growth opportunity for us. Over the past several months, the Brazilian legislature has put forth key legislation to legalize regulated gaming. We have implemented a comprehensive strategy to enter the Brazilian market and we have already executed memoranda of understanding (“MOU”) with nine potential gaming operators to place approximately 8,700 EGMs in Brazil as soon as the country legalizes gaming. We intend to establish a footprint of approximately 8,000 to 10,000 units over a three to five year period.
Further Expand Our Class II Market Leadership and Continue Growth of our Recurring Revenue Base
We believe that our existing core Class II product offering is among the strongest in the industry and we are committed to growing our existing Class II installed base. Currently, we believe we are the
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second largest supplier of Class II games in the United States. We expect to continue gaining market share in our existing Class II jurisdictions as we introduce more games and new hardware, and we also intend to enter new Class II jurisdictions (we have acquired 68 new Class II licenses in the past three years). There is a sizable Native American casino scheduled to open in the first quarter of 2018 and our Class II placements at this property should add another 200 games to our installed base. We believe that the unique advantages offered by Class II gaming will result in Native American operators continuing to grow the number of Class II units that they have in their casinos. Given our existing leadership in the Class II market, we feel that we are very well-positioned to capture our share of this continued growth in Class II.
Focus on Innovation & New Product Verticals for the Next Generation of Casino Players
In 2014, we began developing table products through the acquisitions of War Blackjack and other related intellectual property with the objective of diversifying our product portfolio to include gaming experiences for a different gaming consumer profile. The extension of our business into table products, as well as our entry into the interactive social casino space, demonstrates our commitment to evolving our business to adapt to the preferences of the next-generation gambler. As of September 30, 2017, we had 2,350 table products leased to our customers. We plan to continue expanding our table products offerings through acquisitions and internal development and have high expectations for our newly launched Bonus Spin progressive technology and Dex S single-deck shuffler. We continue to convert our proven land-based casino content into online and mobile formats for social gaming. Our popular land-based slot machine games, such as Golden Wins, Jade Wins, Buffalo Jackpots and Firebull to name a few, have been among the strongest performers in our social casino game catalog. In addition to new game titles, we continue to explore other areas of growth for our Interactive segment including continued expansion of our newly launched B2B Social White Label Casino. The key benefit of our platform is that it has been battle-tested in the highly competitive social casino market, and is able to support casinos’ player-engagement initiatives, with powerful brand extension, communications, promotions, and monetization features. We believe in the potential of our powerful back end Customer Relationship Management (CRM) capabilities, our player segmentation platform, and our ability to customize and brand the product to meet each property’s unique requirements. We also believe that there are opportunities to offer real money gaming and other complimentary products in certain markets in the future.
While the execution of our growth strategies may be delayed or prevented by significant factors that are beyond our control, see “—Risk Factors” and “Risk Factors,” our management team remains focused on identifying such factors and preventing their impact on our company through a commitment to product and customer expansion and diversification.
Our Operations
We provide customers with EGMs, table products, ancillary table product equipment, systems software, computer hardware, signage and other equipment for operation within their gaming facilities. In return we receive either a share of the revenue generated by these products and systems, a flat monthly fee, or a daily fee. The determination of whether our agreement results in a revenue share, monthly fee, or daily fee arrangement is generally governed by local gaming jurisdictions. For our revenue share arrangements on EGM products, we have historically shared between 15% and 20% of the revenues generated by the EGMs. Under our agreements for EGMs, we participate in selecting the mix of titles, maintain and service the equipment and oversee certain promotional efforts. For licensed table products and related equipment, we typically receive monthly royalty payments. Currently, Interactive revenue is generated from consumers’ purchases of virtual coins which are used to play the games. In support of our business and operations, we employ a professional staff including field service technicians, production, sales, account management, marketing, technology and game development, licensing and compliance and finance.
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Our corporate headquarters are located in Las Vegas, Nevada, which serves as the primarily location for the executive management and administrative functions such as finance, legal, licensing and compliance. Our licensing and compliance division oversees the application and renewal of our corporate gaming licenses, findings of suitability for key officers and directors and certification of our gaming equipment and systems for specific jurisdictions, human resources, as well as coordinating gaming equipment and software shipping and on-site and remote service of our equipment with gaming authorities.
Our field service technicians are responsible for installing, maintaining and servicing our gaming products and systems. Our field service operation including our call center, which operates 24 hours a day, seven days a week, is managed out of our Oklahoma facility. We can also access most of our electronic gaming machines and systems remotely from approved remote locations to provide software updates and routine maintenance. In addition, our electronic gaming machine and system production facilities are located in and managed out of Oklahoma City, Oklahoma, Atlanta, Georgia, and Mexico City, Mexico. Our table product service is primarily managed from Las Vegas, Nevada.
Sales, product management and account management are managed through our various locations and are located throughout the jurisdictions in which we do business. Sales and account management oversee the customer relationship at the individual location as well as at the corporate level and are responsible for developing new customer relationships. Account management is in charge of running on-site promotions and corporate sponsorship programs. In addition, our marketing team is in charge of general corporate marketing, including advertisements and participation at industry trade shows.
Our technology and game development division operates primarily out of our Atlanta, Georgia location and to a lesser extent in Las Vegas, Nevada and Austin, Texas. Through the acquisition of Gamingo Limited (formerly known as “RocketPlay”, currently known as “AGSi”), we have a development team in Tel Aviv, Israel and a new R&D center in Australia. We employ game developers, software and system programmers, project managers and other development and administrative staff that oversee our internal game development efforts and manage third party relationships.
Other Information
Customers and marketing. We market our products to casinos and other legal gaming establishments around the world with our domestic and international sales force and several domestic and international distributors and/or representatives. We believe the quality and breadth of our customer base is a strong testament to the effectiveness and quality of our product offerings, technological innovation and customer service. Our customer base includes leading casino operators in leading established gaming markets such as the United States, Canada and Latin America. Our customers include, among others, Caesar’s Entertainment Corp., MGM Resorts International, Poarch Band of Creek Indians, and the Chickasaw Nation.
Our products and the locations in which we may sell them are subject to the licensing and product approval requirements of various national, state, provincial and tribal jurisdictional agencies that regulate gaming around the world. See “Regulation and Licensing” section below. We lease and sell our products, with an emphasis on leasing versus selling, primarily in the United States. We service the products we lease and offer service packages to customers who purchase products from us.
Product supply. We obtain most of the parts for our products from outside suppliers, including both off-the-shelf items as well as components manufactured to our specifications. We also manufacture parts in-house that are used for product assembly and for servicing existing products. We generally perform warehousing, quality control, final assembly and shipping from our facilities in Las Vegas, Atlanta, Mexico City and Oklahoma City, although small inventories are maintained and repairs are performed by our field service employees. We believe that our sources of supply for components and raw materials are adequate and that alternative sources of materials are available.
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Manufacturing
We have manufacturing agreements to build our gaming cabinets with multiple manufacturing vendors. We believe we have limited concentration risk with any one of these vendors, since we own the rights to our cabinet designs and thus have the ability to change manufacturers in the event of a dispute. We believe any of these vendors would be able to build our gaming cabinets for titles on any platform. As the supplier base is large, we are able to gain competitive pricing and delivery on any of our cabinets and have limited risk in supply disruptions.
Our primary EGM production facility is located in and managed out of Oklahoma. Production at this facility includes assembling and refurbishing gaming machines (excluding gaming cabinets), parts support and purchasing. We also assemble EGMs at our Las Vegas, Nevada and Mexico City, Mexico facilities at lower volumes to support the Nevada, California and Mexican markets, respectively. System production is housed at our Atlanta, Georgia office, which house our system design team and our U.S.-based research and development team. Field service technicians are located in various jurisdictions throughout the United States and Mexico and are dispatched from centralized call centers. They are responsible for installing, maintaining and servicing the electronic gaming machines and systems.
Manufacturing commitments are generally based on projected quarterly orders from customers. Due to uneven order flow from customers, we bring the cabinets in with minimal components so that we can delay the cash outlay for the most costly components until closer to the point of sale.
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Customers
We believe the quality and breadth of our customer base is a strong testament to the effectiveness and quality of our product offerings, technological innovation and customer service. At the core of our relationship with our customers is our participation model, which aligns our financial incentives with those of our customers through a shared dependence on the games’ performance. The combination of our customer-aligned participation model, quality customer service and strong game performance has allowed us to develop long-term relationships with our tribal and commercial casino customers. Our top participation customers have been with us for nearly a decade, and we believe that we maintain long-term relationships with key customer decision-makers.
We have historically offered select existing and prospective customers an upfront payment, or placement fee, in exchange for exclusive rights to a percentage of their floor space. To a lesser extent, we have offered financing for casino development and expansion projects. In addition to our long-term relationships and contractual arrangements, the consistent demand for our titles from the loyal, repeat players of our titles further ensures our strong presence on our customers’ casino floors.
Within the Native American market, we provide both Class II and Class III games. We also serve customers in commercial, video lottery terminal, charity bingo and route-based markets.
Oklahoma is our largest market and our EGMs in the state accounted for approximately 24% of our total revenue for the last twelve months ended September 30, 2017. Our largest customer is the Chickasaw Nation, a Native American gaming operator in Oklahoma, which accounted for approximately 11% of our total revenue for the last twelve months ended September 30, 2017. The revenues we earn from the Chickasaw Nation are derived from numerous agreements, which are scheduled to expire in 2019, but which we would expect to renew.
Alabama is our second largest market and our EGMs in the state accounted for approximately 11% of our total revenue for the last twelve months ended September 30, 2017. The Poarch Band of Creek Indians, a Native American gaming operator in Alabama, is our second largest customer and accounted for approximately 11% of our total revenue for the last twelve months ended September 30, 2017.
For the last twelve months ended September 30, 2017, we did not receive more than 10% of our total revenue from any of our other customers. |
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Customer Contracts
We derive the majority of our gaming revenues from participation agreements, whereby we place EGMs and systems, along with our proprietary and other licensed game content, at a customer’s facility in return for either a share of the revenues that these EGMs and systems generate or a daily fee. For licensed table products and related equipment, we typically receive monthly royalty payments. We measure the performance of our domestic installed base of participation EGMs on the net win per day per machine, often referred to as the win per day, or “WPD”. Under our participation agreements, we earn a percentage of the win per day of our domestic installed base of participation EGMs.
Our standard contracts are one to three years in duration and may contain auto-renewal provisions for an additional term. Our contracts generally specify the number of EGMs and other equipment to be provided, revenue share, daily fee or other pricing, provisions regarding installation, training, service and removal of the machines, and other terms and conditions standard in the industry. In some circumstances, we enter into trial agreements with customers that provide a free or fee-based trial period, during which such customers may use our EGMs or table product. Each trial agreement lays out the terms of payment should the customer decide to continue using our machines.
Our placement fee, development or similar agreements in the Native American and other markets have involved both a loan or advance of funds and a gaming equipment lease agreement. These agreements have typically been longer term contracts, ranging from four to ten years depending on the amount of financing provided, market and other factors. These contracts specified the amount and timing of the advances that we will be provided, the uses of those funds and target timing for the construction or remodeling of the gaming facility, if applicable. In addition, the contracts specified the repayment terms of the financing which vary by customer and agreement. Typical terms contained in these agreements included the percentage of the floor, minimum number of gaming machines, or percentage of the route operation allocated to us, the associated term or period of exclusivity for that allocation or number of gaming machines, minimum game performance thresholds, cure periods and resulting obligations, if any, and other general terms and conditions. Certain of these development agreements also contained a buyout option, which provides that upon written notice and payment of a buyout fee, the customer can terminate our floor space privileges.
We generally make efforts to obtain waivers of sovereign immunity in our contracts with Native American customers. However, we do not always obtain these provisions and when we do, they can be limited in scope. There is no guarantee that we will continue or improve our ability to get this term in future contracts. While we have not had any experience with contract enforceability vis-à-vis our Native American customers, we are cognizant of recent cases involving other parties dealing with waivers of sovereign immunity. Those cases put into question how sovereign immunity may be viewed by courts in the future. In the event that we enter into contracts with Native American customers in the future that do not contain a waiver of sovereign immunity, such contracts may be practically unenforceable.
Our game sale contracts are typical of those in the industry. They specify the general terms and conditions of the sale, equipment and services to be provided, as well as pricing and payment terms. In some cases, we provide the central server that is used to operate the purchased equipment on a lease and charge a fee-per-day based on the number of gaming machines connected to the server.
Our interactive social gaming revenue is generated from a high volume of consumers’ purchases of virtual coins which are used to play the games.
Research and Development
We conduct research and development through an internal team to develop new gaming systems and gaming content. Research and development costs consist primarily of salaries and benefits, travel and expenses and other
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professional services. For the years ended December 31, 2014, 2015 and 2016, we incurred research and development costs of $4.9 million, $14.4 million and $21.3 million, respectively. For the nine months ended September 30, 2016 and 2017, we incurred research and development costs of $16.5 million and $17.9 million, respectively. We employ approximately 160 game developers, software and system programmers, project managers and other development and administrative staff that oversee internal game development efforts and manage third party relationships. The technology and game development division operates primarily out of our Atlanta, Georgia, Austin, Texas and Sydney, Australia locations as well as in Las Vegas, Nevada. The Company does not have customer sponsored research and development costs.
Competition
We encounter competition from other designers, manufacturers and operators of electronic gaming machines, table products and social casino games. Our competitors range from small, localized companies to large, multi-national corporations, several of which have substantial resources and market share.
Our competitors for the live casino floor gaming machines include, but are not limited to, IGT, Scientific Games, Aristocrat, Everi Holdings Inc. (“Everi”), Konami, and Ainsworth Game Technology Ltd. Additionally, there are hundreds of non-gaming companies that design and develop social casino games and apps. Many of our competitors are large, well-established companies with substantially larger operating staffs and greater capital resources and have been engaged in the design, manufacture and operation of gaming products for many years. Some of these companies contain significant intellectual property including patents in gaming technology and hardware design, systems and game play and trademarks. In addition, the larger competitors contain significantly larger content portfolios and content development capability and resources, are licensed in markets throughout the United States, and have international distribution. Scientific Games, IGT, Konami, and Aristocrat all have a presence in the back-office accounting and player tracking business which expands their relationship with casino customers. Everi and Aristocrat are our primary competitors in the Class II market.
To compete effectively, we must, among other things, continue to develop high-performing, innovative games for the Class II and Class III markets, provide excellent service and support to our existing customers, effectively manage our installed base of participation gaming machines, expand our library of proprietary content, develop niche products with strong appeal to both local and next-generation players, be first to market in new non-traditional markets, implement effective marketing and sales functions, and offer competitive pricing and terms on our participation and sale agreements.
Impact of 2015 Acquisitions
On May 29, 2015, we acquired 100% of the equity of Cadillac Jack, a leading provider of Class II gaming machines for the North American tribal gaming market, with key regions of operation including Alabama, Mexico, and Wisconsin. Our consolidated results of operations include the impact of this acquisition and the related transaction costs, as well as the results of operations of Cadillac Jack as of May 29, 2015.
On June 15, 2015, the Company purchased 100% of Gamingo Limited, a leading developer of social casino games for mobile devices. With primary offices in San Francisco and Tel Aviv, AGSi’s flagship product, Lucky Play Casino, gives players a casino-quality experience with slots, table products, tournaments, and live events. The results of operations from AGSi have been included in our consolidated results as of June 15, 2015.
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Properties
We currently lease the following properties:
Location |
Purpose |
Square
Footage |
Segment |
|||||
308 Anthony Ave., Oklahoma City, OK 73128 |
Administrative offices, manufacturing and warehousing | 66,661 | EGM, Table Games | |||||
5475 S. Decatur Blvd., #100, Las Vegas, NV 89118 |
Corporate headquarters, manufacturing and warehousing | 42,964 | EGM, Table Games | |||||
Lago Tana No. 43, Warehouse 8 and 10, Colonia Huichapan, Mexico City, Mexico |
Warehousing | 21,528 | EGM | |||||
Jaime Balmes No. 8, office no. 204, Colonia Los Morales Polanco, Mexico City, Mexico |
Administrative offices | 8,154 | EGM | |||||
11201 Century Oaks Terrace, Austin, TX 78758 |
Research and development | 2,951 | EGM | |||||
433 Airport Blvd., #323, Burlingame, CA 94010 |
Administrative offices | 1,960 | Interactive | |||||
Kiryat Atidim Building 7 Tel Aviv, Israel |
Research and development |
1,884 | Interactive | |||||
165 Ottley Drive, Atlanta, GA 30324 |
Research and development | 17,604 | EGM | |||||
2400 Commerce Ave, Duluth, GA 30096 |
Research and development | 40,192 | EGM | |||||
39 Delhi Road, Suite 1, Level 5, Triniti II Sydney, Australia |
Research and development | 3,305 | EGM |
In addition to those listed above, we lease a number of additional properties in the United States and internationally that support our operations.
Intellectual Property
We use a combination of internally developed and third-party intellectual property, all of which we believe maintain and enhance our competitive position and protect our products. Such intellectual property includes owned or licensed patents, patent applications, trademarks, and trademark applications in the United States. In addition, we have rights in intellectual property in certain foreign jurisdictions. Some of these rights, however, are shared with other third parties. Additionally, pursuant to our license agreements with third-party game developers, we license and distribute gaming software. We also have pooling arrangements with third parties, whereby all parties to such arrangement are permitted to use certain intellectual property contributed to the pool.
Seasonality
We experience fluctuations in revenues and cash flows from quarter to quarter, as our operating results have been highest during the first and second quarters and lowest in our third and fourth quarters, primarily due to the
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seasonality of player demand. These fluctuations, however, do not have a material impact on our revenues and cash flows.
Inflation
Our operations have not been, nor are they expected to be in the future, materially affected by inflation. However, our operational expansion is affected by the cost of hardware components, which are not considered to be inflation sensitive, but rather, sensitive to changes in technology and competition in the hardware markets. In addition, we expect to continue to incur increased legal and other similar costs associated with regulatory compliance requirements and the uncertainties present in the operating environment in which we conduct our business.
Employees
As of September 30, 2017, we had over 550 full-time equivalent employees, with approximately 120 employed internationally and approximately 430 employed domestically.
We are not a party to any collective bargaining agreements in the United States and have not experienced any strikes or work stoppages in the past.
Regulation and Licensing
Licensing and Suitability Determinations
We operate in numerous gaming jurisdictions, and our business operations, which include the manufacture, sale, and distribution, of gaming devices and gaming related equipment and/or the provision of gaming related services, are subject to extensive federal, state, local, tribal and foreign government regulation as applicable in each of the gaming jurisdictions in which we operate. A significant portion of our operations take place at facilities conducting gaming activities on the tribal lands of Native American tribes resulting in our operations being subject to tribal and/or federal and sometimes state regulation depending on the classification of gaming being conducted in each such case as defined in the IGRA. In states where commercial gaming has been legalized, our operations are conducted subject to the applicable federal, state, and local government regulation.
While the specific regulatory requirements of the various jurisdictions vary, the gaming laws in most jurisdictions require us, each of our subsidiaries engaged in manufacturing, selling and distributing gaming devices and gaming related equipment, our directors, officers and employees and, in some cases, certain the entities or individuals who hold some level of beneficial ownership, typically 5% or more, in the Company or its affiliates as well our lenders and other individuals or entities affiliated with us (contractually or otherwise) to obtain a license, permit, finding of suitability or other approval from gaming authorities. Gaming authorities have broad discretion in determining whether an applicant qualifies for licensing or should be deemed suitable and the burden of demonstrating suitability and the cost of the investigation is the responsibility of the applicant. While the criteria vary between jurisdictions, generally, in determining whether to grant or renew a license, the gaming authorities will consider the good character, honesty and integrity of the applicant and the financial ability, integrity and responsibility of the applicant. For individual applicants, gaming authorities consider the individual’s business experience and reputation for good character, the individual’s criminal history and the character of those with whom the individual associates. Qualification and suitability determinations for individuals requires the individual to submit detailed personal and financial information to the gaming authority, followed by a thorough background investigation. Gaming authorities may deny an application for licensing or a determination of suitability for any cause which they deem reasonable. If one or more gaming authorities were to find that an officer, director or key employee fails to qualify or is unsuitable to participate in the gaming industry in such jurisdiction, we would be required to sever all relationships with such person. Additionally, gaming authorities may require us to terminate the employment of any person who refuses to file appropriate applications. The gaming regulators having jurisdiction over us have broad power over our business operations and may deny, revoke, suspend, condition, limit, or not
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renew our gaming or other licenses, permits or approvals, impose substantial fines and take other action, any one of which could adversely impact our business, financial condition and results of operation. We believe we and our officers, directors, managers, key employees and affiliates have obtained all required gaming related licenses, permits, findings of suitability and other forms of approvals necessary to carry on our business.
It is common for gaming regulators to monitor, or to require us to disclose, our activities and any disciplinary action against us in other gaming jurisdictions. Consequently, the business activities or disciplinary actions taken against us in one jurisdiction could result in disciplinary action in other jurisdictions.
Licensing Requirements of Security Holders
In some jurisdictions in which we operate, certain of our stockholders or holders of our debt securities may be required to undergo a suitability determination or background investigation. Many jurisdictions require any person who acquires, directly or indirectly, beneficial ownership of more than a certain percentage of our voting securities, generally 5% or more, to report the acquisition of the ownership interest and the gaming authorities may require such holder to apply for qualification or a finding of suitability. Most jurisdictions allow an “institutional investor” to apply for a waiver from such requirements provided that the institutional investor holds the ownership interest in the ordinary course of its business and for passive investment purposes only. Generally, an “institutional investor” includes an investor who is a bank, insurance company, investment company, investment advisor, or pension fund. In some jurisdictions, an application for a waiver as an institutional investor requires the submission of detailed information concerning the institutional investor and its business including, among other things, the name of each person that beneficially owns more than 5% of the voting securities of such institutional investor. If such a waiver is granted, then the institutional investor may acquire, in most cases, up to 10% of our voting securities without applying for a finding of suitability or qualification and, in some cases, a higher percentage of beneficial ownership. Even if a waiver is granted, an institutional investor may not take any action inconsistent with its status when the waiver is granted without becoming subject to a suitability determination or background investigation. A change in the investment intent of the institutional investor requires immediate reporting to the respective gaming authorities.
Notwithstanding the 5% ownership threshold, gaming authorities have broad discretion and each person who acquires, directly or indirectly, beneficial ownership of any voting security or beneficial or record ownership of any nonvoting security of any debt security of us may be required to be found suitable if a gaming authority has reason to believe that such person’s acquisition of that ownership would otherwise be inconsistent with the declared policy of the jurisdiction.
Generally, any person who fails or refuses to apply for a finding of suitability or a license within the prescribed period of time after being advised that such a finding or license is required by a gaming authority may be denied a license or be found unsuitable. The same restrictions may also apply to a record owner if the record owner, after being requested, fails to identify the beneficial owner. Any person denied a license or found unsuitable and who holds, directly or indirectly, any beneficial ownership interest in us beyond such period of time as may be prescribed by the applicable gaming authorities may be guilty of a criminal offense. Additionally, we may be subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have a relationship with us or any of our subsidiaries, we:
• | pay that person any dividend or interest upon our voting securities; |
• | allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; |
• | pay remuneration in any form to that person for services rendered or otherwise; or |
• | fail to pursue all lawful efforts to terminate our relationship with such person including, if necessary, the immediate purchase of our voting securities held by such person. |
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In light of these regulations and their potential impact on our business, our amended and restated articles of incorporation contain provisions establishing our right to redeem the equity securities of disqualified holders if, among other circumstances, such action is necessary to avoid any regulatory sanctions, to prevent the loss or to secure the reinstatement of any license, permit or approval, or if such holder is determined by any gaming authority to be unsuitable, has an application for a license or permit denied or rejected or has a previously issued license or permit rescinded, suspended, revoked or not renewed. The amended and restated articles of incorporation also include provisions defining the redemption price of such securities and the rights of a disqualified security holder.
Testing and Approvals of our Products
Many jurisdictions require our gaming devices and related gaming equipment to be tested for compliance with the jurisdiction’s technical standards and regulations prior to our being permitted to distribute such devices and equipment. The gaming authorities will conduct rigorous testing of our devices and equipment through a testing laboratory which may be operated by the gaming authority or by an independent third party and may require a field trial of the device or equipment before determining that it meets the gaming authority’s technical standards. As part of the approval process, a gaming authority may require us to modify, update, or revise our device or equipment and the approval process may require several rounds before approval is ultimately granted. The time required for product testing can be extensive.
Continued Reporting and Monitoring
In most jurisdictions, even though we are licensed or approved, we remain under the on-going obligation to provide financial information and reports as well as to keep the applicable gaming authorities informed of any material changes in the information provided to them as part of our licensing and approval process. All licenses and approvals must be periodically renewed, in some cases as often as annually. In connection with any initial application or renewal of a gaming license or approval, we (and individuals or entities required to submit to background investigations or suitability determinations in connection with our application or renewal) are typically required to make broad and comprehensive disclosures concerning our history, finances, ownership and corporate structure, operations, compliance controls and business relationships. We must regularly report changes in our officers, key employees and other licensed positions to applicable gaming authorities.
Certain gaming jurisdictions in which we are licensed may prohibit us from making a public offering of our securities without their prior approval. We expect to obtain all such required approvals prior to the consummation of this offering. Similarly, changes in control of a licensee through merger, consolidation, acquisition of assets or stock, management or any form of takeover typically cannot occur without the prior approval of applicable gaming authorities. Such gaming authorities may also require controlling beneficial owners, managers, officers, directors, and other persons or entities having a material relationship or involvement with the person proposing to acquire control, to be investigated, and licensed, found suitable or otherwise approved as part of the approval process relating to the transaction.
Most gaming jurisdictions impose fees and taxes that are payable by us in connection with our application, maintenance and renewal of our licensure or our approval to conduct business. Laws, regulations, and ordinances governing our gaming related activities and the obligations of gaming companies in any jurisdiction in which we have or in the future may have gaming operations are subject to change that could impose additional operating, financial, or other burdens on our business.
Federal Registration
The Gambling Devices Act of 1962 makes it unlawful for a person to manufacture, transport, or receive gaming devices (including our products), or components across interstate lines unless that person has first
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registered with the Attorney General of the United States Department of Justice. This act also imposes gambling device identification and record keeping requirements. Violation of this act may result in seizure and forfeiture of the equipment, as well as other penalties. As an entity involved in the manufacture and transportation of gaming devices, we are required to register annually.
Native American Gaming Regulation
Gaming on Native American lands is governed by federal law, tribal-state compacts, and tribal gaming regulations. Federally, gaming on Native American lands is subject to IGRA, which is administered by the NIGC. Under the IGRA, gaming activities conducted by federally recognized Native American tribes are segmented into three classes – Class I, Class II and Class III.
Class I . Class I gaming represents traditional forms of Native American gaming as part of, or in connection with, tribal ceremonies or celebrations (e.g., contests and games of skill) and social gaming for minimal prizes. Class I gaming is regulated only by each individual Native American tribe. We do not participate in any Class I gaming activities.
Class II . Class II gaming involves the game of chance commonly known as bingo (whether or not electronic, computer, or other technological aids are used in connection therewith to facilitate play) and if played in the same location as the bingo, also includes pull tabs, punch board, tip jars, instant bingo, and other games similar to bingo. Class II gaming also includes non-banked card games, that is, games that are played exclusively against other players rather than against the house or a player acting as a bank such as poker. However, the definition of Class II gaming specifically excludes slot machines or electronic facsimiles of Class III games. Class II gaming is regulated by the NIGC and the ordinances and regulations of the Native American tribe conducting such gaming. Subject to the detailed requirements of the IGRA, including NIGC approval of such Native American tribe’s gaming ordinance, federally recognized Native American tribes are typically permitted to conduct Class II gaming on Indian lands pursuant to tribal ordinances approved by the NIGC.
Class III . Class III gaming includes all other forms of gaming that are neither Class I nor Class II and includes a broad range of traditional casino games such as slot machines, blackjack, craps and roulette, as well as wagering games and electronic facsimiles of any game of chance. The IGRA generally permits a Native American tribe to conduct Class III gaming activities on reservation lands subject to the detailed requirements of the IGRA and provided that the Native American tribe has entered into a written agreement or compact with the state that specifically authorizes the types of Class III gaming the tribe may offer. The tribal-state compacts vary from state to state. Many such tribal-state compacts address the manner and extent to which the state or tribe will license manufacturers and suppliers of gaming devices and conduct background investigations and certify the suitability of persons such as officers, directors, key persons and, in some cases, shareholders gaming device manufacturers and suppliers.
The IGRA is administered by the NIGC and the Secretary of the U.S. Department of the Interior. The NIGC has authority to issue regulations related to tribal gaming activities, approve tribal ordinances for regulating gaming, approve management agreements for gaming facilities, conduct investigations and monitor tribal gaming generally. The IGRA is subject to interpretation by the NIGC and may be subject to judicial and legislative clarification or amendment. The gaming ordinance of each Native American tribe conducting gaming under the IGRA and the terms of any applicable tribal-state compact establish the regulatory requirements under which we must conduct business on Native American tribal lands.
Under the IGRA, the NIGC’s authority to approve gaming-related contracts is limited to management contracts and collateral agreements related to management contracts. A “management contract” includes any agreement between a Native American tribe and a contractor if such contract or agreement provides for the management of all or part of a gaming operation. To the extent that any of our agreements with Native American tribes are deemed to be management contracts, such agreements would require the approval of the NIGC in order
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to be valid. To our knowledge, none of our current agreements with Native American tribes qualify as management contracts under the IGRA.
In addition, to the extent that any of our agreements with Native American tribes are deemed by the NIGC to create an impermissible proprietary interest, such agreements are void and unenforceable. To our knowledge, none of our current agreements with Native American tribes create an impermissible proprietary interest in Indian gaming.
International Regulation
Certain foreign countries permit the importation, sale, and operation of gaming equipment in casino and non-casino environments. Some countries prohibit or restrict the payout feature of the traditional slot machine or limit the operation and the number of slot machines to a controlled number of casinos or casino-like locations. Gaming equipment must comply with the individual country’s regulations. Certain jurisdictions do not require the licensing of gaming equipment operators and manufacturers. In Mexico, for example, gaming regulations have not been formalized and although we believe that we are compliant with the current informal regulations, if there are changes or new interpretations of the regulations in that jurisdiction we may be prevented or hindered from operating our business in Mexico.
Social Gaming Regulation
With respect to our interactive gaming business, it is largely unregulated at this time. There are, however, movements in some jurisdictions to review social gaming and possibly implement social gaming regulations. We cannot predict the likelihood, timing, scope or terms of any such regulation or the extent to which any such regulation would affect our social gaming business.
We are subject to various federal, state and international laws that affect our interactive business including those relating to the privacy and security of our customer and employee personal information and those relating to the Internet, behavioral tracking, mobile applications, advertising and marketing activities, sweepstakes and contests. Additional laws in all of these areas are likely to be passed in the future, which would result in significant limitations on or changes to the ways in which we collect, use, host, store or transmit the personal information and data of our customers or employees, communicate with our customers or deliver our products and services or may significantly increase our costs of compliance.
Enforcement Action against the Ysleta del Sur Pueblo (Tigua) Tribe.
On June 7, 2017, the State of Texas (“Texas”) filed a complaint against the Ysleta del Sur Pueblo (Tigua) Tribe (the “Tribe”) in the United States District Court for the Western District of Texas (the “Court”) seeking declaratory and injunctive relief in connection with the Tribe’s operation of certain electronic bingo machines in the Speaking Rock Casino in El Paso, Texas. In its complaint, Texas alleges, among other things, that the Tribe pledged to refrain from gambling on its land under the terms of Texas’s Restoration Act, and seeks to enjoin the Tribe’s operation of certain electronic bingo machines. The Tribe has opposed Texas’s request for an injunction. On November 13 and 14, 2017, the Court heard arguments concerning Texas’s request for a preliminary injunction. The Court has requested supplemental briefing, and its decision is pending.
While we are not a party to the litigation, we supply approximately 500 of electronic bingo machines to the Tribe that could be subject to the injunction. We are unable to assess at this time the likelihood of the Court granting Texas’s request for injunctive relief. If an injunctive relief is granted, we would not earn any revenue on our approximately 500 electronic bingo machines supplied to the Tribe and we would incur costs in relocating those units to new customers.
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The following table sets forth the name, age and position of each of our executive officers and directors.
Name |
Age |
Position |
||||
David Lopez |
44 | Chief Executive Officer, President and Director | ||||
Kimo Akiona |
44 | Treasurer, Chief Financial Officer and Chief Accounting Officer | ||||
Victor Gallo |
51 | General Counsel, Secretary and Compliance Officer | ||||
Sigmund Lee |
46 | Chief Technology Officer | ||||
David Sambur |
37 | Director and Chairman | ||||
Daniel Cohen |
29 | Director | ||||
Yvette E. Landau |
60 | Director | ||||
Adam Chibib |
50 | Director |
The following are brief biographies describing the backgrounds of our executive officers and directors.
David Lopez . Mr. Lopez has served as the Chief Executive Officer of AGS and Chief Executive Officer and President of the Company since February 3, 2014. Mr. Lopez has also served on the board of the Company since May 2017. Mr. Lopez most recently served as President and Chief Executive Officer of Global Cash Access, Inc., which he joined in May 2012. Prior to his role at Global Cash Access, Inc., Mr. Lopez served as Chief Operating Officer of Shuffle Master Inc. from November 2010 until May 2012. Mr. Lopez joined Shuffle Master Inc. in February 1998 and held various positions within the organization during his 14-year tenure, including Interim CEO, Executive Vice President, President of the Americas, Vice President of Product Management, as well as serving as a member of its board of directors from November 2010 until May 2012. Mr. Lopez is a graduate of the University of Nevada, Las Vegas with a B.S. in Business Administration.
Kimo Akiona . Mr. Akiona serves as Chief Financial Officer of AGS and Treasurer, Chief Financial Officer and Chief Accounting Officer of the Company. Mr. Akiona was appointed to serve as Treasurer of the Company and Chief Financial Officer of AGS on February 23, 2015. Mr. Akiona, most recently served as Senior Vice President and Corporate Controller of SHFL entertainment, Inc. and Bally Technologies, Inc. Mr. Akiona joined SHFL entertainment, Inc. in December 2005 and held various positions within the organization’s finance and accounting department during his tenure, including Vice President and Corporate Controller and Director of SEC Reporting. Mr. Akiona is a graduate of University of Nevada, Las Vegas with a B.S. in Business Administration with a concentration in accounting.
Victor Gallo . Mr. Gallo joined AGS in February 2010 as Vice President, Licensing and Compliance and Compliance Officer and currently serves as the Company’s General Counsel, Secretary, and Compliance Officer and as General Counsel of AGS. Previously, Mr. Gallo was General Counsel and Vice President of Business Development for Youbet.com, and Vice President of Legal and Compliance and Corporate Counsel for Konami Gaming. Mr. Gallo has also worked as an attorney in private practice, and as an active duty captain in the Air Force Judge Advocate General Corps. Mr. Gallo received his Bachelor of Science degree in Aerospace Engineering from the University of Southern California and a Juris Doctor from the University of the Pacific.
Sigmund Lee . Mr. Lee was appointed to serve as Chief Technology Officer of AGS, on July 1, 2015. Mr. Lee most recently served as Chief Technology Officer of Cadillac Jack. Mr. Lee joined Cadillac Jack in 2006 and served as their Chief Technology Officer during his tenure. Prior to his role at Cadillac Jack, Mr. Lee served as the Vice President of Engineering for Bally Technologies. Mr. Lee is a graduate of Georgia State University
David Sambur . Mr. Sambur has served as a member of the board of the Company since November 2013 and as Chairman of the board of the Company since May 2017. Mr. Sambur is a Senior Partner of Apollo, having joined in 2004. Mr. Sambur has experience in financing, analyzing, investing in and/or advising public and private companies and their boards of directors. Prior to joining Apollo, Mr. Sambur was a member of the
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Leveraged Finance Group of Salomon Smith Barney Inc. Mr. Sambur serves on the boards of directors of Caesars Entertainment Corporation, Caesars Acquisition Company, Coinstar, LLC, Constellation Club Holdings, Inc., Dakota Holdings, Inc. (parent of Diamond Resorts International, Inc.), Rackspace Inc., EcoATM, LLC, Redbox Automated Retail, LLC, Camaro Parent, LLC (parent of CareerBuilder, LLC) and Mood Media Corporation. Mr. Sambur previously served on the boards of directors of Hexion Holdings, LLC, Momentive Performance Materials, Inc. and Verso Paper Corporation. Mr. Sambur is also a member of the Mount Sinai Department of Medicine Advisory Board. Mr. Sambur graduated summa cum laude and Phi Beta Kappa from Emory University with a bachelor’s degree in economics.
Daniel Cohen. Mr. Cohen has served as a member of the board of the Company since May 2017. Mr. Cohen is a Principal at Apollo, having joined in 2012. Mr. Cohen has focused on private equity investments across a wide range of industries and has experience in financing, analyzing and investing in public and private companies. Prior to joining Apollo, Mr. Cohen was a generalist in investment banking at Moelis & Company. Mr. Cohen serves on the board of directors of Constellation Club Holdings, Inc. Mr. Cohen graduated magna cum laude from the Wharton School at the University of Pennsylvania with a B.S. in Economics, concentrating in Finance and Management.
Yvette E. Landau . Ms. Landau shall be appointed to serve as a member of the board of the Company upon completion of this offering. Ms. Landau was general counsel and corporate secretary of Mandalay Resort Group from 1996 until 2005. Since 2005, Ms. Landau has been co-owner of W.A. Richardson Builders, LLC, a construction services firm specializing in casino resort development. Ms. Landau currently serves as a member of the Board of Directors of Monarch Casino & Resort, Inc. which owns the Atlantis Casino Resort Spa in Reno, Nevada and the Monarch Casino in Black Hawk, Colorado and Bossier Casino Venture, Inc. which owns the Margaritaville Resort Casino in Bossier City, Louisiana. Ms. Landau is a past president of the International Association of Gaming Advisors, a worldwide organization of legal, financial and regulatory professionals in the gaming industry, and remains active with the organization as a Counselor. Ms. Landau serves on the Gaming Law Advisory Board of the University of Nevada, Las Vegas Boyd School of Law. Ms. Landau holds a bachelor’s degree from Arizona State University and a Juris Doctor degree from Northwestern University School of Law.
Adam Chibib . Mr. Chibib shall be appointed to serve as a member of the board of the Company upon completion of this offering. Mr. Chibib’s career has included successful companies ranging from early-stage start-ups to billion-dollar public companies and has spanned numerous industries including telecom software, security hardware, financial services and gaming. Adam Chibib was most recently President and Chief Financial Officer (CFO) of Multimedia Games, where he was part of a turn-around team that helped double revenues, triple profitability and increase the market capitalization from $47 million to over $1 billion. Multimedia Games was acquired in December of 2014 for $1.2 billion by Global Cash Access. Mr. Chibib also served as founder and CFO of BroadJump (acquired by Motive), CFO of Waveset (acquired by Sun Miscrosystems), CFO of TippingPoint Technologies (acquired by 3Com), CFO of NetSpend and as the Worldwide Controller of Tivoli Systems. He was named CFO of the year for the public company category by the Austin Business Journal in 2013 and won the Ernst & Young Entrepreneur of the Year award in 2002. Mr. Chibib is a graduate of the University of Texas.
Controlled Company
We intend to apply to list the shares of our common stock offered in this offering on the New York Stock Exchange. As the Apollo Group will continue to control more than 50% of our combined voting power upon the completion of this offering, we will be considered a “controlled company” for the purposes of that exchange’s rules and corporate governance standards. As a “controlled company,” we will be permitted to, and we intend to, elect not to comply with certain corporate governance requirements, including those that would otherwise require our board of directors to have a majority of independent directors and require that we either establish a Compensation and Nominating and Corporate Governance Committees, each comprised entirely of independent
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directors, or otherwise ensure that the compensation of our executive officers and nominees for directors are determined or recommended to our board of directors by the independent members of our board of directors.
Director Independence
As allowed under the applicable rules and regulations of the SEC and the New York Stock Exchange, we intend to phase incompliance with the heightened independence requirements prior to the end of the one-year transition period. Upon consummation of this offering, we expect our independent directors, as such term is defined by the applicable rules and regulations of the New York Stock Exchange, will be Adam Chibib and Yvette Landau.
Board Composition
Upon the closing of this offering, the Company will have five directors. We intend to avail ourselves of the “controlled company” exception under the New York Stock Exchange rules, which eliminates the requirements that we have a majority of independent directors on our board of directors and that we have compensation and nominating/corporate governance committees composed entirely of independent directors. We will be required, however, to have an audit committee with one independent director during the 90-day period beginning on the date of effectiveness of the registration statement filed with the SEC in connection with this offering and of which this prospectus is part. After such 90-day period and until one year from the date of effectiveness of the registration statement, we will be required to have a majority of independent directors on our audit committee. Thereafter, we will be required to have an audit committee comprised entirely of independent directors.
If at any time we cease to be a “controlled company” under the New York Stock Exchange rules, the board of directors will take all action necessary to comply with the applicable New York Stock Exchange rules, including appointing a majority of independent directors to the board of directors and establishing certain committees composed entirely of independent directors, subject to a permitted “phase-in” period.
Upon consummation of this offering, our board of directors will be divided into three classes. The members of each class will serve staggered, three-year terms (other than with respect to the initial terms of the Class I and Class II directors, which will be one and two years, respectively). Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual meeting of stockholders in the year in which their term expires. Upon consummation of this offering:
• | and will be Class I directors, whose initial terms will expire at the fiscal 2018 annual meeting of stockholders; |
• | and will be Class II directors, whose initial terms will expire at the fiscal 2019 annual meeting of stockholders; and |
• | and will be Class III directors, whose initial terms will expire at the fiscal 2020 annual meeting of stockholders. |
Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in control.
At each annual meeting, our stockholders will elect the successors to one class of our directors. Our executive officers and key employees serve at the discretion of our board of directors. Directors may be removed by the affirmative vote of the holders of a majority of our common stock.
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Apollo Approval of Certain Matters and Rights to Nominate Certain Directors
The approval of a majority of the directors nominated by Holdings pursuant to the Stockholders Agreement or the approval of Holdings is required by our amended and restated articles of incorporation and Stockholders Agreement under certain circumstances. These consist of:
• | Under our amended and restated articles of incorporation: |
• | To the fullest extent permitted by law, prior to the time when the Apollo Group no longer beneficially owns at least 25% of the total voting power of our outstanding shares entitled to vote generally in the election of directors, the approval by both a majority of the directors then in office and a majority of the directors nominated by Holdings pursuant to the Stockholders Agreement will be required for any amendment, modification or repeal of any provision of our amended and restated articles of incorporation; |
• | To the fullest extent permitted by the NRS, prior to the time when the Apollo Group first ceases to beneficially own at least 25% of the voting power of our outstanding shares entitled to vote generally in the election of directors, the approval of both a majority of the directors then in office and a majority of the directors nominated by Apollo pursuant to the Stockholders Agreement will be required for any amendment, modification or repeal of any provision of our amended and restated bylaws adopted by our board of directors; |
• | Prior to the first date on which the Apollo Group ceases to beneficially own at least 50% of the voting power of our issued and outstanding shares of stock, any amendment, modification or repeal of any provision of our amended and restated bylaws may be adopted by the affirmative vote of holders of a majority of the voting power of our outstanding shares of stock entitled to vote on the matter. Once the Apollo Group no longer beneficially owns at least 50% of the voting power of our issued and outstanding shares of stock, the affirmative vote of holders of at least two-thirds of the voting power of our outstanding shares of stock entitled to vote on the matter will be necessary for stockholders to adopt any amendment, modification or repeal of any provision of our amended and restated bylaws; |
• | Under the Stockholders Agreement, the prior approval of Holdings is necessary for us to take any of the following actions: |
• | a change in size of the board of directors. |
• | the incurrence of indebtedness, in a single transaction or a series of related transactions, by us or any of our subsidiaries aggregating more than $10 million, except for (i) debt that has previously been approved or is in existence on the date of closing this offering or any refinancing thereof up to the same maximum principal amount of such debt outstanding as of the date hereof, (ii) capital leases contemplated by an annual budget approved by the board of directors; |
• | the issuance of additional shares of any class of our capital stock (other than any award under any stockholder approved equity compensation plan); |
• | a redemption, repurchase or other acquisition by us of our capital stock (other than any redemption, repurchase or acquisition under any stockholder approved equity compensation plan); |
• | consummation of any material acquisition of the stock or assets of any other entity (other than any of our subsidiaries), in a single transaction or a series of related transactions; |
• | a material disposition, in a single transaction or a series of related transactions, of any of our or our subsidiaries’ assets, other than the sale of inventory or products in the ordinary course of business; |
• | fundamental changes to the nature of our business, including our entry into new and unrelated lines of business or cessation of a material portion of our business; |
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• | the adoption, approval or issuance of any poison pill or stockholder rights plan; |
• | payment or declaration of any dividend or distribution on any of our capital stock other than dividends or distributions required to be made pursuant to the terms of any of our outstanding preferred stock; |
• | a termination of the chief executive officer or designation of a new chief executive officer; |
• | a consolidation or merger of us with or into any other entity, or transfer (by lease, assignment, sale or otherwise) of all or substantially all of our and our subsidiaries’ assets, taken as a whole, to another entity, or a “Change of Control” as defined in our Stockholders Agreement; and |
• | any entry by us or our subsidiaries into voluntary liquidation or bankruptcy. |
Unless otherwise specified, these approval rights will terminate the first time the Apollo Group no longer beneficially owns at least 33 1/3% of our issued and outstanding common stock.
Beyond these rights, pursuant to the Stockholders Agreement, Holdings will have the right, at any time until the Apollo Group no longer beneficially owns at least 5% of our issued and outstanding common stock, to nominate a number of directors comprising a percentage of the board in accordance with their beneficial ownership of our outstanding common stock (rounded up to the nearest whole number). For example, if the Apollo Group beneficially owns 5.1% of our outstanding common stock and our board has 9 director seats, Holdings shall have the right to nominate one director. See also “Certain Relationships and Related Party Transactions—Stockholders Agreement” for rights of Holdings to nominate a certain number of directors. Pursuant to the Stockholders Agreement, at any time until the Apollo Group no longer beneficially owns at least 5% of our issued and outstanding common stock, we will cause to be appointed to each committee of the board of directors a number of directors nominated by Holdings that is as proportionate (rounding up to the next whole director) to the number of members of such committee as is the number of directors that Holdings is entitled to nominate to the number of members of our board of directors.
Committees of our Board of Directors
Upon consummation of this offering, our board of directors will have three standing committees: an audit committee, a compensation committee, and a nominating and corporate governance committee. So long as the Apollo Group beneficially owns at least 5% of our outstanding common stock, a number of directors nominated by Holdings that is as proportionate (rounding up to the next whole director) to the number of members of such committee as is the number of directors that Holdings is entitled to nominate to the number of members of our board of directors will serve on each committee of our board, subject to compliance with applicable law.
Audit Committee
Following the consummation of this offering, our Audit Committee will consist of Messrs. (Chair), and . Our board of directors has determined that Mr. qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K and that Mr. is independent as independence is defined in Rule 10A-3 of the Exchange Act and under the New York Stock Exchange listing standards. The principal duties and responsibilities of our Audit Committee will be as follows:
• | to prepare the annual Audit Committee report to be included in our annual proxy statement; |
• | to oversee and monitor our financial reporting process; |
• | to oversee and monitor the integrity of our financial statements and internal control system; |
• | to oversee and monitor the independence, retention, performance and compensation of our independent auditor; |
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• | to oversee and monitor the performance, appointment and retention of our senior internal audit staff person; |
• | to discuss, oversee and monitor policies with respect to risk assessment and risk management; |
• | to oversee and monitor our compliance with legal and regulatory matters; and |
• | to provide regular reports to the board. |
The Audit Committee will also have the authority to retain counsel and advisors to fulfill its responsibilities and duties and to form and delegate authority to subcommittees.
Compensation Committee
Following the consummation of this offering, our Compensation Committee will consist of Messrs. (Chair), and . The principal duties and responsibilities of the Compensation Committee will be as follows:
• | to review, evaluate and make recommendations to the full board of directors regarding our compensation policies and programs; |
• | to review and approve the compensation of our chief executive officer, other officers and key employees, including all material benefits, option or stock award grants and perquisites and all material employment agreements, confidentiality and non-competition agreements; |
• | to review and recommend to the board of directors a succession plan for the chief executive officer and development plans for other key corporate positions as shall be deemed necessary from time to time; |
• | to review and make recommendations to the board of directors with respect to our incentive compensation plans and equity-based compensation plans; |
• | to administer incentive compensation and equity-related plans; |
• | to review and make recommendations to the board of directors with respect to the financial and other performance targets that must be met; |
• | to set and review the compensation of members of the board of directors; and |
• | to prepare an annual Compensation Committee report and take such other actions as are necessary and consistent with the governing law and our organizational documents. |
We intend to avail ourselves of the “controlled company” exception under the New York Stock Exchange rules which exempts us from the requirement that we have a Compensation Committee composed entirely of independent directors.
Nominating and Corporate Governance Committee
Prior to consummation of this offering, our board of directors will establish a Nominating and Corporate Governance Committee. Following the consummation of this offering, our Nominating and Corporate Governance Committee will consist of Messrs. (Chair), and . The principal duties and responsibilities of the Nominating and Corporate Governance Committee will be as follows:
• | to identify candidates qualified to become directors of the Company, consistent with criteria approved by our board of directors; |
• | to recommend to our board of directors nominees for election as directors at the next annual meeting of stockholders or a special meeting of stockholders at which directors are to be elected, as well as to recommend directors to serve on the other committees of the board; |
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• | to recommend to our board of directors candidates to fill vacancies and newly created directorships on the board of directors; |
• | to identify best practices and recommend corporate governance principles, including giving proper attention and making effective responses to stockholder concerns regarding corporate governance; |
• | to develop and recommend to our board of directors guidelines setting forth corporate governance principles applicable to the Company; and |
• | to oversee the evaluation of our board of directors and senior management. |
We intend to avail ourselves of the “controlled company” exception under the New York Stock Exchange rules which exempts us from the requirement that we have a Nominating and Corporate Governance Committee composed entirely of independent directors.
Code of Business Conduct and Ethics
Upon consummation of this offering, our board of directors will adopt a code of business conduct and ethics that will apply to all of our directors, officers and employees and is intended to comply with the relevant listing requirements for a code of conduct as well as qualify as a “code of ethics” as defined by the rules of the SEC. The statement will contain general guidelines for conducting our business consistent with the highest standards of business ethics. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of such provisions applicable to any principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, and our directors, on our website at www.playags.com. Following the consummation of this offering, the code of business conduct and ethics will be available on our website.
Board Leadership Structure and Board’s Role in Risk Oversight
The board of directors has an oversight role, as a whole and also at the committee level, in overseeing management of its risks. The board of directors regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. Following the completion of this offering, the compensation committee of the board of directors will be responsible for overseeing the management of risks relating to employee compensation plans and arrangements and the audit committee of the board of directors will oversee the management of financial risks. While each committee will be responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors will be regularly informed through committee reports about such risks.
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COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
The Company’s goal for its executive compensation program is to utilize a pay-for-performance compensation program that is directly related to achievement of the Company’s financial and strategic objectives. The primary elements of the program, which are discussed in greater detail below, include base salary, annual cash bonus incentives based on performance and long-term equity incentives in the form of stock-based compensation. These elements are designed to: (i) provide compensation opportunities that will allow the Company to attract and retain talented executive officers who are essential to the Company’s success; (ii) provide compensation that rewards both individual and corporate performance and motivates the executive officers to achieve corporate strategic objectives; (iii) reward superior financial and operational performance in a given year, over a sustained period and expectations for the future; (iv) place compensation at risk if performance goals are not achieved; and (v) align the interests of executive officers with the long-term interests of stockholders through stock-based awards.
Summary Compensation Table
The following table discloses compensation for our fiscal years ending December 31, 2015 and 2016 received by Messrs. Lopez, Lee, and Akiona, each of whom was a “named executive officer” during fiscal 2016.
Name and Principal Position | Year | Salary ($) | Bonus ($) (4) |
Option
Awards ($) (5) |
Non-Equity
Incentive Plan Compensation ($) (9) |
All Other
Compensation ($) (10) |
Total ($) | |||||||||||||||||||||
David Lopez,
|
2015 | 500,000 | — | — | 425,000 | 2,770 | $ | 927,770 | ||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
2016 | 500,000 | — | — | 530,000 | 26 | $ | 1,030,026 | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Sigmund Lee,
|
2015 | 163,217 | 200,000 | 801,287 | (6) | 95,625 | 13,973 | $ | 1,274,102 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||||
2016 | 493,077 | 750,000 | 453,000 | (7) | 265,000 | 17,684 | $ | 1,978,761 | ||||||||||||||||||||
|
|
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Kimo Akiona,
|
2015 | 227,404 | — | 292,988 | (8) | 116,875 | — | $ | 637,267 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||||
2016 | 275,000 | — | — | 145,750 | 26 | $ | 420,776 | |||||||||||||||||||||
|
|
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(1) | Mr. Lopez was appointed as our President, Chief Executive Officer and Secretary on February 14, 2014. |
(2) | Mr. Lee was appointed as our Chief Technology Officer on July 1, 2015. |
(3) | Mr. Akiona was appointed as our Chief Financial Officer and Treasurer on February 23, 2015. |
(4) | Represents one-time cash bonuses of $500,000 in 2016 and $200,000 in 2015, as well as annual bonus of $250,000 in 2016. |
(5) | Amounts represent the aggregate grant date fair value of the awards computed in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718 (disregarding any risk of forfeiture assumptions). For a discussion of the relevant valuation assumptions, See Note 11 to the consolidated financial statements included elsewhere in this prospectus. |
(6) |
Represents 75,000 options granted on July 17, 2015 to purchase Class B Shares granted pursuant to the Company’s form option award agreement; provided, that these options are time-based only, and are eligible to vest in equal installments of 25% on each of the first four anniversaries of the date of the grant ( i.e. , July 17, 2016, July 17, 2017, July 17, 2018, and July 17, 2019), subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued |
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employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. |
In addition, represents 20,000 options granted on July 17, 2015 to purchase Class B Shares granted pursuant to the Company’s form option award agreement; provided, that these options are eligible to vest in their entirety upon the board of directors’ determination that the Company has achieved an applicable EBITDA goal for fiscal 2017, subject to continued employment with the Company or its subsidiaries through the date of such determination. Upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, these options are eligible to vest in their entirety if the board of directors determines that the Company has achieved an applicable EBITDA goal for the 12 months preceding the Change in Control.
(7) | Represents 50,000 options granted on January 18, 2016 to purchase Class B Shares granted pursuant to the Company’s form option award agreement; provided, that these options are time-based only, and are eligible to vest in equal installments of 25% on each of the first four anniversaries of the date of the grant ( i.e. , January 18, 2017, January 18, 2018, January 18, 2019, and January 18, 2020), subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. |
(8) | Represents 48,750 options granted on March 11, 2015 to purchase Class B Shares granted pursuant to the Company’s form option award agreement. One third of the options are eligible to vest in equal installments of 20% on each of the first five anniversaries of the date of the grant ( i.e. , March 11, 2016, March 11, 2017, March 11, 2018, and March 11, 2019), subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any such time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. The remaining two-thirds of the options are eligible to vest 50% based on achievement of an Investor IRR equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor Investment (as such terms are defined in the Company’s 2014 Long-Term Incentive Plan) and 50% based on achievement of an Investor IRR equal to or in excess of 25%, subject to a minimum cash-on-cash return of 3.0 times the Investor Investment. In the event of a termination of employment without cause or as a result of death or disability, any such performance based options which are outstanding and unvested will remain eligible to vest subject to achievement of such performance targets (without regard to the continued service requirement) until the first anniversary of the date of such termination. |
(9) | Amounts represent annual incentive cash bonuses paid to employees. Employees are eligible to earn annual cash bonuses based on attainment of applicable adjusted EBITDA performance targets. Each bonus plan participant is assigned a bonus payment range expressed as a percentage of base salary. The amount of the cash bonus is then increased or decreased within the applicable range based on over- or under-performance with respect to the performance targets, subject to a minimum achievement level of 85% (80% for 2015) necessary to earn any bonus, a maximum achievement level of 120%, and a target achievement level of 100% (with interpolation of bonus payments between such levels). |
For all participants in 2015, an achievement level of 80% corresponded to a payout level of 40% of target, an achievement level of 100% corresponded to a payout level of 100% of target, and an achievement level of 120% corresponded to a payout level of 200% of target. For all participants in 2016, an achievement level of 85% corresponded to a payout level of 50% of target, an achievement level of 100% corresponded to a payout level of 100% of target, and an achievement level of 120% corresponded to a payout level of 200%
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of target. For 2015 and 2016, at 100% achievement of performance targets, David Lopez was eligible to earn a bonus equal to 100% of his base salary. During the first half of 2015 and during 2016, at 100% achievement of performance targets, Sigmund Lee was eligible to earn a bonus equal to 50% of his base salary; during the second half of 2015, at 100% achievement of performance targets, he was eligible to earn a bonus equal to 75% of his base salary. For 2015 and 2016, at 100% achievement of performance targets, Kimo Akiona was eligible to earn a bonus equal to 50% of his base salary.
The applicable adjusted EBITDA target for 2015 was $90,064,000, and attainment for such year was 89.6% of target ($80,667,000), which corresponded to a payout level of 85%. The applicable adjusted EBITDA target for 2016 was $95,958,000, and attainment for such year was 103% of target ($98,872,000), which corresponded to a payout level of 106%. Adjusted EBITDA for purposes of bonus performance targets is defined as earnings before interest, taxes, depreciation and amortization including adjustments for non-recurring items, foreign exchange rates, synergies and excluding bonus expenses.
(10) | Amounts represent the Company’s matching contributions under our 401(k) Plan and various fringe benefits. |
Employment Agreements with Named Executive Officers
David Lopez
On April 28, 2014, the Company entered into an employment agreement with David Lopez to serve as President and Chief Executive Officer of AGS LLC, a subsidiary of the Company, effective as of February 3, 2014. The agreement extends for an initial term of three years, until the third anniversary of February 3, 2014, and shall thereafter be automatically extended for successive one-year periods, unless either party provides written notice of non-renewal at least 90 days prior to the expiration of the initial term or any extended term. The agreement was automatically extended on February 3, 2017, for one year. Pursuant to the employment agreement, Mr. Lopez’s annual base salary shall be no less than $500,000 and Mr. Lopez shall be eligible to receive an annual performance-based bonus, with an annual target bonus opportunity of $500,000.
Sigmund Lee
On July 1, 2015, we entered into an employment agreement with Sigmund Lee to serve as Chief Technology Officer of AGS LLC, a subsidiary of the Company, effective as of July 1, 2015. On January 14, 2016, we entered into the First Amendment to the Employment Agreement with Sigmund Lee (as amended, the “Amended Lee Employment Agreement”). The agreement with the Company is “at-will,” meaning that either Mr. Lee or the Company may terminate the employment relationship at any time and for any reason, either with or without cause. Pursuant to the Amended Lee Employment Agreement, Mr. Lee’s annual base salary shall be $500,000 and he shall be eligible to receive an annual performance-based bonus, with an annual target bonus opportunity equal to $250,000 based on company performance criteria as applied to other executives of the Company, and an additional Annual Incentive Program bonus equal to $250,000. Mr. Lee also received a one-time signing bonus of $500,000 in connection with entering into the Amended Lee Employment Agreement in 2016, the net after-tax amount of which is subject to repayment if Mr. Lee voluntarily resigns prior to January 14, 2019 (provided, that the signing bonus shall become non-repayable upon the occurrence of a Change of Control (as defined in the Company’s First Lien Credit Agreement, dated as of December 20, 2013 (except that an initial public offering shall not constitute a Change of Control)), or if David Lopez is replaced as the CEO of the Company without Mr. Lee’s consent, or upon a significant diminishment in Mr. Lee’s authority or duties).
Kimo Akiona
On February 23, 2015, we entered into an employment agreement with Kimo Akiona to serve as Chief Financial Officer of AGS LLC, a subsidiary of the Company, effective as of February 23, 2015. The agreement with the Company is “at-will,” meaning that either Mr. Akiona or the Company may terminate the employment
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relationship at any time and for any reason, either with or without cause. Pursuant to the employment agreement, Mr. Akiona’s annual base salary shall be $275,000 and he shall be eligible to receive an annual performance-based bonus, with an annual target bonus opportunity equal to 50% of his base salary. Actual annual bonus amounts payable shall be determined by the Company based on the attainment of financial results and earnings targets.
Outstanding equity awards as of the year ended December 31, 2016:
Options | Stock Awards | |||||||||||||||||||||||||||
Name |
Number of
Securities Underlying Unexercised Options (#) Exercisable |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan
Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise or Base Price ($) |
Option
Expiration Date |
Number of
Shares or Units of Stock That Have Not Vested (#) |
Market Value
of Shares or Units of Stock That Have Not Vested ($) |
|||||||||||||||||||||
David Lopez (1)(2) |
30,000 | 45,000 | 150,000 | $ | 10.00 | 4/28/2024 | 30,000 | (7) | $ | 516,300 | ||||||||||||||||||
30,000 | — | — | $ | 10.00 | 4/28/2024 | — | — | |||||||||||||||||||||
Sigmund Lee (3)(4)(5) |
18,750 | 56,250 | — | $ | 15.70 | 7/17/2025 | — | — | ||||||||||||||||||||
— | — | 20,000 | $ | 15.70 | 7/17/2025 | — | — | |||||||||||||||||||||
— | 50,000 | — | $ | 16.98 | 1/18/2026 | — | — | |||||||||||||||||||||
Kimo Akiona (6) |
3,250 | 13,000 | 32,500 | $ | 14.64 | 3/11/2025 | — | — |
(1) | Represents options granted on April 28, 2014 to purchase Class B Shares granted pursuant to the Company’s form option award agreement. One third of the options are eligible to vest in equal installments of 20% on each of the first five anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any such time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. The remaining two-thirds of the options are eligible to vest 50% based on achievement of an Investor IRR equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor Investment (as such terms are defined in the Company’s 2014 Long-Term Incentive Plan) and 50% based on achievement of an Investor IRR equal to or in excess of 25%, subject to a minimum cash-on-cash return of 3.0 times the Investor Investment. In the event of a termination of employment without cause or as a result of death or disability, any such performance based options which are outstanding and unvested will remain eligible to vest subject to achievement of such performance targets (without regard to the continued service requirement) until the first anniversary of the date of such termination. |
(2) | Represents options granted on April 28, 2014 to purchase Class B Shares granted pursuant to the Company’s form option award agreement; provided, that this grant of options vested in full upon the date of grant. |
(3) | Represents options granted on July 17, 2015 to purchase Class B Shares granted pursuant to the Company’s form option award agreement; provided, that this grant of options is time-based only, and is eligible to vest in equal installments of 25% on each of the first four anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. |
(4) |
Represents options granted on July 17, 2015 to purchase Class B Shares granted pursuant to the Company’s form option award agreement; provided, that this grant of options is eligible to vest in its entirety upon the |
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board of directors’ determination that the Company has achieved an applicable EBITDA goal for fiscal 2017, subject to continued employment with the Company or its subsidiaries through the date of such determination. Upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, the option is eligible to vest in its entirety if the board of directors determines that the Company has achieved an applicable EBITDA goal for the 12 months preceding the Change in Control. |
(5) | Represents options granted on January 18, 2016 to purchase Class B Shares granted pursuant to the Company’s form option award agreement; provided, that this grant of options is time-based only, and is eligible to vest in equal installments of 25% on each of the first four anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. |
(6) | Represents options granted on March 11, 2015 to purchase Class B Shares granted pursuant to the Company’s form option award agreement. One third of the options are eligible to vest in equal installments of 20% on each of the first five anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any such time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. The remaining two-thirds of the options are eligible to vest 50% based on achievement of an Investor IRR equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor Investment (as such terms are defined in the Company’s 2014 Long-Term Incentive Plan) and 50% based on achievement of an Investor IRR equal to or in excess of 25%, subject to a minimum cash-on-cash return of 3.0 times the Investor Investment. In the event of a termination of employment without cause or as a result of death or disability, any such performance based options which are outstanding and unvested will remain eligible to vest subject to achievement of such performance targets (without regard to the continued service requirement) until the first anniversary of the date of such termination. |
(7) | Represents restricted Class B Shares granted on April 28, 2014, which are eligible to vest in equal installments of 20% on each of the first five anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or for good reason, any shares which would have vested on the next applicable vesting date shall become vested, and the remaining unvested shares shall be forfeited. |
Pension Benefits
We do not maintain any defined benefit pension plan for the benefit of our named executive officers.
Nonqualified Deferred Compensation
We do not maintain any nonqualified deferred compensation plan for the benefit of our named executive officers.
Payments Upon Termination and Change of Control
Pursuant to each named executive officer’s employment agreement, upon the termination of his or her employment by the Company without “Cause,” (or, for Mr. Lopez, upon his resignation with “Good Reason”) the Company would provide base salary continuation (24 months base salary for Mr. Lopez, 12 months base salary for Mr. Lee, and 9 months base salary for Mr. Akiona). Mr. Lopez would also be eligible to receive
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continued health benefits at no greater cost than would apply if he were an active employee, for 18 months post termination, or if earlier, until he commences employment with a subsequent employer. All severance payments are subject to the execution of a release of claims. Messrs. Lopez and Akiona are subject to post termination non-solicitation and non-competition covenants for twenty-four months and nine months, respectively, following termination of employment. Mr. Lee is subject to post termination non-solicitation and non-competition covenants for 12 months if termination of employment occurs on or prior to January 1, 2019 and 6 months if termination of employment occurs after January 1, 2019; provided, that upon the occurrence of a Change of Control (as defined in the Company’s First Lien Credit Agreement, dated as of December 20, 2013 (except that an initial public offering shall not constitute a Change of Control)), or if David Lopez is replaced as the CEO of the Company without Mr. Lee’s consent, or upon a significant diminishment in Mr. Lee’s authority or duties, the noncompetition covenant shall be canceled and without further force or effect.
“Cause” in the employment agreements generally includes (i) for Messrs. Akiona and Lee, failure to correct underperformance after written notification from the Chief Executive Officer or the board, (ii) illegal fraudulent conduct, (iii) conviction of a felony, (iv) a determination that such named executive officer’s involvement with the Company would have a negative impact on our ability to receive or retain any licenses, (v) willful or material misrepresentation to the Company, Chief Executive Officer or board relating to the business, assets or operation of the Company, or (vi) refusal to take any action as reasonably directed by the board or any individual acting on behalf or at the direction of the board, or (vii) for Mr. Lopez, material breach of any agreement with the Company and its affiliates (and failure to cure).
For Mr. Lopez only, “Good Reason” in his employment agreement means his voluntary resignation after any of the following actions are taken by the Company or any of its subsidiaries without his consent: (i) removal from the office of President and Chief Executive Officer of the Company or a change in reporting lines such that Mr. Lopez no longer reports to the board, (ii) a requirement that Mr. Lopez be based anywhere other than within 35 miles of Las Vegas, Nevada, or (iii) a notice from the Company to Mr. Lopez of non-extension of the employment term; provided, however, that a termination will not be for “Good Reason” unless Mr. Lopez shall have provided written notice to the Company of the existence of one of the above conditions within 30 days following the initial existence of such condition, specifying in reasonable detail such condition, the Company shall have had 30 days following receipt of such written notice to remedy the condition, the Company shall have failed to remedy the condition during the applicable cure period, Mr. Lopez shall have thereafter and prior to the date of termination provided a notice of termination to the Company, and Mr. Lopez’s date of termination shall have occurred within 30 days following expiration of the cure period.
For the treatment of equity upon termination of employment, please see the section “—Outstanding equity awards as of the year ended December 31, 2016”. In addition, Class B Shares and options to purchase Class B Shares that are held by named executive officers are subject to repurchase rights, which enable the Company to recover the Class B Shares without transferring any appreciation of the fair value of the stock upon certain terminations prior to a “Qualified Public Offering”. If employment is terminated by the Company prior to the consummation of a Qualified Public Offering for “Cause”, as defined in the Securityholders Agreement, or is terminated by such named executive officer without “Good Reason”, as defined in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such named executive officer for the lesser of original cost and fair market value. Upon any termination of employment other than as described in the immediately preceding sentence, the Company shall have the right to repurchase all or any portion of the Class B Shares held by such named executive officer for fair market value.
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The following table sets forth the payments each of our named executive officers would have received if their employment had been terminated by us without cause, or, for David Lopez, by him for good reason, on December 31, 2016, both with and without the occurrence of a change in control as of such time. In quantifying potential payments for purposes of this disclosure, we have used the most recent valuation of our stock as in effect on December 31, 2016.
Amounts Payable | ||||||||||
Name |
Benefit |
Termination Without Cause
(or, for Mr. Lopez, With Good Reason); No Change in Control ($) |
Termination Without Cause
(or, for Mr. Lopez, With Good Reason); Upon Change in Control ($) |
|||||||
David Lopez, |
Cash Severance (1) | 1,000,000 | 1,000,000 | |||||||
President, Chief Executive Officer and Secretary |
Continued Benefits (2) | 18,156 | 18,156 | |||||||
Equity Acceleration | 280,250 | (5) | 840,750 | (8) | ||||||
Sigmund Lee, |
Cash Severance (3) | 493,077 | 493,077 | |||||||
Chief Technology Officer |
Equity Acceleration | 31,188 | (6) | 96,438 | (9) | |||||
Kimo Akiona, |
Cash Severance (4) | 206,250 | 206,250 | |||||||
Chief Financial Officer and Treasurer |
Equity Acceleration | 8,353 | (7) | 33,410 | (10) | |||||
(1) | Represents base salary continuation for 24 months. |
(2) | Represents continued health benefits (at no greater cost than would apply if Mr. Lopez were an active employee) for 18 months post termination, or if earlier, until he commences employment with a subsequent employer. Calculated using projected 2017 health benefits cost. |
(3) | Represents base salary continuation for 12 months. |
(4) | Represents base salary continuation for 9 months. |
(5) | Represents the value of Mr. Lopez’ time based stock options and restricted shares which would have vested on the next applicable vesting date. |
(6) | Represents the value of Mr. Lee’s time based stock options which would have vested on the next applicable vesting date. |
(7) | Represents the value of Mr. Akiona’s time based stock options which would have vested on the next applicable vesting date. |
(8) | Represents the value of all of Mr. Lopez’ unvested time based stock options and restricted shares. No performance based stock options would accelerate. |
(9) | Represents the value of all of Mr. Lee’s unvested time based stock options. No performance based stock options would accelerate. |
(10) | Represents the value of all of Mr. Akiona’s unvested time based stock options. No performance based stock options would accelerate. |
Director Compensation
During 2016, David Sambur was the sole member of our board of directors and did not receive any compensation from the Company for his services on the board.
2018 Omnibus Incentive Plan
We plan to adopt the 2018 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) pursuant to which equity-based and cash incentives may be granted to participating employees, directors and consultants. We expect the board to adopt, and our stockholders to approve, the Omnibus Incentive Plan prior to the consummation of this offering. The following is a summary of certain terms and conditions of the Omnibus Incentive Plan. This summary is qualified in its entirety by reference to the Omnibus Incentive Plan attached as an exhibit to the registration statement of which this prospectus forms a part. You are encouraged to read the full Omnibus Incentive Plan.
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Administration. The compensation committee (or subcommittee thereof, if necessary for Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”)) will administer the Omnibus Incentive Plan. The compensation committee will have the authority to determine the terms and conditions of any agreements evidencing any awards granted under the Omnibus Incentive Plan and to adopt, alter and repeal rules, guidelines and practices relating to the Omnibus Incentive Plan. The compensation committee will have full discretion to administer and interpret the Omnibus Incentive Plan and to adopt such rules, regulations and procedures as it deems necessary or advisable and to determine, among other things, the time or times at which the awards may be exercised and whether and under what circumstances an award may be exercised.
Eligibility . Any current or prospective employees, directors, officers, consultants or advisors of our Company or its affiliates who are selected by the compensation committee will be eligible for awards under the Omnibus Incentive Plan. As of the , a total of approximately individuals may be eligible. The compensation committee will have the sole and complete authority to determine who will be granted an award under the Omnibus Incentive Plan.
Number of Shares Authorized. The Omnibus Incentive Plan provides for an aggregate of shares of our common stock. No more than shares of our common stock may be issued with respect to incentive stock options under the Omnibus Incentive Plan. No participant may be granted awards of options and stock appreciation rights with respect to more than shares of our common stock in any single fiscal year. No more than shares of our common stock may be granted under the Omnibus Incentive Plan with respect to any performance compensation awards to any participant for any single performance period (or with respect to each fiscal year if the performance period is more than one fiscal year) or in the event such performance compensation award is paid in cash, other securities, other awards or other property, no more than the fair market value of shares of our common stock on the last day of the performance period to which such award relates. The maximum amount payable to any participant under the Omnibus Incentive Plan for any single performance period (or with respect to each single fiscal year in the event a performance period extends beyond a single fiscal year) for a cash denominated award that is intended to qualify as performance-based compensation under Section 162(m) of the Code is $ . The maximum amount payable to any non-employee director under the Omnibus Incentive Plan for any single fiscal year is $ . If any award granted under the Omnibus Incentive Plan expires, terminates, is canceled or forfeited without being settled or exercised, or is settled in cash or otherwise without the issuance of shares, shares of our common stock subject to such award will again be made available for future grants; provided that in no event will such shares increase the number of shares of our common stock that may be delivered pursuant to incentive stock options granted under the Omnibus Incentive Plan to the extent permitted under Section 422 of the Code. In addition, if any shares are surrendered or tendered to pay the exercise price of an award or to satisfy withholding taxes owed, such shares will again be available for grants under the Omnibus Incentive Plan. Immediately following the adoption of the Omnibus Incentive Plan, no new awards will be granted under the Management Equity Plan.
Change in Capitalization. If there is a change in our Company’s corporate capitalization in the event of a stock or extraordinary cash dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of shares of our common stock or other relevant change in capitalization or applicable law or circumstances, such that the compensation committee determines that an adjustment to the terms of the Omnibus Incentive Plan (or awards thereunder) is necessary or appropriate, then the compensation committee may make adjustments in a manner that it deems equitable. Such adjustments may be to the number and kind of securities reserved for issuance under the Omnibus Incentive Plan, the number and kind of securities covered by awards then outstanding under the Omnibus Incentive Plan, the limitations on awards under the Omnibus Incentive Plan, the exercise price of outstanding options and such other equitable substitution or adjustments as it may determine appropriate.
Awards Available for Grant. The compensation committee may grant awards of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock units, other stock-based awards, performance compensation awards (including cash bonus awards), other cash-
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based awards or any combination of the foregoing. Awards may be granted under the Omnibus Incentive Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by our Company or with which our Company combines (which are referred to herein as “Substitute Awards”).
Stock Options. The compensation committee will be authorized to grant options to purchase shares of our common stock that are either “qualified,” meaning they are intended to satisfy the requirements of Section 422 of the Code for incentive stock options, or “non-qualified,” meaning they are not intended to satisfy the requirements of Section 422 of the Code. All options granted under the Omnibus Incentive Plan will be non-qualified unless the applicable award agreement expressly states that the option is intended to be an “incentive stock option.” Options granted under the Omnibus Incentive Plan will be subject to the terms and conditions established by the compensation committee. Under the terms of the Omnibus Incentive Plan, the exercise price of the options will not be less than the fair market value of our common stock at the time of grant (except with respect to Substitute Awards). Options granted under the Omnibus Incentive Plan will be subject to such terms, including the exercise price and the conditions and timing of vesting, exercise and expiration, as may be determined by the compensation committee. The maximum term of an option granted under the Omnibus Incentive Plan will be ten years from the date of grant (or five years in the case of an incentive stock option granted to a 10% shareholder), provided that, if the term of a non-qualified option would expire at a time when trading in the shares of our common stock is prohibited by our Company’s insider trading policy or a Company imposed “blackout period,” in which case, the option’s term will be automatically extended until the 30th day following the expiration of such prohibition (as long as such extension does not violate Section 409A of the Code). Payment in respect of the exercise of an option may be made in cash, by check, by cash equivalent and/or shares of our common stock valued at the fair market value at the time the option is exercised (provided that such shares are not subject to any pledge or other security interest), or by such other method as the compensation committee may permit in its sole discretion, including: (i) in other property having a fair market value equal to the exercise price and all applicable required withholding taxes, (ii) if there is a public market for the shares of our common stock at such time, by means of a broker-assisted cashless exercise mechanism or (iii) by means of a “net exercise” procedure effected by withholding the minimum number of shares otherwise deliverable in respect of an option that are needed to pay the exercise price and all applicable required withholding taxes. Any fractional shares of common stock will be settled in cash.
Stock Appreciation Rights. The compensation committee will be authorized to award SARs under the Omnibus Incentive Plan. SARs will be subject to the terms and conditions established by the compensation committee. A SAR is a contractual right that allows a participant to receive, either in the form of cash, shares or any combination of cash and shares, the appreciation, if any, in the value of a share over a certain period of time. An option granted under the Omnibus Incentive Plan may include tandem SARs and SARs may also be awarded to a participant independent of the grant of an option. SARs granted in tandem with an option will be subject to terms similar to the option corresponding to such SARs, including with respect to vesting and expiration. Except as otherwise provided by the compensation committee (in the case of Substitute Awards or SARs granted in tandem with previously granted options), the strike price per share of our common stock for each SAR will not be less than 100% of the fair market value of such share, determined as of the date of grant. The remaining terms of the SARs shall be established by the compensation committee and reflected in the award agreement.
Restricted Stock. The compensation committee will be authorized to grant restricted stock under the Omnibus Incentive Plan, which will be subject to the terms and conditions established by the compensation committee. Restricted stock is common stock that generally is non-transferable and is subject to other restrictions determined by the compensation committee for a specified period. Any accumulated dividends will be payable at the same time as the underlying restricted stock vests.
Restricted Stock Unit Awards. The compensation committee will be authorized to award restricted stock unit awards, which will be subject to the terms and conditions established by the compensation committee. A restricted stock unit award is an award of an unfunded and unsecured promise to deliver shares of our common stock, cash, other securities or other properties, subject to certain restrictions under the Omnibus Incentive Plan.
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Unless otherwise provided by the compensation committee in an award agreement, upon the expiration of the restricted period and the attainment of any other vesting criteria established by the compensation committee, the participant will be entitled to one share of our common stock (or other securities or other property, as applicable) for each such outstanding restricted stock unit which has not then been forfeited; provided, however, that the compensation committee may elect to (i) pay cash or part cash and part our common stock in lieu of delivering only shares of our common stock or (ii) defer the delivery of our common stock (or cash or part common stock and part cash, as the case may be) beyond the expiration of the restricted period if such extension would not cause adverse tax consequences under Section 409A of the Code. To the extent provided in an award agreement, the holder of outstanding restricted stock units will be entitled to be credited with dividend equivalent payments upon the payment by our Company of dividends on shares of our common stock, either in cash or (at the sole discretion of the compensation committee) in shares of our common stock having a fair market value equal to the amount of such dividends, and interest may, at the sole discretion of the compensation committee, be credited on the amount of cash dividend equivalents at a rate and subject to such terms as determined by the compensation committee, which accumulated dividend equivalents (and interest thereon, if applicable) shall be payable at the same time as the underlying restricted stock units are settled.
Other Stock-Based Awards. The compensation committee will be authorized to grant awards of unrestricted shares of our common stock, rights to receive future grants of awards at a future date or other awards denominated in our common stock (including performance shares or performance units), or awards that provide for cash payments based in whole or in part on the value or future value of shares of our common stock under the Omnibus Incentive Plan, alone or in tandem with other awards, under such terms and conditions as the compensation committee may determine and as set forth in the applicable award agreement.
Performance Compensation Awards. The compensation committee may grant any award under the Omnibus Incentive Plan in the form of a “Performance Compensation Award” (including cash bonuses) intended to qualify as performance-based compensation for purposes of Section 162(m) of the Code by conditioning the number of shares earned or vested, or any payout, under the award on the satisfaction of certain “Performance Goals.” The compensation committee may establish these Performance Goals with reference to one or more of the following:
• | net earnings or net income (before or after taxes); |
• | basic or diluted earnings per share (before or after taxes); |
• | net revenue or net revenue growth; |
• | gross revenue or gross revenue growth, gross profit or gross profit growth, gross billings or gross billings growth; |
• | net operating profit (before or after taxes); |
• | return measures (including, but not limited to, return on investment, assets, net assets, capital, gross revenue or gross revenue growth, invested capital, equity or sales); |
• | cash flow measures (including, but not limited to, operating cash flow, free cash flow and cash flow return on capital), which may but are not required to be measured on a per-share basis; |
• | earnings before or after income taxes, interest, depreciation, and amortization on an adjusted or unadjusted basis (including EBIT and EBITDA); |
• | gross or net operating margins; |
• | productivity ratios; |
• | share price (including, but not limited to, growth measures and total shareholder return); |
• | expense targets or cost reduction goals, general and administrative expense savings; |
• | operating efficiency; |
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• | objective measures of customer satisfaction; |
• | working capital targets; |
• | measures of economic value added or other “value creation” metrics; |
• | enterprise value; |
• | stockholder return; |
• | client retention; |
• | competitive market metrics; |
• | employee retention; |
• | objective measures of personal targets, goals or completion of projects (including but not limited to succession and hiring projects, completion of specific acquisitions, reorganizations or other corporate transactions or capital-raising transactions, expansions of specific business operations and meeting divisional or project budgets); |
• | system-wide revenues; |
• | cost of capital, debt leverage year-end cash position or book value; |
• | strategic objectives, development of new product lines and related revenue, sales and margin targets, or international operations; or |
• | any combination of the foregoing. |
Any Performance Goal elements can be stated as a percentage of another Performance Goal or used on an absolute, relative or adjusted basis to measure the performance of our Company and/or its affiliates or any divisions, operation or business units or segments, product lines, asset classes, brands, administrative departments or combination thereof, as the compensation committee deems appropriate. Performance Goals may be compared to the performance of a group of comparator companies, a published or special index that the compensation committee deems appropriate or stock market indices. The compensation committee may provide for accelerated vesting, delivery and exercisability of any award based on the achievement of Performance Goals. Any award that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code will be granted, and Performance Goals for such an award will be established, by the compensation committee in writing not later than 90 days after the commencement of the performance period to which the Performance Goals relate, or such other period required under Section 162(m) of the Code. Before any payment is made in connection with any award intended to qualify as performance-based compensation under Section 162(m) of the Code, the compensation committee must certify in writing that the Performance Goals established with respect to such award have been achieved. In determining the actual amount of an individual participant’s Performance Compensation Award for a performance period, the compensation committee may reduce or eliminate the amount of the Performance Compensation Award earned consistent with Section 162(m) of the Code.
The compensation committee may also specify adjustments or modifications (to the extent it would not result in adverse results under Section 162(m) of the Code) to be made to the calculation of a Performance Goal for such performance period, based on and in order to appropriately reflect the following events: (i) asset writedowns; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items and/or in management’s discussion and analysis of financial condition and results of operations appearing in our Company’s annual report to shareholders for the applicable year; (vi) acquisitions or divestitures; (vii) any other specific, unusual or nonrecurring events, or objectively determinable category thereof; (viii) foreign exchange gains and losses; (ix) discontinued operations and nonrecurring charges; and (x) a change in our Company’s fiscal year. Unless otherwise provided in the applicable award agreement, a participant will be eligible to receive payment in respect of a performance compensation
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award only to the extent that (I) the Performance Goals for such period are achieved; and (II) all or some of the portion of such participant’s performance compensation award has been earned for the performance period based on the application of the “Performance Formula” (as defined in the Omnibus Incentive Plan) to such Performance Goals.
As a new public company, we expect to be eligible for transition relief from the deduction limitations imposed under Section 162(m) of the Code until our first shareholders meeting at which directors are elected that occurs in . As a result, awards under the Omnibus Incentive Plan (whether in the form of equity or cash bonuses) need not be designed to qualify as performance-based compensation for purposes of Section 162(m) of the Code during this transition period, and the compensation committee may take this into account in determining terms and conditions of awards granted under the Omnibus Incentive Plan.
Nontransferability. Each award may be exercised during the participant’s lifetime by the participant or, if permissible under applicable law, by the participant’s guardian or legal representative. No award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a participant other than by will or by the laws of descent and distribution unless the compensation committee permits the award to be transferred to a permitted transferee (as defined in the Omnibus Incentive Plan).
Clawback/Forfeiture. Awards may be subject to clawback or forfeiture to the extent required by applicable law (including, without limitation, Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of the New York Stock Exchange or other applicable securities exchange, or if so required pursuant to a written policy adopted by the Company or the provisions of an award agreement.
Term and Amendment; Prohibition on Repricing . The Omnibus Incentive Plan will have a term of ten years. The board may amend, suspend or terminate the Omnibus Incentive Plan at any time, subject to stockholder approval if necessary to comply with any tax, or other applicable regulatory requirement. No amendment, suspension or termination will materially and adversely affect the rights of any participant or recipient of any award without the consent of the participant or recipient. The compensation committee may, to the extent consistent with the terms of any applicable award agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any award theretofore granted or the associated award agreement, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any participant or any holder or beneficiary of any option theretofore granted will not to that extent be effective without the consent of the affected participant, holder or beneficiary; and provided further that, without stockholder approval, (i) no amendment or modification may reduce the option price of any option or the strike price of any SAR, (ii) the compensation committee may not cancel any outstanding option and replace it with a new option (with a lower exercise price) or cancel any SAR and replace it with a new SAR (with a lower strike price) or other award or cash in a manner that would be treated as a repricing (for compensation disclosure or accounting purposes), (iii) the compensation committee may not cancel any outstanding option or SAR that has a per share exercise price or per share strike price (as applicable) at or above the fair market value of a share of our common stock on the date of cancellation and pay any consideration to the holder thereof and (iv) the compensation committee may not take any other action considered a repricing for purposes of the shareholder approval rules of the applicable securities exchange on which our common shares are listed. However, stockholder approval is not required with respect to clauses (i) through (iv) above with respect to certain adjustments on changes in capitalization. In addition, none of the requirements described in the preceding clauses (i) through (iv) can be amended without the approval of our stockholders.
U.S. Federal Income Tax Consequences
The following is a general summary of the material U.S. federal income tax consequences of the grant and exercise and vesting of awards under the Omnibus Incentive Plan and the disposition of shares
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acquired pursuant to the exercise or settlement of such awards and is intended to reflect the current provisions of the Code and the regulations thereunder. This summary is not intended to be a complete statement of applicable law, nor does it address foreign, state, local and payroll tax considerations. This summary assumes that all awards described in the summary are exempt from, or comply with, the requirements of Section 409A of the Code. Moreover, the U.S. federal income tax consequences to any particular participant may differ from those described herein by reason of, among other things, the particular circumstances of such participant.
Stock Options. The Code requires that, for treatment of an option as an incentive stock option, shares of our common stock acquired through the exercise of an incentive stock option cannot be disposed of before the later of (i) two years from the date of grant of the option, or (ii) one year from the date of exercise. Holders of incentive stock options will generally incur no federal income tax liability at the time of grant, vesting or upon exercise of those options. However, the spread at exercise will be an “item of tax preference,” which may give rise to “alternative minimum tax” liability for the taxable year in which the exercise occurs. If the holder does not dispose of the shares before two years following the date of grant and one year following the date of exercise, the difference between the exercise price and the amount realized upon disposition of the shares will constitute long-term capital gain or loss, as the case may be. Assuming both holding periods are satisfied, no deduction will be allowed to us for federal income tax purposes in connection with the grant or exercise of the incentive stock option. If, within two years following the date of grant or within one year following the date of exercise, the holder of shares acquired through the exercise of an incentive stock option disposes of those shares, the participant will generally realize taxable compensation at the time of such disposition equal to the difference between the exercise price and the lesser of the fair market value of the share on the date of exercise or the amount realized on the subsequent disposition of the shares, and that amount will generally be deductible by us for federal income tax purposes, subject to the possible limitations on deductibility under Sections 280G and 162(m) of the Code for compensation paid to executives designated in those Sections. Finally, if an incentive stock option becomes first exercisable in any one year for shares having an aggregate value in excess of $100,000 (based on the grant date value), the portion of the incentive stock option in respect of those excess shares will be treated as a non-qualified stock option for federal income tax purposes. No income will be realized by a participant upon grant of an option that does not qualify as an incentive stock option (“a non-qualified stock option”). Upon the exercise of a non-qualified stock option, the participant will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the underlying exercised shares over the option exercise price paid at the time of exercise and the participant’s tax basis will equal the sum of the compensation income recognized and the exercise price. Our Company will be able to deduct this same amount for U.S. federal income tax purposes, but such deduction may be limited under Sections 280G and 162(m) of the Code for compensation paid to certain executives designated in those Sections. In the event of a sale of shares received upon the exercise of a non-qualified stock option, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss and will be long-term gain or loss if the holding period for such shares is more than one year.
SARs. No income will be realized by a participant upon grant of a SAR. Upon the exercise of a SAR, the participant will recognize ordinary compensation income in an amount equal to the fair market value of the payment received in respect of the SAR. Our Company will be able to deduct this same amount for U.S. federal income tax purposes, but such deduction may be limited under Sections 280G and 162(m) of the Code for compensation paid to certain executives designated in those Sections.
Restricted Stock. A participant will not be subject to tax upon the grant of an award of restricted stock unless the participant otherwise elects to be taxed at the time of grant pursuant to Section 83(b) of the Code. On the date an award of restricted stock becomes transferable or is no longer subject to a substantial risk of forfeiture, the participant will have taxable compensation equal to the difference between the fair market value of the shares on that date over the amount the participant paid for such shares, if any, unless the participant made an election under Section 83(b) of the Code to be taxed at the time of grant. If the participant made an election under Section 83(b), the participant will have taxable compensation at the time of grant equal to the difference between
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the fair market value of the shares on the date of grant over the amount the participant paid for such shares, if any. If the election is made, the participant will not be allowed a deduction for amounts subsequently required to be returned to our Company. (Special rules apply to the receipt and disposition of restricted shares received by officers and directors who are subject to Section 16(b) of the Exchange Act.) Our Company will be able to deduct, at the same time as it is recognized by the participant, the amount of taxable compensation to the participant for U.S. federal income tax purposes, but such deduction may be limited under Sections 280G and 162(m) of the Code for compensation paid to certain executives designated in those Sections.
Restricted Stock Units. A participant will not be subject to tax upon the grant of a restricted stock unit award. Rather, upon the delivery of shares or cash pursuant to a restricted stock unit award, the participant will have taxable compensation equal to the fair market value of the number of shares (or the amount of cash) the participant actually receives with respect to the award. Our Company will be able to deduct the amount of taxable compensation to the participant for U.S. federal income tax purposes, but the deduction may be limited under Sections 280G and 162(m) of the Code for compensation paid to certain executives designated in those Sections.
Section 162(m) . In general, Section 162(m) of the Code denies a publicly held corporation a deduction for U.S. federal income tax purposes for compensation in excess of $1,000,000 per year per person to its chief executive officer and the three other officers whose compensation is required to be disclosed in its proxy statement (excluding the chief financial officer), subject to certain exceptions. The Omnibus Incentive Plan is intended to satisfy an exception with respect to grants of options and SARs to covered employees. In addition, the Omnibus Incentive Plan is designed to permit certain awards of restricted stock, restricted stock units and other awards (including cash bonus awards) to be awarded as performance compensation awards intended to qualify under the “performance-based compensation” exception to Section 162(m) of the Code. As discussed above, as a new public company, we expect to be eligible for transition relief from the deduction limitations imposed under Section 162(m) of the Code until our first shareholders meeting at which directors are elected that occurs in .
New Plan Benefits
It is not possible to determine the benefits or amounts that will be received by or allocated to participants under the Omnibus Incentive Plan because awards under the Omnibus Incentive Plan will made at the discretion of the compensation committee (or subcommittee thereof, if necessary for Section 162(m) of the Code).
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than compensation arrangements for our named executive officers and directors, there were not transactions, to which we were a party or will be a party, in which:
• | the amounts involved exceeded or will exceed $120,000; and |
• | any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. |
Policies and Procedures for Related Party Transactions
Upon the consummation of this offering, we will adopt a written Related Person Transaction Policy (the “policy”), which will set forth our policy with respect to the review, approval, ratification and disclosure of all related person transactions by our Audit Committee. In accordance with the policy, our Audit Committee will have overall responsibility for implementation of and compliance with the policy.
For purposes of the policy, a “related person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we were, are or will be a participant and the amount involved exceeded, exceeds or will exceed $120,000 and in which any related person (as defined in the policy) had, has or will have a direct or indirect material interest. A “related person transaction” does not include any employment relationship or transaction involving an executive officer and any related compensation resulting solely from that employment relationship that has been reviewed and approved by our board of directors or Audit Committee.
The policy will require that notice of a proposed related person transaction be provided to our legal department prior to entry into such transaction. If our legal department determines that such transaction is a related person transaction, the proposed transaction will be submitted to our Audit Committee for consideration. Under the policy, our Audit Committee may approve only those related person transactions that are in, or not inconsistent with, our best interests and the best interests of our stockholders. In the event that we become aware of a related person transaction that has not been previously reviewed, approved or ratified under the policy and that is ongoing or is completed, the transaction will be submitted to the Audit Committee so that it may determine whether to ratify, rescind or terminate the related person transaction.
The policy will also provide that the Audit Committee review certain previously approved or ratified related person transactions that are ongoing to determine whether the related person transaction remains in our best interests and the best interests of our stockholders. Additionally, we will make periodic inquiries of directors and executive officers with respect to any potential related person transaction of which they may be a party or of which they may be aware.
Securityholders Agreement
On April 28, 2014, AP Gaming Holdings, L.P. (the “Partnership”), VoteCo, the Company and each holder of Class B Shares from time to time party thereto, including David Lopez, our Chief Executive Officer (each a “Holder”) entered into the Securityholders Agreement. We intend to amend and restate the Securityholders Agreement (as amended and restated, the “Securityholders Agreement”) concurrently with the consummation of the Reclassification to remove references to Class B Shares, which shall be reclassified into a new class of voting common stock, and to Class A Shares, which shall be cancelled. The Securityholders Agreement, as amended, will provide the Partnership and Apollo Investment Fund VIII, L.P., and each of their respective affiliates, with certain demand registration rights. It will also provide each Holder with piggy-back registration rights and impose certain transfer restrictions on each Holder’s ownership of the Company’s common shares and will set forth the Company’s right to repurchase any common shares held by Holders who are employed by, or serve as consultants to or directors of, the Company or any of its subsidiaries upon their termination from such
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employment or consultancy. The Securityholders Agreement, as amended, will also impose certain restrictions on each Holder who serves in management, including non-solicitation, non-compete and non-disclosure requirements.
Stockholders Agreement
Concurrently with the consummation of this offering, we intend to enter into a Stockholders Agreement with VoteCo and Holdings, which is an entity controlled by our Sponsor. The Stockholders Agreement will give Holdings the right to nominate a majority of our directors after the consummation of this offering and shall specify how Holdings’ nomination rights shall decrease as the Apollo Group’s beneficial ownership of our common stock also decreases, see “Management—Apollo Group Approval of Certain Matters and Rights to Nominate Certain Directors” and “Description of Capital Stock—Certain Anti-Takeover, Limited Liability and Indemnification Provisions—Classified Board.” The Stockholders Agreement sets forth certain information rights granted to the Apollo Group. It also specifies that we will provide indemnification and advance of expenses of VoteCo and each stockholder party to the Stockholders Agreement for any claim arising from their actions as the Company’s stockholders or controlling persons. The Stockholders Agreement also specifies that we will not take certain significant actions specified therein without the prior consent of Holdings. Such specified actions include, but are not limited to:
• | a change in size of the board of directors. |
• | the incurrence of indebtedness, in a single transaction or a series of related transactions, by us or any of our subsidiaries aggregating more than $10 million, except for (i) debt that has previously been approved or is in existence on the date of closing this offering or any refinancing thereof up to the same maximum principal amount of such debt outstanding as of the date hereof, (ii) capital leases contemplated by an annual budget approved by the board of directors; |
• | the issuance of additional shares of any class of our capital stock (other than any award under any stockholder approved equity compensation plan); |
• | a redemption, repurchase or other acquisition by us of our capital stock (other than any redemption, repurchase or acquisition under any stockholder approved equity compensation plan); |
• | consummation of any material acquisition of the stock or assets of any other entity (other than any of our subsidiaries), in a single transaction or a series of related transactions; |
• | a material disposition, in a single transaction or a series of related transactions, of any of our or our subsidiaries’ assets, other than the sale of inventory or products in the ordinary course of business; |
• | fundamental changes to the nature of our business, including our entry into new and unrelated lines of business or cessation of a material portion of our business; |
• | the adoption, approval or issuance of any poison pill or stockholder rights plan; |
• | payment or declaration of any dividend or distribution on any of our capital stock other than dividends or distributions required to be made pursuant to the terms of any of our outstanding preferred stock; |
• | a termination of the chief executive officer or designation of a new chief executive officer; |
• | a consolidation or merger of us with or into any other entity, or transfer (by lease, assignment, sale or otherwise) of all or substantially all of our and our subsidiaries’ assets, taken as a whole, to another entity, or a “Change of Control” as defined in our or our Stockholders Agreement; and |
• | any entry by us or our subsidiaries into voluntary liquidation or bankruptcy. |
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The following table sets forth the beneficial ownership of our common stock by:
• | each person, or group of affiliated persons, who we know to beneficially own more than 5% of our common stock; |
• | each of our named executive officers; |
• | each of our directors; and |
• | all of our executive officers and directors as a group. |
Following the Reincorporation and the Reclassification, all shares held by Holdings, representing % of PlayAGS’s outstanding common stock, will be subject to an irrevocable proxy that gives VoteCo sole voting and sole dispositive power with respect to such shares.
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities. Except as otherwise indicated, all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. Unless otherwise indicated, the address of each person or entity named in the table below is c/o 5475 S. Decatur Blvd., Ste #100, Las Vegas, NV 89118.
Shares Beneficially Owned
Before the Offering |
Shares Beneficially Owned
After the Offering |
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Number | Percent | Number | Percent | |||||||||||||
5% Stockholders |
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Apollo Gaming Holdings, L.P (1) |
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AP Gaming VoteCo, LLC (2) |
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Named Executive Officers and Directors |
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David Lopez (3) |
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Kimo Akiona (4) |
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David Sambur (5) |
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Victor Gallo (6) |
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Sigmund Lee (7) |
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Daniel Cohen (8) |
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Adam Chibib (9) |
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Yvette Landau (10) |
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All current directors and executive officers as a group (8 persons) |
* | Represents beneficial ownership of less than one percent of shares outstanding. |
(1) |
Holdings holds of record over 99% of our issued and outstanding common stock. Apollo Gaming Holdings GP, LLC (“APG Holdco GP”) is the general partner of Holdings. Apollo Management VIII, L.P. (“Management VIII”) is the sole manager of APG Holdco GP. The general partner of Management VIII is AIF VIII Management, LLC (“AIF VIII LLC”). Apollo Management, L.P. (“Apollo Management”) is the sole member-manager of AIF VIII LLC. Apollo Management GP, LLC (“Management GP”) is the general partner of Apollo Management. Apollo Management Holdings, L.P. (“Management Holdings”) is the sole member and manager of Management GP. Apollo Management Holdings GP, LLC (“Management Holdings GP”) is the general partner of Management Holdings. Leon Black, Joshua Harris and Marc Rowan are the managers, as well as principal executive officers, of Management Holdings GP, and as such may be deemed to have voting and dispositive control of shares of our common stock that are held by Holdings. The principal address of Holdings is c/o Apollo Management, L.P., 9 West 57th Street, 43rd Floor, New York, NY, 10019. The principal address of Management VII, AIF VII LLC, Apollo Management, Management |
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GP, Management Holdings and Management Holdings GP, and Messrs. Black, Harris and Rowan, is 9 W. 57th Street, 43rd Floor, New York, New York 10019. |
(2) | All shares held by Holdings, representing % of our outstanding common stock, will be subject to an irrevocable proxy that gives VoteCo sole voting and sole dispositive power with respect to such shares. The members of VoteCo are David Sambur, Eric Press and Daniel Cohen, each of whom is affiliated with Apollo. Each member holds 33.3% of the limited liability company interests of VoteCo. The principal address of VoteCo is 5475 S. Decatur Blvd, Las Vegas, NV 89118. |
(3) | Number of shares beneficially owned includes shares of common stock issuable upon the exercise of options within 60 days. |
(4) | Number of shares beneficially owned includes shares of common stock issuable upon the exercise of options within 60 days. |
(5) | Number of shares beneficially owned includes shares of common stock issuable upon the exercise of options within 60 days. |
(6) | Number of shares beneficially owned includes shares of common stock issuable upon the exercise of options within 60 days. |
(7) | Number of shares beneficially owned includes shares of common stock issuable upon the exercise of options within 60 days. |
(8) | Number of shares beneficially owned includes shares of common stock issuable upon the exercise of options within 60 days. |
(9) | Number of shares beneficially owned includes shares of common stock issuable upon the exercise of options within 60 days. |
(10) | Number of shares beneficially owned includes shares of common stock issuable upon the exercise of options within 60 days. |
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The following is a summary of all material characteristics of our capital stock as set forth in our amended and restated articles of incorporation and amended and restated bylaws, which will be in effect upon the completion of the Reincorporation, the Reclassification and the consummation of this offering. The summary does not purport to be complete and is qualified in its entirety by reference to our amended and restated articles of incorporation and amended and restated bylaws, all of which are incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and the applicable provisions of Nevada law.
Capital Stock
Our shares of common stock are currently held by 12 holders. Our amended and restated articles of incorporation will provide that our authorized capital stock will consist of shares of common stock, par value $0.01 per share, and shares of preferred stock, par value $0.01 per share. After the completion of the Reclassification and the consummation of this offering, we expect to have shares (or shares if the underwriters exercise their option to purchase additional shares in full) of common stock and zero shares of preferred stock outstanding.
Common Stock
Voting Rights. The holders of our common stock will be entitled to one vote per share on all matters submitted for action by the stockholders, and do not have cumulative voting rights with respect to the election of our directors. Accordingly, a holder of more than 50% of the then-outstanding shares of our common stock will be able, if it so chooses, to determine the outcome of any election of our directors regardless of any voted cast in the election by the holders of the remaining shares.
Dividend Rights. All shares of our common stock will be entitled to share equally in any dividends our board of directors may declare from legally available sources, subject to the terms of any outstanding preferred stock. Our senior secured credit facilities and other debt instruments may impose restrictions on our ability to declare dividends with respect to our common stock.
Liquidation Rights. Upon liquidation or dissolution of our company, whether voluntary or involuntary, all shares of our common stock will be entitled to share equally in the assets available for distribution to stockholders after payment of all of our prior obligations, including obligations pursuant to the terms of any then-outstanding preferred stock.
Registration Rights. Under the terms of the Securityholders Agreements, we have agreed to register shares of our common stock beneficially owned by affiliates of Apollo, including the Apollo Group, under certain circumstances. See “Certain Relationships and Related Party Transactions—Securityholders Agreements” for more detail regarding these registration rights.
Other Matters. The holders of our common stock will have no preemptive or conversion rights, and our common stock will not be subject to further calls or assessments by us. There are no redemption or sinking fund provisions applicable to our common stock, other than pursuant to the gaming and regulatory matters provisions of our amended and restated articles of incorporation. See “—Certain Redemption Provisions.”
Redemption Rights . Our amended and restated articles of incorporation will contain provisions establishing the right to redeem the equity securities of disqualified holders if, among other circumstances, such action is necessary to avoid any regulatory sanctions, to prevent the loss or to secure the reinstatement of any license or franchise, or if such holder is determined by any gaming regulatory agency to be unsuitable, has an application for a license or permit denied or rejected, or has a previously issued license or permit rescinded, suspended, revoked or not renewed. Our amended and restated articles of incorporation also contains provisions defining the redemption price and the rights of a disqualified security holder.
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Preferred Stock
Pursuant to our amended and restated articles of incorporation, our board of directors, without stockholder approval, will be authorized to issue, from time to time, up to an aggregate of shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences and the number of shares constituting any series or designations of such series. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of us and might affect the market price of our common stock. See “—Certain Anti-Takeover, Limited Liability and Indemnification Provisions.”
Certain Redemption Provisions
Our amended and restated articles of incorporation contain provisions establishing the right to redeem the equity securities of disqualified holders if, among other circumstances, such action is necessary to avoid any regulatory sanctions, to prevent the loss or to secure the reinstatement of any license or franchise, or if such holder is determined by any gaming regulatory agency to be unsuitable, has an application for a license or permit denied or rejected, or causes us to have a previously issued license or permit rescinded, suspended, revoked or not renewed, or if our board of directors determines that such holder is likely to (i) preclude or materially delay, impede, impair, threaten or jeopardize any license or franchise, (ii) cause or otherwise result in, the disapproval, cancellation, termination, material adverse modification or non-renewal of any material contract to which we are party or (iii) cause or otherwise result in the imposition of any materially burdensome or unacceptable terms or conditions on any license or franchise. The amended and restated articles of incorporation also contain provisions defining the redemption price and the rights of a disqualified security holder.
Certain Anti-Takeover, Limited Liability and Indemnification Provisions
As of December 13, 2017 we are governed by the NRS. Our amended and restated articles of incorporation, our amended and restated bylaws and the NRS contain provisions that could make more difficult the acquisition of us by means of a tender offer, a proxy contest or otherwise, or to remove or replace our current management, and may have the effect of delaying, deterring or preventing a change in control of us.
“ Blank Check ” Preferred Stock . Our amended and restated articles of incorporation authorize “blank check” preferred stock that could be issued by our board of directors to, among other things, increase the number of outstanding shares or establish a stockholders rights plan making a takeover more difficult and expensive.
Classified Board and Holdings Nomination Rights. Our board of directors will be divided into three classes. The members of each class will serve staggered, three-year terms (other than with respect to the initial terms of the Class I and Class II directors, which will be one and two years, respectively). Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual meeting of stockholders in the year in which their term expires. See “Management—Board of Directors.” Under our Stockholders Agreement, so long as the Apollo Group beneficially owns at least 5% of our outstanding common stock, Holdings has the right to nominate a number of directors to our board of directors equal to (a) the total number of our directors multiplied by (b) the percentage of outstanding common stock beneficially owned by the Apollo Group, rounded up to the nearest whole number. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”
Removal of Directors. Except for any directors elected or otherwise designated pursuant to the terms of any preferred stock, any director or the entire board of directors may be removed at any time, with or without cause,
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by the affirmative vote of not less than two-thirds of the voting power of our outstanding shares entitled to vote generally in the election of directors.
Vacancies. Vacancies on our board of directors may be filled only by a majority of our board of directors in office, although less than a quorum, or by a sole remaining director. In addition, until the first time the Apollo Group no longer beneficially owns at least 5% of our outstanding common stock, the vacancy of a director nominated by Holdings pursuant to the Stockholders Agreement must be filled by a director nominated by Holdings.
No Stockholder Action by Written Consent; Calling of Special Meetings of Stockholders. Our amended and restated articles of incorporation will not permit stockholder action by written consent without a meeting after the first time the Apollo Group ceases to beneficially own at least 50% of the voting power of our outstanding shares, except as otherwise provided with respect to any series of our preferred stock in its certificate of designation. The amended and restated articles of incorporation will also provide that holders of our common stock, as such, will have the right to call special meetings of our stockholders only until the first time the Apollo Group ceases to beneficially own at least 50% of the voting power of our outstanding stock; thereafter, default provisions of the NRS limit the right to call special meetings of our stockholders to the board of directors, any two directors or the president of the corporation, unless otherwise specified in the corporation’s amended and restated articles of incorporation or amended and restated bylaws, and our amended and restated articles of incorporation and amended and restated bylaws will not, as of immediately after the consummation of this offering, provide any exceptions permitting stockholders to call special meetings.
Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our amended and restated bylaws will provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder’s notice generally must be delivered to and received at our principal executive offices, not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, that in the event that the date of such meeting is advanced more than 30 days prior to, or delayed by more than 60 days after, the anniversary of the preceding year’s annual meeting of our stockholders, a stockholder’s notice to be timely must be so delivered not earlier than the close of business on the 120th day prior to such meeting and not later than the close of business on the later of the 90th day prior to such meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Our amended and restated bylaws also specify certain requirements as to the form and content of a stockholder’s notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders. These provisions generally do not apply to nominations of directors made, or business proposals submitted, by the Apollo Group, and these provisions will not affect any rights of the holders of any series of our preferred stock.
Business Combinations and Acquisition of Control Shares. Pursuant to provisions in our amended and restated articles of incorporation and amended and restated bylaws, we have elected not to be governed by certain Nevada statutes that may have the effect of discouraging corporate takeovers. Nevada’s “combinations with interested stockholders” statutes (NRS 78.411 through 78.444, inclusive) prohibit specified types of business “combinations” between certain Nevada corporations and any person deemed to be an “interested stockholder” for two years after such person first becomes an “interested stockholder” unless the corporation’s board of directors approves the combination (or the transaction by which such person becomes an “interested stockholder”) in advance, or unless the combination is approved by the board of directors and sixty percent of the corporation’s voting power not beneficially owned by the interested stockholder, its affiliates and associates. Furthermore, in the absence of prior approval certain restrictions may apply even after such two-year period. For purposes of these statutes, an “interested stockholder” is any person who is (1) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (2) an affiliate or associate of the corporation and at any time within the two previous years was the beneficial
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owner, directly or indirectly, of ten percent or more of the voting power of the then-outstanding shares of the corporation. The definition of the term “combination” is sufficiently broad to cover most significant transactions between a corporation and an “interested stockholder.” Our amended and restated articles of incorporation provide that these statutes will not apply to us.
Nevada’s “acquisition of controlling interest” statutes (NRS 78.378 through 78.3793, inclusive) contain provisions governing the acquisition of a controlling interest in certain Nevada corporations. These “control share” laws provide generally that any person that acquires a “controlling interest” in certain Nevada corporations may be denied voting rights, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights. These laws will apply to us and any person acquiring shares of our common stock if we were to have 200 or more stockholders of record (at least 100 of whom have addresses in Nevada appearing on our stock ledger) and do business in the State of Nevada directly or through an affiliated corporation, unless our amended and restated articles of incorporation or amended and restated bylaws in effect on the tenth day after the acquisition of a controlling interest provide otherwise. These laws provide that a person acquires a “controlling interest” whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one-fifth or more, but less than one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares which it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire a controlling interest become “control shares” to which the voting restrictions described above apply. Our amended and restated bylaws provide that these statutes do not apply to any acquisition of our common stock by the Apollo Group or any of its affiliates, or any direct transferee of its shares of our common stock.
In addition, NRS 78.139 also provides that directors may resist a change or potential change in control if the directors, by majority vote of a quorum, determine that the change is opposed to, or not in, the best interests of the corporation.
Amendment to our Articles of Incorporation. Prior to the time when the Apollo Group no longer beneficially owns at least 25% of the total voting power of our outstanding shares entitled to vote generally in the election of directors, the approval by both a majority of the directors then in office and a majority of the directors nominated by Holdings pursuant to the Stockholders Agreement will be required for any amendment, modification or repeal of any provision of our amended and restated articles of incorporation.
Amendment to our Bylaws . Prior to the time when the Apollo Group first ceases to beneficially own at least 25% of the voting power of our outstanding shares entitled to vote generally in the election of directors, the approval of both a majority of the directors then in office and a majority of the directors nominated by Holdings pursuant to the Stockholders Agreement will be required for any amendment, modification or repeal of any provision of our amended and restated bylaws adopted by our board of directors. Additionally, prior to the first date on which the Apollo Group ceases to beneficially own at least 50% of the voting power of our issued and outstanding shares of stock, any amendment, modification or repeal of any provision of our amended and restated bylaws may be adopted by the affirmative vote of holders of a majority of the voting power of our outstanding shares of stock entitled to vote on the matter. Once the Apollo Group no longer beneficially owns at least 50% of the voting power of our issued and outstanding shares of stock, the affirmative vote of holders of at least two-thirds of the voting power of our outstanding shares of stock entitled to vote on the matter will be necessary for stockholders to adopt any amendment, modification or repeal of any provision of our amended and restated bylaws.
Limitation of Officer and Director Liability and Indemnification Arrangements. Our amended and restated articles of incorporation limits the liability of our officers and directors to the maximum extent permitted by Nevada law. Nevada law provides that our directors and officers will not be personally liable to us, our stockholders or our creditors, for monetary damages for any act or omission in their capacity as a director or
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officer unless it is proven that the act or omission constituted a breach of their fiduciary duties as a director or officer, as applicable, and the breach involved intentional misconduct, fraud or a knowing violation of law.
Our amended and restated articles of incorporation also generally provide that we shall indemnify to the fullest extent permitted by the NRS, subject to limited exceptions, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, investigation, administrative hearing or any other proceeding by reason of the fact that he or she is or was a director or officer of ours, or is or was serving at our request as a director, officer, employee or agent of another entity, against expenses incurred by him in connection with such proceeding.
We currently maintain liability insurance for our directors and officers. In addition, certain of our directors are also insured under Apollo’s professional liability insurance policies and may be indemnified under Apollo’s bylaws or other constitutive documents.
We intend to enter into separate indemnification agreements with each of our directors and executive officers, which may be broader than the specific indemnification provisions contained in the NRS. These indemnification agreements may require us, among other things, to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements may also require us to advance any expenses incurred by the directors or officers as a result of any proceeding against them as to which they could be indemnified and to obtain directors’ and officers’ insurance, if available on reasonable terms.
Currently, to our knowledge, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification by us is sought, nor are we aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons under the foregoing provisions or otherwise, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Corporate Opportunity
Our amended and restated articles of incorporation will provide that we expressly renounce any interest or expectancy in any business opportunity, transaction or other matter in which any Covered Apollo Person (as defined in our amended and restated articles of incorporation) participates or desires or seeks to participate in, even if the opportunity is one that we would reasonably be deemed to have pursued if given the opportunity to do so. The renouncement does not apply to any business opportunities that are presented in writing to a Covered Apollo Person solely in such person’s capacity as an officer or director of us.
Forum Selection
Our articles of incorporation provide that unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada shall be the sole and exclusive forum for any or all actions, suits or proceedings, whether civil, administrative or investigative or that asserts any claim or counterclaim: (a) brought in our name or right or on our behalf; (b) asserting a claim for breach of any fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders; (c) arising or asserting a claim arising pursuant to any provision of the NRS Chapters 78 or 92A or any provision of our amended and restated articles of incorporation or our amended and restated bylaws; (d) to interpret, apply, enforce or determine the validity of our amended and restated articles of incorporation or our amended and restated bylaws; or (e) asserting a claim governed by the internal affairs doctrine, in each such case subject to the Eighth Judicial District Court having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in our capital stock will be deemed to have notice of and consent to this forum selection provision.
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Dissenter’s Rights
The provisions of Nevada’s dissenter’s rights statutes (NRS 92A.300 through 92A.500, inclusive) specify certain corporate actions giving rise to the right of a stockholder to demand payment of “fair value” (as defined in NRS 92A.320) of such stockholder’s shares, subject to a number of limitations and procedural requirements.
Stockholders’ Derivative Actions
Our stockholders may be entitled to bring an action in our name to procure a judgment in our favor, also known as a derivative action, subject to the requirements of applicable law.
Deemed Notice and Consent
Our amended and restated articles of incorporation provide that any person purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed, to the fullest extent permitted by law, to have notice of and consented to all of the provisions of our amended and restated articles of incorporation (including, without limitation, the provisions described above under “—Exclusive Forum”), our amended and restated bylaws and any amendment to our amended and restated articles of incorporation or amended and restated bylaws enacted in accordance therewith and applicable law.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be the American Stock Transfer & Trust Company, LLC.
Securities Exchange
We intend to apply to list the shares of common stock on the New York Stock Exchange under the symbol “AGS.”
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DESCRIPTION OF MATERIAL INDEBTEDNESS
The following summary of the material terms of certain financing arrangements does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying documents.
Senior Secured Credit Facilities
General
On June 6, 2017, AP Gaming I, LLC (the “Borrower”), a wholly owned indirect subsidiary of the Company, entered into a first lien credit agreement, providing for $450.0 million in term loans and a $30.0 million revolving credit facility. The proceeds of the term loans were used primarily to repay the old senior secured credit facilities and the Seller Notes, to pay for the fees and expenses incurred in connection with the foregoing and otherwise for general corporate purposes. The term loans will mature on February 15, 2024, and the revolving credit facility will mature on June 6, 2022.
On December 6, 2017, the Borrower entered into an incremental assumption agreement that amended the new senior secured credit facilities to provide for the incurrence by the Borrower of incremental term loans in an aggregate principal amount of $65.0 million. The net proceeds of the incremental term loans were used to finance the acquisition of Class II electronic gaming machines and related assets operated by Rocket (see “Prospectus Summary—Recent Developments”), to pay fees and expenses in connection therewith and for general corporate purposes. The incremental term loans have the same terms as the Borrower’s term loans.
In addition, we may request one or more incremental term loan facilities and/or increase commitments under the revolving facility in an aggregate amount of up to the sum of (x) $10 million plus (y) an additional amount if we attain certain leverage ratios, subject to certain conditions and receipt of commitments by existing or additional lenders.
All borrowings under the revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties.
Interest Rates and Fees
Borrowings under the senior secured credit facilities bear interest at a rate equal to, at the option of the Borrower, either (a) a LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a 1.00% floor in the case of term loans or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate in effect on such day and (iii) the one-month adjusted LIBOR plus 1.00%, in each case plus an applicable margin. The initial applicable margin for borrowings is 5.50% with respect to LIBOR borrowings and 4.50% with respect to base rate borrowings under the term loan facility and the revolving credit facility and swingline borrowings under the revolving credit facility.
As of the date of December 6, 2017, the date the incremental term loans were incurred, the interest rate for the term loan facility was 6.85%. As of the same date, the unamortized total of debt discount and deferred financing costs was $ million, which is amortized over the term of the facility using the effective interest method.
In addition to paying interest on outstanding principal under the senior secured credit facilities, we are required to pay a commitment fee of 0.50% per annum to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. We are also required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges, and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of each letter of credit.
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Amortization and Prepayments
The term loan requires scheduled quarterly payments in annual amounts equal to 0.25% of the original principal amount of the term loan, with the balance paid at maturity. In addition, we are required to prepay outstanding term loan borrowings, subject to certain exceptions, with:
• | 50% (which percentage will be reduced to 25% and 0% if we attain a certain leverage ratios) of our annual excess cash flow (as defined under the senior secured credit facilities); |
• | 100% of the net cash proceeds of all non-ordinary course asset sales, other dispositions of property or certain casualty events, in each case subject to certain exceptions and provided that we may (a) reinvest within 12 months or (b) commit to reinvest those proceeds and so reinvest such proceeds within 18 months in assets to be used in its business, or certain other permitted investments; and |
• | 100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the senior secured credit facilities. |
We may voluntarily repay outstanding loans under the senior secured credit facilities at any time, without prepayment premium or penalty except in connection with a repricing event, subject to customary “breakage” costs with respect to LIBOR rate loans.
Collateral and Guarantors
The senior secured credit facilities are guaranteed by AP Gaming Holdings, LLC and the material, wholly owned domestic subsidiaries (subject to certain exceptions) of the Borrower. The obligations are secured by a pledge by AP Gaming Holdings, LLC of the Borrower’s equity interest directly held by AP Gaming Holdings, LLC and a pledge of substantially all of the existing and future property and assets of the Borrower and the subsidiary guarantors, subject to certain exceptions. Such security interests will consist of a first-priority lien with respect to the collateral.
Restrictive Covenants and Other Matters
The senior secured credit facilities require the Borrower to maintain a maximum net first lien leverage ratio set at a maximum of 6.0 to 1.0 beginning with the first quarter ending September 30, 2017. To demonstrate its compliance with the maximum net first lien leverage ratio requirement, from time to time the Borrower provides its calculation of the credit agreement-defined pro forma adjusted EBITDA to the lenders under its new senior secured credit facilities. Our management does not use this measure for any other purpose, including in evaluating our business performance or conducting its operations.
The senior secured credit facilities contain certain customary affirmative covenants and events of default. The negative covenants in the senior secured credit facilities include, among other things, limitations (none of which are absolute) on the ability of the Borrower and its restricted subsidiaries to: (i) incur additional debt or issue certain preferred shares; (ii) create liens on certain assets; (iii) make certain loans or investments (including acquisitions); (iv) pay dividends on or make distributions in respect of its capital stock or make other restricted payments; (v) consolidate, merge, sell or otherwise dispose of all or substantially all of the Borrower’s assets; (vi) sell assets; (vii) enter into certain transactions with affiliates; (viii) enter into sale-leaseback transactions; (ix) change the lines of business; (x) change the Borrower’s fiscal year; and (xi) modify the terms of certain debt or organizational agreements. The events of default include, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments.
PIK Notes
On May 29, 2015, we issued $115.0 million aggregate principal amount of 11.25% Senior Secured PIK Notes due 2021 (the “PIK notes”) in a private offering. The PIK notes bear interest at a rate of 11.25% per year.
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Interest shall be paid semiannually in arrears on June 30 and December 31 of each year in cash, by increasing the principal of the outstanding notes or by issuing new notes (“PIK interest”) for the entire amount of the interest payment or by paying interest partially in cash and partially in PIK interest. On or after May 29, 2016, we may redeem some or all of the PIK notes at a redemption price equal to 100% of the accreted principal amount of the notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date.
On May 30, 2017, we entered into an amended and restated note purchase agreement (the “A&R Note Purchase Agreement”) with the Subsidiary Guarantor, Deutsche Bank AG, London Branch, as holder (the “Holder”), and Deutsche Bank Trust Company Americas, as collateral agent, which amended and restated the note purchase agreement, dated as of May 29, 2015. The A&R Note Purchase Agreement extended the maturity of the PIK notes from May 28, 2021 to May 20, 2024, and modified the terms of the PIK notes to, among other things, account for the repayment of the Seller Notes.
The PIK notes are secured by the equity in our subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are fully and unconditionally guaranteed by AP Gaming Holdings, LLC. The PIK notes contain certain customary negative covenants and events of default. The negative covenants limit the Company’s and its restricted subsidiaries’ ability to, among other things: incur additional indebtedness or issue certain preferred shares, create liens on certain assets, pay dividends or prepay junior debt, make certain loans, acquisitions or investments, materially change its business, engage in transactions with affiliates, conduct asset sales, or merge, consolidate, sell or otherwise dispose of all or substantially all of our assets.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect the market price of our common stock prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of a substantial number of shares of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity-related capital at a time and price we deem appropriate.
Upon the completion of the Reincorporation, the Reclassification and this offering, we will have outstanding an aggregate of shares of common stock. Additionally, we will have 1,084,850 options outstanding, which were issued pursuant to employment agreements with our executive officers (see “Compensation Discussion and Analysis”) and which are convertible into 1,084,850 shares of common stock. Of all our outstanding shares of common stock, all of the shares of common stock to be sold in this offering (or shares assuming the underwriters exercise the option to purchase additional shares in full) will be freely tradable without restriction unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 under the Securities Act, and without further registration under the Securities Act. All remaining shares of common stock, including the shares that will be issued upon exercise of the outstanding options, will be deemed “restricted securities” as such term is defined under Rule 144. The restricted securities were, or will be, issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below.
As a result of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 under the Securities Act, the shares of our common stock (excluding the shares to be sold in this offering) that will be available for sale in the public market are as follows:
• | no shares will be eligible for sale on the date of this prospectus or prior to days after the date of this prospectus; and |
• | shares will be eligible for sale upon the expiration of the lock-up agreements beginning days after the date of this prospectus and when permitted under Rule 144 or Rule 701. |
Lock-up Agreements
We, affiliates of Apollo, certain of our other existing stockholders and all of our directors and executive officers have agreed not to sell any common stock or securities convertible into or exercisable or exchangeable for shares of common stock for a period of days from the date of this prospectus, subject to certain exceptions. Please see “Underwriting (Conflicts of Interest)” for a description of these lock-up provisions. The representatives of the underwriters, in their sole discretion, may at any time release all or any portion of the shares from the restrictions in such agreements.
Rule 144
In general, under Rule 144 under the Securities Act as currently in effect, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the six months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
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A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock or the average weekly trading volume of our common stock reported by the during the four calendar weeks preceding the filing of notice of the sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.
Rule 701
In general, under Rule 701 under the Securities Act, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirement of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144. The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus.
Stock Options
As of September 30, 2017, we had issued 1,084,850 outstanding options to purchase shares of our common stock, of which options to purchase 210,524 shares have met the time-based requirements of the applicable vesting schedule. Since there is no market for our common shares, a holder of our options cannot benefit from their exercise. During the period the options are outstanding, we will reserve from our authorized and unissued common stock a sufficient number of shares to provide for the issuance of shares of common stock underlying the options upon the exercise of the options.
Stock Issued Under Employee Plans
We intend to file a registration statement on Form S-8 under the Securities Act to register stock issuable under the Equity Incentive Plan, including upon exercise of our outstanding options. This registration statement on Form S-8 is expected to be filed following the effective date of the registration statement of which this prospectus is a part and will be effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market following the effective date, unless such shares are subject to vesting restrictions with us, Rule 144 restrictions applicable to our affiliates or the lock-up restrictions described above.
Registration Rights
After this offering, and subject to the lock-up agreements, affiliates of Apollo will be entitled to certain rights with respect to the registration of their shares of our common stock under the Securities Act after the completion of this offering. For more information, see “Certain Relationships and Related Party Transactions—Securityholders Agreement.” After such registration, these shares of our common stock will become freely tradable without restriction under the Securities Act.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material U.S. federal income tax considerations applicable to Non-U.S. Holders (as defined below) with respect to the ownership and disposition of our common stock issued pursuant to this offering. The following discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. judicial decisions, administrative pronouncements and existing and proposed Treasury regulations, all as in effect as of the date hereof. All of the preceding authorities are subject to change at any time, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those discussed below. We have not requested, and will not request, a ruling from the U.S. Internal Revenue Service (the “IRS”) with respect to any of the U.S. federal income tax consequences described below, and as a result there can be no assurance that the IRS will not disagree with or challenge any of the conclusions we have reached and describe herein.
This discussion only addresses beneficial owners of our common stock that hold such common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be important to a Non-U.S. Holder in light of such Non-U.S. Holder’s particular circumstances or that may be applicable to Non-U.S. Holders subject to special treatment under U.S. federal income tax law (including, for example, financial institutions, regulated investment companies, real estate investment trusts, dealers in securities, traders in securities that elect mark-to-market treatment, insurance companies, tax-exempt entities, Non-U.S. Holders who acquire our common stock pursuant to the exercise of employee stock options or otherwise as compensation for their services, Non-U.S. Holders liable for the alternative minimum tax, controlled foreign corporations, passive foreign investment companies, former citizens or former long-term residents of the United States, and Non-U.S. Holders that hold our common stock as part of a hedge, straddle, constructive sale or conversion transaction). In addition, this discussion does not address U.S. federal tax laws other than those pertaining to U.S. federal income tax (such as U.S. federal estate or gift tax or the Medicare contribution tax on certain net investment income), nor does it address any aspects of U.S. state, local or non-U.S. taxes. Non-U.S. Holders are urged to consult with their own tax advisors regarding the possible application of these taxes.
For purposes of this discussion, the term “Non-U.S. Holder” means a beneficial owner of our common stock that is an individual, corporation, estate or trust, other than:
• | an individual who is a citizen or resident of the United States, as determined for U.S. federal income tax purposes; |
• | a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; |
• | an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
• | a trust if: (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust; or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a domestic trust. |
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of our common stock, the tax treatment of a person treated as a partner of such partnership generally will depend on the status of the partner and the activities of the partnership. Persons that, for U.S. federal income tax purposes, are treated as partners in a partnership holding shares of our common stock are urged to consult their own tax advisors.
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Prospective purchasers are urged to consult their tax advisors as to the particular consequences to them under U.S. federal, state and local, and applicable foreign tax laws of the acquisition, ownership and disposition of our common stock.
Distributions
Although we do not anticipate that we will make any distributions on our common stock in the foreseeable future, distributions of cash or property that we pay in respect of our common stock will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Subject to the discussions below under “—U.S. Trade or Business Income,” “—Information Reporting and Backup Withholding” and “—FATCA,” you generally will be subject to U.S. federal withholding tax at a 30% rate, or at a reduced rate prescribed by an applicable income tax treaty, on any dividends received in respect of our common stock. If the amount of the distribution exceeds our current and accumulated earnings and profits, such excess first will be treated as a return of capital to the extent of your tax basis in our common stock, and thereafter will be treated as capital gain. However, except to the extent that we elect (or the paying agent or other intermediary through which you hold your common stock elects) otherwise, we (or the intermediary) must generally withhold on the entire distribution, in which case you would be entitled to a refund from the IRS for the withholding tax on the portion of the distribution that exceeded our current and accumulated earnings and profits.
In order to obtain a reduced rate of U.S. federal withholding tax under an applicable income tax treaty, you will be required to provide a properly executed IRS Form W-8BEN or Form W-8BEN-E (or, in each case, a successor form) certifying your entitlement to benefits under the treaty. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS. You are urged to consult your own tax advisor regarding your possible entitlement to benefits under an applicable income tax treaty.
Sale, Exchange or Other Taxable Disposition of Common Stock
Subject to the discussions below under “—U.S. Trade or Business Income,” “—Information Reporting and Backup Withholding” and “—FATCA,” you generally will not be subject to U.S. federal income or withholding tax in respect of any gain on a sale, exchange or other taxable disposition of our common stock unless:
• | the gain is U.S. trade or business income, in which case, such gain will be taxed as described in “—U.S. Trade or Business Income” below; |
• | you are an individual who is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, in which case you will be subject to U.S. federal income tax at a rate of 30% (or a reduced rate under an applicable income tax treaty) on the amount by which certain capital gains allocable to U.S. sources exceed certain capital losses allocable to U.S. sources; or |
• | we are or have been a “United States real property holding corporation” (a “USRPHC”) under Section 897 of the Code at any time during the shorter of the five-year period ending on the date of the disposition and your holding period for the common stock, in which case, subject to the exception set forth in the second sentence of the next paragraph, such gain will be subject to U.S. federal income tax in the same manner as U.S. trade or business income discussed below. |
In general, a corporation is a USRPHC if the fair market value of its “United States real property interests” equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. In the event that we are determined to be a USRPHC, gain will not be subject to tax as U.S. trade or business income if your holdings (direct and indirect) at all times during the applicable period described in the third bullet point above constituted 5% or less of our common stock, provided
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that our common stock was regularly traded on an established securities market during such period. We believe that we are not currently, and we do not anticipate becoming in the future, a “United States real property holding corporation” for U.S. federal income tax purposes.
U.S. Trade or Business Income
For purposes of this discussion, dividend income and gain on the sale, exchange or other taxable disposition of our common stock will be considered to be “U.S. trade or business income” if (A)(i) such income or gain is effectively connected with your conduct of a trade or business within the United States and (ii) if you are eligible for the benefits of an income tax treaty with the United States and such treaty requires, such gain is attributable to a permanent establishment (or, if you are an individual, a fixed base) that you maintain in the United States or (B) with respect to gain, we are or have been a USRPHC at any time during the shorter of the five-year period ending on the date of the disposition of our common stock and your holding period for our common stock (subject to the 5% ownership exception set forth above in the second paragraph of “—Sale, Exchange or Other Taxable Disposition of Common Stock).” Generally, U.S. trade or business income is not subject to U.S. federal withholding tax (provided that you comply with applicable certification and disclosure requirements, including providing a properly executed IRS Form W-8ECI (or successor form)); instead, you are subject to U.S. federal income tax on a net basis at regular U.S. federal income tax rates (generally in the same manner as a U.S. person) on your U.S. trade or business income. If you are a corporation, any U.S. trade or business income that you receive may also be subject to a “branch profits tax” at a 30% rate, or at a lower rate prescribed by an applicable income tax treaty.
Information Reporting and Backup Withholding
We must annually report to the IRS and to each Non-U.S. Holder any dividend income that is subject to U.S. federal withholding tax or that is exempt from such withholding pursuant to an income tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which a Non-U.S. Holder resides. Under certain circumstances, the Code imposes a backup withholding obligation on certain reportable payments. Dividends paid to you will generally be exempt from backup withholding if you provide a properly executed IRS Form W-8BEN or Form W-8BEN-E (or, in each case, a successor form) or otherwise establish an exemption and we do not have actual knowledge or reason to know that you are a U.S. person or that the conditions of such other exemption are not, in fact, satisfied.
The payment of the proceeds from the disposition of our common stock to or through the U.S. office of any broker (U.S. or non-U.S.) will be subject to information reporting and possible backup withholding unless you certify as to your non-U.S. status under penalties of perjury or otherwise establish an exemption and the broker does not have actual knowledge or reason to know that you are a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The payment of proceeds from the disposition of our common stock to or through a non-U.S. office of a non-U.S. broker will not be subject to information reporting or backup withholding unless the non-U.S. broker has certain types of relationships with the United States (a “U.S. related financial intermediary”). In the case of the payment of proceeds from the disposition of our common stock to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. related financial intermediary, the Treasury regulations require information reporting (but not backup withholding) on the payment unless the broker has documentary evidence in its files that the owner is not a U.S. person and the broker has no knowledge to the contrary. You are urged to consult your tax advisor on the application of information reporting and backup withholding in light of your particular circumstances.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to you will be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
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FATCA
Pursuant to Section 1471 through 1474 of the Code, commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”), foreign financial institutions (which include most foreign hedge funds, private equity funds, mutual funds, securitization vehicles and any other investment vehicles) and certain other foreign entities that do not otherwise qualify for an exemption must comply with information reporting rules with respect to their U.S. account holders and investors or be subject to a withholding tax on U.S. source payments made to them (whether received as a beneficial owner or as an intermediary for another party).
More specifically, a foreign financial institution or other foreign entity that does not comply with the FATCA reporting requirements or otherwise qualify for an exemption will generally be subject to a 30% withholding tax with respect to any “withholdable payments.” For this purpose, withholdable payments generally include U.S.-source payments otherwise subject to nonresident withholding tax (e.g., U.S.-source dividends) and also include the entire gross proceeds from the sale of any equity instruments of U.S. issuers (such as our common stock). The FATCA withholding tax will apply even if the payment would otherwise not be subject to U.S. nonresident withholding tax (e.g., because it is capital gain). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
FATCA currently applies to dividends made in respect of our common stock. Final Treasury regulations defer this withholding obligation for gross proceeds from dispositions of U.S. common stock until January 1, 2019. To avoid withholding on dividends and gross proceeds, as applicable, Non-U.S. Holders may be required to provide the Company (or its withholding agents) with applicable tax forms or other information. Non-U.S. Holders are urged to consult with their own tax advisors regarding the effect, if any, of the FATCA provisions to them based on their particular circumstances.
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UNDERWRITING (CONFLICTS OF INTEREST)
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below have severally agreed to purchase, and we have agreed to sell to them the number of shares indicated below:
Name |
Number of Shares | |||
Credit Suisse Securities (USA) LLC |
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Deutsche Bank Securities Inc. |
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Jefferies LLC |
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Macquarie Capital (USA) Inc. |
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Merrill Lynch, Pierce, Fenner & Smith Incorporated Citigroup Global Markets Inc. |
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Stifel, Nicolaus & Company, Incorporated |
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SunTrust Robinson Humphrey, Inc. |
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Nomura Securities International, Inc. |
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Roth Capital Partners, LLC |
||||
Union Gaming Securities LLC |
||||
The Williams Capital Group, L.P. |
||||
Apollo Global Securities, LLC |
||||
|
|
|||
Total |
||||
|
|
The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ option to purchase additional shares, as described below.
The underwriters initially propose to offer part of the shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part. Certain of the underwriters may sell shares to the public through one or more of the affiliates including as selling agents.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions and the per share amount, if any, of dividends declared by us and payable on the shares purchased by them from us other than by exercise of their option to purchase additional shares but not payable on the shares that are subject to that option.
To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.
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The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional shares of common stock.
Total | ||||||||||||
Per Share | No Exercise | Full Exercise | ||||||||||
Public offering price |
$ | $ | $ | |||||||||
Underwriting discounts and commissions to be paid by us |
$ | $ | $ | |||||||||
Proceeds, before expenses, to us |
$ | $ | $ |
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ million. We have agreed to reimburse the underwriters for certain expenses, in amount up to $ incurred in connection with the review by the Financial Industry Regulatory Authority, Inc. of the terms of this offering, as set forth in the underwriting agreement.
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.
We intend to apply to have our common stock listed on the New York Stock Exchange under the trading symbol “AGS.”
We, all of our directors and officers, and certain of our existing stockholders have agreed that, without the prior written consent of , we and they will not, during the period ending 180 days after the date of this prospectus:
• | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock; |
• | file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or |
• | enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, |
• | whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, we and each such person agree that, without the prior written consent of , it will not, during the period ending 180 days after the date of this prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock. |
The restrictions described in the immediately preceding paragraph do not apply to the sale of shares to the underwriters and are subject to other customary exceptions.
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under their option to purchase additional shares. The underwriters can close out a covered short sale by exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under their option to purchase additional shares. The underwriters may also sell shares in excess of their option, to purchase additional shares creating a naked short
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position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. We have agreed to indemnify the several underwriters, including their controlling persons, against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
Directed Share Program
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 3% of the common stock offered by this prospectus for sale to our directors, director nominees, officers and certain of our employees and other persons associated with us. Pursuant to the underwriting agreement, the sales will be made by , an underwriter of this offering, through a Directed Share Program. If these persons purchase reserved common stock, it will reduce the number of shares of common stock available for sale to the general public. Any reserved shares of common stock that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock offered by this prospectus. Any shares sold in the Directed Share Program to a party who has entered into a lock-up agreement described above shall be subject to the provisions of such lock-up agreement.
Pricing of the Offering
Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) | to any legal entity that is a qualified investor as defined in the Prospectus Directive; |
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(b) | to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or |
(c) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, (1) the expression an “offer to the public” in relation to any shares of our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our common stock to be offered so as to enable an investor to decide to purchase any shares of our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, (2) the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive), and includes any relevant implementing measure in the Relevant Member State, and (3) the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
United Kingdom
(a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and |
(b) | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom. |
Hong Kong
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
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Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Switzerland
The prospectus does not constitute an issue prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations (“CO”) and the shares will not be listed on the SIX Swiss Exchange. Therefore, the prospectus may not comply with the disclosure standards of the CO and/or the listing rules (including any prospectus schemes) of the SIX Swiss Exchange. Accordingly, the shares may not be offered to the public in or from Switzerland, but only to a selected and limited circle of investors, which do not subscribe to the shares with a view to distribution.
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional
176
investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Canada
The common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Conflicts of Interest
Deutsche Bank AG, an affiliate of Deutsche Bank Securities Inc., one of the underwriters in this Offering, owns the aggregate outstanding principal amount of the PIK Notes and, therefore, will receive in excess of 5% of the net proceeds of this Offering, not including underwriting compensation. As a result, Deutsche Bank Securities Inc. is deemed to have a “conflict of interest” with us within the meaning of Rule 5121. Therefore, this Offering will be conducted in accordance with Rule 5121, which requires that a QIU as defined in Rule 5121 participate in the preparation of the registration statement of which this prospectus forms a part and perform its usual standard of due diligence with respect thereto. Credit Suisse Securities (USA) LLC has agreed to act as QIU for this Offering. Deutsche Bank Securities Inc. will not make sales to discretionary accounts without the prior written consent of the account holder. We have agreed to indemnify against certain liabilities incurred in connection with acting as QIU for this Offering, including liabilities under the Securities Act or contribute to payments that the underwriters may be required to make in that respect. In addition, Apollo Global Securities, LLC, an underwriter of this Offering, is an affiliate of Apollo, our controlling stockholder. Since Apollo beneficially owns more than 10% of our outstanding common stock, a “conflict of interest” is deemed to exist under Rule 5121(f)(5)(B) of the Financial Industry Regulation Authority. Accordingly, this Offering will be
177
made in compliance with the application provisions of Rule 5121. The appointment of a QIU is not required in connection with the “conflict of interest” with respect to Apollo Global Securities, LLC, as Apollo Global Securities, LLC is not one of the members primarily responsible for managing the Offering. Apollo Global Securities, LLC will not make sales to discretionary accounts with the prior written consent of the account holder.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they have received or may receive customary fees and expenses. Certain of the underwriters or their affiliates may have an indirect ownership interest in us through various private equity funds, including the Apollo Group.
In the ordinary course of business, the underwriters and their respective affiliates may make or hold a broad array of investments, including serving as counterparties to certain derivative and hedging arrangements and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account or for the accounts of their customers, and such investment and securities activities may involve or relate to assets, securities or instruments of the issuer (directly, as collateral securing other obligations or otherwise) or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also make investment recommendations, market color or trading ideas or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such assets, securities and instruments.
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The validity of the shares offered hereby will be passed upon for us by Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada. Paul, Weiss, Rifkind, Wharton & Garrison LLP has acted as counsel for the Company. Cahill Gordon & Reindel LLP has acted as counsel for the underwriters.
The financial statements as of December 31, 2016 and for the year ended December 31, 2016 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of PlayAGS, Inc. at December 31, 2015 and for each of the two years in the period ended December 31, 2015, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Cadillac Jack, Inc. and its subsidiaries as of and for the years ended December 31, 2013 and 2014, included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Following careful deliberation and a competitive process among the large accounting firms, on July 6, 2016, the board of directors of the Company appointed PricewaterhouseCoopers, LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016, effective July 6, 2016.
Also, on July 6, 2016, the board of directors dismissed Ernst & Young LLP (“EY”) as its independent registered public accounting firm. EY had served as the Company’s independent registered public accounting firm since 2013.
During the Company’s fiscal years ended December 31, 2014 and 2015 and in the subsequent interim period through July 6, 2016, the date of EY’s dismissal, there were no “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) with EY on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure any of which that, if not resolved to the satisfaction of EY, would have caused EY to make reference to the subject matter of any such disagreement in connection with its reports.
In connection with the audit of the Company’s financial statements during each of the two years ended December 31, 2014 and December 31, 2015, and in the subsequent interim period through July 6, 2016, there was a “reportable event,” as that term is described in Item 304(a)(1)(v) of Regulation S-K related to a material weakness in the Company’s internal control over financial reporting as disclosed in the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2014 and as of December 31, 2013. The Company’s management concluded that as of December 31, 2013, March 31, 2014 and June 30, 2014, the Company’s internal control over financial reporting was not effective because of the existence of a material weakness related to the Company’s controls over the application of lease accounting principles to the initial
179
direct costs incurred related to our operating leases and the useful lives of certain gaming machines deployed under operating lease arrangements. The Company determined this control deficiency represented a material weakness in its internal control over financial reporting.
While the deficiency in this instance did not result in a material misstatement of our financial statements, it was possible there could have been a material misstatement if the control deficiency was not remediated. Accordingly, management determined this control deficiency was remediated as of December 31, 2014, through the efforts disclosed in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2014.
EY’s audit reports on the Company’s consolidated financial statements as of and for the years ended December 31, 2014 and 2015, did not contain an adverse opinion or disclaimer of opinion, and EY’s audit reports were not qualified or modified as to uncertainty, audit scope or accounting principles.
The Company provided EY with a copy of this prospectus prior to its filing with the SEC and requested EY to furnish to the Company a letter addressed to the SEC stating whether it agrees with the statements made above. A copy of EY’s letter dated April 13, 2017 is attached as Exhibit 16.1 to this registration statement.
During the Company’s fiscal years ended December 31, 2014 and 2015, and the subsequent interim period through July 6, 2016, neither the Company, nor anyone on its behalf, consulted with PwC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s consolidated financial statements; and as such, no written report or oral advice was provided, and none was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issues; or (ii) any matter that was either the subject of a “disagreement” or a “reportable event” (within the meaning of Item 304(a)(1)(iv) and Item 304(a)(1)(v) of Regulation S-K, respectively).
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect to the common stock being sold in this offering. This prospectus constitutes a part of that registration statement. This prospectus does not contain all the information set forth in the registration statement and the exhibits and schedules to the registration statement, because some parts have been omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and our common stock being sold in this offering, you should refer to the registration statement and the exhibits and schedules filed as part of the registration statement. Statements contained in this prospectus regarding the contents of any agreement, contract or other document referred to are not necessarily complete; reference is made in each instance to the copy of the contract or document filed as an exhibit to the registration statement. Each statement is qualified by reference to the exhibit. You may inspect a copy of the registration statement without charge at the SEC’s principal office in Washington, D.C. Copies of all or any part of the registration statement may be obtained after payment of fees prescribed by the SEC from the SEC’s Public Reference Room at the SEC’s principal office, at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The SEC’s website address is www.sec.gov.
After we have completed this offering, we will file annual, quarterly and current reports, proxy statements and other information with the SEC. We intend to make these filings available on our website once this offering is completed. You may read and copy any reports, statements or other information on file at the public reference rooms. You can also request copies of these documents, for a copying fee, by writing to the SEC, or you can review these documents on the SEC’s website, as described above. In addition, we will provide electronic or paper copies of our filings free of charge upon request.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Financial Statements |
||||
Consolidated Balance Sheets at December 31, 2016 and September 30, 2017 |
F-2 | |||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-25 | ||||
Audited Consolidated Financial Statements |
||||
Consolidated Balance Sheets as of December 31, 2015 and December 31, 2016 |
F-27 | |||
F-28 | ||||
F-29 | ||||
F-30 | ||||
F-31 | ||||
F-69 | ||||
Audited Consolidated Financial Statements of Cadillac Jack, Inc. for the years ended December 31, 2013 and December 31, 2014 |
||||
F-71 | ||||
F-72 | ||||
F-73 | ||||
F-74 | ||||
F-75 | ||||
Unaudited Consolidated Financial Statements of Cadillac Jack, Inc. as of and for the three months period ended March 31, 2014 and March 31, 2015 |
||||
F-94 | ||||
F-95 | ||||
F-96 | ||||
F-97 | ||||
F-98 |
F-1
PLAYAGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)
(unaudited)
December 31,
2016 |
September 30,
2017 |
|||||||
Assets |
|
|||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 17,977 | $ | 10,025 | ||||
Restricted cash |
100 | 100 | ||||||
Accounts receivable, net of allowance of $1,972 and $1,638, respectively |
24,035 | 34,484 | ||||||
Inventories |
10,729 | 18,885 | ||||||
Prepaid expenses |
2,609 | 3,734 | ||||||
Deposits and other |
3,052 | 3,392 | ||||||
|
|
|
|
|||||
Total current assets |
58,502 | 70,620 | ||||||
|
|
|
|
|||||
Property and equipment, net |
67,926 | 75,461 | ||||||
Goodwill |
251,024 | 257,845 | ||||||
Deferred tax asset |
9 | 9 | ||||||
Intangible assets |
232,877 | 211,768 | ||||||
Other assets |
23,754 | 24,058 | ||||||
|
|
|
|
|||||
Total assets |
$ | 634,092 | $ | 639,761 | ||||
|
|
|
|
|||||
Liabilities and Stockholders’ Equity |
|
|||||||
Current liabilities |
||||||||
Accounts payable |
$ | 8,790 | $ | 10,353 | ||||
Accrued liabilities |
17,702 | 23,005 | ||||||
Current maturities of long-term debt |
6,537 | 6,674 | ||||||
|
|
|
|
|||||
Total current liabilities |
33,029 | 40,032 | ||||||
|
|
|
|
|||||
Long-term debt |
547,238 | 573,068 | ||||||
Deferred tax liability—noncurrent |
6,957 | 9,111 | ||||||
Other long-term liabilities |
30,440 | 37,001 | ||||||
|
|
|
|
|||||
Total liabilities |
617,664 | 659,212 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 13) |
||||||||
Stockholders’ equity |
||||||||
Preferred stock at $0.01 par value; 100,000 shares authorized, no shares issued and outstanding |
— | — | ||||||
Common stock at $0.01 par value; 30,000,100 shares authorized; 100 Class A Shares issued and outstanding at December 31, 2016 and September 30, 2017, and 14,931,529 Class B Shares issued and outstanding at December 31, 2016 and September 30, 2017 |
149 | 149 | ||||||
Additional paid-in capital |
177,276 | 177,276 | ||||||
Accumulated deficit |
(156,451 | ) | (193,037 | ) | ||||
Accumulated other comprehensive loss |
(4,546 | ) | (3,839 | ) | ||||
|
|
|
|
|||||
Total stockholders’ (deficit) equity |
16,428 | (19,451 | ) | |||||
|
|
|
|
|||||
Total liabilities and stockholders’ equity |
$ | 634,092 | $ | 639,761 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2
PLAYAGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(amounts in thousands, except per share data)
(unaudited)
Three months ended
September 30, |
Nine months ended
September 30, |
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2016 | 2017 | 2016 | 2017 | |||||||||||||
Revenues |
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Gaming operations |
$ | 38,877 | $ | 42,849 | $ | 117,093 | $ | 125,040 | ||||||||
Equipment sales |
2,331 | 13,591 | 6,968 | 29,254 | ||||||||||||
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Total revenues |
41,208 | 56,440 | 124,061 | 154,294 | ||||||||||||
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Operating expenses |
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Cost of gaming operations 1 |
6,711 | 7,344 | 19,627 | 21,794 | ||||||||||||
Cost of equipment sales 1 |
698 | 6,330 | 4,244 | 14,326 | ||||||||||||
Selling, general and administrative |
12,970 | 9,742 | 36,654 | 30,368 | ||||||||||||
Research and development |
6,675 | 6,467 | 16,517 | 17,912 | ||||||||||||
Write downs and other charges |
1,852 | 490 | 2,153 | 2,655 | ||||||||||||
Depreciation and amortization |
19,419 | 16,931 | 60,527 | 53,598 | ||||||||||||
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Total operating expenses |
48,325 | 47,304 | 139,722 | 140,653 | ||||||||||||
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Income (loss) from operations |
(7,117 | ) | 9,136 | (15,661 | ) | 13,641 | ||||||||||
Other (income) expense |
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Interest expense |
14,903 | 12,666 | 44,151 | 42,380 | ||||||||||||
Interest income |
(12 | ) | (25 | ) | (51 | ) | (80 | ) | ||||||||
Loss on extinguishment and modification of debt |
— | — | — | 8,129 | ||||||||||||
Other (income) expense |
392 | (467 | ) | 6,314 | (4,805 | ) | ||||||||||
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Loss before income taxes |
(22,400 | ) | (3,038 | ) | (66,075 | ) | (31,983 | ) | ||||||||
Income tax (expense) benefit |
1,165 | (1,052 | ) | 4,935 | (4,603 | ) | ||||||||||
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Net loss |
(21,235 | ) | (4,090 | ) | (61,140 | ) | (36,586 | ) | ||||||||
Foreign currency translation adjustment |
(208 | ) | (498 | ) | (2,137 | ) | 707 | |||||||||
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Total comprehensive loss |
$ | (21,443 | ) | $ | (4,588 | ) | $ | (63,277 | ) | $ | (35,879 | ) | ||||
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Basic and diluted loss per common share: |
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Basic |
$ | (1.42 | ) | $ | (0.27 | ) | $ | (4.09 | ) | $ | (2.45 | ) | ||||
Diluted |
$ | (1.42 | ) | $ | (0.27 | ) | $ | (4.09 | ) | $ | (2.45 | ) | ||||
Weighted average common shares outstanding: |
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Basic |
14,932 | 14,932 | 14,932 | 14,932 | ||||||||||||
Diluted |
14,932 | 14,932 | 14,932 | 14,932 |
(1) | exclusive of depreciation and amortization |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
PLAYAGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
September 30, |
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2016 | 2017 | |||||||
Cash flows from operating activities |
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Net loss |
$ | (61,140 | ) | $ | (36,586 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
60,527 | 53,598 | ||||||
Accretion of contract rights under development agreements and placement fees |
3,538 | 3,459 | ||||||
Amortization of deferred loan costs and discount |
2,617 | 2,315 | ||||||
Payment-in-kind interest payments |
— | (2,698 | ) | |||||
Write off of deferred loan cost and discount |
— | 3,294 | ||||||
Payment-in-kind interest capitalized |
7,490 | 7,807 | ||||||
Provision for bad debts |
1,274 | 902 | ||||||
Loss on disposition of assets |
558 | 2,896 | ||||||
Impairment of assets |
4,606 | 333 | ||||||
Provision (benefit) for deferred income tax |
(6,374 | ) | 2,147 | |||||
Changes in assets and liabilities that relate to operations: |
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Accounts receivable |
(556 | ) | (9,649 | ) | ||||
Inventories |
1,121 | (453 | ) | |||||
Prepaid expenses |
1,673 | (1,119 | ) | |||||
Deposits and other |
165 | (276 | ) | |||||
Other assets, non-current |
673 | (2,010 | ) | |||||
Accounts payable and accrued liabilities |
9,089 | 2,333 | ||||||
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Net cash provided by operating activities |
25,261 | 26,293 | ||||||
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Cash flows from investing activities |
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Business acquisitions, net of cash acquired |
— | (7,000 | ) | |||||
Purchase of intangible assets |
(1,311 | ) | (565 | ) | ||||
Software development and other expenditures |
(4,929 | ) | (6,334 | ) | ||||
Proceeds from disposition of assets |
87 | 171 | ||||||
Purchases of property and equipment |
(21,817 | ) | (35,961 | ) | ||||
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Net cash used in investing activities |
(27,970 | ) | (49,689 | ) | ||||
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Cash flows from financing activities |
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Proceeds from issuance of first lien credit facilities |
— | 448,725 | ||||||
Repayment of senior secured credit facilities |
(3,175 | ) | (410,655 | ) | ||||
Payments on first lien credit facilities |
— | (1,125 | ) | |||||
Deferred offering costs paid |
— | (1,203 | ) | |||||
Payment of financed placement fee obligations |
(3,525 | ) | (2,971 | ) | ||||
Payments on deferred loan costs |
— | (3,127 | ) | |||||
Repayment of seller notes |
— | (12,401 | ) | |||||
Payments on equipment long term note payable and capital leases |
(1,993 | ) | (1,832 | ) | ||||
Payment of previous acquisition obligation |
(1,125 | ) | — | |||||
Proceeds from employees in advance of common stock issuance |
— | 25 | ||||||
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Net cash (used in) provided by financing activities |
(9,818 | ) | 15,436 | |||||
Effect of exchange rates on cash and cash equivalents |
(45 | ) | 8 | |||||
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Decrease in cash and cash equivalents |
(12,572 | ) | (7,952 | ) | ||||
Cash and cash equivalents, beginning of period |
35,722 | 17,977 | ||||||
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Cash and cash equivalents, end of period |
$ | 23,150 | $ | 10,025 | ||||
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Supplemental cash flow information: |
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Cash paid during the period for interest |
$ | 29,340 | $ | 26,744 | ||||
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Cash paid during the period for taxes |
$ | 922 | $ | 847 | ||||
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Non-cash investing and financing activities: |
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Financed purchase of property and equipment |
$ | 1,588 | $ | 642 | ||||
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Financed purchase of intangible asset |
$ | — | $ | 4,866 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
PlayAGS, Inc. (formerly AP Gaming Holdco, Inc.) (the “Company,” “AP Gaming,” “we,” “us,” or “our”) is a leading designer and supplier of gaming products and services for the gaming industry. The Company is a leader in the Class II Native American and Mexican gaming jurisdictions and has expanded its product lines to include Class III Native American, commercial and charity jurisdictions. We supply electronic gaming machines (“EGMs”), server-based systems and back-office systems that are used by casinos and various gaming locations. Since mid-2014, the Company has significantly broadened and diversified its product portfolio through both organic development and strategic acquisitions. We launched a new table products division in mid-2014 to provide live felt table games to casino operators. Through the acquisition of Amaya Americas Corporation (“Cadillac Jack”) on May 29, 2015, we greatly expanded our games library and EGM offerings. The Company also acquired online developer Gamingo Limited (formerly known as “RocketPlay”, currently known as “AGSi”) in June 2015, further expanding its offerings to include interactive products such as social casino games, available to play on mobile devices.
The Company operates and reports in the following three segments:
A. Electronic Gaming Machines
Our EGM segment offers a selection of video slot titles developed for the global marketplace, as well as EGM cabinets such as ICON , Halo , Colossal Diamonds (“ Big Red ”), and Orion . In addition to providing complete EGM units, we offer conversion kits that allow existing game titles to be converted to other game titles offered within that operating platform.
B. Table Products
Our table products include live proprietary table games and side bets, as well as ancillary table products. Products include both internally developed and acquired proprietary table games, side bets, and table technology related to blackjack, poker, baccarat, craps and roulette. We have acquired a number of popular brands, including In-Bet, Buster Blackjack, Double Draw Poker and Criss Cross Poker that are based on traditional well-known public domain games such as blackjack and poker; however, these proprietary games provide intriguing betting options that offer more excitement and greater volatility to the player, ultimately enhancing our casino customers’ profitability. Our Tornado product is unique in that it allows players to control the spin of the roulette ball by pressing a remote ball activation device. We believe this mechanism enhances player interaction without altering traditional roulette rules and procedures; similarly, our Double Ball Roulette game creates a unique game experience by allowing players to use two balls instead of one.
C. Interactive
Our social gaming products are primarily delivered through our mobile apps, Lucky Play Casino and Vegas Fever . The apps contain several game titles available for consumers to play for fun and with coins that they purchase through the app. Some of our most popular social games include content that is also popular in land-based settings such as Colossal Diamonds , So Hot , and Monkey in the Bank .
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain disclosures required
F-5
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
by generally accepted accounting principles (“GAAP”) are omitted or condensed in these condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) that are necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the interim periods have been made. The interim results reflected in these condensed consolidated financial statements are not necessarily indicative of results to be expected for the full fiscal year. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.
Revenue Recognition
Gaming Operations
Gaming operations revenue is earned by providing customers with gaming machines, gaming machine content licenses, back-office equipment and linked progressive systems, which are collectively referred to as gaming equipment, under participation arrangements. The participation arrangements convey the right to use the equipment (i.e. gaming machines and related integral software) for a stated period of time, which typically ranges from one to three years and then the contract continues on a month-to-month basis thereafter. In some instances, the Company will enter arrangements for longer periods of time; however, the arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders their contracts effectively month-to-month contracts. Primarily due to these factors, our participation arrangements are accounted for as operating leases. In some instances, we will offer a free trial period during which no revenue is recognized. If during or at the conclusion of the trial period the customer chooses to enter into a lease for the gaming equipment, we commence revenue recognition according to the terms of the agreement.
Under participation arrangements, the Company retains ownership of the gaming equipment installed at the customer facilities and receives either revenue based on a percentage of the win per day generated by the gaming equipment or a daily fee. Thus, in our condensed consolidated financial statements the Company records revenue monthly related to these arrangements and the gaming equipment is recorded in property and equipment, net on our balance sheet and depreciated over the expected life of the gaming equipment.
The majority of the Company’s leases require the Company to provide maintenance throughout the entire term of the lease. In some cases, a performance guarantee exists that, if not met, provides the customer with the right to return the gaming machines to the Company. This performance guarantee is considered a cancellation clause, a
F-6
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
provision which renders their contracts effectively month-to-month contracts. Accordingly, the Company accounts for these contracts in a similar manner with its other operating leases as described above. Whether contractually required or not, the Company develops and provides new gaming titles throughout the life of the lease. Certain arrangements require a portion of the win per day to be retained by the customer to fund facility-specific marketing, advertising and promotions. These amounts retained by the customer reduce the monthly revenue recognized on each arrangement.
Gaming operations revenue is also earned from the licensing of table product content and is earned and recognized on a fixed monthly rate. Our social gaming products earn revenue from the sale of virtual coins or chips, which is recorded when the purchased coins or chips are used by the customer.
Equipment Sales
Revenues from the stand-alone product sales or separate accounting units are recorded when:
• | Pervasive evidence of an arrangement exists; |
• | The sales price is fixed or determinable; |
• | Delivery has occurred and services have been rendered; and |
• | Collectability is reasonably assured. |
Equipment sales are generated from the sale of gaming machines and licensing rights to game content software that is installed in the gaming machine, parts, and other ancillary equipment. Also included within the deliverables are delivery, installation and training, all of which occur within a few days of arriving at the customer location. Gaming equipment sales do not include maintenance beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as title and risk of loss have passed to the customer and all other revenue recognition criteria have been satisfied. As the combination of game content software and the tangible gaming device function together to deliver the product’s essential functionality, revenue from the sale of gaming devices is recognized under general revenue recognition guidance.
The Company enters into revenue arrangements that may consist of multiple deliverables of its products.
For example, gaming equipment arrangements may include the sale of gaming machines and game content conversion kits.
Revenue associated with arrangements with multiple deliverables is allocated to separate units of accounting if (1) the deliverables have value to the customer on a stand-alone basis or (2) the arrangement includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially in the control of the Company.
At the inception of a multiple element arrangement, fees under the arrangement are allocated to deliverables based on their relative selling price. When applying the relative selling price method, a hierarchy is used for estimating the selling price based first on vendor-specific objective evidence (“VSOE”), then third-party evidence (“TPE”) and finally management’s estimate of the selling price (“ESP”). Revenue for each unit of accounting is recognized when the relevant recognition criteria for each respective element has been met.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of 90 days or less.
F-7
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Restricted Cash
Restricted cash amounts represent funds held in escrow as collateral for the Company’s surety bonds for various gaming authorities and funds held to ensure the availability of funds to pay wide-area progressive jackpot awards.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts related to accounts receivable deemed to have a high risk of collectability. The Company reviews the accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers’ payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes, and the Company has concentrations of credit risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for accounts receivable.
Inventories
Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment as well as EGMs in production and finished goods held for sale. Inventories are stated at net realizable value. Cost of inventories is determined using the first-in, first-out (“FIFO”) method for all components of inventory. The Company regularly reviews inventory quantities and updates estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value.
Property and Equipment
The cost of gaming equipment, consisting of gaming equipment as well as other property and equipment, is depreciated over their estimated useful lives, using the straight-line method for financial reporting. The Company capitalizes costs incurred for the refurbishment of used gaming equipment that is typically incurred to refurbish a machine in order to return it to its customer location. The refurbishments extend the life of the gaming equipment beyond the original useful life. Repairs and maintenance costs are expensed as incurred. The Company routinely evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:
Gaming equipment |
3 to 6 years | |||
Other property and equipment |
1 to 6 years |
The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The Company groups long-lived assets for impairment analysis at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, which is typically at the individual gaming machine level or at the cabinet product line level. Impairment testing is performed and losses are estimated when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount.
F-8
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
When the estimated undiscounted cash flows are not sufficient to recover the asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.
The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. The Company’s policy is to impair, when necessary, excess or obsolete gaming machines on hand that it does not expect to be used. Impairment is based upon several factors, including estimated forecast of gaming machine demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition.
Intangible Assets
The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount.
When the estimated undiscounted cash flows are not sufficient to recover the intangible asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.
Certain trade names have an indefinite useful life and the Company tests these trade names for possible impairment at least annually, as of October 1, or whenever events or changes in circumstances indicate that the carrying value may be impaired. We perform a qualitative assessment to determine if it is more likely than not that the fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than not that the fair value of the asset is less than its carrying amount, the quantitative impairment test is required.
Costs of Computer Software
Internally developed gaming software represents the Company’s internal costs to develop gaming titles to utilize on the Company’s gaming machines. Internally developed gaming software is stated at cost and amortized over the estimated useful lives of the software, using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. The computer software we develop reaches technological feasibility when a working model of the computer software is available. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software development costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.
On a quarterly basis, or more frequently if circumstances warrant, the Company compares the net book value of its internally developed computer software to the net realizable value on a title or group of title basis. The net realizable value is determined based upon certain assumptions, including the expected future revenues and net cash flows of the gaming titles or group of gaming titles utilizing that software, if applicable.
Goodwill
The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. The Company tests for possible impairment of goodwill at least
F-9
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
annually, on October 1, or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0”, to determine whether it is more likely than not that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than not that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value. As of September 30, 2017, there were no indicators of impairment.
Acquisition Accounting
The Company applies the provisions of ASC 805, “ Business Combinations ” (ASC 805), in accounting for business acquisitions. It requires us to recognize separately from goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Fair Value of Financial Instruments
The Company applies the provisions of ASC 820, “ Fair Value Measurements ” (ASC 820) to its financial assets and liabilities. Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC 820 also established a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:
• | Level 1—quoted prices in an active market for identical assets or liabilities; |
• | Level 2—quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means; and |
• | Level 3—valuation methodology with unobservable inputs that are significant to the fair value measurement. |
The carrying values of the Company’s cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments. The fair value of our long-term debt is based on the quoted market prices for similar issues (Level 2 inputs). The estimated fair value of our long-term debt as of December 31, 2016 and September 30, 2017 was $557.8 million and $603.4 million, respectively.
F-10
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Accounting for Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that included the enactment date. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than not, and a valuation allowance is established for deferred tax assets which do not meet this threshold.
Contingencies
The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from management’s estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.
Foreign Currency Translation
The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars at the period end rate of exchange for asset and liability accounts and the weighted average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of other accumulated comprehensive loss in stockholders’ equity.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued an accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which clarifies the principles for recognizing revenue from contracts with customers. The amendment outlines a single comprehensive model for entities to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which deferred the effective date of ASU 2014-09 to annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The ASU may be adopted using either a full retrospective transition method or a modified retrospective transition method and will be adopted by the Company on January 1, 2018. The Company will use the modified retrospective application approach and does not expect adoption of the new revenue standards to have a material impact on its consolidated financial statements as the majority of our revenue is recognized under lease accounting guidance.
In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory . ASU 2015-11 changes the criteria for measuring inventory within the scope of the ASU. Inventory will now be measured at net realizable value, while the concept of market value will be eliminated. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. This ASU did not have a material effect on our financial condition, results of operations or cash flows.
F-11
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 intends to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is expected to result in a significant portion of our operating leases, where we are the lessee, to be recognized on our Consolidated Balance Sheets. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with earlier adoption permitted. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) . ASU 2016-15 intends to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the provisions of ASU 2016-15 to have a material effect on our financial condition, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business . The new guidance clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350) : Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. We adopted this guidance prospectively at the beginning of first quarter 2017, which will simplify our future goodwill impairment testing.
We do not expect that any other recently issued accounting guidance will have a significant effect on our financial statements.
NOTE 2. ACQUISITIONS
Intellectual Property Acquisitions
During the quarter ended September 30, 2017, the Company acquired certain intangible assets related to the purchase of table games and table game related intellectual property. The acquisition was accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our preliminary estimates of their fair values at the acquisition date. The estimated fair values of assets acquired and liabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis. We attribute the goodwill acquired to our ability to commercialize the products over our distribution and sales network, opportunities for synergies, and other strategic benefits. Total consideration of $9.5 million included an estimated $2.5 million of contingent consideration that is payable upon the achievement of certain targets and periodically based on a percentage of product revenue earned on the purchased table games. The consideration was allocated primarily to tax deductible goodwill for $4.4 million and intangible assets of $4.2 million, which will be amortized over a weighted average period of approximately 9 years.
F-12
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The contingent consideration was valued using scenario-based methods (level 3 fair value measurement) that account for the expected timing of payments to be made and discounted using an estimated borrowing rate. The borrowing rate utilized for this purpose was developed with reference to the Company’s existing borrowing rates, adjusted for the facts and circumstances related to the contingent consideration.
The intangible assets consist of a primary asset that includes the intellectual property acquired, which asset represents the majority of the intangible asset value. This intellectual property was valued using the excess earnings method (level 3 fair value measurement), which is a risk-adjusted discounted cash flow approach that determines the value of an intangible asset as the present value of the cash flows attributable to such asset after excluding the proportion of the cash flows that are attributable to other assets. The contribution to the cash flows that are made by other assets—such as working capital, workforce and other intangible assets—was estimated through contributory asset capital charges. The value of the acquired intellectual property is the present value of the attributed post-tax cash flows, net of the post-tax return on fair value attributed to the other assets.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31,
2016 |
September 30,
2017 |
|||||||
Gaming equipment |
$ | 108,635 | $ | 125,082 | ||||
Other property and equipment |
13,900 | 16,325 | ||||||
Less: Accumulated depreciation |
(54,609 | ) | (65,946 | ) | ||||
|
|
|
|
|||||
Total property and equipment, net |
$ | 67,926 | $ | 75,461 | ||||
|
|
|
|
Gaming equipment and other property and equipment are depreciated over the respective useful lives of the assets ranging from one to six years. Depreciation expense was $6.5 million and $7.1 million for the three months ended September 30, 2016 and 2017, respectively. Depreciation expense was $21.0 million and $19.9 million for the nine months ended September 30, 2016 and 2017, respectively.
NOTE 4. GOODWILL AND INTANGIBLES
There were no accumulated impairments of goodwill as of September 30, 2017. Changes in the carrying amount of goodwill are as follows (in thousands):
Gross Carrying Amount | ||||||||||||||||
EGM | Table Products | Interactive | Total | |||||||||||||
Balance at December 31, 2016 |
$ | 242,796 | $ | 3,400 | $ | 4,828 | $ | 251,024 | ||||||||
Foreign currency adjustments |
2,380 | — | — | 2,380 | ||||||||||||
Acquisition |
— | 4,441 | — | 4,441 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2017 |
$ | 245,176 | $ | 7,841 | $ | 4,828 | $ | 257,845 | ||||||||
|
|
|
|
|
|
|
|
F-13
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Intangible assets consist of the following (in thousands):
December 31, 2016 | September 30, 2017 | |||||||||||||||||||||||||
Useful
Life
|
Gross
Value |
Accumulated
Amortization |
Net
Carrying Value |
Gross
Value |
Accumulated
Amortization |
Net
Carrying Value |
||||||||||||||||||||
Indefinite lived trade names |
Indefinite | $ | 12,126 | $ | — | $ | 12,126 | $ | 12,126 | $ | — | $ | 12,126 | |||||||||||||
Trade and brand names |
3 - 5 | 13,600 | (4,671 | ) | 8,929 | 13,800 | (6,883 | ) | 6,917 | |||||||||||||||||
Customer relationships |
5 - 12 | 165,078 | (49,528 | ) | 115,550 | 167,410 | (64,857 | ) | 102,553 | |||||||||||||||||
Contract rights under development and placement fees |
1 - 7 | 16,488 | (5,235 | ) | 11,253 | 16,692 | (8,728 | ) | 7,964 | |||||||||||||||||
Gaming software and technology platforms |
2 - 7 | 123,596 | (49,014 | ) | 74,582 | 133,143 | (63,356 | ) | 69,787 | |||||||||||||||||
Intellectual property |
3 - 10 | 12,780 | (2,343 | ) | 10,437 | 15,880 | (3,459 | ) | 12,421 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 343,668 | $ | (110,791 | ) | $ | 232,877 | $ | 359,051 | $ | (147,283 | ) | $ | 211,768 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are amortized over their respective estimated useful lives ranging from one to twelve years. Amortization expense related to intangible assets was $12.9 million and $9.9 million for the three months ended September 30, 2016 and 2017, respectively. Amortization expense related to intangible assets was $39.5 million and $33.7 million for the nine months ended September 30, 2016 and 2017, respectively.
The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are not reimbursed. For development agreements in the form of a loan, interest income is recognized on the repayment of the notes based on the stated rate or, if not stated explicitly in the development agreement, on an imputed interest rate. If the stated interest rate is deemed to be other than a market rate or zero, a discount is recorded on the note receivable as a result of the difference between the stated and market rate and a corresponding intangible asset is recorded. The intangible asset is recognized in the financial statements as a contract right under development agreement and amortized as a reduction in revenue over the term of the agreement. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of $1.2 million and $1.2 million for the three months ended September 30, 2016 and 2017, respectively. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of $3.5 million and $3.5 million for the nine months ended September 30, 2016 and 2017, respectively.
F-14
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
December 31,
2016 |
September 30,
2017 |
|||||||
Salary and payroll tax accrual |
$ | 6,594 | $ | 6,601 | ||||
Taxes payable |
2,128 | 2,790 | ||||||
Accrued interest |
2 | 4,064 | ||||||
License fee obligation |
— | 1,000 | ||||||
Placement fees payable |
4,000 | 4,000 | ||||||
Accrued other |
4,978 | 4,550 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 17,702 | $ | 23,005 | ||||
|
|
|
|
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
2016 |
September 30,
2017 |
|||||||
First Lien Credit Facilities: |
||||||||
Term loans, interest at LIBOR or base rate plus 5.50% (6.74% at September 30, 2017), net of unamortized discount and deferred loan costs of $13.7 million at September 30, 2017. |
$ | — | $ | 435,150 | ||||
Senior secured PIK notes, net of unamortized discount and deferred loan costs of $3.5 million and $3.2 million at December 31, 2016 and September 30, 2017, respectively. |
133,286 | 141,328 | ||||||
Equipment long-term note payable and capital leases |
4,792 | 3,264 | ||||||
Senior secured credit facilities: |
||||||||
Term loans, interest at LIBOR or base rate plus 8.25% , net of unamortized discount and deferred loan costs of $15.1 million at December 31, 2016. |
395,581 | — | ||||||
Seller notes |
20,116 | — | ||||||
|
|
|
|
|||||
Total debt |
553,775 | 579,742 | ||||||
Less: Current portion |
(6,537 | ) | (6,674 | ) | ||||
|
|
|
|
|||||
Long-term debt |
$ | 547,238 | $ | 573,068 | ||||
|
|
|
|
First Lien Credit Facilities
On June 6, 2017 (the “Closing Date”), AP Gaming I, LLC (the “Borrower”), a wholly owned indirect subsidiary of the Company, entered into a first lien credit agreement, providing for $450.0 million in term loans and a $30.0 million revolving credit facility (the “First Lien Credit Facilities”). The proceeds of the term loans were used primarily to repay the Existing Credit Facilities (as defined below), the AGS Seller Notes (as defined below) and the Amaya Seller Note (as defined below), to pay for the fees and expenses incurred in connection with the foregoing and otherwise for general corporate purposes.
The term loans will mature on February 15, 2024, and the revolving credit facility will mature on June 6, 2022. Starting with the first full quarter after the Closing Date, the term loans require scheduled quarterly payments in
F-15
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity. Borrowings under the term loans bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. Borrowings under the revolving credit facility bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate plus an applicable margin rate. In addition, on a quarterly basis, the Borrower is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.
The First Lien Credit Facilities are guaranteed by AP Gaming Holdings, LLC, the Borrower’s material, wholly owned domestic subsidiaries (subject to certain exceptions), and are secured by a pledge by AP Gaming Holdings, LLC of the Borrower’s equity interest directly held by AP Gaming Holdings, LLC and a pledge of substantially all of the existing and future property and assets of the Borrower and the subsidiary guarantors, subject to certain exceptions. The First Lien Credit Facilities require that the Borrower maintain a maximum net first lien leverage ratio set at a maximum of 6.0 to 1.0.
The First Lien Credit Facilities also contain customary affirmative covenants and negative covenants that limit our ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) create liens on certain assets; (iii) make certain loans or investments (including acquisitions); (iv) pay dividends on or make distributions in respect of our capital stock or make other restricted payments; (v) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; (vi) sell assets; (vii) enter into certain transactions with our affiliates; (viii) enter into sale-leaseback transactions; (ix) change our lines of business; (x) restrict dividends from our subsidiaries or restrict liens; (xi) change our fiscal year; and (xii) modify the terms of certain debt or organizational agreements. The new senior secured credit facilities also contain customary events of default included in similar financing transactions, including, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments.
Amended and Restated Senior Secured PIK Notes
On May 30, 2017, the Company entered into an amended and restated note purchase agreement (the “A&R Note Purchase Agreement”) with AP Gaming Holdings, LLC, as subsidiary guarantor (the “Subsidiary Guarantor”), Deutsche Bank AG, London Branch, as holder (the “Holder”), and Deutsche Bank Trust Company Americas, as collateral agent, which amended and restated the note purchase agreement, dated as of May 29, 2015.
The A&R Note Purchase Agreement governs the Company’s previously issued 11.25% senior secured PIK notes (the “Notes”), $115.0 million of which had been issued to the Holder at an issue price of 97% of the principal amount thereof to the Holder in a private placement exempt from registration under the Securities Act of 1933, as amended. The A&R Note Purchase Agreement extends the maturity of the Notes to May 20, 2024 and modifies the terms of the Notes to, among other things, account for the repayment of the AGS Seller Notes and the Amaya Seller Note.
The Notes remain secured by the Company’s equity in its subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are unconditionally guaranteed by the Subsidiary Guarantor. Interest on the Notes continues to accrue at a rate of 11.25% per annum. The Company may elect to pay interest due on the Notes in cash, by increasing the principal of the outstanding Notes or by issuing new Notes (“PIK interest”) for the entire amount of the interest payment or by paying interest partially in cash and partially in PIK interest. Interest on the Notes accrues from the date of issuance and is payable on the dates described in more detail in the A&R Note Purchase Agreement.
F-16
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Notes contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined, some of which were modified in the A&R Note Purchase Agreement. The Notes also contains customary events of default included in similar transactions, including, among others, failure to make payments when due, acceleration of other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments.
Equipment Long Term Note Payable and Capital Leases
The Company has entered into a financing agreement to purchase certain gaming devices, systems and related equipment and has entered into leases for servers and equipment that are accounted for as capital leases.
Senior Secured Credit Facilities
On June 6, 2017, the Borrower terminated its senior secured credit facilities (the “Existing Credit Facilities”), dated as of December 20, 2013 (as amended as of May 29, 2015 and as of June 1, 2015 and as amended, restated, supplemented or otherwise modified prior to June 6, 2017), by and among the Borrower, the lenders party thereto from time to time and Citicorp North America, Inc., as administrative agent. In connection with the termination, the Borrower repaid all of the outstanding obligations in respect of principal, interest and fees under the Existing Credit Facilities.
On June 6, 2017, net deferred loan costs and discounts totaling $13.9 million related to the Existing Credit Facilities were capitalized and were being amortized over the term of the agreement. In conjunction with the refinancing, approximately $3.3 million of these deferred loan costs and discounts was written off as a portion of the loss on extinguishment and modification of debt and the remainder of these cost will be amortized over the term of the First Lien Credit Facilities. An additional $9.2 million in loan costs and discounts was incurred related to the issuance of the First Lien Credit Facilities. Given the composition of the lender group, certain lenders were accounted for as a debt modification and, as such, $4.8 million in debt issuance costs related to the First Lien Credit Facilities were expensed and included in the loss on extinguishment and modification of debt, the remaining amount was capitalized and will be amortized over the term of the agreement.
Seller Notes
On June 6, 2017, AP Gaming, Inc., a wholly owned subsidiary of the Company terminated two promissory notes issued by AP Gaming, Inc. to AGS Holdings, LLC, in the initial principal amounts of $2.2 million and $3.3 million, respectively (the “AGS Seller Notes”). The AGS Seller Notes had been issued to the previous owners of the Company’s primary operating company. In connection with the termination, the Company caused the repayment all of the outstanding obligations in respect of principal and interest under the AGS Seller Notes.
On the June 6, 2017, the Company terminated a promissory note issued by the Company to Amaya Inc. (the “Amaya Seller Note”) with an initial principal amount of $12.0 million. The Amaya Seller Note had been issued to satisfy the conditions set forth in the stock purchase agreement for Amaya Americas Corporation (“Cadillac Jack”). During the quarter ended March 31, 2017, the Amaya Seller Note was reduced by $5.1 million to settle a clause from the Stock Purchase Agreement allowing for a refund if certain deactivated gaming machines in Mexico were not in operation as of a specified date. In connection with the termination, the Company repaid all outstanding obligations in respect of principal and interest under the Amaya Seller Note.
F-17
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 7. STOCKHOLDERS’ EQUITY
Common Stock
The Company’s common stock consists of two classes: class A voting common stock (“Class A Shares”) and class B non-voting common stock (“Class B Shares”). The holders of the Class A Shares are entitled to one vote per share on all matters to be voted on by the stockholders of the Company. The holders of the Class A Shares have no economic rights or privileges, including rights in liquidation, and have no right to receive dividends or any other distributions. The holders of the Class B Shares have no right to vote on any matter to be voted on by the stockholders of the Company. Each holder of Class B Shares is entitled to share equally, share for share, dividends declared, as well as any distributions to the stockholders, and in the event of the Company’s liquidation, dissolution or winding up, is entitled to share ratably in any remaining assets after payment of or provision for liabilities and the liquidation on preferred stock, if any.
As of September 30, 2017, 109,832 Class B Shares issued to “Management Holder,” as defined in the Securityholders Agreement dated April 28, 2014 (the “Securityholders Agreement”), were outstanding. The Class B Shares were sold to the Management Holder and are not considered issued for accounting purposes as they contain a substantive performance condition, a “Qualified Public Offering”, as defined in the Securityholders Agreement, which must be probable for the Management Holder to benefit from the ownership of the shares. As a result, shares issued to the Management Holder are not considered issued for accounting purposes until such time that the performance condition is probable and the Company has recorded a liability in other long-term liabilities of $1.3 million for the proceeds from the sale of the Class B Shares. No share-based compensation expense for Class B Shares has been recognized and none will be recognized for these shares until the performance condition is considered to be probable.
Class B Shares that are held by a Management Holder are subject to repurchase rights (the “Repurchase Rights”), as outlined in Section 6 of the Securityholders Agreement, that are contingent on the Management Holder’s termination. The Repurchase Rights enable the Company to recover the Class B Shares issued to Management Holders without transferring any appreciation of the fair value of the stock to the Management Holder upon certain terminations of the Management Holder’s employment prior to a “Qualified Public Offering”, as defined in the Securityholders Agreement. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering for “Cause”, as defined in the Securityholders Agreement, or is terminated by such Management Holder without “Good Reason”, as defined in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for the lesser of original cost and fair market value. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering other than as described above and in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for fair market value.
NOTE 8. WRITE DOWNS AND OTHER CHARGES
The Condensed Consolidated Statements of Operations and Comprehensive Loss include various non-routine transactions or consulting and transaction-related fees that have been classified as write downs and other charges.
During the three months ended September 30, 2016, the company recognized $1.9 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition (a level 3 fair value measurement based on a decrease in projected cash flows). The value of the intangible asset was written down to $1.1 million at an interim date and subsequently fully amortized by December 31, 2016. Additionally a write-down of long-lived assets of $1.3 million related to older generation gaming machines (level 3 fair value
F-18
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
measurement based on projected cash flow for the specific assets) in which the long-lived assets were written down to $0, and losses from the disposal of assets of $0.2 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition (level 3 fair value measurements based on expected and probable future realization of the receivable).
During the nine months ended September 30, 2016, the Company recognized $2.2 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition (a level 3 fair value measurement based on a decrease in projected cash flows). The value of the intangible asset was written down to $1.1 million at an interim date and subsequently fully amortized by December 31, 2016. Additionally, a write-down of long-lived assets of $1.3 million related to aged gaming machines (level 3 fair value measurements based on projected cash flows), and losses from the disposal of assets of $0.6 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition.
During the three months ended September 30, 2017, the Company recognized $0.5 million in write-downs and other charges driven by losses from the disposal of assets. During the nine months ended September 30, 2017, the Company recognized $2.7 million in write-downs and other charges driven by losses from the disposal of assets of $3.0 million, the full impairment of certain intangible assets of $0.3 million (level 3 fair value measurement based on projected cash flows for the specific game titles), offset by a fair value adjustment to an acquisition contingent receivable of $0.6 million (level 3 fair value measurements based on projected cash flows). The contingency was resolved in the quarter ending March 31, 2017. See Item 1. “Financial Statements” Note 6 for a detailed discussion regarding the resolution of the contingency described above.
Due to the changing nature of our write downs and other charges, we describe the composition of the balances as opposed to providing a year over year comparison.
NOTE 9. BASIC AND DILUTED INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share in accordance with accounting guidance that requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). Basic EPS is computed by dividing net income (loss) for the period by the weighted average number of shares outstanding during the period. Basic EPS excludes Class A shares and Class B Shares issued to Management Holders until the performance condition or termination event is considered probable (see Note 7). Until such time, the Class B Shares issued to Management Holders will be included in the calculation of diluted EPS using the treasury stock method and are treated as stock options. Diluted EPS is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares that were outstanding during the period. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive. Potentially dilutive common shares include stock options and restricted stock (see Note 11).
There were no potentially dilutive securities for the three and nine months ended September 30, 2017.
Excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2016 was 50,000 restricted shares and 0.3 million stock options, as such securities were anti-dilutive.
Excluded from the calculation of diluted EPS for the three months ended September 30, 2017 was 50,000 restricted shares and 0.2 million stock options, as such securities were anti-dilutive. Excluded from the calculation of diluted EPS for the nine months ended September 30, 2017 was 50,000 restricted shares and 0.3 million stock options, as such securities were anti-dilutive.
F-19
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 10. BENEFIT PLANS
The Company has established a 401(k) plan (the “401(k) Plan”) for its employees. The 401(k) Plan allows employees to contribute a portion of their earnings, and the Company may match a percentage of the contributions on a discretionary basis. The expense associated with the 401(k) Plan for the three months ended September 30, 2016 and 2017, was $0.2 million and $0.2 million, respectively. The expense associated with the 401(k) Plan for the nine months ended September 30, 2016 and 2017, was $0.7 million and $0.8 million, respectively.
On April 28, 2014, the board of directors of the Company approved the 2014 Long-Term Incentive Plan (“LTIP”). Under the LTIP, the Company is authorized to grant nonqualified stock options, rights to purchase Class B Shares, restricted stock, restricted stock units and other awards settleable in, or based upon, Class B Shares to persons who are directors and employees of and consultants to the Company or any of its subsidiaries on the date of the grant. The LTIP will terminate ten years after approval by the board. Subject to adjustments in connection with certain changes in capitalization, the maximum number of Class B Shares that may be delivered pursuant to awards under the LTIP is 1,450,000. As of September 30, 2017, approximately 0.2 million shares remain available for issuance.
NOTE 11. SHARE-BASED COMPENSATION
Stock Options
The Company has granted stock awards to eligible participants under the LTIP. The stock awards include options to purchase the Company’s Class B Shares. These stock options include a combination of service and market conditions, as further described below. In addition, these stock options include a performance vesting condition, a Qualified Public Offering (see Note 7), which was not considered to be probable as of September 30, 2017. As a result, no share-based compensation expense for stock options has been recognized and none will be recognized for these stock awards until the performance condition is considered to be probable. The amount of unrecognized compensation expense associated with stock options was $7.7 million and for restricted stock was $0.5 million at September 30, 2017. When the performance condition is considered probable, the stock awards will vest in accordance with the underlying service and market conditions.
The Company calculated the grant date fair value of stock options that vest over a service period using the Black Scholes model. For stock options that contain a market condition related to the return on investment that the Company’s stockholders achieve, the options were valued using a lattice-based option valuation model. The assumptions used in these calculations are noted in the following table. Expected volatilities are based on implied volatilities from comparable companies. The expected time to liquidity is based on management’s estimate. The risk-free rate is based on the U.S. Treasury yield curve for a term equivalent to the estimated time to liquidity.
Nine months ended
September 30, |
||||||||
2016 | 2017 | |||||||
Option valuation assumptions: |
||||||||
Expected dividend yield |
— | % | — | % | ||||
Expected volatility |
55 | % | 66 | % | ||||
Risk-free interest rate |
1.67 | % | 1.80 | % | ||||
Expected term (in years) |
6.3 | 6.2 |
Stock option awards represent options to purchase Class B Shares and are granted pursuant to the Company’s LTIP, and include options that the Company primarily classifies as Tranche A, Tranche B and Tranche C.
F-20
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Tranche A options are eligible to vest in equal installments of 20% on each of the first five anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability, any such time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. An initial public offering does not qualify as a Change in Control as it relates to the vesting of stock options.
All other option awards are eligible to vest upon the satisfaction of certain performance conditions (collectively, “Performance Options”). Tranche B options are eligible to vest based on achievement of an Investor IRR equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor Investment (as such terms are defined in the Company’s 2014 Long-Term Incentive Plan). Tranche C options are eligible to vest based on achievement of an Investor IRR equal to or in excess of 25%, subject to a minimum cash-on-cash return of 3.0 times the Investor Investment. In the event of a termination of employment without cause or as a result of death or disability, any Performance Options which are outstanding and unvested will remain eligible to vest subject to achievement of such performance targets (without regard to the continued service requirement) until the first anniversary of the date of such termination. As of September 30, 2017, the Company had 0.4 million Performance Options outstanding.
A summary of the changes in stock options outstanding during the nine months ended September 30, 2017, is as follows:
Number of
Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contract Term (years) |
Aggregate
Intrinsic Value |
|||||||||||||
Options outstanding as of December 31, 2016 |
895,100 | $ | 13.35 | |||||||||||||
Granted |
224,750 | $ | 15.91 | |||||||||||||
Canceled |
(35,000 | ) | $ | 16.98 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding as of September 30, 2017 |
1,084,850 | $ | 13.76 | 7.8 | $ | 2,479,475 | ||||||||||
|
|
|
|
|
|
|
|
Restricted Stock
No restricted stock was granted, canceled or forfeited during the nine months ended September 30, 2017. There were no changes to outstanding restricted stock awards during the nine months ended September 30, 2017.
NOTE 12. INCOME TAXES
The Company’s effective income tax rate for the three months ended September 30, 2016, was a benefit of 5.2%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the three months ended September 30, 2016, was primarily due to changes in our valuation allowance on deferred tax assets. The Company’s effective income tax rate for the three months ended September 30, 2017, was an expense of 34.6%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the three months ended September 30, 2017, was primarily due to changes in our valuation allowance on deferred tax assets.
F-21
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company’s effective income tax rate for the nine months ended September 30, 2016, was a benefit of 7.5%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the nine months ended September 30, 2016, was primarily due to an increase in our valuation allowance on deferred tax assets. The Company’s effective income tax rate for the nine months ended September 30, 2017, was an expense of 14.4%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the nine months ended September 30, 2017, was primarily due to changes in our valuation allowance on deferred tax assets.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and Native American laws and regulations that affect both its general commercial relationships with its Native American tribal customers, as well as the products and services provided to them. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. If a potential loss from any claim or legal proceeding is considered reasonably possible, the Company discloses an estimate of the possible loss or range of possible loss, or a statement that such an estimate cannot be made. There are no matters that meet the criteria for disclosure outlined above. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to their pending claims and litigation and may revise their estimates. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial condition.
NOTE 14. OPERATING SEGMENTS
We report our business segment results by segment in accordance with the “management approach.” The management approach designates the internal reporting used by our chief operating decision maker, who is our Chief Executive Officer, for making decisions and assessing performance of our reportable segments.
See Note 1 for a detailed discussion of our three segments. Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its product lines. We evaluate the performance of our operating segments based on revenues and segment adjusted EBITDA.
Segment revenues include leasing, licensing, or selling of products within each reportable segment. Segment adjusted EBITDA includes the revenues and operating expenses from each segment adjusted for depreciation, amortization, write downs and other charges, accretion of placement fees, non-cash stock compensation expense, as well as other costs such as certain acquisitions and integration related costs including restructuring and severance charges; legal and litigation expenses including settlement payments; new jurisdictions and regulatory licensing costs; non-cash charges on capitalized installation and delivery; contract cancellation fees; and other adjustments primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance and other costs deemed to be non-recurring in nature. Revenues in each segment are attributable to third parties and segment operating expenses are directly associated with the product lines included in each segment such as research and development, product approval costs, product-related litigation expenses, sales commissions and other directly-allocable sales expenses. Cost of gaming operations and cost of equipment sales primarily include the cost of products sold, service, manufacturing overhead, shipping and installation.
F-22
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Segment adjusted EBITDA excludes other income and expense, income taxes and certain expenses that are managed outside of the operating segments.
The following provides financial information concerning our reportable segments for the three and nine months ended September 30,:
Three months ended
September 30, |
Nine months ended
September 30, |
|||||||||||||||
2016 | 2017 | 2016 | 2017 | |||||||||||||
Revenues by segment |
||||||||||||||||
EGM |
$ | 38,377 | $ | 53,331 | $ | 116,153 | $ | 145,747 | ||||||||
Table Products |
674 | 1,099 | 2,005 | 2,442 | ||||||||||||
Interactive |
2,157 | 2,010 | 5,903 | 6,105 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Revenues |
$ | 41,208 | $ | 56,440 | $ | 124,061 | $ | 154,294 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA by segment |
||||||||||||||||
EGM |
20,943 | 29,756 | 68,704 | 81,450 | ||||||||||||
Table Products |
(380 | ) | (232 | ) | (1,395 | ) | (721 | ) | ||||||||
Interactive |
(607 | ) | (123 | ) | (4,071 | ) | (337 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
19,956 | 29,401 | 63,238 | 80,392 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Write downs and other: |
||||||||||||||||
Loss on disposal of long lived assets |
248 | 490 | 558 | 3,000 | ||||||||||||
Impairment of long lived assets |
4,604 | — | 4,606 | 285 | ||||||||||||
Fair value adjustments to contingent consideration and other items |
(3,000 | ) | — | (3,000 | ) | (630 | ) | |||||||||
Acquisition costs |
— | — | (11 | ) | — | |||||||||||
Depreciation and amortization |
19,419 | 16,931 | 60,527 | 53,598 | ||||||||||||
Accretion of placement fees (1) |
1,190 | 1,192 | 3,538 | 3,492 | ||||||||||||
Acquisitions & integration related costs including restructuring & severance |
2,685 | 71 | 5,034 | 899 | ||||||||||||
Legal & litigation expenses including settlement payments |
361 | 181 | 1,495 | 766 | ||||||||||||
New jurisdictions and regulatory licensing costs |
842 | 567 | 957 | 1,304 | ||||||||||||
Non-cash charge on capitalized installation and delivery |
353 | 359 | 1,193 | 1,284 | ||||||||||||
Non-cash charges and loss on disposition of assets |
285 | — | 2,352 | 686 | ||||||||||||
Other adjustments |
86 | 474 | 1,650 | 2,067 | ||||||||||||
Interest expense |
14,903 | 12,666 | 44,151 | 42,380 | ||||||||||||
Interest income |
(12 | ) | (25 | ) | (51 | ) | (80 | ) | ||||||||
Loss on extinguishment and modification of debt |
— | — | — | 8,129 | ||||||||||||
Other expense (income) |
392 | (467 | ) | 6,314 | (4,805 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
$ | (22,400 | ) | $ | (3,038 | ) | $ | (66,075 | ) | $ | (31,983 | ) | ||||
|
|
|
|
|
|
|
|
(1) | Non-cash item related to the accretion of contract rights under development agreements and placement fees. |
F-23
PLAYAGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company’s Chief Operating Decision Maker (the CODM) does not receive a report with a measure of total assets or capital expenditures for each reportable segment as this information is not used for the evaluation of segment performance. The CODM assesses the performance of each segment based on adjusted EBITDA and not based on assets or capital expenditures due to the fact that two of the Company’s reportable segments, Table Products and Interactive, are not capital intensive. Any capital expenditure information is provided to the CODM on a consolidated basis. Therefore, the Company has not provided asset and capital expenditure information by reportable segment.
F-24
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of PlayAGS, Inc.
In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of operations and comprehensive loss, of changes in stockholders’ equity, and of cash flows present fairly, in all material respects, the financial position of PlayAGS, Inc. (formerly AP Gaming Holdco, Inc.) and its subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for the year ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 6 to the consolidated financial statements, the Company changed the manner in which it presents debt issuance costs in 2016.
/s/ PricewaterhouseCoopers LLP
Las Vegas, Nevada
March 10, 2017
F-25
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
PlayAGS, Inc.
We have audited the accompanying consolidated balance sheet of PlayAGS, Inc. (formerly AP Gaming Holdco, Inc.) (the Company) as of December 31, 2015, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the years ended December 31, 2014 and 2015. Our audits also included the financial statement schedules listed in the Index at item 15(a)2. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of PlayAGS, Inc. as of December 31, 2015, and the consolidated results of its operations and its cash flows for the years ended December 31, 2014 and 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Las Vegas, Nevada
March 9, 2016
F-26
PLAYAGS, INC.
(amounts in thousands, except share and per share data)
December 31, | ||||||||
2015 | 2016 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 35,722 | $ | 17,977 | ||||
Restricted cash |
100 | 100 | ||||||
Accounts receivable, net of allowance of $113 and $1,972, respectively |
23,653 | 24,035 | ||||||
Inventories |
7,087 | 10,729 | ||||||
Prepaid expenses |
4,642 | 2,609 | ||||||
Deposits and other |
2,440 | 3,052 | ||||||
|
|
|
|
|||||
Total current assets |
73,644 | 58,502 | ||||||
|
|
|
|
|||||
Property and equipment, net |
66,699 | 67,926 | ||||||
Goodwill |
253,851 | 251,024 | ||||||
Deferred tax asset |
37 | 9 | ||||||
Intangible assets |
290,356 | 232,877 | ||||||
Other assets |
26,560 | 23,754 | ||||||
|
|
|
|
|||||
Total assets |
$ | 711,147 | $ | 634,092 | ||||
|
|
|
|
|||||
Liabilities and Stockholders’ Equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 4,776 | $ | 8,790 | ||||
Accrued liabilities |
18,254 | 17,702 | ||||||
Current maturities of long-term debt |
6,919 | 6,537 | ||||||
|
|
|
|
|||||
Total current liabilities |
29,949 | 33,029 | ||||||
|
|
|
|
|||||
Long-term debt |
533,290 | 547,238 | ||||||
Deferred tax liability—noncurrent |
15,347 | 6,957 | ||||||
Other long-term liabilities |
32,024 | 30,440 | ||||||
|
|
|
|
|||||
Total liabilities |
610,610 | 617,664 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 14) |
||||||||
Stockholders’ equity |
||||||||
Preferred stock at $0.01 par value; 100,000 shares authorized, no shares issued and outstanding |
— | — | ||||||
Common stock at $0.01 par value; 30,000,100 shares authorized; 100 Class A Shares issued and outstanding at December 31, 2015 and 2016, and 14,931,529 Class B Shares issued and outstanding at December 31, 2015 and 2016. |
149 | 149 | ||||||
Additional paid-in capital |
177,276 | 177,276 | ||||||
Accumulated deficit |
(75,077 | ) | (156,451 | ) | ||||
Accumulated other comprehensive (loss) income |
(1,811 | ) | (4,546 | ) | ||||
|
|
|
|
|||||
Total stockholders’ equity |
100,537 | 16,428 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders’ equity |
$ | 711,147 | $ | 634,092 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-27
PLAYAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(amounts in thousands, except per share data)
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Revenues |
||||||||||||
Gaming operations |
$ | 68,981 | $ | 117,013 | $ | 154,857 | ||||||
Equipment sales |
3,159 | 6,279 | 11,949 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
72,140 | 123,292 | 166,806 | |||||||||
|
|
|
|
|
|
|||||||
Operating expenses |
||||||||||||
Cost of gaming operations (1) |
14,169 | 23,291 | 26,736 | |||||||||
Cost of equipment sales (1) |
1,607 | 1,548 | 6,237 | |||||||||
Selling, general and administrative |
19,456 | 40,088 | 46,108 | |||||||||
Research and development |
4,856 | 14,376 | 21,346 | |||||||||
Write downs and other charges |
7,068 | 11,766 | 3,262 | |||||||||
Depreciation and amortization |
33,405 | 61,662 | 80,181 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
80,561 | 152,731 | 183,870 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(8,421 | ) | (29,439 | ) | (17,064 | ) | ||||||
Other expense (income) |
||||||||||||
Interest expense |
17,235 | 41,642 | 59,963 | |||||||||
Interest income |
(42 | ) | (82 | ) | (57 | ) | ||||||
Other expense (income) |
573 | 3,635 | 7,404 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(26,187 | ) | (74,634 | ) | (84,374 | ) | ||||||
Income tax (expense) benefit |
(2,189 | ) | 36,089 | 3,000 | ||||||||
|
|
|
|
|
|
|||||||
Net loss |
(28,376 | ) | (38,545 | ) | (81,374 | ) | ||||||
Foreign currency translation adjustment |
289 | (2,099 | ) | (2,735 | ) | |||||||
|
|
|
|
|
|
|||||||
Total comprehensive loss |
$ | (28,087 | ) | $ | (40,644 | ) | $ | (84,109 | ) | |||
|
|
|
|
|
|
|||||||
Basic and diluted loss per common share: |
||||||||||||
Basic |
$ | (2.84 | ) | $ | (2.98 | ) | $ | (5.45 | ) | |||
Diluted |
$ | (2.84 | ) | $ | (2.98 | ) | $ | (5.45 | ) | |||
Weighted average common shares outstanding: |
||||||||||||
Basic |
10,000 | 12,918 | 14,932 | |||||||||
Diluted |
10,000 | 12,918 | 14,932 |
(1) | Exclusive of depreciation and amortization |
The accompanying notes are an integral part of these consolidated financial statements.
F-28
PLAYAGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(in thousands)
PlayAGS, Inc. | ||||||||||||||||||||
Common
Stock |
Additional
Paid-in Capital |
Accumulated
Deficit |
Accumulated
Other Comprehensive (Loss) Income |
Total
Stockholders’ Equity |
||||||||||||||||
Balance at January 1, 2014 |
100 | $ | 99,900 | $ | (8,156 | ) | $ | (1 | ) | $ | 91,843 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss |
— | — | (28,376 | ) | — | (28,376 | ) | |||||||||||||
Foreign currency translation adjustment |
— | — | — | 289 | 289 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2014 |
100 | 99,900 | (36,532 | ) | 288 | 63,756 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss |
— | — | (38,545 | ) | — | (38,545 | ) | |||||||||||||
Foreign currency translation adjustment |
— | — | — | (2,099 | ) | (2,099 | ) | |||||||||||||
Issuance of common stock |
49 | 77,376 | — | — | 77,425 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2015 |
149 | 177,276 | (75,077 | ) | (1,811 | ) | 100,537 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss |
— | — | (81,374 | ) | — | (81,374 | ) | |||||||||||||
Foreign currency translation adjustment |
— | — | — | (2,735 | ) | (2,735 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2016 |
149 | $ | 177,276 | $ | (156,451 | ) | $ | (4,546 | ) | $ | 16,428 | |||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-29
PLAYAGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Cash flows from operating activities |
||||||||||||
Net loss |
$ | (28,376 | ) | $ | (38,545 | ) | $ | (81,374 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
33,405 | 61,662 | 80,181 | |||||||||
Accretion of contract rights under development agreements and placement fees |
58 | 496 | 4,702 | |||||||||
Amortization of deferred loan costs and discount |
1,242 | 2,446 | 3,542 | |||||||||
Payment-in-kind interest capitalized |
481 | 8,507 | 15,396 | |||||||||
(Benefit) provision for bad debts |
(450 | ) | 106 | 2,290 | ||||||||
Imputed interest income |
(36 | ) | (18 | ) | — | |||||||
Loss on disposition of assets |
1,936 | 1,439 | 1,149 | |||||||||
Impairment of assets |
2,475 | 4,989 | 4,749 | |||||||||
Provision (benefit) of deferred income tax |
2,189 | (38,645 | ) | (7,998 | ) | |||||||
Changes in assets and liabilities that relate to operations: |
||||||||||||
Accounts receivable |
(973 | ) | (342 | ) | (3,191 | ) | ||||||
Inventories |
806 | 1,144 | 307 | |||||||||
Prepaid expenses |
(1,349 | ) | (1,466 | ) | 2,021 | |||||||
Deposits and other |
(241 | ) | 11,531 | (315 | ) | |||||||
Other assets, non-current |
(1,476 | ) | 869 | 467 | ||||||||
Accounts payable and accrued liabilities |
2,791 | (4,770 | ) | 12,567 | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) operating activities |
12,482 | 9,403 | 34,493 | |||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities |
||||||||||||
Business acquisitions, net of cash acquired |
(10,345 | ) | (374,347 | ) | — | |||||||
Collection of notes receivable |
205 | 323 | — | |||||||||
Change in Canadian tax receivable |
(154 | ) | — | — | ||||||||
Purchase of intangible assets |
(9,259 | ) | (6,102 | ) | (1,311 | ) | ||||||
Software development and other expenditures |
(5,127 | ) | (6,476 | ) | (6,526 | ) | ||||||
Proceeds from disposition of assets |
569 | 29 | 87 | |||||||||
Purchases of property and equipment |
(9,811 | ) | (15,277 | ) | (32,879 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(33,922 | ) | (401,850 | ) | (40,629 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities |
||||||||||||
Borrowings under the revolving facility |
10,000 | 11,500 | — | |||||||||
Repayments under the revolving facility |
— | (21,500 | ) | — | ||||||||
Proceeds from issuance of debt |
— | 369,400 | — | |||||||||
Payments on debt |
(2,036 | ) | (4,743 | ) | (6,987 | ) | ||||||
Payment of previous acquisition obligation |
— | (10,000 | ) | (1,125 | ) | |||||||
Payment of financed placement fee obligations |
— | — | (3,516 | ) | ||||||||
Repurchase of shares issued to management |
— | (1,277 | ) | (50 | ) | |||||||
Proceeds from issuance of common stock |
— | 77,425 | — | |||||||||
Proceeds from employees in advance of common stock issuance |
1,969 | 579 | 75 | |||||||||
Payment of deferred loan costs |
(73 | ) | (3,837 | ) | — | |||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) financing activities |
9,860 | 417,547 | (11,603 | ) | ||||||||
Effect of exchange rates on cash and cash equivalents |
518 | (58 | ) | (6 | ) | |||||||
|
|
|
|
|
|
|||||||
(Decrease) increase in cash and cash equivalents |
(11,062 | ) | 25,042 | (17,745 | ) | |||||||
Cash and cash equivalents, beginning of period |
21,742 | 10,680 | 35,722 | |||||||||
|
|
|
|
|
|
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Cash and cash equivalents, end of period |
$ | 10,680 | $ | 35,722 | $ | 17,977 | ||||||
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|
|
|
|
|
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Supplemental cash flow information: |
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Cash paid during the period for interest |
$ | 15,315 | $ | 30,203 | $ | 40,060 | ||||||
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|
|
|
|
|
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Cash paid during the period for taxes |
$ | — | $ | 840 | $ | 1,247 | ||||||
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|
|
|
|
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Non-cash investing and financing activities: |
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Non-cash consideration given in business acquisitions |
$ | 11,500 | $ | 17,233 | $ | — | ||||||
|
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|
|
|
|
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Financed placement fees |
$ | — | $ | 12,391 | $ | — | ||||||
|
|
|
|
|
|
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Financed purchase property and equipment |
$ | 2,717 | $ | 5,800 | $ | 2,662 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-30
PLAYAGS, INC.
NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
PlayAGS, Inc. (formerly AP Gaming Holdco, Inc.) (the “Company,” “AP Gaming,” “we,” “us,” or “our”) is a leading designer and supplier of gaming products and services for the gaming industry. We operate in legalized gaming markets across the globe and provide state-of-the-art, value-add products in three distinct segments: Electronic Gaming Machines (“EGM”), which includes server-based systems and back-office systems that are used by Class II Native American and Mexican gaming jurisdictions and Class III Native American, commercial and charity jurisdictions; Table Products (“Table Products”), which includes live felt table games, side-bets and progressives as well as our newly introduced card shuffler, “DEX”; and Interactive Social Casino Games (“Interactive”), which provides social casino games on desktop and mobile devices. Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of a distinct product line.
The Company filed a Registration Statement on Form 10 on December 12/19/2013, which went effective under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on December 19, 2013.
Electronic Gaming Machines
Our EGM segment offers a selection of video slot titles developed for the global marketplace, which currently includes ICON , Halo , Colossal Diamonds cabinet (“ Big Red ”), and Orion . In addition to providing complete EGM units, we offer conversion kits that allow existing game titles to be converted to other game titles offered within that operating platform.
Table Products
Our table products include live proprietary table products and side-bets, as well as ancillary table products. Products include both internally developed and acquired proprietary table products, side-bets, and table technology related to blackjack, poker, baccarat, craps and roulette. We have acquired a number of popular brands, including In-Bet, Buster Blackjack, Double Draw Poker and Criss Cross Poker that are based on traditional well-known public domain games such as blackjack and poker; however, these proprietary games provide intriguing betting options that offer more excitement and greater volatility to the player, ultimately enhancing our casino customers’ profitability. Our Tornado product is unique in that it allows players to control the spin of the roulette ball by pressing a remote ball activation device. We believe this mechanism enhances player interaction without altering traditional roulette rules and procedures; similarly, our Double Ball Roulette game creates a unique game experience by allowing players to use two balls instead of one.
Interactive
Our social gaming products are primarily delivered through our mobile apps, Lucky Play Casino and Vegas Fever . The apps contain several game titles available for consumers to play for fun and with coins that they purchase through the app. Some of our most popular social games include content that is also popular in land-based settings such as Colossal Diamonds , So Hot , and Monkey in the Bank .
Principles of Consolidation
The accompanying consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts in the consolidated financial statements for the previous years have been reclassified to be consistent with the current year presentation. These reclassifications had no effect on the previously reported net loss.
F-31
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.
Revenue Recognition
Gaming Operations
Gaming operations revenue is earned by providing customers with gaming machines, gaming machine content licenses, back-office equipment and linked progressive systems, which are collectively referred to as gaming equipment, under participation arrangements. The participation arrangements convey the right to use the equipment (i.e. gaming machines and related integral software) for a stated period of time, which typically ranges from one to three years and then the contract continues on a month-to-month basis thereafter. In some instances, the Company will enter arrangements for longer periods of time; however, many of these arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders their contracts effectively month-to-month contracts. Primarily due to these factors, our participation arrangements are accounted for as operating leases. In some instances, we will offer a free trial period during which no revenue is recognized. If during or at the conclusion of the trial period the customer chooses to enter into a lease for the gaming equipment, we commence revenue recognition according to the terms of the agreement.
Under participation arrangements, the Company retains ownership of the gaming equipment installed at the customer facilities and receives either revenue based on a percentage of the win per day generated by the gaming equipment or a daily fee. Thus, in our consolidated financial statements the Company records revenue monthly related to these arrangements and the gaming equipment is recorded in property and equipment, net on our balance sheet and depreciated over the expected life of the gaming equipment.
The majority of the Company’s leases require the Company to provide maintenance throughout the entire term of the lease. In some cases, a performance guarantee exists that, if not met, provides the customer with the right to return the gaming machines to the Company. This performance guarantee is considered a cancellation clause, a provision which renders their contracts effectively month-to-month contracts. Accordingly, the Company accounts for these contract in a similar manner with its other operating leases as described above. Whether contractually required or not, the Company develops and provides new gaming titles throughout the life of the lease. Certain arrangements require a portion of the win per day to be retained by the customer to fund facility-specific marketing, advertising and promotions. These amounts retained by the customer reduce the monthly revenue recognized on each arrangement.
Gaming operations revenue is also earned from the licensing of table product content and is earned and recognized on a fixed monthly rate. Our social gaming products earn revenue from the sale of virtual coins or chips, which is recorded when the purchased coins or chips are used by the customer.
Equipment Sales
Revenues from the stand-alone product sales or separate accounting units are recorded when:
• | Pervasive evidence of an arrangement exists; |
F-32
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
• | The sales price is fixed or determinable; |
• | Delivery has occurred and services have been rendered; and |
• | Collectability is reasonably assured. |
Equipment sales are generated from the sale of gaming machines and licensing rights to game content software that is installed in the gaming machine, parts, and other ancillary equipment. Also included within the deliverables are delivery, installation and training, all of which occur within a few days of arriving at the customer location. Gaming equipment sales do not include maintenance beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as title and risk of loss have passed to the customer and all other revenue recognition criteria have been satisfied. As the combination of game content software and the tangible gaming device function together to deliver the product’s essential functionality, revenue from the sale of gaming devices is recognized under U.S. GAAP revenue recognition guidance.
The Company enters into revenue arrangements that may consist of multiple deliverables of its products. For example, gaming equipment arrangements may include the sale of gaming machines and game content conversion kits.
Revenue associated with arrangements with multiple deliverables is allocated to separate units of accounting if (1) the deliverables have value to the customer on a stand-alone basis or (2) the arrangement includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially in the control of the Company.
At the inception of a multiple element arrangement, fees under the arrangement are allocated to deliverables based on their relative selling price. When applying the relative selling price method, a hierarchy is used for estimating the selling price based first on vendor-specific objective evidence (“VSOE”), then third-party evidence (“TPE”) and finally management’s estimate of the selling price (“ESP”). Revenue for each unit of accounting is recognized when the relevant recognition criteria for each respective element has been met.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of 90 days or less.
Restricted Cash
Restricted cash amounts represent funds held in escrow as collateral for the Company’s surety bonds for various gaming authorities and funds held to ensure the availability of funds to pay wide-area progressive jackpot awards.
Receivables, Allowance for Doubtful Accounts
Accounts receivable are stated at face value less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts related to accounts receivable and notes receivable, which are non-interest bearing, deemed to have a high risk of collectability. The Company reviews the accounts receivable and notes receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers’ payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes and the Company has concentrations of credit
F-33
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for both accounts and notes receivable.
The following provides financial information concerning the change in our allowance for doubtful accounts (in thousands):
Allowance for Accounts Receivables
Year ended December 31, 2014 |
||||||||||||||||||||
Beginning
Balance |
Charge-offs | Recoveries | Provision |
Ending
Balance |
||||||||||||||||
Accounts receivable, current |
$ | 9 | $ | (36 | ) | $ | — | $ | 56 | $ | 29 |
Allowance for Accounts Receivables
Year ended December 31, 2015 |
||||||||||||||||||||
Beginning
Balance |
Charge-offs | Recoveries | Provision |
Ending
Balance |
||||||||||||||||
Accounts receivable, current |
$ | 29 | $ | (22 | ) | $ | — | $ | 106 | $ | 113 |
Allowance for Accounts Receivables
Year ended December 31, 2016 |
||||||||||||||||||||
Beginning
Balance |
Charge-offs | Recoveries | Provision |
Ending
Balance |
||||||||||||||||
Accounts receivable, current |
$ | 113 | $ | (431 | ) | $ | — | $ | 2,290 | $ | 1,972 |
Inventories
Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment. Inventories are stated at the lower of cost or market. Cost of inventories is determined using the first-in, first-out (“FIFO”) method for all components of inventory. The Company regularly reviews inventory quantities and updates estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value.
Property and Equipment
The cost of gaming equipment, consisting of fixed-base player terminals, file servers and other support equipment as well as other property and equipment, is depreciated over their estimated useful lives, using the straight-line method for financial reporting. The Company capitalizes costs incurred for the refurbishment of used gaming equipment that is typically incurred to refurbish a machine in order to return it to its customer location. The refurbishments extend the life of the gaming equipment beyond the original useful life. Repairs and maintenance costs are expensed as incurred. The Company routinely evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:
Gaming equipment |
3 to 6 years | |||
Other property and equipment |
3 to 6 years |
The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The Company
F-34
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
groups long-lived assets for impairment analysis at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, which is typically at the individual gaming machine level or at the cabinet product line level. Impairment testing is performed and losses are estimated when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount.
When the estimated undiscounted cash flows are not sufficient to recover the asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.
The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. The Company’s policy is to impair, when necessary, excess or obsolete gaming machines on hand that it does not expect to be used. Impairment is based upon several factors, including estimated forecast of gaming machine demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition.
Intangible Assets
The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount.
When the estimated undiscounted cash flows are not sufficient to recover the intangible asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.
Certain trade names have an indefinite useful life and the Company tests these trade names for possible impairment at least annually, on October 1, or whenever events or changes in circumstances indicate that the carrying value may be impaired. We perform a qualitative assessment to determine if it is more likely than not that the fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than not that the fair value of the asset is less than its carrying amount, the quantitative impairment test is required.
Costs of Computer Software
Internally developed gaming software represents the Company’s internal costs to develop gaming titles to utilize on the Company’s gaming machines. Internally developed gaming software is stated at cost and amortized over the estimated useful lives of the software, using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. The computer software we develop reaches technological feasibility when a working model of the computer software is available. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software development costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.
On a quarterly basis, or more frequently if circumstances warrant, the Company compares the net book value of its internally developed computer software to the net realizable value on a title or group of title basis. The net realizable value is determined based upon certain assumptions, including the expected future revenues and net cash flows of the gaming titles or group of gaming titles utilizing that software, if applicable.
F-35
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Goodwill
The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. The Company tests for possible impairment of goodwill at least annually, on October 1, or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0”, to determine whether it is more likely than not that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than not that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value.
Acquisition Accounting
The Company applies the provisions of ASC 805, “ Business Combinations” (ASC 805), in accounting for business acquisitions. It requires us to recognize separately from goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Fair Value of Financial Instruments
The Company applies the provisions of ASC 820, “ Fair Value Measurements ” (ASC 820) to its financial assets and liabilities. Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC 820 also established a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:
• | Level 1—quoted prices in an active market for identical assets or liabilities; |
• | Level 2—quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means; and |
• | Level 3—valuation methodology with unobservable inputs that are significant to the fair value measurement. |
The carrying values of the Company’s cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments. The fair value of our long-term debt is based on the quoted market prices for similar issues (Level 2 inputs). The estimated fair value of our long-term debt was $529.2 million and $557.8 million as of December 31, 2015 and 2016, respectively.
F-36
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounting for Income Taxes
We conduct business globally and are subject to income taxes in U.S. federal, state, local, and foreign jurisdictions. Determination of the appropriate amount and classification of income taxes depends on several factors, including estimates of the timing and probability of realization of deferred income taxes, reserves for uncertain income tax positions and income tax payment timing.
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Taxes on income of our foreign subsidiaries are provided at the tax rates applicable to the tax jurisdictions in which they are located. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than not and a valuation allowance is established for deferred tax assets which do not meet this threshold.
The recoverability of certain deferred tax assets is based in part on estimates of future income and the timing of temporary differences, and the failure to fully realize such deferred tax assets could result in a higher tax provision in future periods.
We apply the accounting guidance to our uncertain tax positions and under the guidance, we may recognize a tax benefit from an uncertain position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized in the financial statements is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement.
We are required to make significant judgments when evaluating our uncertain tax positions and the related tax benefits. We believe our assumptions are reasonable; however, there is no guarantee that the final outcome of the related matters will not differ from the amounts reflected in our income tax provisions and accruals. We adjust our liability for uncertain tax positions based on changes in facts and circumstances such as the closing of a tax audit or changes in estimates. Our income tax provision may be impacted to the extent that the final outcome of these tax positions is different than the amounts recorded.
Contingencies
The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from management’s estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and accounts receivable, net. Cash equivalents are investment-grade, short-term debt instruments consisting of treasury bills which are maintained with high credit quality financial institutions under repurchase agreements. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of December 31, 2015 and 2016, the Company did not have cash equivalents.
F-37
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revenue from gaming operations is concentrated in the Class II gaming and casino industry, primarily located in Oklahoma. For the years ended December 31, 2014, 2015 and 2016, approximately 30%, 20% and 15% of our gaming revenue was derived from one customer, respectively. For the years ended December 31, 2014 and 2015, the company did not have a concentration of revenue from Mexico exceeding 10%. For the year ended December 31, 2016, approximately 10% of our gaming revenue was derived in Mexico. Another customer accounted for approximately 10% of our gaming operations revenue for the year ended December 31, 2016, with no concentrations noted for the years ended December 31, 2014 and 2015. The Company had one customer with accounts receivable, net equaling approximately 10% of total outstanding accounts receivable, net at December 31, 2016 and none at December 31, 2014 and 2015.
Foreign Currency Translation
The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars at the period end rate of exchange for asset and liability accounts and the weighted average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of accumulated other comprehensive (loss) income in stockholders’ equity.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs for the year ended December 31, 2014, 2015 and 2016 were $0.3 million, $0.2 million and $0.7 million, respectively.
Research and Development
Research and development costs related primarily to software product development costs and is expensed as incurred until technological feasibility has been established. Employee related costs associated with product development are included in research and development.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued an accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which clarifies the principles for recognizing revenue from contracts with customers. The amendment outlines a single comprehensive model for entities to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which deferred the effective date of ASU 2014-09 to annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The ASU may be adopted using either a full retrospective transition method or a modified retrospective transition method and will be adopted by the Company on January 1, 2018. The Company does not expect adoption of the new revenue standards to have a material impact on its consolidated financial statements as the majority of our revenue is recognized under lease accounting guidance.
In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period . The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the
F-38
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
requisite service period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The Company adopted the guidance in the current year and it did not have a material effect on our financial condition, results of operations or cash flows.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern . The ASU requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, consolidated in the aggregate, indicate that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Currently, there is no guidance in U.S. GAAP for management’s responsibility to perform an evaluation. Under the update, management’s evaluation is to be performed when preparing financial statements for each annual and interim reporting period and based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The Company adopted the guidance on January 1, 2016 and it did not have a material effect on our financial condition, results of operations or cash flows.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement-Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items . ASU 2015-01 eliminates from GAAP the concept of extraordinary items. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that were previously classified as extraordinary. ASU 2015-01 is effective for the Company on January 1, 2016, with earlier adoption permitted using either a prospective or retrospective method. This ASU did not have a material effect on our financial condition, results of operations or cash flows.
In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . ASU 2015-03 intends to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU 2015-15 which clarifies that the guidance issued in April 2015 does not apply to line-of-credit arrangements. According to ASU 2015-15, line-of-credit arrangements will continue to present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the arrangement. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company adopted the guidance on January 1, 2016, with retrospective application in the accompanying Condensed Consolidated Balance Sheet at December 31, 2015. This change in accounting principle resulted in net deferred financing costs of $7.8 million incurred in connection with the issuance of the Company’s long-term debt (excluding revolving credit facilities) at December 31, 2015 being reclassified as a direct reduction of the long-term debt balance. The presentation of the net deferred financing costs incurred in connection with the issuance of the Company’s revolving credit facilities as of December 31, 2015, are not affected by the adoption of this new accounting guidance and are included in other assets in the accompanying Consolidated Balance Sheet.
In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory . ASU 2015-11 changes the criteria for measuring inventory within the scope of the ASU. Inventory will now be
F-39
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
measured at the lower of cost and net realizable value, while the concept of market value will be eliminated. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The ASU will be effective for the Company beginning on January 1, 2017. The Company does not expect the provisions of the ASU to have a material effect on our financial condition, results of operations or cash flows.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments . ASU 2015-16 eliminates the requirement to retrospectively apply adjustments made to provisional amounts recognized in a business combination. It requires that an acquirer recognize and disclose adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, which should be calculated as if the accounting had been completed at the acquisition date. The Company adopted the guidance on January 1, 2016. The amendments in this ASU was applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application permitted for financial statements that have not been issued. This guidance did not have a material effect on our financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 intends to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is expected to result in a significant portion of our operating leases, where we are the lessee, to be recognized on our Consolidated Balance Sheets. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with earlier adoption permitted. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) . ASU 2016-15 intends to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the provisions of ASU 2016-15 to have a material effect on our financial condition, results of operations or cash flows.
NOTE 2. ACQUISITIONS
2014 Acquisitions
On May 6, 2014, the Company purchased 100% of the equity of C2 Gaming, LLC (“C2 Gaming”) for $23.3 million in cash, subject to terms outlined in the equity purchase agreement (the “C2 Acquisition Agreement”). C2 Gaming is an innovative manufacturer and developer of EGMs based in Las Vegas, Nevada. The purchase was expected to provide for the distribution of C2 Gaming’s platform and content to an increased number of markets in the United States. The acquisition was funded by an initial cash payment and an agreement to pay the sellers $9.0 million on the one-year anniversary of the closing of the acquisition, which was paid during the quarter ended June 30, 2015. The acquisition also included an amount of contingent consideration of $3.0 million that was payable upon the satisfaction of certain milestones, including the submission and approval of video slot platforms to various jurisdictions as outlined in the C2 Acquisition Agreement.
F-40
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following summarizes the consideration paid for C2 Gaming (in thousands):
Paid at close |
$ | 11,000 | ||
One-year payment |
9,000 | |||
Contingent consideration |
3,000 | |||
Working capital adjustment |
273 | |||
|
|
|||
Total consideration |
$ | 23,273 | ||
|
|
During the year ended December 31, 2014, the Company paid $0.5 million of the contingent consideration. In May 2015, the C2 Acquisition Agreement was amended to reduce the remaining contingent consideration liability of $2.5 million to $2.1 million and to acknowledge that the milestones of the C2 Acquisition Agreement were satisfied. In July 2015, the Company paid $1.0 million of the contingent consideration, reducing the balance to $1.1 million, which was paid in January 2016.
The allocation of the purchase price to the estimated fair values of the assets acquired and the liabilities assumed was as follows (in thousands):
At May 6, 2014 |
||||
Current assets |
$ | 545 | ||
Property and equipment |
534 | |||
Goodwill |
13,744 | |||
Intangible assets |
8,722 | |||
|
|
|||
Total assets |
23,545 | |||
Total liabilities |
272 | |||
|
|
|||
Total equity purchase price |
$ | 23,273 | ||
|
|
Our estimates of the fair values of depreciable tangible assets were as follows (in thousands):
Fair values at
May 6, 2014 |
Average
remaining useful life (in years) |
|||||
Property and equipment |
$ | 534 | 1—5 |
Our estimates of the fair values of identifiable intangible assets were as follows (in thousands):
Fair values at
May 6, 2014 |
Average
remaining useful life (in years) |
|||||
Gaming software and technology platforms |
$ | 3,685 | 3—5 | |||
Customer relationships |
5,037 | 7 | ||||
|
|
|||||
Total intangible assets |
$ | 8,722 | ||||
|
|
The fair value of property and equipment as well as the fair value of gaming content software was determined using cost approaches in which we determined an estimated reproduction or replacement cost, as applicable.
F-41
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimate of the fair value of the acquired gaming software and technology platforms was determined using the relief from royalty method under the income approach, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset.
The estimate of the fair value of the acquired customer relationships was determined using the excess earnings method, which is a risk-adjusted discounted cash flow approach that determines the value of an intangible asset as the present value of the cash flows attributable to such asset after excluding the proportion of the cash flows that are attributable to other assets.
The goodwill recorded as a results of the acquisition is deductible for tax purposes and is attributed to enhanced financial scale, expanded video slot platforms and other strategic benefits. Some of the values and amounts used in the initial application of purchase accounting for our consolidated balance sheet were based on estimates and assumptions.
Cadillac Jack
On May 29, 2015, the Company acquired 100% of the equity of Amaya Americas Corporation (“Cadillac Jack”), a leading provider of Class II gaming machines for the North American tribal gaming market, with key regions of operation within Alabama, Mexico, and Wisconsin. This acquisition is expected to create growth opportunities in Class II and Class III jurisdictions and expands the Company’s geographic footprint with an EGM installed base of approximately 10,500 units. The combined management teams are complementary and possess years of combined experience that is expected to allow us to effectively grow and improve our business.
The acquisition was funded primarily from cash proceeds of incremental borrowings on our existing term loans, the issuance of senior secured PIK notes, as described in Note 6, and the issuance of additional common stock, as described in Note 7. The consideration also included a promissory note to the seller, Amaya Inc., for $12.0 million, as described in Note 6, as well as a contingent receivable that was recorded at its estimated fair value on the date of the acquisition. The contingent receivable is related to a clause in the stock purchase agreement allowing for a refund of up to $25.0 million if certain deactivated gaming machines in Mexico are not in operation by November 29, 2016. As of December 31, 2016 , the estimated fair value of the contingent receivable is recorded in other long-term assets. In the first quarter of 2017, the Company reached an agreement with Amaya, Inc. to receive $5.1 million for this contingent receivable.
The following summarizes the consideration paid for Cadillac Jack (in thousands):
Contractual cash purchase price adjusted for working capital |
$ | 369,760 | ||
Seller note |
12,000 | |||
Contingent receivable |
(1,300 | ) | ||
|
|
|||
Total consideration |
$ | 380,460 | ||
|
|
We have recorded Cadillac Jack’s assets acquired and liabilities assumed based on our estimates of their fair values at the acquisition date. The determination of the fair values of the assets acquired and liabilities assumed (and the related determination of estimated lives of depreciable and amortizable tangible and identifiable intangible assets) requires significant judgment and estimates. The estimates and assumptions used include the projected timing and amount of future cash flows and discount rates that reflect risk inherent in the future cash flows.
F-42
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The allocation of the purchase price to the estimated fair values of the assets acquired and the liabilities assumed was as follows (in thousands):
At
May 29, 2015 |
||||
Currents assets (1) |
$ | 34,871 | ||
Property and equipment |
29,634 | |||
Goodwill |
171,497 | |||
Intangible assets |
199,752 | |||
Other long-term assets |
23,828 | |||
|
|
|||
Total assets |
459,582 | |||
Current liabilities |
8,636 | |||
Deferred tax liability non-current |
51,486 | |||
Other long-term liabilities |
19,000 | |||
|
|
|||
Total equity purchase price |
$ | 380,460 | ||
|
|
(1) | Current assets includes $4.2 million of cash acquired. |
Based on our estimates, the total consideration exceeded the aggregate estimated fair value of the acquired assets and assumed liabilities at the acquisition date and has been recorded as goodwill. We attribute this goodwill to our enhanced financial scale and geographic diversification, opportunities for synergies, assembled workforce and other strategic benefits. None of the goodwill associated with the acquisition is deductible for income tax purposes and, as such, no deferred taxes have been recorded related to goodwill.
We included an estimated value of $8.3 million in current assets above and in deposits and other in the consolidated balance sheet related to the value of stock options held by employees of Cadillac Jack. The stock options entitled the holder to purchase shares of Amaya Inc., the former global parent of Cadillac Jack, based on the holder’s continued employment at Cadillac Jack through the vesting date, which was November 29, 2015.
Our estimates of the fair values of depreciable tangible assets are as follows (in thousands):
Fair values at
May 29, 2015 |
Average
remaining useful life (in years) |
|||||
Gaming equipment |
$ | 23,065 | 1—5 | |||
Other property and equipment |
6,569 | 2—3 | ||||
|
|
|||||
Total property and equipment |
$ | 29,634 | ||||
|
|
Our estimates of the fair values of identifiable intangible assets are as follows (in thousands):
Fair
values at May 29, 2015 |
Average
remaining useful life (in years) |
|||||
Trade names |
$ | 3,000 | 5 | |||
Brand names |
10,600 | 3—5 | ||||
Customer relationships |
107,000 | 5—12 | ||||
Gaming software and technology platforms |
79,152 | 2—7 | ||||
|
|
|||||
Total intangible assets |
$ | 199,752 | ||||
|
|
F-43
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of gaming equipment and other personal property assets as well as the fair value of gaming content software was primarily determined using cost approaches in which we determined an estimated reproduction or replacement cost, as applicable.
The estimated fair values of acquired trade names, brand names and gaming technology platforms was primarily determined using the royalty savings method, which is a risk-adjusted discounted cash flow approach. The gaming technology platforms include $30.0 million of in-process research and development. The royalty savings method values an intangible asset by estimating the royalties saved through ownership of the asset. The royalty savings method requires identifying the future revenue that would be impacted by the trade name or intellectual property (or royalty-free rights to the assets), multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in such valuation was based on a consideration of market rates for similar categories of assets.
The estimated fair values of customer relationships was determined using the excess earnings method, which is a risk-adjusted discounted cash flow approach that determines the value of an intangible asset as the present value of the cash flows attributable to such asset after excluding the proportion of the cash flows that are attributable to other assets. The contribution to the cash flows that are made by other assets—such as fixed assets, working capital, workforce and other intangible assets—was estimated through contributory asset capital charges. The value of the acquired customer relationship asset is the present value of the attributed post-tax cash flows, net of the post-tax return on fair value attributed to the other assets.
The estimated fair value of deferred income taxes was determined by applying the appropriate enacted statutory tax rate to the temporary differences that arose on the differences between the financial reporting value and tax basis of the assets acquired and liabilities assumed. We recorded liabilities for estimated uncertain tax positions in other long-term liabilities and a related indemnification receivable in other long-term assets.
The revenue and net loss of Cadillac Jack from the acquisition date through December 31, 2015, are presented below and are included in our consolidated statements of operations and comprehensive loss. These amounts are not necessarily indicative of the results of operations that Cadillac Jack would have realized if it had continued to operate as a stand-alone company during the period presented, primarily due to the elimination of certain headcount and administrative costs since the acquisition date resulting from integration activities or due to costs that are now reflected in our unallocated corporate costs and not allocated to Cadillac Jack.
From May 29,
2015 through December 31, 2015 |
||||
Revenue |
$ | 46,075 | ||
|
|
|||
Net loss |
$ | 17,133 | ||
|
|
F-44
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following unaudited pro forma statements of operations give effect to the Cadillac Jack acquisition as if it had been completed on January 1, 2014. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the acquisition been completed on January 1, 2014. In addition, the unaudited pro forma financial information does not purport to project future operating results. This information is preliminary in nature and subject to change based on final purchase price adjustments. The pro forma statements of operations do not reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the Cadillac Jack acquisition.
Year ended December 31, | ||||||||
2014 | 2015 | |||||||
Revenue |
$ | 160,341 | $ | 156,110 | ||||
|
|
|
|
|||||
Net loss |
$ | 83,709 | $ | 54,682 | ||||
|
|
|
|
Gamingo Limited
On June 15, 2015, the Company purchased 100% of the equity of Gamingo Limited (formerly known as “RocketPlay”, currently known as “AGSi”), a leading gaming company developing social casino titles for mobile devices. With primary offices in San Francisco and Tel Aviv, AGSi’s flagship product, Lucky Play Casino, gives players a casino-quality experience with EGMs, table products, tournaments, and live events. The total consideration of $8.8 million includes an estimated $5.0 million of contingent consideration that is payable based on the operating results of AGSi during a twelve-month measurement period that ended on December 31, 2016. The amount of the contingent consideration recorded was estimated at the purchase date and is subject to change based on changes in the estimated operating results of AGSi and has been recorded in other long-term liabilities in the consolidated balance sheet. As of December 31, 2015 the recorded value of the contingent consideration was written off in full to write downs and other charges based on the estimated fair value on that date.
We have recorded AGSi’s assets acquired and liabilities assumed based on our preliminary estimates of their fair values at the acquisition date. The allocation of the consideration given was allocated to the estimated fair values of the assets acquired and the liabilities assumed, which primarily included $4.9 million of goodwill and $4.2 million of identifiable intangible assets to be amortized over a weighted average period of 3 years.
Intellectual Property Acquisitions
During the quarter ended September 30, 2015, the Company acquired certain intangible assets related to the purchase of table products and table product related intellectual property. Some of the acquisitions were accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our preliminary estimates of their fair values at the acquisition dates. The total consideration of $10.0 million includes an estimated $1.5 million of contingent consideration that is payable periodically based on a percentage of product revenue earned on the related table products. The amount of the contingent consideration recorded was estimated at the purchase date and is subject to change based on changes in the estimated product revenue and has been recorded in other long-term liabilities in the consolidated balance sheet. The consideration was allocated primarily to goodwill for $3.4 million and intangible assets for $5.7 million, which will be amortized over a weighted average period of 8.5 years.
F-45
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment, net consist of the following (in thousands):
December 31, 2015 | December 31, 2016 | |||||||
Gaming equipment |
$ | 89,361 | $ | 108,635 | ||||
Other property and equipment |
14,976 | 13,900 | ||||||
Less: Accumulated depreciation |
(37,638 | ) | (54,609 | ) | ||||
|
|
|
|
|||||
Total property and equipment, net |
$ | 66,699 | $ | 67,926 | ||||
|
|
|
|
Gaming equipment and other property and equipment are depreciated over the respective useful lives of the assets ranging from three to six years. Depreciation expense was $16.8 million, $23.4 million and $27.0 million for the years ended December 31, 2014, 2015 and 2016, respectively.
NOTE 4. GOODWILL AND INTANGIBLES
There were no accumulated impairments of goodwill as of December 31, 2016. Changes in the carrying amount of goodwill are as follows (in thousands):
Gross Carrying Amount | ||||||||||||||||
EGM |
Table
Products |
Interactive | Total | |||||||||||||
Balance at December 31, 2014 |
$ | 77,617 | $ | — | $ | — | $ | 77,617 | ||||||||
Acquisition—Cadillac Jack |
171,497 | — | — | 171,497 | ||||||||||||
Acquisition—AGSi |
— | — | 4,855 | 4,855 | ||||||||||||
Acquisition—Intellectual Property |
— | 2,600 | — | 2,600 | ||||||||||||
Foreign currency adjustments |
(2,282 | ) | — | — | (2,282 | ) | ||||||||||
Other |
(409 | ) | — | (27 | ) | (436 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2015 |
246,423 | 2,600 | 4,828 | 253,851 | ||||||||||||
Foreign currency adjustments |
(3,627 | ) | — | — | (3,627 | ) | ||||||||||
Purchase accounting adjustment |
— | 800 | — | 800 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2016 |
$ | 242,796 | $ | 3,400 | $ | 4,828 | $ | 251,024 | ||||||||
|
|
|
|
|
|
|
|
The Company performed an annual impairment test on each of its reporting units as of October 1, 2016. For the EGM and Table Product reporting units we began with a qualitative assessment, commonly referred to as “Step 0”, and determined it is not more likely than not that the EGM and Table Product reporting units’ fair value of goodwill are less than their carrying value. This qualitative assessment primarily relied on the significant amount of cushion determined in prior year quantitative analyses, favorable current forecasts compared to those used in the prior year analysis, the general economic environment and industry and market conditions.
For the Interactive reporting unit, which has a goodwill carrying value of $4.8 million, the Company performed a quantitative, or “Step 1” analysis. In performing the interim Step 1 goodwill impairment test for our Interactive reporting unit, we estimated the fair value of the Interactive reporting unit using an income approach that analyzed projected discounted cash flows. We used projections of revenues and operating costs with estimated growth rates during the forecast period, capital expenditures and cash flows that considered historical and estimated future results and general economic and market conditions, as well as the estimated impact of planned business and operational strategies. The estimates and assumptions used in the discounted cash flow analysis included a terminal year long-term growth rate of 4.0% and an overall discount rate of 15% based on our weighted average cost of capital for the Company and premiums for the small size of the reporting unit and forecast risk.
F-46
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Step 1 analysis determined that the Interactive reporting unit’s fair value was greater than its carrying value.
Intangible assets consist of the following (in thousands):
December 31, 2015 | December 31, 2016 | |||||||||||||||||||||||||
Useful Life
|
Gross
Value |
Accumulated
Amortization |
Net Carrying
Value |
Gross
Value |
Accumulated
Amortization |
Net Carrying
Value |
||||||||||||||||||||
Indefinite lived trade names |
Indefinite | $ | 12,126 | $ | — | $ | 12,126 | $ | 12,126 | $ | — | $ | 12,126 | |||||||||||||
Trade and brand names |
7 | 13,600 | (1,721 | ) | 11,879 | 13,600 | (4,671 | ) | 8,929 | |||||||||||||||||
Customer relationships |
7 | 170,927 | (26,676 | ) | 144,251 | 165,078 | (49,528 | ) | 115,550 | |||||||||||||||||
Contract rights under development and placement fees |
1—7 | 16,311 | (548 | ) | 15,763 | 16,488 | (5,235 | ) | 11,253 | |||||||||||||||||
Gaming software and technology platforms |
1—7 | 116,930 | (23,735 | ) | 93,195 | 123,596 | (49,014 | ) | 74,582 | |||||||||||||||||
Intellectual property |
10—12 | 14,030 | (888 | ) | 13,142 | 12,780 | (2,343 | ) | 10,437 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 343,924 | $ | (53,568 | ) | $ | 290,356 | $ | 343,668 | $ | (110,791 | ) | $ | 232,877 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are amortized over their respective estimated useful lives ranging from one to twelve years. Amortization expense related to intangible assets was $16.6 million, $38.3 million and $53.2 million for the years ended December 31, 2014, 2015 and 2016, respectively.
Management reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the years ended December 31, 2014 and 2015, the Company recognized impairment charges related to internally developed gaming titles of $1.4 million and $3.4 million, respectively. There were no impairments related to internally developed gaming titles for the year ended December 31, 2016.
The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are not reimbursed. For development agreements in the form of a loan, interest income is recognized on the repayment of the notes based on the stated rate or, if not stated explicitly in the development agreement, on an imputed interest rate. If the stated interest rate is deemed to be other than a market rate or zero, a discount is recorded on the note receivable as a result of the difference between the stated and market rate and a corresponding intangible asset is recorded. The intangible asset is recognized in the financial statements as a contract right under development agreement and amortized as a reduction in revenue over the term of the agreement. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of $0.5 million and $4.7 million for the years ended December 31, 2015 and 2016, respectively. The amount amortized in 2014 was nominal.
F-47
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated amortization expense of definite-lived intangible assets as well as the accretion of contract rights under development and placement fees, for each of the next five years and thereafter is as follows (in thousands):
Amortization
Expense |
Placement Fee
Accretion |
|||||||
For the year ended December 31, |
||||||||
2017 |
$ | 50,153 | $ | 4,564 | ||||
2018 |
48,626 | 3,794 | ||||||
2019 |
42,064 | 2,609 | ||||||
2020 |
25,951 | 57 | ||||||
2021 |
7,655 | 39 | ||||||
Thereafter |
35,050 | 189 | ||||||
|
|
|
|
|||||
Total |
$ | 209,499 | $ | 11,252 | ||||
|
|
|
|
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
December 31, | ||||||||
2015 | 2016 | |||||||
Salary and payroll tax accrual |
$ | 5,851 | $ | 6,594 | ||||
Taxes payable |
2,440 | 2,128 | ||||||
Accrued interest |
8 | 2 | ||||||
C2 Gaming contingent consideration (see Note 2) |
1,125 | — | ||||||
Placement fees payable |
4,525 | 4,000 | ||||||
Accrued other |
4,305 | 4,978 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 18,254 | $ | 17,702 | ||||
|
|
|
|
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31, | ||||||||
2015 | 2016 | |||||||
Senior secured credit facilities: |
||||||||
Term loans, interest at LIBOR or base rate plus 8.25% (9.25% at December 31, 2016), net of unamortized discount of $18.2 million and $15.1 million at December 31, 2015 and December 31, 2016, respectively. |
$ | 396,717 | $ | 395,581 | ||||
Senior secured PIK notes, net of unamortized discount of $3.9 million and $3.5 million at December 31, 2015 and December 31, 2016, respectively. |
118,764 | 133,286 | ||||||
Seller notes |
18,902 | 20,116 | ||||||
Equipment long-term note payable and capital leases |
5,826 | 4,792 | ||||||
|
|
|
|
|||||
Total debt (1) |
540,209 | 553,775 | ||||||
Less: Current portion |
(6,919 | ) | (6,537 | ) | ||||
|
|
|
|
|||||
Long-term debt |
$ | 533,290 | $ | 547,238 | ||||
|
|
|
|
F-48
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) | Pursuant to the adoption of ASU 2015-03, debt issuance costs of $7.8 million were deducted from the carrying amount of related debt as of December 31, 2015. |
Senior Secured Credit Facilities
On December 20, 2013, the Company entered into our senior secured credit facilities, which consisted of $155.0 million in term loans and a $25.0 million revolving credit facility. On May 29, 2015, the Company entered into incremental facilities for $265.0 million in term loans and on June 1, 2015, the Company entered into an incremental agreement for an additional $15.0 million of incremental revolving commitments. The proceeds of the incremental term loans were used primarily to pay the consideration for the Cadillac Jack acquisition.
The term loans will mature on December 20, 2020, and the revolving credit facility will mature on December 20, 2018. The term loans require scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity. Borrowings under the term loans bear interest at a rate equal to, at the Company’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. Borrowings under the revolving credit facility bear interest at a rate equal to, at the Company’s option, either LIBOR or the base rate plus an applicable margin rate. In addition, on a quarterly basis, the Company is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.
The senior secured credit facilities are guaranteed by AP Gaming Holdings, LLC, the AP Gaming I, LLC’s (the “Borrower”) material, wholly owned domestic subsidiaries (subject to certain exceptions), and are secured by a pledge by AP Gaming Holdings, LLC of the Borrower’s equity interest directly held by AP Gaming Holdings, LLC and a pledge of substantially all of the existing and future property and assets of the Borrower and the subsidiary guarantors, subject to certain exceptions. The senior secured credit facilities require that the Borrower maintain a maximum net first lien leverage ratio set at a maximum of 5.5 to 1. The senior secured credit facilities contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The senior secured credit facilities also contain customary events of default included in similar financing transactions, including, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. The Company was in compliance with the covenants of the senior secured credit facilities at December 31, 2016.
Senior Secured PIK Notes
On May 29, 2015, the Company entered into a note purchase agreement with AP Gaming Holdings, LLC, as subsidiary guarantor (the “Subsidiary Guarantor”), Deutsche Bank AG, London Branch, as purchaser (the “Purchaser”), and Deutsche Bank Trust Company Americas, as collateral agent. Pursuant to the agreement, the Company issued $115.0 million of its 11.25% senior secured PIK notes due 2021 (the “Notes”) at an issue price of 97% of the principal amount thereof to the Purchaser in a private placement exempt from registration under the Securities Act of 1933, as amended. The Notes are secured by the Company’s equity in its subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are unconditionally guaranteed by the Subsidiary Guarantor.
Interest on the Notes will accrue at a rate of 11.25% per annum. The Company may elect to pay interest due on the Notes in cash, by increasing the principal of the outstanding Notes or by issuing new Notes (“PIK interest”) for the entire amount of the interest payment or by paying interest partially in cash and partially in PIK interest. Interest on the Notes will accrue from the date of issuance and will be payable on the dates described in
F-49
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
more detail in the agreement. The Notes will mature on May 28, 2021. The net proceeds of the Notes were used primarily to finance the Cadillac Jack acquisition.
The Notes contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The Notes also contains customary events of default included in similar transactions, including, among others, failure to make payments when due, acceleration of other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. At December 31, 2016, the Notes totaled $133.3 million, which includes capitalized interest of $21.8 million.
Seller Notes
On December 20, 2013, the Company issued two promissory notes (the “AGS Seller Notes”) to AGS Holdings, LLC, in the amounts of $2.2 million and $3.3 million, to the previous owners of the Company’s primary operating company. At December 31, 2016, notes payable related to the AGS Seller Notes totaled $7.1 million, which includes capitalized interest of $1.6 million. The AGS Seller Notes accrue interest on the unpaid principal balance at 8.5% per annum and shall be payable semi-annually in arrears on June 30 and December 31, commencing on June 30, 2014. Any interest accrued and payable on any interest payment date will be paid by capitalizing such interest and adding it to (and thereby increasing) the outstanding principal amount of this AGS Seller Notes. All principal and interest under the AGS Seller Notes is due and payable on June 18, 2021, the maturity date. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the AGS Seller Notes.
On May 29, 2015, the Company issued a promissory note to Amaya Inc. (the “Amaya Seller Note”) with an initial principal amount of $12.0 million to satisfy the conditions set forth in the stock purchase agreement for Cadillac Jack. The Amaya Seller Note accrues interest on the unpaid principal amount at 5.0% per annum and is payable semi-annually on June 30 and December 31 (and on May 29, 2023, the maturity date of the note), commencing on June 30, 2015. All interest accrued and payable on any interest payment date will be paid by capitalizing such interest and adding it to (and thereby increasing) the outstanding principal amount of the Amaya Seller Note. All principal under the note is due and payable on May 29, 2023. The Amaya Seller Note is required to be prepaid under certain circumstances, such as refinancing our senior secured credit facilities or a public equity offering as described in the note agreement. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the Amaya Seller Note. The Amaya Seller Note includes certain covenants and events of default that are customary for instruments of this type. At December 31, 2016, the Amaya Seller Note totaled $13.0 million, which includes capitalized interest of $1.0 million.
Equipment Long Term Note Payable and Capital Leases
The Company has entered into a financing agreement to purchase certain gaming devices, systems and related equipment and has entered into leases for servers and equipment that are accounted for as capital leases.
F-50
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Scheduled Maturities of Long-Term Debt
Aggregate contractual future principal payments (excluding the effects of repayments for excess cash flow) of long-term debt for the years following December 31, 2016, are as follows (in thousands):
For the year ending December 31, |
||||
2017 |
$ | 6,537 | ||
2018 |
6,350 | |||
2019 |
4,605 | |||
2020 |
397,953 | |||
2021 |
143,920 | |||
Thereafter |
12,998 | |||
|
|
|||
Total scheduled maturities |
572,363 | |||
Unamortized debt discount and debt issuance costs |
(18,588 | ) | ||
|
|
|||
Total long-term debt |
$ | 553,775 | ||
|
|
NOTE 7. STOCKHOLDERS’ EQUITY
Common Stock
The Company’s common stock consists of two classes: class A voting common stock (“Class A Shares”) and class B non-voting common stock (“Class B Shares”). The holders of the Class A Shares are entitled to one vote per share on all matters to be voted on by the stockholders of the Company. The holders of the Class A Shares have no economic rights or privileges, including rights in liquidation, and have no right to receive dividends or any other distributions. The holders of the Class B Shares have no right to vote on any matter to be voted on by the stockholders of the Company. Each holder of Class B Shares is entitled to share equally, share for share, dividends declared, as well as any distributions to the stockholders, and in the event of the Company’s liquidation, dissolution or winding up, is entitled to share ratably in any remaining assets after payment of or provision for liabilities and the liquidation on preferred stock, if any.
On April 28, 2014, our controlling stockholder exchanged its 10,000,000 Class A Shares for 10,000,000 Class B Shares. On May 29, 2015, we issued an additional 4,931,529 Class B Shares to our controlling stockholder for total proceeds of $77.4 million. The funds received from the May 2015 issuance of Class B Shares were used, in addition to proceeds from the issuance of long-term debt, to fund the acquisition of Cadillac Jack.
As of December 31, 2016, 108,307 Class B Shares issued to “Management Holder,” as defined in the Securityholders Agreement dated April 28, 2014 (the “Securityholders Agreement”) were outstanding. The Class B Shares were sold to the Management Holder and are not considered issued for accounting purposes as they contain a substantive performance condition, a “Qualified Public Offering,” as defined in the Securityholders Agreement, which must be probable for the Management Holder to benefit from the ownership of the shares. As a result, shares issued to the Management Holder are not considered issued for accounting purposes until such time that the performance condition is probable and the Company has recorded a liability in other long-term liabilities of $1.3 million for the proceeds from the sale of the Class B Shares. No share-based compensation expense for Class B Shares has been recognized and none will be recognized for these shares until the performance condition is considered to be probable.
Class B Shares that are held by a Management Holder are subject to repurchase rights (the “Repurchase Rights”), as outlined in Section 6 of the Securityholders Agreement, that are contingent on the Management Holder’s termination. The Repurchase Rights enable the Company to recover the Class B Shares issued to a Management Holder without transferring any appreciation of the fair value of the stock to the Management Holder upon certain terminations of the Management Holder’s employment prior to a “Qualified Public
F-51
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Offering”, as defined in the Securityholders Agreement. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering for “Cause”, as defined in the Securityholders Agreement, or is terminated by such Management Holder without “Good Reason”, as defined in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for the lesser of original cost and fair market value. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering other than as described above and in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for fair market value.
NOTE 8. WRITE DOWNS AND OTHER CHARGES
For the year ended December 31, 2014, the Company recognized $7.1 million in write-downs and other charges primarily related to acquisition charges of $2.8 million, losses from the disposal of assets of $1.9 million, an impairment to intangible assets of $1.4 million (level 3 fair value measurement based on projected cash flow for the specific assets) and an impairment of long-lived assets of $0.8 million (level 3 fair value measurement based on projected cash flow for the specific assets).
For the year ended December 31, 2015, the Company recognized $11.8 million in write-downs and other charges primarily related to acquisition related charges of $8.2 million. The Company also recognized a full impairment to intangible assets of $3.4 million related to game titles (level 3 fair value measurement based on projected cash flows for the specific game titles), write offs related to prepaid royalties of $1.3 million, losses from the disposal of assets of $1.3 million and the impairment of long-lived assets of $0.2 million (level 3 fair value measurement based on projected cash flow for the specific assets with an estimated fair value of $0), fair value adjustment of $3.4 million to the asset associated with the stock options of Amaya, Inc. described in Note 2 (level 2 fair value measurement primarily based on the stock price of Amaya, Inc. with a final estimated fair value of $4.9 million), partially offset by write downs of primarily contingent consideration of $6.1 million that is described in Note 2 (level 3 fair value measurements based on projected cash flows).
During the year ended December 31, 2016, the Company recognized $3.3 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that the Company expects will provide less benefit than originally estimated from the Cadillac Jack acquisition (a level 3 fair value measurement based on a decrease in projected cash flows). The value of the intangible asset was written down to $1.1 million at an interim date and subsequently fully amortized by December 31, 2016. Additionally the Company recorded a write-down of long-lived assets of $2.0 million related to older generation gaming machines (level 3 fair value measurement based on projected cash flow for the specific assets) in which the long-lived assets were written down to $0, and losses from the disposal of assets of $1.0 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition (level 3 fair value measurement based on expected and probable future realization of the receivable).
NOTE 9. BASIC AND DILUTED LOSS PER SHARE
The Company computes net income (loss) per share in accordance with accounting guidance that requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the consolidated statement of operations and comprehensive income (loss). Basic EPS is computed by dividing net income (loss) for the period by the weighted average number of shares outstanding during the period. Basic EPS excludes Class B Shares issued to Management Holders until the performance condition or termination event is considered probable (see Note 7). Until such time, the Class B Shares issued to Management Holders will be included in the calculation of diluted EPS using the treasury stock method and are treated as stock options. Diluted EPS is computed by
F-52
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares that were outstanding during the period. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive. Potentially dilutive common shares include stock options and restricted stock (see Note 11).
There were no potentially dilutive securities for the years ended December 31, 2014, 2015, 2016.
Excluded from the calculation of diluted EPS for the year ended December 31, 2014, were 50,000 restricted shares and 0.4 million stock options, as such securities were anti-dilutive. Excluded from the calculation of diluted EPS for the year ended December 31, 2015 and December 31, 2016, were 50,000 restricted shares and 0.3 million stock options, as such securities were anti-dilutive.
NOTE 10. BENEFIT PLANS
The Company has established a 401(k) defined contribution plan (the “401(k) Plan”) for its employees. The 401(k) Plan allows employees to contribute up to 15% of their pretax earnings, and the Company may match a percentage of the contributions on a discretionary basis. The expense associated with the 401(k) Plan for the years ended December 31, 2014, 2015 and 2016 was $0.3 million, $0.6 million and $0.9 million, respectively. The increase in the expense associated with the 401(k) Plan in each year is primarily attributable to increased headcount and participation.
On April 28, 2014, the board of directors of the Company approved the 2014 Long-Term Incentive Plan (“LTIP”). Under the LTIP, the Company is authorized to grant nonqualified stock options, rights to purchase Class B Shares, restricted stock, restricted stock units and other awards to be settled in, or based upon, Class B Shares to persons who are directors and employees of and consultants to the Company or any of its subsidiaries on the date of the grant. The LTIP will terminate ten years after approval by the board. Subject to adjustments in connection with certain changes in capitalization, the maximum number of Class B Shares that may be delivered pursuant to awards under the LTIP is 1,250,000. As of December 31, 2016, approximately 200,000 shares remain available for issuance.
NOTE 11. SHARE-BASED COMPENSATION
Stock Options
The Company has granted stock awards to eligible participants under the LTIP. The stock awards include options to purchase the Company’s Class B Shares. These stock options include a combination of service and market conditions, as further described below. In addition, these stock options include a performance vesting condition, a Qualified Public Offering (see Note 7), which is not considered to be probable as of December 31, 2016. As a result, no share-based compensation expense for stock options has been recognized and none will be recognized for these stock awards until the performance condition is considered to be probable. The amount of unrecognized compensation expense associated with stock options was $6.1 million and for restricted stock was $0.5 million at December 31, 2016. When the performance condition is considered probable, the stock awards will vest in accordance with the underlying service and market conditions.
The Company calculated the grant date fair value of stock options that vest over a service period using the Black Scholes model. For stock options that contain a market condition related to the return on investment that the Company’s stockholders achieve, the options were valued using a lattice-based option valuation model. The assumptions used in these calculations are noted in the following table. Expected volatilities are based on implied volatilities from comparable companies. The expected time to liquidity is based on management’s estimate. The
F-53
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
risk-free rate is based on the U.S. Treasury yield curve for a term equivalent to the estimated time to liquidity. The expected dividend yield is 0% for all stock awards.
Year Ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Option valuation assumptions: |
||||||||||||
Expected dividend yield |
— | % | — | % | — | % | ||||||
Expected volatility |
73 | % | 55 | % | 56 | % | ||||||
Risk-free interest rate |
1.63 | % | 1.69 | % | 1.64 | % | ||||||
Expected term (in years) |
5.0 | 6.4 | 6.3 |
Stock option awards represent options to purchase Class B Shares and are granted pursuant to the Company’s LTIP, and include options that the Company primarily classifies as Tranche A, Tranche B and Tranche C.
Tranche A options are eligible to vest in equal installments of 20% on each of the first five anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries in addition to the performance vesting condition of a Qualified Public Offering described above. In the event of a termination of employment without cause or as a result of death or disability, any such time based options which would have vested on the next applicable vesting date shall become vested, and the remaining unvested time based options shall be forfeited. In addition, upon a Change in Control (as defined in the Company’s 2014 Long-Term Incentive Plan), subject to continued employment through the date of the Change in Control, all outstanding unvested time based options shall immediately vest. An initial public offering does not qualify as a Change in Control as it relates to the vesting of stock options.
All other option awards are eligible to vest upon the satisfaction of certain performance conditions (collectively, “Performance Options”) in addition to the performance vesting condition of a Qualified Public Offering described above. Tranche B options are eligible to vest based on achievement of an Investor IRR equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor Investment (as such terms are defined in the Company’s 2014 Long-Term Incentive Plan). Tranche C options are eligible to vest based on achievement of an Investor IRR equal to or in excess of 25%, subject to a minimum cash-on-cash return of 3.0 times the Investor Investment. In the event of a termination of employment without cause or as a result of death or disability, any Performance Options which are outstanding and unvested will remain eligible to vest subject to achievement of such performance targets (without regard to the continued service requirement) until the first anniversary of the date of such termination. As of December 31, 2016, the Company had 381,666 Performance Options outstanding.
A summary of the changes in stock options outstanding during the year ended December 31, 2016, is as follows:
Number
of Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contract Term (years) |
Aggregate
Intrinsic Value |
|||||||||||||
Options outstanding as of December 31, 2015 |
765,375 | $ | 12.46 | |||||||||||||
Granted |
247,600 | $ | 17.01 | |||||||||||||
Canceled |
(117,875 | ) | $ | 15.25 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding as of December 31, 2016 |
895,100 | $ | 13.35 | 8.2 | $ | 3,457,748 | ||||||||||
|
|
|
|
|
|
|
|
F-54
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
No options expired or were forfeited for the year ended December 31, 2016.
The following is provided for stock options granted:
Year Ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Weighted average grant date fair value |
$ | 5.38 | $ | 7.44 | $ | 8.96 | ||||||
|
|
|
|
|
|
Restricted awards
During the year ended December 31, 2014, the Company granted 50,000 restricted Class B Shares that vest in five equal installments on each of the first five anniversaries of the grant date in addition to the performance vesting condition of a Qualified Public Offering described above. As of December 31, 2016, the Company had 50,000 unvested restricted shares outstanding with a weighted average grant date fair value of $10. No restricted stock was granted, canceled or forfeited during the years ended December 31, 2015 and 2016. This restricted stock includes a service condition and a performance vesting condition (a Qualified Public Offering), which was not considered to be probable of occurring as of December 31, 2016. As a result, no share-based compensation expense was recognized for the years ended December 31, 2014, 2015 and 2016, and none will be recognized for restricted stock until the performance condition is considered to be probable. When the performance condition is considered probable, the stock awards will vest in accordance with the underlying service condition.
NOTE 12. RESTRUCTURING
We recorded employee termination and restructuring costs of $1.2 million and $1.4 million during the years ended December 31, 2014 and 2015, respectively. We recorded no employee termination and restructuring costs during the year ended December 31, 2016. We do not anticipate additional costs associated with the following plans in excess of amounts accrued below. Employee termination and restructuring costs are classified in selling, general and administrative as well as research and development expense and have been recorded for the following restructuring plans.
Cadillac Jack Integration Plan
In June 2015, we took actions to reduce the staff in all of our locations and to streamline our operations and cost structure. The Company has also entered into retention agreements with certain employees that will be paid upon the completion of their service period.
The following table summarizes the change in our restructuring accruals for the year ended December 31, 2016 (in thousands), which is included in accounts payable and accrued liabilities in the consolidated balance sheets:
December 31,
2015 |
Charge to
expense |
Cash paid |
December 31,
2016 |
|||||||||||||
Accrued severance |
$ | 37 | $ | — | $ | 37 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 37 | $ | — | $ | 37 | $ | — | ||||||||
|
|
|
|
|
|
|
|
F-55
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13. INCOME TAXES
The components of loss before provision for income taxes are as follows (in thousands):
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Domestic |
$ | (26,187 | ) | $ | (66,728 | ) | $ | (69,020 | ) | |||
Foreign |
— | (7,906 | ) | (15,354 | ) | |||||||
|
|
|
|
|
|
|||||||
Loss before provision for income taxes |
$ | (26,187 | ) | $ | (74,634 | ) | $ | (84,374 | ) | |||
|
|
|
|
|
|
The income tax expense (benefit) is as follows (in thousands):
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Current: |
||||||||||||
Federal |
$ | — | $ | 932 | $ | (958 | ) | |||||
State |
7 | (10 | ) | 113 | ||||||||
Foreign |
— | 1,424 | 5,865 | |||||||||
|
|
|
|
|
|
|||||||
Total current income tax expense |
7 | 2,346 | 5,020 | |||||||||
Deferred: |
||||||||||||
Federal |
2,005 | (34,589 | ) | (7,550 | ) | |||||||
State |
177 | (2,506 | ) | (31 | ) | |||||||
Foreign |
— | (1,340 | ) | (439 | ) | |||||||
|
|
|
|
|
|
|||||||
Total deferred income expense (benefit) |
2,182 | (38,435 | ) | (8,020 | ) | |||||||
|
|
|
|
|
|
|||||||
Income tax expense (benefit) |
$ | 2,189 | $ | (36,089 | ) | $ | (3,000 | ) | ||||
|
|
|
|
|
|
The reconciliation of income tax at the federal statutory rate to the actual effective income tax rate (benefit) is as follows:
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Federal statutory rate |
(34.0 | )% | (35.0 | )% | (35.0 | )% | ||||||
Foreign rate differential |
— | % | 0.7 | % | 0.2 | % | ||||||
State income taxes, net of federal benefit |
(0.8 | )% | (2.5 | )% | — | % | ||||||
Nondeductible loan costs |
— | % | 1.5 | % | 1.8 | % | ||||||
Nondeductible transaction costs |
— | % | 1.6 | % | — | % | ||||||
Other differences |
0.6 | % | 0.2 | % | 3.2 | % | ||||||
Expiration of tax credits |
— | % | — | % | 1.9 | % | ||||||
Uncertain tax positions |
— | % | 0.3 | % | 0.6 | % | ||||||
Valuation allowance |
42.6 | % | (15.2 | )% | 23.7 | % | ||||||
|
|
|
|
|
|
|||||||
8.4 | % | (48.4 | )% | (3.6 | )% | |||||||
|
|
|
|
|
|
F-56
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The components of the net deferred tax liability consist of the following (in thousands):
December 31, | ||||||||
2015 | 2016 | |||||||
Deferred tax assets: |
||||||||
Accrued expenses |
$ | 608 | $ | 662 | ||||
Allowance for bad debt |
1,176 | 1,175 | ||||||
Payroll accruals |
2,085 | 1,818 | ||||||
Foreign tax credits |
8,834 | 9,541 | ||||||
Net operating loss carryforwards |
35,862 | 47,019 | ||||||
Property and equipment, net |
— | 1,830 | ||||||
Research and development credits |
1,569 | 1,420 | ||||||
Loan costs and interest |
3,519 | 3,441 | ||||||
Other |
2,017 | 1,654 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
55,670 | 68,560 | ||||||
Valuation allowance |
(8,274 | ) | (28,211 | ) | ||||
|
|
|
|
|||||
Deferred tax assets, net of valuation allowance |
$ | 47,396 | $ | 40,349 | ||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Prepaid expenses and other |
$ | (1,033 | ) | $ | (512 | ) | ||
Intangible assets |
(60,309 | ) | (46,785 | ) | ||||
Property and equipment, net |
(1,364 | ) | — | |||||
|
|
|
|
|||||
Deferred tax liabilities |
(62,706 | ) | (47,297 | ) | ||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | (15,310 | ) | $ | (6,948 | ) | ||
|
|
|
|
In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. Due to cumulative foreign losses, there is no deferred tax liability recorded for unremitted foreign earnings.
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize the existing deferred tax assets. On the basis of this evaluation, as of December 31, 2016, a valuation allowance of $28.2 million has been established against deferred tax assets.
The Company’s Mexican customers are required under the U.S.-Mexico tax treaty to withhold 10% of their payments due to the Company for license fees, which can be used as foreign tax credits on the Company’s U.S. federal income tax return. The foreign tax credits are not refundable, but can be carried forward for 10 years to offset future tax liability. Of the Company’s $9.5 million in foreign tax credits, approximately $1.7 million begin to expire starting in 2017. In addition, the Company has $1.4 million of research and development credits which begin to expire in 2028. A full valuation allowance has been recorded on the foreign tax credits and research and development credits.
The Company has net operating loss (“NOL”) carryforwards for U.S. federal purposes of $115.9 million, in foreign jurisdictions of $18.6 million and various U.S. states of $43.6 million. The U.S. federal NOL carryforwards begin to expire in 2031, the Mexican NOL carryforwards begin to expire in 2021, and the U.S. state NOL carryforwards begin to expire in 2018.
F-57
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has uncertain tax positions with respect to prior tax filings. The uncertain tax positions, if asserted by taxing authorities, would result in utilization of the Company’s tax credit and operating loss carryovers. The credit and operating loss carryovers presented as deferred tax assets are reflected net of these unrecognized tax benefits.
As of December 31, 2014, we have not recorded a reserve for unrecognized tax benefits or penalties.
The Company had the following activity for unrecognized tax benefits in 2015 and 2016 (amounts in thousands):
December 31,
2015 |
December 31,
2016 |
|||||||
Balance-beginning of year |
$ | — | $ | 29,523 | ||||
Acquisitions |
29,701 | — | ||||||
Increases based on tax positions of the current year |
795 | 1,005 | ||||||
Decreases due to lapse of statute |
— | (236 | ) | |||||
Increases based on tax positions of the prior years |
— | 1,963 | ||||||
Decreases based on tax positions of the prior years |
— | (664 | ) | |||||
Currency translation adjustments |
(973 | ) | (1,427 | ) | ||||
|
|
|
|
|||||
Balance-end of year |
$ | 29,523 | $ | 30,164 | ||||
|
|
|
|
The Company applies a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes the impact of a tax position in the financial statements when the position is more likely than not of being sustained on audit based on the technical merits of the position.
The total amount of unrecognized tax benefits as of December 31, 2016 was $30.2 million. Of this amount, $11.5 million, if recognized, would be included in our Consolidated Statements of Operations and Comprehensive Loss and have an impact on our effective tax rate. The Company does not anticipate a material reduction of its liability for unrecognized tax benefits before December 31, 2017.
The Company recognizes interest and penalties accrued for unrecognized tax benefits in income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued penalties and interest of $0.4 million during 2016 and in total, as of December 31, 2016, has recognized a liability for penalties and interest of $8.4 million.
The Company entered into an indemnification agreement with the prior owners of Cadillac Jack whereby the prior owners have agreed to indemnify the Company for changes in tax positions by taxing authorities for periods prior to the acquisition. As of December 31, 2016, an indemnification receivable of $16.4 million has been recorded as an other asset in the financial statements. This amount includes the indemnification of the original pre-acquisition tax positions along with any related accrued interest and penalties and is also recorded as a liability for unrecognized tax benefits in other long-term liabilities. The Company concluded that it is probable the indemnification receivable is realizable based on an evaluation of the ability of Cadillac Jack’s prior owner, including a review of its public filings, that demonstrates its financial resources are sufficient to support the amount recorded. If the related unrecognized tax benefits are subsequently recognized, a corresponding charge to relieve the associated indemnification receivables would be recognized in our Consolidated Statements of Operations and Comprehensive Loss and have an impact on operating income.
F-58
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases administrative and warehouse facilities and certain equipment under non-cancelable operating leases. Rent expense was $0.8 million, $2.0 million, and $2.5 million for the years ended December 31, 2014, 2015 and 2016, respectively.
Future minimum lease payments under these leases in excess of one year as of December 31, 2016 are as follows (in thousands):
For the year ended December 31, |
||||
2017 |
$ | 1,533 | ||
2018 |
1,177 | |||
2019 |
1,054 | |||
2020 |
1,091 | |||
2021 |
649 | |||
Thereafter |
157 | |||
|
|
|||
Total |
$ | 5,661 | ||
|
|
Other commitments and contingencies
The Company is subject to federal, state and Native American laws and regulations that affect both its general commercial relationships with its Native American tribal customers, as well as the products and services provided to them. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. If a potential loss from any claim or legal proceeding is considered reasonably possible, the Company discloses an estimate of the possible loss or range of possible loss, or a statement that such an estimate cannot be made. There are no matters that meet the criteria for disclosure outlined above. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to their pending claims and litigation and may revise its estimates. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial condition.
NOTE 15. OPERATING SEGMENTS
In the fourth quarter of fiscal year 2016, the Company revised its business segment disclosures to report results by segment in accordance with the “management approach.” The management approach designates the internal reporting used by our chief operating decision maker, who is our Chief Executive Officer, for making decisions and assessing performance of our reportable segments.
See Note 1 for a detailed discussion of our three segments. Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its product lines. We evaluate the performance of our operating segments based on revenues and segment adjusted EBITDA.
Segment revenues include leasing, licensing, or selling of products within each reportable segment. Segment adjusted EBITDA includes the revenues and operating expenses from each segment adjusted for depreciation,
F-59
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
amortization, write downs and other charges, accretion of placement fees, non-cash stock compensation expense, as well as other costs such as certain acquisitions and integration related costs including restructuring and severance charges; legal and litigation expenses including settlement payments; new jurisdictions and regulatory licensing costs; non-cash charges on capitalized installation and delivery; contract cancellation fees; and other adjustments primarily composed of professional fees incurred by the Company for projects, corporate and public filing compliance and other costs deemed to be non-recurring in nature. Revenues in each segment are attributable to third parties and segment operating expenses are directly associated with the product lines included in each segment such as research and development, product approval costs, product-related litigation expenses, sales commissions and other directly-allocable sales expenses. Cost of gaming operations and cost of equipment sales primarily include the cost of products sold, service, manufacturing overhead, shipping and installation.
Segment adjusted EBITDA excludes other income and expense, income taxes and certain expenses that are managed outside of the operating segments.
The following provides financial information concerning our reportable segments for the years ended December 31, 2014, 2015 and 2016 (in thousands):
2014 | 2015 | 2016 | ||||||||||
Revenues by segment |
||||||||||||
EGM |
$ | 72,028 | $ | 119,617 | $ | 156,407 | ||||||
Table Products |
112 | 1,672 | 2,674 | |||||||||
Interactive |
— | 2,003 | 7,725 | |||||||||
|
|
|
|
|
|
|||||||
Total Revenues |
72,140 | 123,292 | 166,806 | |||||||||
|
|
|
|
|
|
|||||||
Adjusted EBITDA by segment |
||||||||||||
EGM |
40,552 | 66,267 | 91,729 | |||||||||
Table Products |
(343 | ) | (1,402 | ) | (1,663 | ) | ||||||
Interactive |
— | (2,518 | ) | (4,727 | ) | |||||||
|
|
|
|
|
|
|||||||
Subtotal |
40,209 | 62,347 | 85,339 | |||||||||
|
|
|
|
|
|
|||||||
Write downs and other: |
||||||||||||
Loss on disposal of long lived assets |
1,937 | 1,275 | 978 | |||||||||
Impairment of long lived assets |
2,327 | 4,993 | 5,295 | |||||||||
Fair value adjustments to contingent consideration and other items |
— | (2,667 | ) | (3,000 | ) | |||||||
Acquisition costs |
2,804 | 8,165 | (11 | ) | ||||||||
Depreciation and amortization |
33,405 | 61,662 | 80,181 | |||||||||
Accretion of placement fees(1) |
58 | 496 | 4,702 | |||||||||
Non-cash stock compensation |
— | 4,911 | — | |||||||||
Acquisitions & integration related costs including restructuring & severance |
3,582 | 7,818 | 5,411 | |||||||||
Legal & litigation expenses including settlement payments |
450 | 1,916 | 1,565 | |||||||||
New jurisdictions and regulatory licensing costs |
266 | 256 | 1,315 | |||||||||
Non-cash charge on capitalized installation and delivery |
643 | 1,441 | 1,680 | |||||||||
Non-cash charges and loss on disposition of assets |
561 | 234 | 2,478 | |||||||||
Other adjustments |
2,597 | 1,286 | 1,809 | |||||||||
Interest expense |
17,235 | 41,642 | 59,963 | |||||||||
Interest income |
(42 | ) | (82 | ) | (57 | ) | ||||||
Other expense (income) |
573 | 3,635 | 7,404 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
$ | (26,187 | ) | $ | (74,634 | ) | $ | (84,374 | ) | |||
|
|
|
|
|
|
F-60
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) | Non-cash expense related to the accretion of contract rights under development agreements and placement fees. |
The Company’s Chief Operating Decision Maker (the “CODM”) does not receive a report with a measure of total assets or capital expenditures for each reportable segment as this information is not used for the evaluation of segment performance. The CODM assesses the performance of each segment based on adjusted EBITDA and not based on assets or capital expenditures due to the fact that two of the Company’s reportable segments, Table Products and Interactive, are not capital intensive. Any capital expenditure information is provided to the CODM on a consolidated basis. Therefore, the Company has not provided asset and capital expenditure information by reportable segment.
The following provides financial information concerning our operations by geographic area for the years ended December 31, 2014, 2015 and 2016 (in thousands):
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Revenue: |
||||||||||||
United States |
72,140 | 110,392 | 138,510 | |||||||||
Other |
— | 12,900 | 28,296 | |||||||||
|
|
|
|
|
|
|||||||
72,140 | 123,292 | 166,806 | ||||||||||
|
|
|
|
|
|
|||||||
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Long-lived assets, end of year: |
||||||||||||
United States |
$ | 44,045 | $ | 63,858 | $ | 70,208 | ||||||
Other |
69 | 6,909 | 5,169 | |||||||||
|
|
|
|
|
|
|||||||
$ | 44,114 | $ | 70,767 | $ | 75,377 | |||||||
|
|
|
|
|
|
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected quarterly financial information for 2015 and 2016, as previously reported (in thousands).
Quarter ended
March 31, 2015 |
Quarter ended
June 30, 2015 |
Quarter ended
September 30, 2015 |
Quarter ended
December 31, 2015 |
|||||||||||||
Consolidated Income Statement Data: |
||||||||||||||||
Revenues |
$ | 18,795 | $ | 26,296 | $ | 38,105 | $ | 40,096 | ||||||||
Gross profit [1] |
15,516 | 20,429 | 30,641 | 31,867 | ||||||||||||
Loss from operations |
(3,736 | ) | (11,339 | ) | (13,017 | ) | (1,347 | ) | ||||||||
Net (loss) income |
(9,235 | ) | 2,849 | (23,279 | ) | (8,880 | ) | |||||||||
Basic (loss) income per share |
(0.92 | ) | (0.24 | ) | (1.56 | ) | (0.69 | ) | ||||||||
Diluted (loss) income per share |
(0.92 | ) | (0.24 | ) | (1.56 | ) | (0.69 | ) |
F-61
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Quarter ended
March 31, 2016 |
Quarter ended
June 30, 2016 |
Quarter ended
September 30, 2016 |
Quarter ended
December 31, 2016 |
|||||||||||||
Consolidated Income Statement Data: |
||||||||||||||||
Revenues |
$ | 40,235 | $ | 42,618 | $ | 41,208 | $ | 42,745 | ||||||||
Gross profit [1] |
33,792 | 32,599 | 33,799 | 33,643 | ||||||||||||
Loss from operations |
(4,206 | ) | (4,338 | ) | (7,117 | ) | (1,403 | ) | ||||||||
Net (loss) income |
(21,066 | ) | (18,839 | ) | (21,235 | ) | (20,234 | ) | ||||||||
Basic loss per share |
(1.41 | ) | (1.26 | ) | (1.42 | ) | (1.36 | ) | ||||||||
Diluted loss per share |
(1.41 | ) | (1.26 | ) | (1.42 | ) | (1.36 | ) |
[1] | Gross profit is total revenues less cost of gaming operations and cost of equipment sales, exclusive of depreciation and amortization. |
F-62
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
ITEM 15(a)(2). FINANCIAL STATEMENT SCHEDULES
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
PLAYAGS, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
(in thousands, except share data)
December 31, | ||||||||
2015 | 2016 | |||||||
Assets |
|
|||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 25,972 | $ | 10,171 | ||||
Prepaid expenses |
63 | 40 | ||||||
|
|
|
|
|||||
Total current assets |
26,035 | 10,211 | ||||||
|
|
|
|
|||||
Deferred tax asset |
3,528 | — | ||||||
Investment in subsidiaries |
203,390 | 153,926 | ||||||
|
|
|
|
|||||
Total assets |
$ | 232,953 | $ | 164,137 | ||||
|
|
|
|
|||||
Liabilities and Stockholders’ Equity |
|
|||||||
Current liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | — | $ | 36 | ||||
Intercompany payables |
20 | 93 | ||||||
|
|
|
|
|||||
Total current liabilities |
20 | 129 | ||||||
|
|
|
|
|||||
Long-term debt |
131,125 | 146,284 | ||||||
Other long-term liabilities |
1,271 | 1,296 | ||||||
|
|
|
|
|||||
Total liabilities |
132,416 | 147,709 | ||||||
|
|
|
|
|||||
Stockholders’ equity: |
||||||||
Common stock |
149 | 149 | ||||||
Additional paid-in capital |
177,276 | 177,276 | ||||||
Retained earnings |
(75,077 | ) | (156,451 | ) | ||||
Accumulated other comprehensive loss |
(1,811 | ) | (4,546 | ) | ||||
|
|
|
|
|||||
Total stockholders’ equity |
100,537 | 16,428 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders’ equity |
$ | 232,953 | $ | 164,137 | ||||
|
|
|
|
F-63
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
PLAYAGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Operating expenses |
||||||||||||
Selling, general and administrative |
$ | 1,512 | $ | 546 | $ | 231 | ||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
1,512 | 546 | 231 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(1,512 | ) | (546 | ) | (231 | ) | ||||||
Other expense (income) |
||||||||||||
Equity in net loss of subsidiaries |
26,870 | 33,405 | 62,450 | |||||||||
Interest expense |
— | 8,123 | 15,165 | |||||||||
Interest income |
(6 | ) | (1 | ) | — | |||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(28,376 | ) | (42,073 | ) | (77,846 | ) | ||||||
Income tax benefit (expense) |
— | 3,528 | (3,528 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net loss |
(28,376 | ) | (38,545 | ) | (81,374 | ) | ||||||
Foreign currency translation adjustment |
289 | (2,099 | ) | (2,735 | ) | |||||||
|
|
|
|
|
|
|||||||
Total comprehensive loss |
$ | (28,087 | ) | $ | (40,644 | ) | $ | (84,109 | ) | |||
|
|
|
|
|
|
F-64
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
PLAYAGS, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
Year ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Cash flows from operating activities |
||||||||||||
Net loss |
$ | (28,376 | ) | $ | (38,545 | ) | $ | (81,374 | ) | |||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
||||||||||||
Amortization of deferred loan costs and discount |
— | 143 | 340 | |||||||||
Payment-in-kind interest capitalized |
— | 7,980 | 14,819 | |||||||||
Equity in net loss of subsidiaries |
26,870 | 33,405 | 62,450 | |||||||||
(Benefit) provision of deferred income tax |
— | (3,528 | ) | 3,528 | ||||||||
Changes in assets and liabilities that relate to operations: |
||||||||||||
Prepaid expenses |
(69 | ) | 6 | 23 | ||||||||
Intercompany payable/receivable |
455 | 455 | 148 | |||||||||
Accounts payable and accrued liabilities |
24 | (24 | ) | 35 | ||||||||
|
|
|
|
|
|
|||||||
Net cash (used in) provided by operating activities |
(1,096 | ) | (108 | ) | (31 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities |
||||||||||||
Investment in subsidiaries |
(11,635 | ) | (172,484 | ) | (15,720 | ) | ||||||
Distributions received from subsidiaries |
2,737 | 1,322 | — | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(8,898 | ) | (171,162 | ) | (15,720 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities |
||||||||||||
Proceeds from issuance of debt |
— | 111,550 | — | |||||||||
Proceeds from issuance of common stock |
— | 77,425 | — | |||||||||
Proceeds from employees in advance of common stock issuance |
1,969 | 579 | — | |||||||||
Repurchase of shares issued to management |
— | (277 | ) | (50 | ) | |||||||
Payment of deferred loan costs |
— | (548 | ) | — | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
1,969 | 188,729 | (50 | ) | ||||||||
|
|
|
|
|
|
|||||||
(Decrease) increase in cash and cash equivalents |
(8,025 | ) | 17,459 | (15,801 | ) | |||||||
Cash and cash equivalents, beginning of period |
16,538 | 8,513 | 25,972 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 8,513 | $ | 25,972 | $ | 10,171 | ||||||
|
|
|
|
|
|
|||||||
Non-cash investing and financing activities: |
||||||||||||
Subsidiary payment for share repurchase on Company’s behalf |
$ | — | $ | 1,000 | $ | — | ||||||
|
|
|
|
|
|
|||||||
Intercompany payable settled as distribution |
$ | — | $ | 890 | $ | — | ||||||
|
|
|
|
|
|
|||||||
Incurrence of Amaya Seller Note |
$ | — | $ | 12,000 | $ | — | ||||||
|
|
|
|
|
|
F-65
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
PLAYAGS, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1—BASIS OF PRESENTATION
The parent company financial statements of PlayAGS, Inc. (formerly AP Gaming Holdco, Inc.) (the “Parent Company”) should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes thereto. For purposes of these condensed financial statements, the Parent Company’s wholly owned and majority owned subsidiaries are recorded based upon its proportionate share of the subsidiaries’ net assets (similar to presenting them on the equity method).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted since this information is included in the Company’s consolidated financial statements included elsewhere in this Form 10-K.
NOTE 2—COMMITMENTS AND CONTINGENCIES
The Parent Company is a holding company and, as a result, its ability to pay dividends is dependent on its subsidiaries’ ability to obtain funds and its subsidiaries’ ability to provide funds to it. Restrictions are imposed by its subsidiaries’ debt instruments, which significantly restrict certain key subsidiaries holding a majority of its assets from making dividends or distributions to the Parent Company. These restrictions are subject to certain exceptions for affiliated overhead expenses as defined in the agreements governing the debt instruments, unless certain financial and non-financial criteria have been satisfied.
Long-term debt of the Parent Company consists of the senior secured PIK notes and the Amaya Seller Note as described below.
Senior Secured PIK Notes
On May 29, 2015, the Company entered into a note purchase agreement with AP Gaming Holdings, LLC, as subsidiary guarantor (the “Subsidiary Guarantor”), Deutsche Bank AG, London Branch, as purchaser (the “Purchaser”), and Deutsche Bank Trust Company Americas, as collateral agent. Pursuant to the agreement, the Company issued $115.0 million of its 11.25% senior secured PIK notes due 2021 (the “Notes”) at an issue price of 97% of the principal amount thereof to the Purchaser in a private placement exempt from registration under the Securities Act of 1933, as amended. The Notes are secured by the Company’s equity in its subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are unconditionally guaranteed by the Subsidiary Guarantor.
Interest on the Notes will accrue at a rate of 11.25% per annum. The Company may elect to pay interest due on the Notes in cash, by increasing the principal of the outstanding Notes or by issuing new Notes (“PIK interest”) for the entire amount of the interest payment or by paying interest partially in cash and partially in PIK interest. Interest on the Notes will accrue from the date of issuance and will be payable on the dates described in more detail in the agreement. The Notes will mature on May 28, 2021. The net proceeds of the Notes were used primarily to finance the Cadillac Jack acquisition.
The Notes contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The Notes also contains customary events of default included in similar transactions,
F-66
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
including, among others, failure to make payments when due, acceleration of other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. At December 31, 2016, the Notes totaled $133.3 million, which includes capitalized interest of $21.8 million.
Seller Note
On May 29, 2015, the Company issued a promissory note to Amaya Inc. (the “Amaya Seller Note”) with an initial principal amount of $12.0 million to satisfy the conditions set forth in the stock purchase agreement for Cadillac Jack. The Amaya Seller Note accrues interest on the unpaid principal amount at 5.0% per annum and is payable semi-annually on June 30 and December 31 (and on May 29, 2023, the maturity date of the note), commencing on June 30, 2015. All interest accrued and payable on any interest payment date will be paid by capitalizing such interest and adding it to (and thereby increasing) the outstanding principal amount of the Amaya Seller Note. All principal under the note is due and payable on May 29, 2023. The Amaya Seller Note is required to be prepaid under certain circumstances described in more detail in the note agreement. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the Amaya Seller Note. The Amaya Seller Note includes certain covenants and events of default that are customary for instruments of this type. At December 31, 2016, the Amaya Seller Note totaled $13.0 million, which includes capitalized interest of $1.0 million.
F-67
PLAYAGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Tax-related valuation allowance |
Balance at
the beginning of period |
Charged to
tax expense/ (benefit) |
Purchase
accounting adjustments |
Impact of
foreign currency exchange rate |
Balance at
the end of period |
|||||||||||||||
Year ended December 31, 2014 |
$ | 3,050 | $ | 11,210 | $ | — | $ | — | $ | 14,260 | ||||||||||
Year ended December 31, 2015 |
$ | 14,260 | $ | (11,787 | ) | $ | 5,727 | $ | 74 | $ | 8,274 | |||||||||
Year ended December 31, 2016 |
$ | 8,274 | $ | 19,962 | $ | — | $ | (25 | ) | $ | 28,211 |
F-68
To the Board of Directors and Stockholder of
Cadillac Jack, Inc. and Subsidiaries
Atlanta, Georgia
We have audited the accompanying consolidated financial statements of Cadillac Jack, Inc. and its subsidiaries (the Company), (an indirect wholly owned subsidiary of Amaya Gaming Group Inc.), which comprise the consolidated balance sheets as of December 31, 2013 and 2014, and the related consolidated statements of income (loss) and comprehensive income (loss), stockholder’s deficit, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2013 and 2014, and the results of its operations and its cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
March 27, 2015 (August 12, 2015 with respect to the income before tax and income tax rate reconciliation tables in Note 10 and with respect to Note 13)
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
F-69
Cadillac Jack, Inc. and Subsidiaries
An Indirect Wholly Owned Subsidiary of
Amaya Gaming Group Inc.
Consolidated Financial Statements as of and
for the Years Ended December 31, 2013 and 2014,
and Independent Auditors’ Report
F-70
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
AS OF DECEMBER 31, 2013 AND 2014
See notes to consolidated financial statements.
F-71
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014
2013 | 2014 | |||||||
NET SALES |
$ | 84,930,843 | $ | 87,128,979 | ||||
SALES TO AMAYA |
330,000 | — | ||||||
|
|
|
|
|||||
TOTAL NET SALES |
85,260,843 | 87,128,979 | ||||||
COST OF GOODS AND SERVICES |
26,020,244 | 30,317,459 | ||||||
SELLING, GENERAL, AND ADMINISTRATIVE |
30,914,058 | 30,237,875 | ||||||
INSURANCE SETTLEMENT |
(890,000 | ) | — | |||||
|
|
|
|
|||||
INCOME FROM OPERATIONS |
29,216,541 | 26,573,645 | ||||||
|
|
|
|
|||||
OTHER INCOME (EXPENSE): |
||||||||
Interest income |
25,485 | 5,163 | ||||||
Interest expense |
(11,982,445 | ) | (28,803,408 | ) | ||||
Loss on extinguishment of debt |
(3,638,653 | ) | (1,714,503 | ) | ||||
Loss on foreign currency transactions |
(27,572 | ) | (2,914,903 | ) | ||||
|
|
|
|
|||||
Total other expense |
(15,623,185 | ) | (33,427,651 | ) | ||||
|
|
|
|
|||||
NET INCOME (LOSS) BEFORE INCOME TAXES |
13,593,356 | (6,854,006 | ) | |||||
INCOME TAX EXPENSE |
(5,048,807 | ) | (21,976,841 | ) | ||||
|
|
|
|
|||||
NET INCOME (LOSS) |
8,544,549 | (28,830,847 | ) | |||||
OTHER COMPREHENSIVE INCOME—Foreign currency translation |
74,614 | 1,220,791 | ||||||
|
|
|
|
|||||
COMPREHENSIVE INCOME (LOSS) |
$ | 8,619,163 | $ | (27,610,056 | ) | |||
|
|
|
|
See notes to consolidated financial statements.
F-72
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014
Common Stock
Class A |
Common Stock
Class B |
Additional
Paid-In Capital |
Accumulated
Other Comprehensive Loss |
Accumulated
Deficit |
Treasury
Stock at Cost |
Deemed
Distribution |
Total
Stockholder’s Deficit |
|||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||
BALANCE—December 31, 2012 |
1,000 | $ | 10 | — | — | $ | 108,085,959 | $ | (321,734 | ) | $ | (26,554,902 | ) | — | $ | (110,000,000 | ) | $ | (28,790,667 | ) | ||||||||||||||||||||
Stock compensation expense |
— | — | — | — | 714,805 | — | — | — | — | 714,805 | ||||||||||||||||||||||||||||||
Excess tax benefit from stock compensation |
— | — | — | — | 155,014 | — | — | — | — | 155,014 | ||||||||||||||||||||||||||||||
Distribution of debt proceeds to Amaya |
— | — | — | — | (51,035,728 | ) | — | — | — | — | (51,035,728 | ) | ||||||||||||||||||||||||||||
Declared distribution to Amaya of restricted cash |
— | — | — | — | (5,000,000 | ) | — | — | — | — | (5,000,000 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
— | — | — | — | — | 74,614 | — | — | — | 74,614 | ||||||||||||||||||||||||||||||
Net income |
— | — | — | — | — | — | 8,544,549 | — | — | 8,544,549 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
BALANCE—December 31, 2013 |
1,000 | 10 | — | — | 52,920,050 | (247,120 | ) | (18,010,353 | ) | — | (110,000,000 | ) | (75,337,413 | ) | ||||||||||||||||||||||||||
Stock compensation expense |
— | — | — | — | 686,862 | — | — | — | — | 686,862 | ||||||||||||||||||||||||||||||
Excess tax benefit from stock compensation |
— | — | — | — | 1,321,126 | — | — | — | — | 1,321,126 | ||||||||||||||||||||||||||||||
Equity from Amaya common stock warrants issued |
— | — | — | — | 10,352,768 | — | — | — | — | 10,352,768 | ||||||||||||||||||||||||||||||
Distribution of debt proceeds to Amaya |
— | — | — | — | (65,280,806 | ) | — | (110,049,399 | ) | — | — | (175,330,205 | ) | |||||||||||||||||||||||||||
Other comprehensive income |
— | — | — | 1,220,791 | — | — | — | 1,220,791 | ||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | (28,830,847 | ) | — | — | (28,830,847 | ) | ||||||||||||||||||||||||||||
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
BALANCE—December 31, 2014 |
1,000 | $ | 10 | — | — | — | $ | 973,671 | $ | (156,890,599 | ) | — | $ | (110,000,000 | ) | $ | (265,916,918 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-73
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014
2013 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | 8,544,549 | $ | (28,830,847 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation of property and equipment |
9,442,208 | 10,761,775 | ||||||
Amortization of intangible assets |
4,096,938 | 4,760,855 | ||||||
Deferred taxes |
2,999,057 | 18,434,571 | ||||||
Share-based compensation |
714,805 | 686,862 | ||||||
Excess tax benefits from share-based compensation |
— | (1,321,126 | ) | |||||
Amortization of deferred financing costs and discounts |
1,873,349 | 903,470 | ||||||
Unrealized loss on currency conversion |
— | 2,889,403 | ||||||
Loss on extinguishment of debt |
3,638,653 | 1,714,503 | ||||||
Loss on sale of property and equipment |
148,138 | 69,073 | ||||||
Write-off of licenses and software |
111,621 | 165,024 | ||||||
Costs related to sales of previously leased gaming machines and third-party licenses |
353,992 | 447,762 | ||||||
Costs related to sales of gaming machines under capital lease |
109,930 | 257,280 | ||||||
Impairment of property and equipment |
350,830 | — | ||||||
Provision for doubtful accounts |
734,437 | 834,520 | ||||||
Inventory write-down |
123,418 | 36,224 | ||||||
Insurance proceeds related to personal property coverage for property losses incurred during 2011 |
(684,615 | ) | — | |||||
Interest paid in kind |
— | 4,536,511 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(1,465,113 | ) | (5,268,875 | ) | ||||
Inventory |
(1,313,197 | ) | (436,788 | ) | ||||
Other current receivables |
4,413,864 | 856,725 | ||||||
Deferred costs |
(2,669,842 | ) | — | |||||
Prepaid expenses and other current assets |
1,111,187 | (305,128 | ) | |||||
Other noncurrent assets |
(12,508 | ) | (213,612 | ) | ||||
Accounts payable and accrued expenses |
(5,528,125 | ) | (2,528,935 | ) | ||||
Accrued sales and valued-added taxes |
(1,079,131 | ) | 19,005 | |||||
Other long-term liabilities |
569,106 | 1,591,038 | ||||||
Due to/from Amaya |
— | 332,918 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
26,583,551 | 10,392,208 | ||||||
|
|
|
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Additions to gaming operation equipment and other property and equipment |
(12,332,536 | ) | (8,716,872 | ) | ||||
Payments to acquire or license intangible assets |
(4,889,284 | ) | (4,994,639 | ) | ||||
Insurance proceeds related to personal property coverage for property losses incurred during 2011 |
684,615 | — | ||||||
Release of restricted cash |
— | 5,000,000 | ||||||
Proceeds from disposals of property, equipment and intangibles |
152,837 | 125,194 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(16,384,368 | ) | (8,586,317 | ) | ||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Payments on long-term debt |
(110,363,767 | ) | (2,386,233 | ) | ||||
Proceeds from long-term debt |
160,000,000 | 175,500,000 | ||||||
Debt financing costs |
(1,953,027 | ) | (264,667 | ) | ||||
Distribution to Amaya |
(51,035,728 | ) | (175,330,205 | ) | ||||
Payments of obligations under capital leases |
(881,678 | ) | 949,053 | ) | ||||
Payment of restricted cash to Amaya |
— | (5,000,000 | ) | |||||
Excess tax benefits from stock-based compensation |
— | 1,321,126 | ||||||
Annuity payments to WAP winners |
— | (63,604 | ) | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(4,234,200 | ) | (7,172,636 | ) | ||||
|
|
|
|
|||||
NET INCREASE IN CASH |
5,964,983 | (5,366,744 | ) | |||||
EFFECT OF EXCHANGE RATES ON CASH |
39,709 | (1,300,101 | ) | |||||
CASH—Beginning of year |
8,247,947 | 14,252,639 | ||||||
|
|
|
|
|||||
CASH—End of year |
$ | 14,252,639 | $ | 7,585,794 | ||||
|
|
|
|
See disclosure of additional cash flow information and noncash activity in Note 16.
F-74
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014
1. The Company
Cadillac Jack, Inc. and subsidiaries (the “Company”), an indirect wholly owned subsidiary of Amaya Gaming Group Inc. (“Amaya”), is a diversified gaming company that specializes in the design, manufacturing, operation, sales, and servicing of gaming technologies for the global gaming marketplace. The Company’s sales and marketing efforts focus on Native American Class II and Class III commercial gaming markets. The Company markets throughout the United States and international gaming markets, primarily Mexico.
The Company was acquired by Amaya, a publicly listed corporation incorporated in Quebec, Canada, by way of a merger with Odyssey Acquisition Corporation (an indirect subsidiary of Amaya). The effective date of the acquisition was November 5, 2012. Amaya’s common shares are listed on the Toronto Stock Exchange under the symbol “AYA.”
2. Summary of Significant Accounting Policies
Principles of Presentation and Consolidation —The accompanying consolidated financial statements include the accounts of Cadillac Jack, Inc., and the following wholly owned subsidiaries: Comercializadora de Juegos Cadillac Jack de Mexico, Servicios Administrativos CJ de Mexico, and Equipos y Soluciones Tecnologicas. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include all adjustments necessary to fairly present the Company’s consolidated financial position, results of operations, and cash flows for each period presented.
All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates —The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Estimates are used for, but not limited to, the accounting for doubtful accounts, allowance for obsolete inventory, lease receivables, sales tax accrual, revenue recognition, warrants, stock options, deferred taxes, contingencies, and useful lives of property and equipment and intangible assets in determining depreciation and amortization, respectively. Actual results could differ from those estimates.
Revenue Recognition —The Company recognizes revenue when all of the following have been satisfied:
• | Persuasive evidence of an arrangement exists. |
• | The price to the customer is fixed and determinable. |
• | Delivery has occurred. |
• | Collection is reasonably assured |
Gaming Operations Revenue —Gaming operations revenue consists of the operation of linked progressive systems and the rental of gaming devices, game content, and the related systems placed with customers. Fees under these arrangements are earned and recognized based on a share of money wagered, a share of the net winnings, or on a fixed daily rate. The daily fee entitles the customer to full use of the gaming device and includes maintenance, licensing of the game content software, and connection to a linked progressive system, where applicable. In certain markets, the Company also charges a daily system connection fee for the customer to
F-75
connect to a central determination system and/or back-office system. The Company does not consider these arrangements to have multiple revenue-generating activities as the services offered are a comprehensive solution in exchange for a daily fee. All of the products and services delivered simultaneously provide the customer with rights to use tangible gaming devices and software that is essential to the functionality of the gaming devices. Many of the arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders the contract effectively month-to-month. Primarily due to these factors, these arrangements are accounted for as operating leases in accordance with the operating lease guidance. Thus, in the consolidated financial statements the Company records revenue monthly related to these arrangements and the gaming machines and equipment is recorded in property and equipment, net on the balance sheet and depreciated over the expected life of the gaming machines and equipment.
Wide Area Progressive (WAP) —WAP systems consist of linked slot machines located in multiple casino properties, which connect to the Company’s central computer system. WAP games differ from stand-alone units in that a progressive jackpot increases with every wager until a player wins the top award. Revenues are recognized for each gaming machine based upon a percentage of amounts wagered on the gaming machine. Revenues are recognized as earned and when collectability is reasonably assured. Jackpots are payable immediately at the time the prize is awarded to the player and recorded as costs of goods sold.
The Company’s product sales revenues are generated from the sale of gaming machines and parts. Product sales are recognized upon delivery.
Service revenues include support and maintenance on machines, engineering services, installation, and management services. Services are recognized as they are provided.
Software License Fees —The Company also earns license fees from customers. License fees are generally billed at fixed monthly amounts per machine and recognized over the license period.
Multiple-Element Arrangements —The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. For example, customers may enter into arrangements with the Company for the implementation of systems software and the sale of gaming devices. Arrangements for the implementation of systems software will generally include a combination of systems software licenses, systems-based hardware products, maintenance and product support fees, and professional services. Certain gaming equipment arrangements may also include the sale of gaming devices. For sales arrangements with multiple deliverables, the Company divides deliverables into separate units of accounting, if:
• | The delivered items have stand-alone value to the customer. The items have value on a stand-alone basis if they are sold separately by any vendor or the customer could resell the delivered items on a stand-alone basis. |
• | Delivery of any undelivered item is considered probable and substantially in the Company’s control. |
The arrangement price is allocated to each of the elements based on the estimated selling prices of each element. Estimated selling prices are the Company’s best estimates of the prices that would be charged to customers if the stand-alone elements were separately sold and include considerations of prices charged by the Company for similar deliverables. The revenue related to the gaming machines and license fees and related costs are recognized upon delivery. Revenue related to revenue share is recognized over the estimated life of the arrangement as the service is performed, which ranges from one to five years.
For arrangements that do not qualify for separate units of accounting, the up-front fees paid are recorded as deferred revenue and the up-front expenses incurred are capitalized as deferred costs. Revenue and costs are amortized over the estimated life of the arrangement.
In certain operating lease arrangements, the Company makes payments to customers early in the lease term as an incentive. These payments are accounted for as lease incentives and accordingly deferred and recognized ratably over the lease term as a reduction of revenue. There are no lease incentive payments contractually required to be made in 2015.
F-76
Restricted Cash —Restricted cash is the contractual amount held by a financial institutions pursuant to the term loans (see Note 11).
Allowance for Doubtful Accounts —The allowance for doubtful accounts represents the Company’s best estimate of probable future losses in the accounts receivable balance. This estimate is based on historical experience and other currently available evidence.
Inventory —Inventory is stated at the lower of cost or market using standard costs, which approximates the weighted-average method of valuing inventory. Inventory specifically allocated to manufacture gaming machines to be placed under revenue-sharing arrangements is reclassed to gaming machines under construction, included in property and equipment.
Inventory at December 31, 2013 and 2014, is composed of the following categories:
2013 | 2014 | |||||||
Manufactured finished goods and work in process |
$ | 818,225 | $ | 1,020,452 | ||||
Raw materials and parts inventory |
5,040,001 | 4,741,688 | ||||||
Less allowance for obsolete inventory |
(125,697 | ) | (116,816 | ) | ||||
|
|
|
|
|||||
Total inventory—net |
$ | 5,732,529 | $ | 5,645,324 | ||||
|
|
|
|
Property and Equipment —The Company has property and equipment located throughout the United States and Mexico that are carried at cost. Expenditures for maintenance and repairs are expensed, while costs incurred for renewals and refurbishments that materially extend the life of the property and equipment are capitalized. Upon the sale, retirement or disposal of property and equipment, the asset cost and accumulated depreciation is eliminated from the financial statements. Any resulting gain or loss is included in operations. Sales of used games previously classified as gaming machinery and equipment are included in net sales, and the related net book value is included in cost of goods and services in the consolidated statements of income (loss) and comprehensive income (loss).
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to their estimated future undiscounted cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. The Company recorded impairment charges of zero and $351,000 for the years ended December 31, 2013 and 2014, respectively. The impairment charges recorded were the net book value of the machines. The impairment charges are included in selling, general, and administrative expenses in the consolidated statements of income (loss) and comprehensive income (loss).
During 2013, the Company received insurance proceeds related to 223 leased machines and related equipment destroyed by fire in 2011 that were installed in a customer’s facility. The total recovery was $890,000 and is included in insurance settlement in the consolidated statement of income (loss) and comprehensive income (loss). In the consolidated statement of cash flows, the proceeds are allocated between the insurance recoveries attributable to business interruption and the insurance recoveries attributable to personal property damages. The recovery for business interruption of $205,385 is classified as a cash flow from operating activities. The recovery for personal property damages of $684,615 is classified as a cash flow from investing activities.
F-77
Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
Computer equipment and software |
3—5 years | |||
Leasehold improvements |
Shorter of lease term or useful life | |||
Machinery and equipment |
5—7 years | |||
Gaming machines and equipment |
5 years | |||
Office furniture and fixtures |
7—10 years | |||
Vehicles |
5 years |
Gaming machines under construction and completed games not yet shipped are included in property and equipment if specifically allocated to a revenue-sharing arrangement.
Shipping and Handling Costs —The Company classifies shipping and handling amounts billed to customers as net sales and shipping and handling costs incurred as a component of cost of goods and services.
Advertising —Advertising is expensed as incurred. Advertising costs were approximately $1,460,000 and $1,236,000 for the years ended December 31, 2013 and 2014, respectively
Stock Compensation —The Company accounts for new and modified share-based payment transactions with employees, such as stock options and restricted stock awards, based on their fair values. Compensation expense is recognized over the vesting period (see Note 9).
Income Taxes —The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates scheduled to be in effect when temporary differences are expected to be recovered or settled. The effect of a change in enacted tax rates on the deferred tax assets and liabilities is recognized in income in the financial statement period when the new tax rates are enacted. The Company assesses the realizability of its deferred tax assets annually and records a valuation allowance when it is determined that it is more likely than not that a deferred tax asset will not be realized.
The Company recognizes uncertain tax positions taken or expected to be taken in a tax return when they are “more likely than not” to be sustained upon examination. A recognized tax position is recorded in the consolidated financial statements at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement. Differences between the estimated liabilities and the amounts paid upon ultimate resolution with the taxing authorities are reflected as increases or decreases to income tax expense in the period in which they are determined.
The Company recognizes interest and penalties related to uncertain tax positions. Interest is included within interest expense.
Deferred Financing Costs and Debt Discounts —Deferred financing costs and debt discounts, including common stock warrants (Note 11), are amortized using the effective interest method over the term of the loan to which they relate. Amortization expense is estimated to be approximately $1,496,000, $1,967,000, $2,523,000, $3,197,000, $3,668,000 and $1,525,000 for the years ending December 31, 2015, 2016, 2017, 2018, 2019 and 2020, respectively. The deferred financing cost of approximately $3,639,000 associated with debt extinguishment was written off during 2013 (see Note 11). The note payable to various lenders and Macquarie US Trading LLC as administrative agent was paid and canceled in December 2013. This financing was replaced with a note payable to various lenders and Wilmington Trust as administrative agent. Deferred financing costs of approximately $1,715,000 associated with the refinancing of debt were written off as debt extinguishment during 2014 as required by U.S. GAAP.
F-78
Research and Development and Software Development Costs —Capitalization of software development costs begins upon the establishment of technological feasibility of the product. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life, and changes in software and hardware technology.
The Company expenses all research and development costs associated with the establishment of technological feasibility for its software products to research and development costs. From the time of establishing technological feasibility through general release of the product, the Company capitalizes software development costs and reports them in the consolidated balance sheets as a component of capitalized software at the lower of unamortized cost or net realizable value. The Company amortizes capitalized software development costs upon general release of the product to customers and computes amortization on the greater of the amounts computed using the ratio of current gross revenues the product bears to the total of current and anticipated future gross revenues or the straight-line method over the estimated economic life of the product, generally three years.
The Company expensed research and development costs of approximately $12,566,000 and $12,795,000, included in selling, general, and administrative expense, for the years ended December 31, 2013 and 2014, respectively. The Company capitalized costs related to game certification of approximately $2,013,000 and $2,489,000 for the years ended December 31, 2013 and 2014, respectively. The Company also capitalized license fees paid to third parties of approximately $2,235,000 and $2,318,000 for the years ended December 31, 2013 and 2014, respectively.
Foreign Currency Translation and Transactions —The Mexican peso is used as the functional currency for the Company’s subsidiaries located in Mexico. Assets and liabilities denominated in the foreign currency are translated into U.S. dollars using the exchange rate in effect at the consolidated balance sheet dates. Revenues, expenses, and cash flows are translated at the average exchange rate in effect during the year. The foreign currency loss of $28,000 and loss of $2,915,000 for the years ended December 31, 2013 and 2014, respectively, included in net income (loss) primarily relates to the effects of foreign exchange rate changes between the Mexican Peso and short-term intercompany loans denominated in the U.S. dollar.
Fair Value of Financial Instruments —The Company’s financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses, are carried at cost, which approximates their fair value due to short maturities. The carrying value of long-term debt approximates its fair value.
Subsequent Events —The Company evaluated subsequent events through March 27, 2015, the date on which these consolidated financial statements were issued.
Recently Issued Accounting Guidance —In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists , that requires companies to present unrecognized tax benefits as a reduction to deferred tax assets when a net operating loss (NOL) carryforward, a similar tax loss or a tax credit carryforward exists, with limited exceptions. The amendments in guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company adopted early with no material impact on the consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which changes the accounting guidance related to revenue recognition. The updated accounting guidance provides a single, contract-based revenue recognition model to help improve financial reporting by providing clearer guidance on when an entity should recognize revenue, and by reducing the number of standards to which entities have to refer. The guidance also expands the required disclosures related to revenue recognition. This guidance is effective on January 1, 2018, and early adoption is permitted. The updated accounting guidance allows for either a full retrospective adoption or modified retrospective adoption. The Company is currently evaluating the impact and method of adoption of ASU No. 2014-09 on its consolidated financial statements.
F-79
3. Accounts Receivable
The Company extends credit to customers located throughout North America and Latin America based on the size of the company, its payment history, and other factors. The Company does not require collateral for its accounts receivable. The amount of accounting loss due to credit risk the Company would incur if the parties to the accounts receivable failed to perform according to the terms of the agreement would be the balance of the accounts receivable—net of the allowance for doubtful accounts. Accounts receivable at December 31, 2013 and 2014, consisted of the following:
2013 | 2014 | |||||||
Trade receivable |
$ | 9,451,471 | $ | 12,330,566 | ||||
Unbilled receivable |
935,802 | 2,265,441 | ||||||
Less allowance for doubtful accounts |
(1,412,352 | ) | (851,199 | ) | ||||
|
|
|
|
|||||
Accounts receivable—net |
$ | 8,974,921 | $ | 13,744,808 | ||||
|
|
|
|
In 2013 and 2014, the Company entered into certain sales-type lease arrangements. The components of the net investment in sales-type leases as of December 31, 2013 and 2014 are as follows:
2013 | 2014 | |||||||
Total minimum lease payments receivable |
$ | 887,089 | $ | 1,562,493 | ||||
Less unearned income |
(108,347 | ) | (212,045 | ) | ||||
|
|
|
|
|||||
Net investment in sales-type leases |
$ | 778,742 | $ | 1,350,448 | ||||
|
|
|
|
The current maturity of net investment in sales-type leases is included in trade accounts receivable. The noncurrent maturity of net investment in sales-type leases is included in other noncurrent assets. The present value of minimum lease payments receivable, unearned finance income, and future minimum lease payment receivable are as follows:
Present
Value of Minimum Lease Payments Receivable |
Unearned
Finance Income |
Future
Minimum Lease Payments Receivable |
||||||||||
2015 |
$ | 616,231 | $ | 147,678 | $ | 763,909 | ||||||
2016 |
631,808 | 60,297 | 692,105 | |||||||||
2017 |
102,409 | 4,070 | 106,479 | |||||||||
|
|
|
|
|
|
|||||||
Net investment in sales-type leases |
$ | 1,350,448 | $ | 212,045 | $ | 1,562,493 | ||||||
|
|
|
|
|
|
4. Property and Equipment
During 2013, the Company sold previously leased gaming machines and third-party licenses with a net book value of approximately $354,000 for $1,094,000. During 2014, the Company sold previously leased gaming machines and third-party licenses with a net book value of approximately $448,000 for $1,125,000. During 2013, the Company recorded an impairment of idle gaming equipment totaling $351,000 that is included in accumulated depreciation. During 2014, the Company recorded no impairment of idle gaming equipment.
F-80
Property and equipment at December 31, 2013 and 2014 consisted of the following:
At Cost | 2013 | 2014 | ||||||
Computer equipment and software |
$ | 3,207,386 | $ | 4,099,754 | ||||
Leasehold improvements |
738,987 | 837,772 | ||||||
Machinery and equipment |
142,322 | 220,637 | ||||||
Gaming machines and equipment |
72,573,711 | 72,028,634 | ||||||
Gaming machines under construction |
209,420 | 250,518 | ||||||
Office furniture and fixtures |
1,302,088 | 1,417,553 | ||||||
Vehicles |
17,988 | 0 | ||||||
|
|
|
|
|||||
78,191,902 | 78,854,868 | |||||||
Less accumulated depreciation |
(49,576,348 | ) | (52,898,538 | ) | ||||
|
|
|
|
|||||
Property and equipment—net |
$ | 28,615,554 | $ | 25,956,330 | ||||
|
|
|
|
5. Intangible Assets
Third-party licenses consist of license fees for game titles developed by third parties and license fees to third parties for using certain technologies. Capitalized certification costs are related to certifying games for play in certain jurisdictions. Patents include third-party costs associated with filing applications and defending patents.
Intangible assets at December 31, 2013 and 2014, consist of the following:
Gross |
Accumulated
Amortization |
Net |
Life |
|||||||||||
2013 |
||||||||||||||
Third-party licenses |
$ | 13,715,425 | $ | (8,432,027 | ) | $ | 5,283,398 | 3—5 years | ||||||
Capitalized certification costs |
10,541,452 | (6,622,129 | ) | 3,919,323 | 3 years | |||||||||
Patents |
503,674 | (706 | ) | 502,968 | 10 years | |||||||||
|
|
|
|
|
|
|||||||||
Total |
24,760,551 | (15,054,862 | ) | 9,705,689 | ||||||||||
Less items not in service |
(3,207,840 | ) | 0 | (3,207,840 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Total costs subject to amortization |
$ | 21,552,711 | $ | (15,054,862 | ) | $ | 6,497,849 | |||||||
|
|
|
|
|
|
|||||||||
2014 |
||||||||||||||
Third-party licenses |
$ | 15,236,214 | $ | (9,588,952 | ) | $ | 5,647,262 | 3—5 years | ||||||
Capitalized certification costs |
13,030,282 | (8,619,924 | ) | 4,410,358 | 3 years | |||||||||
Patents |
918,405 | (10,592 | ) | 907,813 | 10 years | |||||||||
|
|
|
|
|
|
|||||||||
Total |
29,184,901 | (18,219,468 | ) | 10,965,433 | ||||||||||
Less items not in service |
(3,505,886 | ) | 0 | (3,505,886 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Total costs subject to amortization |
$ | 25,679,015 | $ | (18,219,468 | ) | $ | 7,459,547 | |||||||
|
|
|
|
|
|
Amortization expense for the next five years and thereafter for items in service at December 31, 2014, is estimated to be as follows:
Years Ending December 31 | ||||
2015 |
$ | 3,414,697 | ||
2016 |
2,221,640 | |||
2017 |
1,193,791 | |||
2018 |
425,926 | |||
2019 and thereafter |
203,493 | |||
|
|
|||
$ | 7,459,547 |
F-81
6. Deferred costs
Deferred costs consist of amounts paid or payable to lessees of the Company’s gaming machines to secure new lease arrangements. The costs are deferred and recognized ratably over the minimum lease term as a reduction to revenue. Deferred costs at December 31, 2014, consisted of the following:
2013 | 2014 | |||||||
Paid to lessees |
$ | 2,924,400 | $ | 5,340,000 | ||||
Payable to lessees |
2,451,600 | — | ||||||
|
|
|
|
|||||
Total |
5,376,000 | 5,340,000 | ||||||
Less accumulated amortization |
(627,500 | ) | (1,691,000 | ) | ||||
|
|
|
|
|||||
Total |
4,748,500 | 3,649,000 | ||||||
Less current portion |
(1,086,000 | ) | (1,068,000 | ) | ||||
|
|
|
|
|||||
Noncurrent portion |
$ | 3,662,500 | $ | 2,581,000 | ||||
|
|
|
|
Future amortization of deferred costs as of December 31, 2014, will be as follows:
Years Ending December 31 | ||||
2015 |
$ | 1,068,000 | ||
2016 |
1,068,000 | |||
2017 |
1,068,000 | |||
2018 |
445,000 | |||
|
|
|||
$ | 3,649,000 | |||
|
|
7. Related-Party Transactions
During 2013, the Company distributed approximately $51,036,000 in proceeds from the new debt financing (see Note 11) to an indirect wholly owned subsidiary of Amaya. Also in 2013, Amaya purchased 11 game licenses from the Company for $330,000.
During 2014, the Company directed approximately $175,330,000 in proceeds from the refinancing of debt (see Note 11) to an indirect wholly owned subsidiary of Amaya. In connection with this transaction, Amaya issued 4,000,000 common stock warrants as consideration, on behalf of the Company, to certain lenders. The fair value of the warrants at issuance was approximately $10,400,000 USD. Additionally, the Company distributed $5,000,000 to Amaya as agreed to in 2013 related to the fulfilment of certain conditions under the acquisition and merger agreement, thereby eliminating its liability to Amaya (see Note 11).
8. Employee Benefit Plan
The Cadillac Jack, Inc. 401(k) Plan (“the Plan”) provides retirement benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute up to the maximum contributions as set periodically by the Internal Revenue Service. The Company may make a discretionary contribution to the Plan, not to exceed 15% of the total compensation of all participants as allowed under Section 401(k) of the Internal Revenue Code. The Company elected to make matching contributions of approximately $330,000 and $300,000 for the years ended December 31, 2013 and 2014, respectively.
9. Share-Based Awards and Options
The purpose of the Amaya stock option plan is to attract, retain, and motivate employees and officers of the Company, and to promote the interests of the Company. The stock option plan permits the board of directors to
F-82
grant either incentive stock options or nonqualified stock options to purchase shares of Amaya’s common stock. Amaya’s stock option plan authorized the issuance of options to purchase up to an aggregate of 13,284,434 shares of Amaya’s common stock, provided that the board shall have the right, from time to time, to increase such number, subject to applicable laws. Certain options can become exercisable upon death or disability.
The activity in the Amaya stock option plan for the years ended December 31, 2013 and 2014, is summarized as follows:
Options |
Weighted-
Average Exercise Price Canadian $ |
|||||||
Options outstanding at December 31, 2012 |
1,600,000 | $ | 4.24 | |||||
Granted |
62,500 | 6.85 | ||||||
Exercised |
(312,171 | ) | 4.24 | |||||
Forfeited |
(67,550 | ) | 4.24 | |||||
|
|
|||||||
Options outstanding at December 31, 2013 |
1,282,779 | 4.37 | ||||||
Granted |
— | |||||||
Exercised |
(166,284 | ) | 4.27 | |||||
Forfeited |
(77,781 | ) | 4.78 | |||||
|
|
|||||||
Options outstanding at December 31, 2014 |
1,038,714 | 4.35 | ||||||
|
|
A summary of stock options outstanding at December 31, 2013 and 2014, is as follows:
2013 | ||||||||||||
Canadian $ Exercise Prices |
Number of
Options Outstanding |
Weighted-
Remaining Contractual Life (Years) |
Number of
Options Vested and Exercisable |
|||||||||
$4.24 |
1,220,279 | 3.92 | 76,506 | |||||||||
6.00 |
12,500 | 4.41 | — | |||||||||
6.33 |
20,000 | 4.70 | — | |||||||||
7.55 |
30,000 | 4.97 | — | |||||||||
|
|
|
|
|||||||||
1,282,779 | 76,506 | |||||||||||
|
|
|
|
2014 | ||||||||||||
Canadian $ Exercise Prices |
Number of
Options Outstanding |
Weighted-
Remaining Contractual Life (Years) |
Number of
Options Vested and Exercisable |
|||||||||
$4.24 |
999,339 | 2.92 | 274,413 | |||||||||
6.00 |
9,375 | 3.41 | — | |||||||||
7.55 |
30,000 | 3.97 | 7,500 | |||||||||
|
|
|
|
|||||||||
1,038,714 | 281,913 | |||||||||||
|
|
|
|
During 2013, Amaya granted an aggregate of 62,500 options to employees of the Company. No options were modified in 2013. The Company issued three separate grants of 12,500 options, 20,000 options, and 30,000 options in 2013, with grant-date fair values of $2.33 per option, $2.48 per option, and $3.10 per option, respectively. During 2014, Amaya did not grant or modify any options to employees of the Company.
F-83
In 2013, the Black-Scholes valuation model was used to estimate the option grant-date fair value based on following assumptions:
2013 | ||||
Expected volatility |
60% | |||
Risk-free interest rate |
1.07% | |||
Dividend yield |
— % | |||
Expected term in years |
3.75 years |
Expected volatility is estimated based on stock prices of comparable companies, as adjusted to take into account Amaya’s trading history. The risk-free interest rate is based on the average yield of government of Canada one-to three-year marketable bonds. The dividend yield is 0% as Amaya does not pay dividends. The expected life is estimated using the average of the vesting period and the contractual life of the options because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
Stock compensation expense related to the Amaya stock option plan of approximately $715,000 and $687,000 for the years ended December 31, 2013 and 2014, respectively.
There were 1,198,840 options available for future grants under the Amaya stock option plan at December 31, 2014. The unrecognized compensation cost expected to be recognized over the next three years is approximately $1,367,000.
10. Income Taxes
The provision for income taxes at December 31, 2013 and 2014, consisted of the following:
2013 | 2014 | |||||||
Current tax (benefit) expense: |
||||||||
Federal |
— | — | ||||||
State |
(5,918 | ) | 162,108 | |||||
Foreign (including withholding taxes) |
2,055,668 | 3,380,162 | ||||||
|
|
|
|
|||||
Total current tax expense |
2,049,750 | 3,542,270 | ||||||
|
|
|
|
|||||
Deferred tax expense (benefit): |
||||||||
Federal |
2,448,319 | (1,907,965 | ) | |||||
State |
550,738 | 162,587 | ||||||
Foreign |
(423,342 | ) | (1,865,796 | ) | ||||
Increase in valuation allowance |
423,342 | 22,045,745 | ||||||
|
|
|
|
|||||
Total deferred tax expense |
2,999,057 | 18,434,571 | ||||||
|
|
|
|
|||||
Total income tax expense |
$ | 5,048,807 | $ | 21,976,841 | ||||
|
|
|
|
The following is a summary of income before taxes of the United States and foreign operations for the years ended December 31, 2013 and 2014:
2013 | 2014 | |||||||
Domestic |
$ | 19,402,954 | $ | 1,197,422 | ||||
Foreign |
(5,809,598 | ) | (8,051,428 | ) | ||||
|
|
|
|
|||||
Total |
$ | 13,593,356 | $ | (6,854,006 | ) | |||
|
|
|
|
F-84
Income tax expense differs from the amount computed using the statutory United States Federal income tax rate as follows for the years ended December 31, 2013 and 2014:
2013 | 2014 | |||||||
Federal income tax at the statutory rate |
34.0 | % | 34.0 | % | ||||
State income taxes, net of federal benefits |
3.3 | % | -2.7 | % | ||||
Foreign and United States tax rate differential |
1.5 | % | -4.2 | % | ||||
Change in valuation allowance |
3.1 | % | -321.6 | % | ||||
Change in liability for uncertain tax positions |
-9.4 | % | 14.0 | % | ||||
Interest expense |
0.0 | % | -21.8 | % | ||||
Tax credits |
4.7 | % | -13.7 | % | ||||
Other permanent differences |
-0.1 | % | -4.6 | % | ||||
|
|
|
|
|||||
Effective tax rate |
37.1 | % | -320.6 | % | ||||
|
|
|
|
The income tax provision differs from the expense that would result from applying federal statutory rates to income (loss) before income taxes due to state income taxes, permanent book/tax differences, changes in estimates for uncertain tax positions, changes in valuation allowance against deferred tax assets, and also due to federal and state research and development tax credits available. The Company has recorded a full valuation allowance against net deferred tax assets in Mexico and all U.S. jurisdictions due to the negative evidence outweighing the positive evidence related to the realization of these net deferred tax assets. The valuation allowance against these net deferred tax assets has been allocated pro rata between current and noncurrent deferred tax assets on a jurisdictional basis. The tax effects of temporary differences that give rise to significant portions of the current and noncurrent deferred tax assets and liabilities at December 31, 2013 and 2014, are presented as follows:
2013 | 2014 | |||||||
Current—deferred tax asset: |
||||||||
Allowance for doubtful accounts |
$ | 471,144 | $ | 254,047 | ||||
Allowance for inventory obsolescence |
45,302 | 37,677 | ||||||
Inventory book tax differences |
30,438 | 7,381 | ||||||
Accrued expenses |
1,925,727 | 1,622,302 | ||||||
Net operating loss carryforward |
5,697,708 | 402,621 | ||||||
|
|
|
|
|||||
Total current deferred tax asset |
8,170,319 | 2,324,028 | ||||||
Less valuation allowance |
(1,008,987 | ) | (2,085,175 | ) | ||||
|
|
|
|
|||||
Net current deferred tax asset |
$ | 7,161,332 | $ | 238,853 | ||||
Noncurrent—deferred tax asset (liability): |
||||||||
Accrued expenses |
$ | 1,483,729 | $ | 6,435,627 | ||||
Depreciation and amortization |
(2,039,993 | ) | (1,887,191 | ) | ||||
Other temporary differences |
524,407 | 444,459 | ||||||
Foreign tax credit carryforward |
10,302,458 | 12,052,141 | ||||||
Other tax credit carryforward |
2,925,732 | 2,382,172 | ||||||
Stock compensation expense |
54,575 | 197,046 | ||||||
Net operating loss carryforward |
648,770 | 3,625,345 | ||||||
|
|
|
|
|||||
Total noncurrent deferred tax asset |
13,899,678 | 23,249,599 | ||||||
Less valuation allowance |
(3,047,549 | ) | (23,488,452 | ) | ||||
|
|
|
|
|||||
Net noncurrent deferred tax asset (liability) |
$ | 10,852,129 | $ | (238,853 | ) | |||
|
|
|
|
The Company’s Mexican customers are required under the U.S.-Mexico tax treaty to withhold 10% of their payments due to the Company for license fees, which can be used as tax credits on the Company’s U.S. federal
F-85
income tax return. The tax credits are not refundable, but can be carried forward for 10 years to offset future tax liability. The credits begin to expire starting in 2016. The Company’s other tax credits relate to research and development activities and begin to expire in 2024. The Company also has NOL carryforwards for U.S. federal purposes of approximately $123,000, in Mexico of approximately $2,125,000 and various U.S. states of approximately $12,167,000. The federal NOL carryforwards begin to expire in 2033, the Mexican NOL carryforwards begin to expire in 2021, and the state NOL carryforwards begin to expire in 2022.
The utilization of the NOL carryforwards and tax credits is limited in the future in accordance with Section 382 and Section 383 of the Internal Revenue Code based on a change in control that occurred in 2012. A subsequent change in control could be caused by a share repurchase program, additional issuances of common stock by the Company, and acquisitions or sales of shares by certain holders of the Company’s shares, including persons who have held, currently hold, or may accumulate in the future 5% or more of the Company’s outstanding common stock. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets on a jurisdictional basis. Based on this evaluation, the Company has provided a full valuation allowance of approximately $21,805,000 on its net deferred tax assets in the U.S. The Company also has approximately $4,768,000 of NOL carryforwards and other temporary differences in Mexico, which have a full valuation allowance. The determination that a valuation allowance is needed was made after weighing the positive and negative evidence related to Cadillac Jack’s ability to realize the deferred tax assets, and more weight was given to objectively verifiable evidence, such as recent operating results, and contractual obligations. The amount of the deferred tax asset considered realizable, however, could change as the Company will continue to evaluate our assumptions each year regarding the need for a valuation allowance and will make appropriate adjustments as necessary.
Approximately $543,000 in penalties were recorded on uncertain tax positions during the year and remained accrued as of December 31, 2014. No interest was recorded on uncertain tax positions since no tax would be due. There were no penalties or interest recorded on uncertain tax positions during 2013 or accrued as of December 31, 2014. While not anticipated, the amount of unrecognized tax benefits may change for various reasons in the next 12 months; however, the Company does not expect that change to have a material impact on its consolidated financial position or results of operation. The Company is subject to taxation in the U.S. federal, various U.S. states, and Mexico jurisdictions. As of December 31, 2014, the Company’s tax years for 2002-2013 are subject to examination by taxing authorities. As of December 31, 2014, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2002.
The Company is permanently reinvested with respect to its investment in its foreign subsidiaries. Accordingly, no deferred income tax liability related to its foreign subsidiaries’ unremitted earnings has been included in the Company’s provision for income taxes. Upon distribution of those earnings in the form of dividends or, otherwise, the Company would be subject to income taxes and withholding taxes payable, which could potentially be offset by foreign tax credits. Determination of the amount of unrecognized deferred income tax liability is not practicable because of the complexities associated with the hypothetical calculation.
F-86
11. Notes Payable and Long-Term Debt Long-Term Debt
Long-term debt at December 31, 2013 and 2014, consisted of the following:
2013 | 2014 | |||||||
Note payable to various lenders. Wilmington Trust as administrative and collateral agent. The term loans may be eurodollar loans or base rate loans as determined by the Company. When electing to use the eurodollar option, the loan bears an 8.0% interest rate, which assumes a London InterBank Offered Rate (LIBOR) floor of 1.0%, plus 7.0%. Interest is paid quarterly. The loan to each lender matures in quarterly payments. The remaining balance is due in 2017. The loans are secured by all the Company’s assets. The loans are guaranteed by Amaya. |
$ | 160,000,000 | — | |||||
Note payable to various lenders. Wilmington Trust as administrative and collateral agent. The term loans may be eurodollar loans or base rate loans as determined by the Company. When electing to use the eurodollar option, the loan bears an 9.5% interest rate, which assumes a London InterBank Offered Rate (LIBOR) floor of 1.0%, plus 8.5%. Interest is paid quarterly. The loan to each lender matures in quarterly payments. The remaining balance is due in 2019. The loans are secured by all the Company’s assets. The loans are guaranteed by Amaya. |
— | 238,000,000 | ||||||
Mezzanine note payable to various lenders. Wilmington Trust as administrative and collateral agent. The loan bears interest at a 13.0% interest rate per annum, which assumes cash interest of 6.0% per annum and paid in kind interest of 7.0% per annum. Cash interest is paid quarterly. At the election of the Company, paid in kind interest is paid in cash or compounds to principal quarterly. The loan to each lender is due in full in 2020. The loans are guaranteed by Amaya. |
— | 104,536,511 | ||||||
Note payable to Founder for settlement of various civil complaints and counterclaims bearing interest at 6% per annum; requires semiannual payments of principal and interest. The note was paid in full in 2014. |
386,233 | — | ||||||
|
|
|
|
|||||
Total long-term debt |
160,386,233 | 342,536,511 | ||||||
Less current portion of long-term debt |
(1,986,233 | ) | (2,400,000 | ) | ||||
|
|
|
|
|||||
Long-term debt—net of current portion |
158,400,000 | 340,136,511 | ||||||
Less unamortized discounts |
— | (14,138,677 | ) | |||||
|
|
|
|
|||||
Long-term debt—net of current portion and discounts |
$ | 158,400,000 | $ | 325,997,834 | ||||
|
|
|
|
Maturities of long-term debt for the next five years and thereafter are summarized as follows:
Years Ending December 31 | ||||
2015 |
$ | 2,400,000 | ||
2016 |
2,400,000 | |||
2017 |
2,400,000 | |||
2018 |
2,400,000 | |||
2019 and thereafter |
332,936,511 | |||
|
|
|||
$ | 342,536,511 | |||
|
|
F-87
In connection with the Amaya acquisition of the Company on November 5, 2012, the Company’s direct parent, Amaya Holdings Corporation (an indirect wholly owned subsidiary of Amaya) entered into a credit agreement with a syndicate of financial institutions for $110,000,000 of term loans. The term loans were used by Amaya to finance the acquisition, pay off the Company’s existing debt and fund the Company’s ongoing working capital needs. Amaya pledged its equity interests in the Company and its subsidiaries as a guarantee and as collateral. This agreement was canceled and paid in full with proceeds from new debt described below on December 20, 2013. The agreement required the Company to maintain a holdback account control agreement funded with $5,000,000 from proceeds of the term loans, which is required until the additional consideration is paid according to the acquisition and merger agreement on the second anniversary of the closing date (November 5, 2014). Early release of this provision of the acquisition and merger agreement was executed on November 11, 2013. However, the $5,000,000 holdback amount continued to be held by the financial institutions and restricted from use by the Company as of December 31, 2013. The Company committed to paying the holdback amount to Amaya on release, and therefore recorded a declared distribution to Amaya and a liability to Amaya as of December 31, 2013. In January 2014, the proceeds were released to the Company, and the Company subsequently transferred these proceeds to Amaya, thereby eliminating the liability to Amaya.
On December 20, 2013, the Company entered into a credit agreement with a different syndicate of financial institutions for $160,000,000 of term loans. This arrangement replaced the existing credit facility. The proceeds were also used to make a distribution to the Company’s direct parent and fund the ongoing working capital needs of the Company. Amaya pledged its equity interest in the Company and its subsidiaries as a guarantee and as collateral. This credit agreement was amended in 2014, as discussed below, in a transaction accounted for as a debt extinguishment, resulting in a loss on extinguishment of approximately $1,715,000.
On May 15, 2014, the Company amended the existing credit agreement dated as of December 20, 2013 with an extended syndicate of financial institutions for additional $80,000,000 of term loans. Also on May 15, 2014, the company entered into a credit agreement with a syndicate of financial institutions for $100,000,000 of mezzanine subordinate term loans. The proceeds from both agreements were directed to the Company’s direct parent. Amaya pledged its equity interest in the Company and its subsidiaries as a guarantee and as collateral.
These agreements include covenants covering financial condition (consolidated total leverage ratio, fixed-charge coverage ratio, and earnings before interest, taxes, depreciation, and amortization (EBITDA)) and limitations on capital expenditure. The leverage ratio of consolidated total debt to consolidated EBITDA cannot be higher than the following amounts in the table below for each period-end. Consolidated EBITDA as defined in the agreement is consolidated net income (loss), plus income tax expense; interest expense; amortization of debt issuance costs; depreciation; amortization; extraordinary expenses or losses; transaction expenses; other noncash charges fees losses or expenses; any fees or expenses paid in connection with any investment permitted by the agreement; fees and expenses paid to any agent under any loan document; cash payment for resolution of the IGT, Inc. (IGT), settlement minus interest income; extraordinary income or gains; and other noncash gain or income. Minimum EBITDA requirements are shown in the table below for each period-end. The fixed-charge coverage ratio of consolidated EBITDA minus income taxes paid, maintenance capital expenditures, and restricted payments as defined in the agreement divided by consolidated cash interest expense and scheduled debt payments cannot be lower than the following amounts in the tables below for each period-end.
F-88
The following information relates to the amended credit agreement:
Period-End |
Consolidated
Total Leverage Ratio |
Fixed-
Charge Coverage Ratio |
Consolidated
EBITDA |
|||||||||
March 31, 2015 |
8.75 | 1.02 | $ | 37,890,000 | ||||||||
June 30, 2015 |
8.75 | 1.05 | 38,010,000 | |||||||||
September 30, 2015 |
8.50 | 1.05 | 39,260,000 | |||||||||
December 31, 2015 |
8.25 | 1.05 | 40,580,000 | |||||||||
March 31, 2016 |
8.00 | 1.05 | 41,990,000 | |||||||||
June 30, 2016 |
7.75 | 1.05 | 43,500,000 | |||||||||
September 30, 2016 |
7.50 | 1.10 | 45,110,000 | |||||||||
December 31, 2016 |
7.25 | 1.10 | 46,830,000 | |||||||||
March 31, 2017 |
7.00 | 1.15 | 48,680,000 | |||||||||
June 30, 2017 |
7.00 | 1.15 | 48,870,000 | |||||||||
September 30, 2017 |
6.75 | 1.15 | 50,870,000 | |||||||||
December 31, 2017 |
6.75 | 1.20 | 51,070,000 | |||||||||
March 31, 2018 |
6.75 | 1.20 | 51,270,000 | |||||||||
June 30, 2018 |
6.50 | 1.20 | 53,460,000 | |||||||||
September 30, 2018 |
6.50 | 1.25 | 53,460,000 |
Capital expenditures cannot exceed $37,360,000, $38,100,000, $38,870,000, and $38,870,000 for the years ending December 31, 2015, 2016, 2017, and 2018, respectively. The Company may carry over to a subsequent year half of the amount of capital expenditures not expended in the preceding year. The Company was in compliance with its covenants for the period ended December 31, 2014.
The following information relates to the Mezzanine agreement:
Period-End |
Consolidated
Total Leverage Ratio |
Fixed-
Charge Coverage Ratio |
Consolidated
EBITDA |
|||||||||
March 31, 2015 |
9.00 | 1.00 | $ | 30,312,000 | ||||||||
June 30, 2015 |
9.00 | 1.00 | 30,408,000 | |||||||||
September 30, 2015 |
8.75 | 1.00 | 31,408,000 | |||||||||
December 31, 2015 |
8.50 | 1.00 | 32,464,000 | |||||||||
March 31, 2016 |
8.25 | 1.00 | 33,592,000 | |||||||||
June 30, 2016 |
8.00 | 1.00 | 34,800,000 | |||||||||
September 30, 2016 |
7.75 | 1.00 | 36,088,000 | |||||||||
December 31, 2016 |
7.50 | 1.00 | 37,464,000 | |||||||||
March 31, 2017 |
7.25 | 1.05 | 38,944,000 | |||||||||
June 30, 2017 |
7.25 | 1.05 | 39,096,000 | |||||||||
September 30, 2017 |
7.00 | 1.05 | 40,696,000 | |||||||||
December 31, 2017 |
7.00 | 1.10 | 40,856,000 | |||||||||
March 31, 2018 |
7.00 | 1.10 | 41,016,000 | |||||||||
June 30, 2018 |
6.75 | 1.10 | 42,768,000 | |||||||||
September 30, 2018 |
6.75 | 1.15 | 42,768,000 | |||||||||
December 31, 2018 |
6.75 | 1.15 | 42,768,000 | |||||||||
March 31, 2019, and thereafter |
6.25 | 1.15 | 42,768,000 |
Capital expenditures cannot exceed $44,832,000, $45,720,000, $46,644,000, and $46,644,000 for the years ending December 31, 2015, 2016, 2017, and 2018, respectively. The Company may carry over to a subsequent year half of the amount of capital expenditures not expended in the preceding year. The Company was in compliance with its covenants for the period ended December 31, 2014.
F-89
Common Stock Warrants —In connection with the Mezzanine Credit Agreement entered into on May 15, 2014, Amaya issued 4,000,000 common stock warrants as compensation, on behalf of the Company, to certain of the lenders involved.
Each warrant entitles the holder to purchase one share of Amaya common stock for an exercise price of $19.17 CAD. The warrants may be exercised by the holder at any time until the date of expiration, which is May 15, 2024 (10 years after the date of issuance). Upon issuance, the Company recorded a discount to the carrying value of the mezzanine loan and an associated increase to additional paid in capital for the estimated fair value of the warrants. The fair value of the warrants at issuance of approximately $10,400,000 USD was calculated using the Black-Scholes-Merton option-pricing model with the following assumptions: 10 year contractual term; annual risk-free interest rate of 2.29%; 46% volatility; and 0% dividend rate. The discount will be amortized to interest expense using the effective interest rate method over the six year term of the loan, and the interest charge for the year ended December 31, 2014 totaled approximately $400,000.
As of December 31, 2014, all 4,000,000 warrants remained outstanding. These were the only warrants issued by Amaya on behalf of the Company.
12. Commitments and Contingencies
Litigation —In 2012, the Company and the founder of the Company (the “Founder”) entered into a settlement agreement and mutual release that terminated a lawsuit filed by the Founder against the Company and a former officer and director of the Company. The Founder asserted that the former director authorized improper related-party transactions that caused the value of the Founder shares in the Company to decline, that the Company failed to reimburse the Founder for various expenses, and that the Company breached the employment contract with the Founder. The Company denied all claims of wrongdoing and filed a counterclaim against the Founder for breach of contract, breach of fiduciary duty, breach of duties of good faith, and loyalty and fraud. In a separate action that was settled in 2010, the Founder also alleged that the Company conspired to cause an event of default on certain loans related to real estate owned by the Founder. In connection with the 2012 settlement, the Company agreed to pay the Founder $1,500,000, which was recorded in selling, general, and administrative expense, in semiannual payments, plus 6% interest. The first payment was made on September 24, 2012, for $750,000. During 2013, two payments of approximately $202,000 each were made. During 2014, the remaining balance was paid in two equal payments of approximately $202,000 each.
The Company previously leased its office and operating facilities from the Founder. The lease term commenced in October 2004 and expired in October 2009. The Company continued to lease the building on a month-to-month basis through July 2010. Rent expense to the Founder for the year ended December 31, 2010, was approximately $359,000. The Founder also had litigation with the Company related to the lease on the building. During 2010, the Company settled the litigation related to the lease on the building and another lawsuit related to the purchase and sale agreement related to the Founder’s shares and paid the Founder $150,000. The Company is currently a guarantor on one loan with an estimated balance of $1.037M as of December 31, 2014, related to the building the Company was leasing from the Founder. As part of the settlement of the lease litigation, the Company deposited $1,000,000 of the purchase price of the Founder’s shares into an escrow account, and if the Company is required to pay under the guarantee agreement related to the building, it can offset the amount paid in escrow and seek recovery of the remainder from the Founder.
The Company is subject to other lawsuits, claims, and other complaints arising out of the ordinary conduct of business. While the ultimate results and outcomes from these matters cannot be determined precisely, management, based in part upon the advice of legal counsel, believes that all matters are without merit or are of such amounts that would not have a material adverse effect on the Company’s consolidated financial position, operating results, or cash flows.
Capitalized Lease Obligations —The Company leases property and equipment under capital leases. Amortization associated with assets under capital leases is included in depreciation expense. The leases
F-90
outstanding as of December 31, 2013 and 2014, require monthly payments ranging from $1,041 to $14,246 and $1,041 to $14,246, respectively, at interest rates ranging from 3.98% to 13.56% and 3.98% to 10.09%, respectively. The leases expire at various times through June 2017. The leases are secured by the related property and equipment.
A summary of property and equipment held under capital leases at December 31, 2013 and 2014, is as follows:
2013 | 2014 | |||||||
Cost of equipment held under capital leases |
$ | 1,883,644 | $ | 1,959,535 | ||||
Less accumulated amortization |
(1,067,072 | ) | (1,279,748 | ) | ||||
|
|
|
|
|||||
Net equipment held under capital leases |
$ | 816,572 | $ | 679,787 | ||||
|
|
|
|
The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments at December 31, 2014, are as follows:
Years Ending December 31 |
||||
2015 |
$ | 555,630 | ||
2016 |
208,861 | |||
2017 |
98,248 | |||
2018 |
24,380 | |||
|
|
|||
Total minimum lease payments |
887,119 | |||
Less amount representing interest |
(48,397 | ) | ||
|
|
|||
Total present value of minimum lease payments |
838,722 | |||
Less current portion |
(523,072 | ) | ||
|
|
|||
Noncurrent portion |
$ | 315,650 | ||
|
|
Operating Leases —The Company leases its office and operating facilities and certain equipment under operating lease agreements expiring on various dates through November 2017. Rent expense under the agreements was approximately $594,000 and $704,000 for the years ended December 31, 2013 and 2014, respectively.
Future minimum lease payments under noncancelable operating leases at December 31, 2014, are as follows:
Years Ending December 31 |
||||
2015 |
$ | 690,556 | ||
2016 |
678,066 | |||
2017 |
688,376 | |||
2018 |
78,598 | |||
|
|
|||
$ | 2,135,596 | |||
|
|
Sales Tax Liability —The Company has operations in various states and counties in which they have not filed sales tax returns. The Company has accrued approximately $92,000 as of December 31, 2014, which is the Company’s best estimate of its sales tax liabilities. The Company’s accounting policy is to include penalties and interest related to taxes in interest expense. Actual amounts could differ from estimates.
F-91
13. Net sales and cost of goods and services
The following is a summary of the components of net sales and cost of goods and services for the years ended December 31, 2013 and 2014:
2013 | 2014 | |||||||
Gaming operations services |
$ | 77,876,082 | $ | 75,052,076 | ||||
Sales of equipment |
7,054,761 | 12,076,903 | ||||||
|
|
|
|
|||||
Net sales |
$ | 84,930,843 | $ | 87,128,979 | ||||
|
|
|
|
|||||
Cost of gaming operations services |
22,913,223 | 25,161,507 | ||||||
Cost of equipment sales |
3,107,022 | 5,155,953 | ||||||
|
|
|
|
|||||
Cost of goods and services |
$ | 26,020,245 | $ | 30,317,460 | ||||
|
|
|
|
14. Concentrations
Significant Customer— Revenues from one major customer totaled approximately $21,125,000 and $23,698,000 and composed 25% and 26% of the revenues generated in 2013 and 2014, respectively. The outstanding receivables related to this customer were approximately $1,031,000 and $830,600 at December 31, 2013 and 2014, respectively. There were no other customers for which revenues composed more than 10% of total revenue during 2013 or 2014.
15. Foreign Operations
The Company has a significant portion of its operations located in Mexico. Revenues related to Mexican operations were approximately $29,022,000 and $25,984,000 for the years ended December 31, 2013 and 2014, respectively. The net book value of property and equipment located in Mexico was approximately $11,803,000 and $7,790,000 at December 31, 2013 and 2014, respectively. These operations are subject to risks of currency fluctuations and changes in laws and regulations.
16. Supplemental Disclosures of Cash Flows Information and Noncash Activities
Cash paid for interest and income taxes for the years ended December 31, 2013 and 2014, were as follows:
2013 | 2014 | |||||||
Cash paid during the year for interest |
$ | 11,228,406 | $ | 23,102,321 | ||||
Cash paid during the year for income taxes |
2,219,340 | 1,793,862 |
Significant noncash activities for the years ended December 31, 2013 and 2014, were as follows:
2013 | 2014 | |||||||
Warrants issued related to Mezzanine debt |
$ | — | $ | 10,352,769 | ||||
Accrued distribution to Amaya related to early release of hold back from 2012 acquisition |
5,000,000 | — | ||||||
Contractual obligation and lease incentive asset related to customer contract |
2,451,600 | — | ||||||
Acquisition of property and equipment and prepaid maintenance contracts under capital leases |
752,931 | 722,104 | ||||||
Accrued capital expenditures |
470,070 | 174,301 |
******
F-92
Cadillac Jack, Inc. and Subsidiaries
An Indirect Wholly Owned Subsidiary of
Amaya Gaming Group Inc.
Consolidated Financial Statements as of March 31,
2015 and for the three-month periods ended March 31,
2014 and March 31, 2015 (Unaudited)
F-93
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF DECEMBER 31, 2014 AND MARCH 31, 2015
See notes to consolidated financial statements.
F-94
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three months ended March 31, | ||||||||
2014 | 2015 | |||||||
NET SALES |
$ | 21,298,618 | $ | 19,025,181 | ||||
SALES TO AMAYA |
— | 720,000 | ||||||
|
|
|
|
|||||
TOTAL NET SALES |
21,298,618 | 19,745,181 | ||||||
COST OF GOODS AND SERVICES |
6,623,249 | 6,197,860 | ||||||
SELLING, GENERAL, AND ADMINISTRATIVE |
7,324,709 | 7,309,783 | ||||||
|
|
|
|
|||||
INCOME FROM OPERATIONS |
7,350,660 | 6,237,538 | ||||||
|
|
|
|
|||||
OTHER INCOME (EXPENSE): |
||||||||
Interest expense |
(3,346,330 | ) | (9,413,249 | ) | ||||
Gain/(Loss) on foreign currency transactions |
58,842 | (891,496 | ) | |||||
|
|
|
|
|||||
Total other expense |
(3,287,488 | ) | (10,304,745 | ) | ||||
|
|
|
|
|||||
NET INCOME (LOSS) BEFORE INCOME TAXES |
4,063,172 | (4,067,207 | ) | |||||
INCOME TAX EXPENSE |
(1,911,827 | ) | (589,979 | ) | ||||
|
|
|
|
|||||
NET INCOME (LOSS) |
2,151,345 | (4,657,186 | ) | |||||
OTHER COMPREHENSIVE (LOSS)/INCOME —Foreign currency translation |
(3,493 | ) | 700,991 | |||||
|
|
|
|
|||||
COMPREHENSIVE INCOME (LOSS) |
$ | 2,147,852 | $ | (3,956,195 | ) | |||
|
|
|
|
See notes to consolidated financial statements.
F-95
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2015
Common Stock
Class A |
Additional
Paid-In Capital |
Accumulated
Other Comprehensive Loss |
Accumulated
Deficit |
Deemed
Distribution |
Total
Stockholder’s Deficit |
|||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
BALANCE—December 31, 2014 |
1,000 | 10 | — | $ | 973,671 | $ | (156,890,599 | ) | $ | (110,000,000 | ) | $ | (265,916,918 | ) | ||||||||||||||
Stock compensation expense |
— | — | — | — | 132,115 | — | 132,115 | |||||||||||||||||||||
Excess tax benefit from stock compensation |
— | — | — | — | 98,194 | — | 98,194 | |||||||||||||||||||||
Other comprehensive income |
— | — | — | 700,991 | — | — | 700,991 | |||||||||||||||||||||
Net loss |
— | — | — | — | (4,657,186 | ) | (4,657,186 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE—March 31, 2015 |
1,000 | $ | 10 | — | $ | 1,674,662 | $ | (161,317,476 | ) | $ | (110,000,000 | ) | $ | (269,642,804 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-96
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31, |
||||||||
2014 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | 2,151,345 | $ | (4,657,189 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation of property and equipment |
2,589,102 | 2,748,228 | ||||||
Amortization of intangible assets |
1,133,592 | 1,245,857 | ||||||
Deferred taxes |
1,464,105 | 98,197 | ||||||
Share-based compensation |
186,278 | 132,115 | ||||||
Excess tax benefits from share-based compensation |
(10,089 | ) | (98,194 | ) | ||||
Amortization of deferred financing costs and discounts |
100,775 | 329,550 | ||||||
Unrealized (Gain) / Loss on currency conversion |
(58,842 | ) | 891,496 | |||||
Loss on sale of property, equipment and intangibles |
18,368 | 24,548 | ||||||
Write-off of licenses and software |
61,481 | 14,910 | ||||||
Costs related to sales of previously leased gaming machines and third-party licenses |
196,333 | 155,584 | ||||||
Costs related to sales of gaming machines under capital lease |
202,527 | 0 | ||||||
Provision for doubtful accounts |
81,491 | 283,669 | ||||||
Inventory write-down |
(38,280 | ) | 21,138 | |||||
Interest paid in kind |
0 | 1,829,389 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(1,502,027 | ) | 331,891 | |||||
Inventory |
(1,013,133 | ) | (445,598 | ) | ||||
Other current receivables |
99,289 | 175,464 | ||||||
Prepaid expenses and other current assets |
331,919 | 121,759 | ||||||
Other noncurrent assets |
(603,328 | ) | 193,626 | |||||
Accounts payable and accrued expenses |
(589,232 | ) | (818,714 | ) | ||||
Accrued sales and valued-added taxes |
19,035 | 51,011 | ||||||
Other long-term liabilities |
7,603 | (13,557 | ) | |||||
Due from / to Amaya |
332,918 | (720,000 | ) | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
5,161,230 | 1,895,180 | ||||||
|
|
|
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Additions to gaming operation equipment and other property and equipment |
(1,298,167 | ) | (2,121,112 | ) | ||||
Payments to acquire or license intangible assets |
(1,091,287 | ) | (1,258,259 | ) | ||||
Release of restricted cash |
5,000,000 | 0 | ||||||
|
|
|
|
|||||
Net cash provided by (used in) investing activities |
2,610,546 | (3,379,371 | ) | |||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Payments on long-term debt |
(590,247 | ) | (600,000 | ) | ||||
Payment of restricted cash to Amaya |
(5,000,000 | ) | 0 | |||||
Excess tax benefits from share-based compensation |
10,089 | 98,194 | ||||||
Payments of obligations under capital leases |
(229,989 | ) | (186,426 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(5,810,147 | ) | (688,232 | ) | ||||
|
|
|
|
|||||
NET INCREASE IN CASH |
1,961,629 | (2,172,423 | ) | |||||
EFFECT OF EXCHANGE RATES ON CASH |
14,183 | (54,955 | ) | |||||
CASH—Beginning of period |
14,252,639 | 7,585,794 | ||||||
|
|
|
|
|||||
CASH—End of period |
16,228,451 | 5,358,416 | ||||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the year for interest |
3,229,550 | 7,296,262 | ||||||
Cash paid during the year for income taxes |
451,232 | 387,674 |
See notes to consolidated financial statements.
F-97
CADILLAC JACK, INC. AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Amaya Gaming Group Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. The Company
Cadillac Jack, Inc. and subsidiaries (the “Company”), an indirect wholly owned subsidiary of Amaya Gaming Group Inc. (“Amaya”), is a diversified gaming company that specializes in the design, manufacturing, operation, sales, and servicing of gaming technologies for the global gaming marketplace. The Company’s sales and marketing efforts focus on Native American Class II and Class III commercial gaming markets. The Company markets throughout the United States and international gaming markets, primarily Mexico.
The Company was acquired by Amaya, a publicly listed corporation incorporated in Quebec, Canada, by way of a merger with Odyssey Acquisition Corporation (an indirect subsidiary of Amaya). The effective date of the acquisition was November 5, 2012. Amaya’s common shares are listed on the Toronto Stock Exchange under the symbol “AYA.”
On March 30, 2015 Amaya entered into an agreement with AGS LLC (“AGS”, doing business as American Gaming Systems and an affiliate of funds managed by Apollo Global Management) to sell Company’s indirect parent company Amaya Americas Corporation to AGS. The transaction is expected to close in 2015, subject to receipt of gaming regulatory and antitrust approvals, and other customary closing conditions. As a result of the transaction the Company will become an indirect wholly owned subsidiary of AGS.
2. Summary of Significant Accounting Policies
Principles of Presentation and Consolidation —The accompanying consolidated financial statements include the accounts of Cadillac Jack, Inc., and the following wholly owned subsidiaries: Comercializadora de Juegos Cadillac Jack de Mexico, Servicios Administrativos CJ de Mexico, and Equipos y Soluciones Tecnologicas. The accompanying consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain disclosures required by generally accepted accounting principles (“GAAP”) are omitted or condensed in these consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) that are necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods have been made. The interim results reflected in these consolidated financial statements are not necessarily indicative of results to be expected for the full fiscal year.
All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates —The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Estimates are used for, but not limited to, the accounting for doubtful accounts, allowance for obsolete inventory, lease receivables, sales tax accrual, revenue recognition, warrants, stock options, deferred taxes, contingencies, and useful lives of property and equipment and intangible assets in determining depreciation and amortization, respectively. Actual results could differ from those estimates.
Revenue Recognition —The Company recognizes revenue when all of the following have been satisfied:
• | Persuasive evidence of an arrangement exists. |
• | The price to the customer is fixed and determinable. |
F-98
• | Delivery has occurred. |
• | Collection is reasonably assured. |
Gaming Operations Revenue —Gaming operations revenue consists of the operation of linked progressive systems and the rental of gaming devices, game content, and the related systems placed with customers. Fees under these arrangements are earned and recognized based on a share of money wagered, a share of the net winnings, or on a fixed daily rate. The daily fee entitles the customer to full use of the gaming device and includes maintenance, licensing of the game content software, and connection to a linked progressive system, where applicable. In certain markets, the Company also charges a daily system connection fee for the customer to connect to a central determination system and/or back-office system. The Company does not consider these arrangements to have multiple revenue-generating activities as the services offered are a comprehensive solution in exchange for a daily fee. All of the products and services delivered simultaneously provide the customer with rights to use tangible gaming devices and software that is essential to the functionality of the gaming devices. Many of the arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders the contract effectively month-to-month. Primarily due to these factors, these arrangements are accounted for as operating leases in accordance with the operating lease guidance. Thus, in the consolidated financial statements the Company records revenue monthly related to these arrangements and the gaming machines and equipment is recorded in property and equipment, net on the balance sheet and depreciated over the expected life of the gaming machines and equipment.
Wide Area Progressive (WAP )—WAP systems consist of linked slot machines located in multiple casino properties, which connect to the Company’s central computer system. WAP games differ from stand-alone units in that a progressive jackpot increases with every wager until a player wins the top award. Revenues are recognized for each gaming machine based upon a percentage of amounts wagered on the gaming machine. Revenues are recognized as earned and when collectability is reasonably assured. Jackpots are payable immediately at the time the prize is awarded to the player and recorded as costs of goods sold.
The Company’s product sales revenues are generated from the sale of gaming machines and parts. Product sales are recognized upon delivery.
Service revenues include support and maintenance on machines, engineering services, installation, and management services. Services are recognized as they are provided.
Software License Fees —The Company also earns license fees from customers. License fees are generally billed at fixed monthly amounts per machine and recognized over the license period.
Multiple-Element Arrangements —The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. For example, customers may enter into arrangements with the Company for the implementation of systems software and the sale of gaming devices. Arrangements for the implementation of systems software will generally include a combination of systems software licenses, systems-based hardware products, maintenance and product support fees, and professional services. Certain gaming equipment arrangements may also include the sale of gaming devices. For sales arrangements with multiple deliverables, the Company divides deliverables into separate units of accounting, if:
• | The delivered items have stand-alone value to the customer. The items have value on a stand-alone basis if they are sold separately by any vendor or the customer could resell the delivered items on a stand-alone basis. |
• | Delivery of any undelivered item is considered probable and substantially in the Company’s control. |
The arrangement price is allocated to each of the elements based on the estimated selling prices of each element. Estimated selling prices are the Company’s best estimates of the prices that would be charged to customers if the stand-alone elements were separately sold and include considerations of prices charged by the Company for similar deliverables. The revenue related to the gaming machines and license fees and related costs are recognized upon delivery. Revenue related to revenue share is recognized over the estimated life of the arrangement as the service is performed, which ranges from one to five years.
F-99
For arrangements that do not qualify for separate units of accounting, the up-front fees paid are recorded as deferred revenue and the up-front expenses incurred are capitalized as deferred costs. Revenue and costs are amortized over the estimated life of the arrangement.
In certain operating lease arrangements, the Company makes payments to customers early in the lease term as an incentive. These payments are accounted for as lease incentives and accordingly deferred and recognized ratably over the lease term as a reduction of revenue. There are no lease incentive payments contractually required to be made in 2015.
Customer Financing —Contracts with customers for gaming machine purchases include extended terms of three to five years. These agreements are secured by the related products sold. The contracts are individually reviewed for impairment and any allowance is based on a probability of collection analysis.
Restricted Cash —Restricted cash is the contractual amount held by a financial institutions pursuant to the term loans (see Note 11).
Allowance for Doubtful Accounts —The allowance for doubtful accounts represents the Company’s best estimate of probable future losses in the accounts receivable balance. This estimate is based on historical experience and other currently available evidence.
Inventory —Inventory is stated at the lower of cost or market using standard costs, which approximates the weighted-average method of valuing inventory. Inventory specifically allocated to manufacture gaming machines to be placed under revenue-sharing arrangements is reclassed to gaming machines under construction, included in property and equipment.
Inventory at December 31, 2014 and March 31, 2015 is composed of the following categories:
12/31/2014 | 3/31/2015 | |||||||
Manufactured finished goods and work in process |
$ | 1,020,452 | $ | 825,348 | ||||
Raw materials and parts inventory |
4,741,688 | 4,977,934 | ||||||
Less allowance for obsolete inventory |
(116,816 | ) | (137,529 | ) | ||||
|
|
|
|
|||||
Total inventory—net |
$ | 5,645,324 | $ | 5,665,753 | ||||
|
|
|
|
Property and Equipment —The Company has property and equipment located throughout the United States and Mexico that are carried at cost. Expenditures for maintenance and repairs are expensed, while costs incurred for renewals and refurbishments that materially extend the life of the property and equipment are capitalized. Upon the sale, retirement or disposal of property and equipment, the asset cost and accumulated depreciation is eliminated from the financial statements. Any resulting gain or loss is included in operations. Sales of used games previously classified as gaming machinery and equipment are included in net sales, and the related net book value is included in cost of goods and services in the consolidated statements of income (loss) and comprehensive income (loss).
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to their estimated future undiscounted cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. The Company recorded no impairment charges for the three-month periods ended March 31, 2014 and March 31, 2015, respectively.
F-100
Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
Computer equipment and software |
3—5 years | |
Leasehold improvements |
Shorter of lease term or useful life | |
Machinery and equipment |
5—7 years | |
Gaming machines and equipment |
5 years | |
Office furniture and fixtures |
7—10 years | |
Vehicles |
5 years |
Gaming machines under construction and completed games not yet shipped are included in property and equipment if specifically allocated to a revenue-sharing arrangement.
Shipping and Handling Costs —The Company classifies shipping and handling amounts billed to customers as net sales and shipping and handling costs incurred as a component of cost of goods and services.
Advertising —Advertising is expensed as incurred. Advertising costs were approximately $321,000 and $119,000 for the three-month periods ended March 31, 2014 and 2015, respectively.
Stock Compensation —The Company accounts for new and modified share-based payment transactions with employees, such as stock options and restricted stock awards, based on their fair values. Compensation expense is recognized over the vesting period (see Note 9).
Income Taxes —The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates scheduled to be in effect when temporary differences are expected to be recovered or settled. The effect of a change in enacted tax rates on the deferred tax assets and liabilities is recognized in income in the financial statement period when the new tax rates are enacted. The Company assesses the realizability of its deferred tax assets annually and records a valuation allowance when it is determined that it is more likely than not that a deferred tax asset will not be realized.
The Company recognizes uncertain tax positions taken or expected to be taken in a tax return when they are “more likely than not” to be sustained upon examination. A recognized tax position is recorded in the consolidated financial statements at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement. Differences between the estimated liabilities and the amounts paid upon ultimate resolution with the taxing authorities are reflected as increases or decreases to income tax expense in the period in which they are determined.
The Company recognizes interest and penalties related to uncertain tax positions. Interest is included within interest expense.
Deferred Financing Costs and Debt Discounts —Deferred financing costs and debt discounts, including common stock warrants (Note 11), are amortized using the effective interest method over the term of the loan to which they relate. Amortization expense is estimated to be approximately $1,164,000 for nine months ending December 31, 2015, $1,967,000, $2,523,000, $3,197,000, $3,668,000 and $1,525,000 for the years ending December 31, 2016, 2017, 2018, 2019 and 2020, respectively.
Research and Development and Software Development Costs —Capitalization of software development costs begins upon the establishment of technological feasibility of the product. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life, and changes in software and hardware technology.
F-101
The Company expenses all research and development costs associated with the establishment of technological feasibility for its software products to research and development costs. From the time of establishing technological feasibility through general release of the product, the Company capitalizes software development costs and reports them in the consolidated balance sheets as a component of capitalized software at the lower of unamortized cost or net realizable value. The Company amortizes capitalized software development costs upon general release of the product to customers and computes amortization on the greater of the amounts computed using the ratio of current gross revenues the product bears to the total of current and anticipated future gross revenues or the straight-line method over the estimated economic life of the product, generally three years.
The Company expensed research and development costs of approximately $3,070,000 and $3,174,000, included in selling, general, and administrative expense, for the three-month periods ended March 31, 2014 and 2015, respectively. The Company capitalized costs related to game certification of approximately $415,000 and $875,000 for the three-month periods ended March 31, 2014 and 2015, respectively. The Company also capitalized license fees paid to third parties of approximately $464,000 and $260,000 for the three-month periods ended March 31, 2014 and 2015, respectively.
Foreign Currency Translation and Transactions —The Mexican peso is used as the functional currency for the Company’s subsidiaries located in Mexico. Assets and liabilities denominated in the foreign currency are translated into U.S. dollars using the exchange rate in effect at the consolidated balance sheet dates. Revenues, expenses, and cash flows are translated at the average exchange rate in effect during the year. The foreign currency income of $58,841 and loss of $891,496 for the three-month periods ended March 31, 2014 and 2015, respectively, included in net income (loss) primarily relates to the effects of foreign exchange rate changes between the Mexican Peso and short-term intercompany loans denominated in the U.S. dollar.
Fair Value of Financial Instruments —The Company’s financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses, are carried at cost, which approximates their fair value due to short maturities. The carrying value of long-term debt approximates its fair value.
Subsequent Events —The Company evaluated subsequent events through May 15, 2015, the date on which these consolidated financial statements were issued.
Recently Issued Accounting Guidance —In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists , that requires companies to present unrecognized tax benefits as a reduction to deferred tax assets when a net operating loss (NOL) carryforward, a similar tax loss or a tax credit carryforward exists, with limited exceptions. The amendments in guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company adopted early with no material impact on the consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which changes the accounting guidance related to revenue recognition. The updated accounting guidance provides a single, contract-based revenue recognition model to help improve financial reporting by providing clearer guidance on when an entity should recognize revenue, and by reducing the number of standards to which entities have to refer. The guidance also expands the required disclosures related to revenue recognition. This guidance is effective on January 1, 2018, and early adoption is permitted. The updated accounting guidance allows for either a full retrospective adoption or modified retrospective adoption. The Company is currently evaluating the impact and method of adoption of ASU No. 2014-09 on its consolidated financial statements.
3. Accounts Receivable
The Company extends credit to customers located throughout North America and Latin America based on the size of the company, its payment history, and other factors. The Company does not require collateral for its
F-102
accounts receivable. The amount of accounting loss due to credit risk the Company would incur if the parties to the accounts receivable failed to perform according to the terms of the agreement would be the balance of the accounts receivable—net of the allowance for doubtful accounts. Accounts receivable at December 31, 2014 and March 31, 2015, consisted of the following:
12/31/2014 | 3/31/2015 | |||||||
Trade receivable |
$ | 12,330,566 | $ | 11,978,693 | ||||
Unbilled receivable |
2,265,441 | 2,340,582 | ||||||
Less allowance for doubtful accounts |
(851,199 | ) | (1,299,448 | ) | ||||
|
|
|
|
|||||
Accounts receivable—net |
$ | 13,744,808 | $ | 13,019,827 | ||||
|
|
|
|
In 2013, the Company entered into certain sales-type lease arrangements. The components of the net investment in sales-type leases as of December 31, 2014 and March 31, 2015 are as follows:
12/31/2014 | 3/31/2015 | |||||||
Total minimum lease payments receivable |
$ | 1,562,493 | $ | 1,262,947 | ||||
Less: unearned income |
(212,045 | ) | (101,556 | ) | ||||
|
|
|
|
|||||
Net investment in sales-type leases |
$ | 1,350,448 | $ | 1,161,391 | ||||
|
|
|
|
The current maturity of net investment in sales-type leases is included in trade accounts receivable. The noncurrent maturity of net investment in sales-type leases is included in other noncurrent assets. The present value of minimum lease payments receivable, unearned finance income, and future minimum lease payment receivable are as follows:
Present Value
of Minimum Lease Payments Receivable |
Unearned
Finance Income |
Future
Minimum Lease Payments Receivable |
||||||||||
2015 |
$ | 583,087 | $ | 77,307 | $ | 660,394 | ||||||
2016 |
556,515 | 23,448 | $ | 579,963 | ||||||||
2017 |
21,789 | 801 | 22,590 | |||||||||
|
|
|
|
|
|
|||||||
Net investment in sales-type leases |
$ | 1,161,391 | $ | 101,556 | $ | 1,262,947 | ||||||
|
|
|
|
|
|
4. Property and Equipment
For the three-month period ended March 31, 2014, the Company sold previously leased gaming machines and third-party licenses with a net book value of approximately $198,000 for $351,000. For the three-month period ended March 31, 2015, the Company sold previously leased gaming machines and third-party licenses with a net book value of approximately $156,000 for $341,000. For the three-month periods ended March 31, 2014 and 2015, the Company recorded no impairment of idle gaming equipment.
F-103
Property and equipment at December 31, 2014 and March 31, 2015 consisted of the following:
At Cost | 12/31/2014 | 3/31/2015 | ||||||
Computer equipment and software |
$ | 4,099,754 | $ | 4,376,378 | ||||
Leasehold improvements |
837,772 | 831,682 | ||||||
Machinery and equipment |
220,637 | 308,795 | ||||||
Gaming machines and equipment |
72,028,634 | 70,781,285 | ||||||
Gaming machines under construction |
250,518 | 606,342 | ||||||
Office furniture and fixtures |
1,417,553 | 1,672,369 | ||||||
Vehicles |
— | — | ||||||
|
|
|
|
|||||
78,854,868 | 78,576,851 | |||||||
Less accumulated depreciation |
(52,898,538 | ) | (53,104,787 | ) | ||||
|
|
|
|
|||||
Property and equipment—net |
$ | 25,956,330 | $ | 25,472,064 | ||||
|
|
|
|
5. Intangible Assets
Third-party licenses consist of license fees for game titles developed by third parties and license fees to third parties for using certain technologies. Capitalized certification costs are related to certifying games for play in certain jurisdictions. Patents include third-party costs associated with filing applications and defending patents.
Intangible assets at December 31, 2014 and March 31, 2015, consist of the following:
Gross |
Accumulated
Amortization |
Net |
Life |
|||||||||||
12/31/2014 |
||||||||||||||
Third-party licenses |
$ | 15,236,214 | $ | (9,588,952 | ) | $ | 5,647,262 | 3—5 years | ||||||
Capitalized certification costs |
13,030,282 | (8,619,924 | ) | 4,410,358 | 3 years | |||||||||
Patents |
918,405 | (10,592 | ) | 907,813 | 10 years | |||||||||
|
|
|
|
|
|
|||||||||
Total |
29,184,901 | (18,219,468 | ) | 10,965,433 | ||||||||||
Less items not in service |
(3,505,886 | ) | — | (3,505,886 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Total costs subject to amortization |
$ | 25,679,015 | $ | (18,219,468 | ) | $ | 7,459,547 | |||||||
|
|
|
|
|
|
|||||||||
3/31/2015 |
||||||||||||||
Third-party licenses |
$ | 15,108,115 | $ | (9,679,156 | ) | $ | 5,428,959 | 3—5 years | ||||||
Capitalized certification costs |
13,904,830 | (9,131,667 | ) | 4,773,163 | 3 years | |||||||||
Patents |
1,071,362 | (14,591 | ) | 1,056,771 | 10 years | |||||||||
|
|
|
|
|
|
|||||||||
Total |
30,084,307 | (18,825,414 | ) | 11,258,893 | ||||||||||
Less items not in service |
(3,788,674 | ) | — | (3,788,674 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Total costs subject to amortization |
$ | 26,295,633 | $ | (18,825,414 | ) | $ | 7,470,219 |
Amortization expense for the next nine months and the next four years and thereafter for items in service at March 31, 2015, is estimated to be as follows:
Nine months ending December 31, 2015 |
$ | 2,726,266 | ||
Years ending December 31: |
||||
2016 |
2,513,344 | |||
2017 |
1,478,418 | |||
2018 |
476,539 | |||
2019 and thereafter |
275,652 | |||
|
|
|||
$ | 7,470,219 | |||
|
|
F-104
6. Deferred costs
Deferred costs consist of amounts paid or payable to lessees of the Company’s gaming machines to secure new lease arrangements. The costs are deferred and recognized ratably over the minimum lease term as a reduction to revenue. Deferred costs at December 31, 2014 and March 31, 2015, consisted of the following:
12/31/2014 | 3/31/2015 | |||||||
Paid to lessees |
$ | 5,340,000 | $ | 5,340,000 | ||||
Payable to lessees |
— | — | ||||||
|
|
|
|
|||||
Total |
5,340,000 | 5,340,000 | ||||||
Less accumulated amortization |
(1,691,000 | ) | (1,958,000 | ) | ||||
|
|
|
|
|||||
Total |
3,649,000 | 3,382,000 | ||||||
Less current portion |
(1,068,000 | ) | (1,068,000 | ) | ||||
|
|
|
|
|||||
Noncurrent portion |
$ | 2,581,000 | $ | 2,314,000 | ||||
|
|
|
|
Future amortization of deferred costs as of March 31, 2015, will be as follows:
Nine months ending December 31, 2015 |
$ | 801,000 | ||
Years ending December 31: |
||||
2016 |
1,068,000 | |||
2017 |
1,068,000 | |||
2018 |
445,000 | |||
|
|
|||
$ | 3,382,000 | |||
|
|
7. Related-Party Transactions
During the three-month periods ended March 31, 2014 and 2015, Amaya purchased zero game licenses and 6 game licenses from the Company for $0 and $720,000 respectively. During the three-month period ended March 31, 2014, the Company distributed $5,000,000 to Amaya as agreed to in 2013 related to the fulfilment of certain conditions under the acquisition and merger agreement (see Note 11).
8. Employee Benefit Plan
The Cadillac Jack, Inc. 401(k) Plan (“the Plan”) provides retirement benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute up to the maximum contributions as set periodically by the Internal Revenue Service. The Company may make a discretionary contribution to the Plan, not to exceed 15% of the total compensation of all participants as allowed under Section 401(k) of the Internal Revenue Code. The Company elected to make matching contributions of approximately $94,000 and $118,000 for the three-month periods ended March 31, 2014 and 2015, respectively.
9. Share-Based Awards and Options
The purpose of the Amaya stock option plan is to attract, retain, and motivate employees and officers of the Company, and to promote the interests of the Company. The stock option plan permits the board of directors to grant either incentive stock options or nonqualified stock options to purchase shares of Amaya’s common stock. Amaya’s stock option plan authorized the issuance of options to purchase up to an aggregate of 13,284,434 shares of Amaya’s common stock, provided that the board shall have the right, from time to time, to increase such number, subject to applicable laws. Certain options can become exercisable upon death or disability.
F-105
The activity in the Amaya stock option plan for the three-month period ended March 31, 2015 is summarized as follows:
Options |
Weighted-
Average Exercise Price Canadian $ |
|||||||
Options outstanding at December 31, 2014 |
1,038,714 | $ | 4.37 | |||||
Granted |
0 | |||||||
Exercised |
(20,645 | ) | 5.44 | |||||
Forfeited |
(69,876 | ) | 4.24 | |||||
|
|
|||||||
Options outstanding at March 31, 2015 |
948,193 | 4.34 | ||||||
|
|
A summary of stock options outstanding at December 31, 2014 and March 31, 2015, is as follows:
12/31/2014 | ||||||||||||
Canadian $ Exercise Prices |
Number of
Options Outstanding |
Weighted-
Average Remaining Contractual Life (Years) |
Number of
Options Vested and Exercisable |
|||||||||
$4.24 |
999,339 | 2.92 | 274,413 | |||||||||
6.00 |
9,375 | 3.41 | ||||||||||
7.55 |
30,000 | 3.97 | 7,500 | |||||||||
|
|
|
|
|||||||||
1,038,714 | 281,913 | |||||||||||
|
|
|
|
3/31/2015 | ||||||||||||
Canadian $ Exercise Prices |
Number of
Options Outstanding |
Weighted-
Average Remaining Contractual Life (Years) |
Number of
Options Vested and Exercisable |
|||||||||
$4.24 |
916,318 | 2.67 | 261,268 | |||||||||
6.00 |
9,375 | 3.16 | ||||||||||
7.55 |
22,500 | 3.72 | ||||||||||
|
|
|
|
|||||||||
948,193 | 261,268 | |||||||||||
|
|
|
|
During the three-month periods ended March 31, 2014 and 2015, Amaya did not grant or modify any options to employees of the Company.
Stock compensation expense related to the Amaya stock option plan of approximately $176,000 and $132,000 was recorded for the three-month periods ended March 31, 2014 and 2015, respectively.
There were 948,193 options available for future grants under the Amaya stock option plan at March 31, 2015. The unrecognized compensation cost expected to be recognized over the next three years is approximately $1,235,000.
F-106
10. Income Taxes
The provision for income taxes for the three-month periods ended March 31, 2014 and 2015, consisted of the following:
3/31/2014 | 3/31/2015 | |||||||
Current tax expense (benefit): |
||||||||
Federal |
— | — | ||||||
State |
7,335 | 104,108 | ||||||
Foreign (including withholding taxes) |
430,299 | 387,675 | ||||||
|
|
|
|
|||||
Total current tax expense |
437,634 | 491,783 | ||||||
|
|
|
|
|||||
Deferred tax expense (benefit): |
||||||||
Federal |
1,320,682 | (510,001 | ) | |||||
State |
153,511 | (102,570 | ) | |||||
Foreign |
(300,481 | ) | (515,232 | ) | ||||
Increase in valuation allowance |
300,481 | 1,226,001 | ||||||
|
|
|
|
|||||
Total deferred tax expense |
1,474,193 | 98,198 | ||||||
|
|
|
|
|||||
Total income tax expense |
$ | 1,911,827 | $ | 589,981 | ||||
|
|
|
|
F-107
The income tax provision differs from the expense that would result from applying federal statutory rates to income before income taxes due to state income taxes, permanent book/tax differences, changes in estimates for uncertain tax positions, changes in valuation allowance against deferred tax assets, and also due to federal and state research and development tax credits available. The Company has recorded a full valuation allowance against deferred tax assets in Mexico and all U.S. jurisdictions due to the negative evidence outweighing the positive evidence related to the realization of these deferred tax assets. The valuation allowance against these deferred tax assets has been allocated pro rata between current and noncurrent deferred tax assets on a jurisdictional basis. The tax effects of temporary differences that give rise to significant portions of the current and noncurrent deferred tax assets and liabilities at December 31, 2014 and March 31, 2015 are presented as follows:
12/31/2014 | 3/31/2015 | |||||||
Current—deferred tax asset: |
||||||||
Allowance for doubtful accounts |
$ | 254,047 | $ | 397,976 | ||||
Allowance for inventory obsolescence |
37,677 | 45,303 | ||||||
Inventory book tax differences |
7,381 | 8,546 | ||||||
Accrued expenses |
1,675,426 | 1,879,850 | ||||||
Net operating loss carryforward |
402,621 | 346,456 | ||||||
|
|
|
|
|||||
Total current deferred tax asset |
2,377,152 | 2,678,131 | ||||||
Less valuation allowance |
(2,138,299 | ) | (2,392,308 | ) | ||||
|
|
|
|
|||||
Net current deferred tax asset |
$ | 238,853 | $ | 285,823 | ||||
Noncurrent—deferred tax asset (liability): |
||||||||
Accrued expenses |
$ | 5,775,331 | $ | 7,633,902 | ||||
Depreciation and amortization |
(1,887,191 | ) | (1,675,326 | ) | ||||
Other temporary differences |
444,459 | 427,993 | ||||||
Foreign tax credit carryforward |
12,052,141 | 11,539,798 | ||||||
Other tax credit carryforward |
2,382,172 | 2,140,399 | ||||||
Stock compensation expense |
197,046 | 233,694 | ||||||
Net operating loss carryforward |
3,625,345 | 3,649,119 | ||||||
|
|
|
|
|||||
Total noncurrent deferred tax asset |
22,589,303 | 23,949,579 | ||||||
Less valuation allowance |
(22,828,156 | ) | (24,235,402 | ) | ||||
|
|
|
|
|||||
Net noncurrent deferred tax (liability) asset |
$ | (238,853 | ) | $ | (285,823 | ) | ||
|
|
|
|
The Company’s Mexican customers are required under the U.S.-Mexico tax treaty to withhold 10% of their payments due to the Company for license fees, which can be used as tax credits on the Company’s U.S. federal income tax return. The tax credits are not refundable, but can be carried forward for 10 years to offset future tax liability. The credits begin to expire starting in 2016. The Company’s other tax credits relate to research and development activities and begin to expire in 2024. The Company also has NOL carryforwards for in Mexico of approximately $2,157,000 and various U.S. states of approximately $11,854,000. The Mexican NOL carryforwards begin to expire in 2021, and the state NOL carryforwards begin to expire in 2022.
The utilization of the NOL carryforwards and tax credits is limited in the future in accordance with Section 382 and Section 383 of the Internal Revenue Code based on a change in control that occurred in 2012. A subsequent change in control could be caused by a share repurchase program, additional issuances of common stock by the Company, and acquisitions or sales of shares by certain holders of the Company’s shares, including persons who have held, currently hold, or may accumulate in the future 5% or more of the Company’s outstanding common stock. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets on a jurisdictional basis. Based on this evaluation, the Company has provided a full valuation allowance of approximately $21,516,000 on its deferred tax assets in the U.S. The Company also has approximately $5,112,000 of NOL carryforwards and other
F-108
temporary differences in Mexico, which have a full valuation allowance. The determination that a valuation allowance is needed was made after weighing the positive and negative evidence related to Cadillac Jack’s ability to realize the deferred tax assets, and more weight was given to objectively verifiable evidence, such as recent operating results, and contractual obligations. The amount of the deferred tax asset considered realizable, however, could change as we will continue to evaluate our assumptions each year regarding the need for a valuation allowance and will make appropriate adjustments as necessary.
Approximately $596,000 in penalties were recorded on uncertain tax positions during the year and remained accrued as of March 31, 2015. No interest was recorded on uncertain tax positions since no tax would be due as of March 31, 2015. While not anticipated, the amount of unrecognized tax benefits may change for various reasons in the next 12 months; however, the Company does not expect that change to have a material impact on its consolidated financial position or results of operation. The Company is subject to taxation in the U.S. federal, various U.S. states, and Mexico jurisdictions. As of March 31, 2015, the Company’s tax years for 2002-2013 are subject to examination by taxing authorities. As of March 31, 2015, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2002.
The Company is permanently reinvested with respect to its investment in its foreign subsidiaries. Accordingly, no deferred income tax liability related to its foreign subsidiaries’ unremitted earnings has been included in the Company’s provision for income taxes. Upon distribution of those earnings in the form of dividends or, otherwise, the Company would be subject to income taxes and withholding taxes payable, which could potentially be offset by foreign tax credits. Determination of the amount of unrecognized deferred income tax liability is not practicable because of the complexities associated with the hypothetical calculation.
11. Notes Payable and Long-Term Debt
Long-Term Debt —Long-term debt at December 31, 2014 and March 31, 2015 consisted of the following:
12/31/2014 | 3/31/2015 | |||||||
Note payable to various lenders. Wilmington Trust as administrative and collateral agent. The term loans may be eurodollar loans or base rate loans as determined by the Company. When electing to use the eurodollar option, the loan bears an 9.5% interest rate, which assumes a London InterBank Offered Rate (LIBOR) floor of 1.0%, plus 8.5%. Interest is paid quarterly. The loan to each lender matures in quarterly payments. The remaining balance is due in 2019. The loans are secured by all the Company’s assets. The loans are guaranteed by Amaya. |
$ | 238,000,000 | $ | 237,400,000 | ||||
Mezzanine note payable to various lenders. Wilmington Trust as administrative and collateral agent. The loan bears interest at a 13.0% interest rate per annum, which assumes cash interest of 6.0% per annum and paid in kind interest of 7.0% per annum. Cash interest is paid quarterly. At the election of the Company, paid in kind interest is paid in cash or compounds to principal quarterly. The loan to each lender is due in full in 2020. The loans are guaranteed by Amaya. |
$ | 104,536,511 | $ | 106,365,900 | ||||
|
|
|
|
|||||
Total long-term debt |
342,536,511 | 343,765,900 | ||||||
Less current portion of long-term debt |
(2,400,000 | ) | (2,400,000 | ) | ||||
|
|
|
|
|||||
Long-term debt—net of current portion |
340,136,511 | 341,365,900 | ||||||
Less unamortized discounts |
(14,138,677 | ) | (13,820,488 | ) | ||||
|
|
|
|
|||||
Long-term debt—net of current portion and discounts |
$ | 325,997,834 | $ | 327,545,412 | ||||
|
|
|
|
F-109
Maturities of long-term debt for the next five years and thereafter are summarized as follows:
Nine months ending December 31, 2015 |
$ | 1,800,000 | ||
Year ending December 31: |
||||
2016 |
2,400,000 | |||
2017 |
2,400,000 | |||
2018 |
2,400,000 | |||
2019 and thereafter |
334,165,900 | |||
|
|
|||
$ | 343,165,900 | |||
|
|
In connection with the Amaya acquisition of the Company on November 5, 2012, the Company’s direct parent, Amaya Holdings Corporation (an indirect wholly owned subsidiary of Amaya) entered into a credit agreement with a syndicate of financial institutions for $110,000,000 of term loans. The term loans were used by Amaya to finance the acquisition, pay off the Company’s existing debt and fund the Company’s ongoing working capital needs. Amaya pledged its equity interests in the Company and its subsidiaries as a guarantee and as collateral. This agreement was canceled and paid in full with proceeds from new debt described below on December 20, 2013. The agreement required the Company to maintain a holdback account control agreement funded with $5,000,000 from proceeds of the term loans, which is required until the additional consideration is paid according to the acquisition and merger agreement on the second anniversary of the closing date (November 5, 2014). Early release of this provision of the acquisition and merger agreement was executed on November 11, 2013. However, the $5,000,000 holdback amount continued to be held by the financial institutions and restricted from use by the Company as of December 31, 2013. In January 2014, the proceeds were released to the Company, and the Company subsequently transferred these proceeds to Amaya.
On December 20, 2013, the Company entered into a credit agreement with a different syndicate of financial institutions for $160,000,000 of term loans. This arrangement replaced the existing credit facility. The proceeds were also used to make a distribution to the Company’s direct parent and fund the ongoing working capital needs of the Company. Amaya pledged its equity interest in the Company and its subsidiaries as a guarantee and as collateral. This credit agreement was amended in 2014, as discussed below, in a transaction accounted for as a debt extinguishment, resulting in a loss on extinguishment of approximately $1,715,000.
On May 15, 2014, the Company amended the existing credit agreement dated as of December 20, 2013 with an extended syndicate of financial institutions for additional $80,000,000 of term loans. Also on May 15, 2014, the company entered into a credit agreement with a syndicate of financial institutions for $100,000,000 of mezzanine subordinate term loans. The proceeds from both agreements were directed to the Company’s direct parent. Amaya pledged its equity interest in the Company and its subsidiaries as a guarantee and as collateral.
These agreements include covenants covering financial condition (consolidated total leverage ratio, fixed-charge coverage ratio, and earnings before interest, taxes, depreciation, and amortization (EBITDA)) and limitations on capital expenditure. The leverage ratio of consolidated total debt to consolidated EBITDA cannot be higher than the following amounts in the table below for each period-end. Consolidated EBITDA as defined in the agreement is consolidated net income (loss), plus income tax expense; interest expense; amortization of debt issuance costs; depreciation; amortization; extraordinary expenses or losses; transaction expenses; other noncash charges fees losses or expenses; any fees or expenses paid in connection with any investment permitted by the agreement; fees and expenses paid to any agent under any loan document; cash payment for resolution of the IGT, Inc. (IGT), settlement minus interest income; extraordinary income or gains; and other noncash gain or income. Minimum EBITDA requirements are shown in the table below for each period-end. The fixed-charge coverage ratio of consolidated EBITDA minus income taxes paid, maintenance capital expenditures, and restricted payments as defined in the agreement divided by consolidated cash interest expense and scheduled debt payments cannot be lower than the following amounts in the tables below for each period-end.
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The following information relates to the amended credit agreement:
Period-End |
Consolidated
Total Leverage Ratio |
Fixed-Charge
Coverage Ratio |
Consolidated
EBITDA |
|||||||||
June 30, 2015 |
8.75 | 1.05 | 38,010,000 | |||||||||
September 30, 2015 |
8.50 | 1.05 | 39,260,000 | |||||||||
December 31, 2015 |
8.25 | 1.05 | 40,580,000 | |||||||||
March 31, 2016 |
8.00 | 1.05 | 41,990,000 | |||||||||
June 30, 2016 |
7.75 | 1.05 | 43,500,000 | |||||||||
September 30, 2016 |
7.50 | 1.10 | 45,110,000 | |||||||||
December 31, 2016 |
7.25 | 1.10 | 46,830,000 | |||||||||
March 31, 2017 |
7.00 | 1.15 | 48,680,000 | |||||||||
June 30, 2017 |
7.00 | 1.15 | 48,870,000 | |||||||||
September 30, 2017 |
6.75 | 1.15 | 50,870,000 | |||||||||
December 31, 2017 |
6.75 | 1.20 | 51,070,000 | |||||||||
March 31, 2018 |
6.75 | 1.20 | 51,270,000 | |||||||||
June 30, 2018 |
6.50 | 1.20 | 53,460,000 | |||||||||
September 30, 2018 |
6.50 | 1.25 | 53,460,000 | |||||||||
December 31, 2018 |
6.50 | 1.25 | 53,460,000 | |||||||||
March 31, 2019, and thereafter |
6.00 | 1.25 | 53,460,000 |
Capital expenditures cannot exceed $37,360,000, $38,100,000, $38,870,000, and $38,870,000 for the years ending December 31, 2015, 2016, 2017, and 2018, respectively. The Company may carry over to a subsequent year half of the amount of capital expenditures not expended in the preceding year. The Company was in compliance with its covenants for the three-month period ended March 31, 2015.
The following information relates to the Mezzanine agreement:
Period-End | Ratio | Ratio | EBITDA | |||||||||
June 30, 2015 |
9.00 | 1.00 | 30,408,000 | |||||||||
September 30, 2015 |
8.75 | 1.00 | 31,408,000 | |||||||||
December 31, 2015 |
8.50 | 1.00 | 32,464,000 | |||||||||
March 31, 2016 |
8.25 | 1.00 | 33,592,000 | |||||||||
June 30, 2016 |
8.00 | 1.00 | 34,800,000 | |||||||||
September 30, 2016 |
7.75 | 1.00 | 36,088,000 | |||||||||
December 31, 2016 |
7.50 | 1.00 | 37,464,000 | |||||||||
March 31, 2017 |
7.25 | 1.05 | 38,944,000 | |||||||||
June 30, 2017 |
7.25 | 1.05 | 39,096,000 | |||||||||
September 30, 2017 |
7.00 | 1.05 | 40,696,000 | |||||||||
December 31, 2017 |
7.00 | 1.10 | 40,856,000 | |||||||||
March 31, 2018 |
7.00 | 1.10 | 41,016,000 | |||||||||
June 30, 2018 |
6.75 | 1.10 | 42,768,000 | |||||||||
September 30, 2018 |
6.75 | 1.15 | 42,768,000 | |||||||||
December 31, 2018 |
6.75 | 1.15 | 42,768,000 | |||||||||
March 31, 2019, and thereafter |
6.25 | 1.15 | 42,768,000 |
Capital expenditures cannot exceed $44,832,000, $45,720,000, $46,644,000, and $46,644,000 for the years ending December 31, 2015, 2016, 2017, and 2018, respectively. The Company may carry over to a subsequent year half of the amount of capital expenditures not expended in the preceding year. The Company was in compliance with its covenants for the three-month period ended March 31, 2015.
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Common Stock Warrants —In connection with the Mezzanine Credit Agreement entered into on May 15, 2014, Amaya issued 4,000,000 common stock warrants as compensation, on behalf of the Company, to certain of the lenders involved.
Each warrant entitles the holder to purchase one share of Amaya common stock for an exercise price of $19.17 CAD. The warrants may be exercised by the holder at any time until the date of expiration, which is May 15, 2024 (10 years after the date of issuance). Upon issuance, the Company recorded a discount to the carrying value of the mezzanine loan and an associated increase to additional paid in capital for the estimated fair value of the warrants. The fair value of the warrants at issuance of approximately $10,400,000 USD was calculated using the Black-Scholes-Merton option-pricing model with the following assumptions: 10 year contractual term; annual risk-free interest rate of 2.29%; 46% volatility; and 0% dividend rate. The discount will be amortized to interest expense using the effective interest rate method over the six year term of the loan, and the interest charge for the three-month period ended March 31, 2015 totaled approximately $190,000.
As of March 31, 2015, all 4,000,000 warrants remained outstanding. These were the only warrants issued by Amaya on behalf of the Company.
12. Commitments and Contingencies
Litigation —In 2012, the Company and the founder of the Company (the “Founder”) entered into a settlement agreement and mutual release that terminated a lawsuit filed by the Founder against the Company and a former officer and director of the Company. The Founder asserted that the former director authorized improper related-party transactions that caused the value of the Founder shares in the Company to decline, that the Company failed to reimburse the Founder for various expenses, and that the Company breached the employment contract with the Founder. The Company denied all claims of wrongdoing and filed a counterclaim against the Founder for breach of contract, breach of fiduciary duty, breach of duties of good faith, and loyalty and fraud. In a separate action that was settled in 2010, the Founder also alleged that the Company conspired to cause an event of default on certain loans related to real estate owned by the Founder. In connection with the 2012 settlement, the Company agreed to pay the Founder $1,500,000, which was recorded in selling, general, and administrative expense, in semiannual payments, plus 6% interest. The first payment was made on September 24, 2012, for $750,000. During 2013, two payments of approximately $202,000 each were made. During 2014, the remaining balance was paid in two equal payments of approximately $202,000 each.
The Company previously leased its office and operating facilities from the Founder. The lease term commenced in October 2004 and expired in October 2009. The Company continued to lease the building on a month-to-month basis through July 2010. Rent expense to the Founder for the year ended December 31, 2010, was approximately $359,000. The Founder also had litigation with the Company related to the lease on the building. During 2010, the Company settled the litigation related to the lease on the building and another lawsuit related to the purchase and sale agreement related to the Founder’s shares and paid the Founder $150,000. The Company is currently a guarantor on one loan with an estimated balance of $1.037M as of December 31, 2014, related to the building the Company was leasing from the Founder. As part of the settlement of the lease litigation, the Company deposited $1,000,000 of the purchase price of the Founder’s shares into an escrow account, and if the Company is required to pay under the guarantee agreement related to the building, it can offset the amount paid in escrow and seek recovery of the remainder from the Founder.
The Company is subject to other lawsuits, claims, and other complaints arising out of the ordinary conduct of business. While the ultimate results and outcomes from these matters cannot be determined precisely, management, based in part upon the advice of legal counsel, believes that all matters are without merit or are of such amounts that would not have a material adverse effect on the Company’s consolidated financial position, operating results, or cash flows.
Capitalized Lease Obligations —The Company leases property and equipment under capital leases. Amortization associated with assets under capital leases is included in depreciation expense. The leases
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outstanding as of December 31, 2014 and March 31, 2015, require monthly payments ranging from $1,041 to $14,246 and $1,041 to $14,246, respectively, at interest rates ranging from 3.98% to 13.56% and 3.98% to 10.09%, respectively. The leases expire at various times through June 2017. The leases are secured by the related property and equipment.
A summary of property and equipment held under capital leases at December 31, 2014 and March 31, 2015, is as follows:
12/31/2014 | 3/31/2015 | |||||||
Cost of equipment held under capital leases |
$ | 1,959,535 | $ | 1,959,535 | ||||
Less accumulated amortization |
(1,279,748 | ) | (1,340,744 | ) | ||||
|
|
|
|
|||||
Net equipment held under capital leases |
$ | 679,787 | $ | 618,791 | ||||
|
|
|
|
The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments at March 31, 2015, are as follows:
Nine month period ending December 31, 2015 |
$ | 357,720 | ||
Years ending December 31: |
||||
2016 |
208,861 | |||
2017 |
98,248 | |||
2018 |
24,380 | |||
|
|
|||
Total minimum lease payments |
689,209 | |||
Less amount representing interest |
(36,914 | ) | ||
|
|
|||
Total present value of minimum lease payments |
652,295 | |||
Less current portion |
(412,245 | ) | ||
|
|
|||
Noncurrent portion |
$ | 240,050 | ||
|
|
Operating Leases —The Company leases its office and operating facilities and certain equipment under operating lease agreements expiring on various dates through November 2017. Rent expense under the agreements was approximately $152,000 and $172,000 for the periods ended March 31, 2014 and 2015, respectively.
Future minimum lease payments under noncancelable operating leases at March 31, 2015, are as follows:
Nine month period ending December 31, 2015 |
$ | 508,070 | ||
Years ending December 31: |
||||
2016 |
678,066 | |||
2017 |
688,376 | |||
2018 |
78,598 | |||
|
|
|||
$ | 1,953,110 | |||
|
|
Sales Tax Liability —The Company has operations in various states and counties in which they have not filed sales tax returns. The Company has accrued approximately $127,000 as of March 31, 2015, which is the Company’s best estimate of its sales tax liabilities. The Company’s accounting policy is to include penalties and interest related to taxes in interest expense. Actual amounts could differ from estimates.
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13. Net sales and cost of goods and services
The following is a summary of the components of net sales and cost of goods and services for the three month periods ended March 31, 2014 and 2015:
2014 | 2015 | |||||||
Gaming operations services |
$ | 19,798,915 | $ | 18,572,815 | ||||
Sales of equipment |
1,499,703 | 452,366 | ||||||
|
|
|
|
|||||
Net sales |
$ | 21,298,618 | $ | 19,025,181 | ||||
|
|
|
|
|||||
Cost of gaming operations services |
5,971,282 | 5,988,239 | ||||||
Cost of equipment sales |
651,967 | 209,621 | ||||||
|
|
|
|
|||||
Cost of goods and services |
$ | 6,623,249 | $ | 6,197,860 | ||||
|
|
|
|
14. Concentrations
Significant Customer —Revenues from one major customer totaled approximately $3,936,000 and $3,938,000 and composed 18% and 19% of the revenues generated for the three-month period ending March 31, 2014 and 2015 respectively. The outstanding receivables related to this customer were approximately $624,000 and $424,000 at March 31, 2014 and 2015 respectively. There were no other customers for which revenues composed more than 10% of total revenue during the three month periods ended March 31, 2014 or 2015.
15. Foreign Operations
The Company has a significant portion of its operations located in Mexico. Revenues related to Mexican operations were approximately $7,200,000 and $5,838,000 for the three-month periods ending March 31, 2014 and 2015 respectively. The net book value of property and equipment located in Mexico was approximately $7,790,000 and $7,201,000 at December 31, 2014 and March 31, 2015 respectively. These operations are subject to risks of currency fluctuations and changes in laws and regulations.
16. Supplemental Disclosures of Noncash Investing and Financial Activities
Significant noncash activities for the three month periods ended March 31, 2014 and 2015, are as follows:
3/31/2014 | 3/31/2015 | |||||
Acquisition of property and equipment and prepaid maintenance contracts under capital leases |
421,514 | — | ||||
Accrued capital expenditures |
174,301 | 377,523 |
******
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Through and including , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in the common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Shares
PlayAGS, Inc.
Common Stock
PRELIMINARY PROSPECTUS
, 2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is a table of the registration fee for the Securities and Exchange Commission and estimates of all other expenses to be paid by the registrant in connection with the issuance and distribution of the securities described in the registration statement:
SEC registration fee |
$ | 12,450.00 | ||
Stock exchange listing fee |
* | |||
Financial Industry Regulatory Authority filing fee |
* | |||
Printing expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Blue Sky fees and expenses |
* | |||
Transfer agent and registrar fees |
* | |||
Miscellaneous |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* | To be completed by amendment. |
Item 14. Indemnification of Directors and Officers.
Nevada Revised Statutes (“NRS”) 78.138(7) provides that, subject to limited statutory exceptions and unless the articles of incorporation or an amendment thereto (in each case filed on or after October 1, 2003) provide for greater individual liability, a director or officer is not individually liable to a corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that: (i) the act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (ii) the breach of those duties involved intentional misconduct, fraud or a knowing violation of law.
NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person (i) is not liable pursuant to NRS 78.138 or (ii) acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. NRS 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit if the person (a) is not liable pursuant to NRS 78.138 or (ii) acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any such action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him or her against expenses, including attorneys’ fees, actually and
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reasonably incurred by him or her in connection with the defense. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person is liable pursuant to NRS 78.138 or did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding, he or she had reasonable cause to believe that the conduct was unlawful. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
NRS 78.751(1) provides that any discretionary indemnification pursuant to NRS 78.7502 (unless ordered by a court or advanced pursuant to NRS 78.751(2)), may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made (i) by the stockholders; (ii) by the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; (iii) if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (iv) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. NRS 78.751(2) provides that the corporation’s articles of incorporation or bylaws, or an agreement made by the corporation, may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that the director or officer is not entitled to be indemnified by the corporation.
Under the NRS, the indemnification pursuant to NRS 78.7502 and advancement of expenses authorized in or ordered by a court pursuant to NRS 78.751:
• | Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in the person’s official capacity or an action in another capacity while holding office, except that indemnification, unless ordered by a court pursuant to NRS 78.7502 or for the advancement of expenses made pursuant to NRS 78.751(2), may not be made to or on behalf of any director or officer if a final adjudication establishes that the director’s or officer’s acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action; and |
• | Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. |
A right to indemnification or to advancement of expenses arising under a provision of the articles of incorporation or any bylaw is not eliminated or impaired by an amendment to such provision after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
The amended and restated articles of incorporation of the registrant provide that to the fullest extent permitted under the NRS (including, without limitation, to the fullest extent permitted under NRS 78.7502 and 78.751(3)) and other applicable law, the registrant shall indemnify directors and officers of the registrant in their respective capacities as such and in any and all other capacities in which any of them serves at the request of the
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registrant. The amended and restated articles of incorporation of the registrant further provide that the liability of its directors and officers shall be eliminated or limited to the fullest extent permitted by the NRS, and that if the NRS are amended to further eliminate or limit or authorize corporate action to further eliminate or limit the liability of directors or officers, the liability of directors and officers of the registrant shall be eliminated or limited to the fullest extent permitted by the NRS, as so amended from time to time; and in addition to any other rights of indemnification permitted by the laws of the State of Nevada or as may be provided for by the registrant in its bylaws or by agreement, the expenses of directors and officers incurred in defending a civil or criminal action, suit or proceeding, involving alleged acts or omissions of such director or officer in his or her capacity as a director or officer of the registrant, must be paid, by the registrant or through insurance purchased and maintained by the registrant or through other financial arrangements made by the registrant, as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the registrant.
Further, the registrant has entered into indemnification agreements with each of its directors and executive officers that may be broader than the specific indemnification provisions contained in the NRS. Such agreements may require the registrant, among other things, to advance expenses and otherwise indemnify its executive officers and directors against certain liabilities that may arise by reason of their status or service as executive officers or directors, to the fullest extent permitted by law. The registrant intends to enter into indemnification agreements with any new directors and executive officers in the future.
The Registrant maintains standard policies of insurance under which coverage is provided (a) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to the Registrant with respect to payments which may be made by the Registrant to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.
The proposed form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification of directors and officers of the Registrant by the underwriters against certain liabilities.
We expect to enter into customary indemnification agreements with our executive officers and directors that provide them, in general, with customary indemnification in connection with their service to us or on our behalf.
Item 15. Recent Sales of Unregistered Securities
Set forth below is information regarding securities sold or granted by us within the past three years that were not registered under the Securities Act. Also included is the consideration, if any, received by us for such securities and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed for such sales and grants.
Set forth below is certain information regarding securities issued by the Registrant during the last three years in transactions that were not registered under the Securities Act of 1933, as amended (the “Securities Act”), including the consideration, if any, received by the Registrant for such issuances.
Options and Restricted Stock Units
• | On April 28, 2014, we issued 50,000 restricted stock units for our non-voting common stock to an employee pursuant to our 2014 Long-Term Incentive Plan. |
• | On April 28, 2014, we issued 255,000 options for our non-voting common stock to an employee pursuant to our 2014 Long-Term Incentive Plan. |
• | On August 8, 2014, we issued 321,250 options for our non-voting common stock to certain employees pursuant to our 2014 Long-Term Incentive Plan. (168,125 of these options were subsequently cancelled upon the termination of the holder’s employment.) |
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• | On March 11, 2015, we issued 95,625 options for our non-voting common stock to certain employees pursuant to our 2014 Long-Term Incentive Plan. |
• | On May 12, 2015, we issued 13,500 options for our non-voting common stock to certain employees pursuant to our 2014 Long-Term Incentive Plan. (These options were subsequently cancelled upon the termination of the holder’s employment.) |
• | On July 17, 2015, we issued 190,000 options for our non-voting common stock to certain employees pursuant to our 2014 Long-Term Incentive Plan. (95,000 of these options were subsequently cancelled upon the termination of the holder’s employment.) |
• | On September 7, 2015, we issued 48,750 options for our non-voting common stock to an employee pursuant to our 2014 Long-Term Incentive Plan. |
• | On January 18, 2016, we issued 227,600 options for our non-voting common stock to certain employees pursuant to our 2014 Long-Term Incentive Plan. |
• | On October 25, 2016, we issued 20,000 options for our non-voting common stock to certain employees pursuant to our 2014 Long-Term Incentive Plan. |
• | On February 8, 2017, we issued 48,750 options for our non-voting common stock an employee pursuant to our 2014 Long-Term Incentive Plan. |
• | On April 3, 2017, we issued 176,000 options for our non-voting common stock to certain employees pursuant to our 2014 Long-Term Incentive Plan. |
Common Stock
• | On April 28, 2014, we issued 10,000,000 shares or our non-voting common stock to Apollo Gaming Holdings, L.P. in exchange for its 10,000,000 shares of voting common stock. |
• | On April 28, 2014, we issued 100 shares of voting stock to AP Gaming VoteCo, LLC, representing 100% of our voting interests. |
• | On April 28, 2014, we issued 20,000 shares of our non-voting common stock to an employee for an aggregate purchase price of $200,000. (These shares were repurchased and exchanged for 20,000 shares on August 8, 2014.) |
• | On August 8, 2014, we issued 20,000 shares of our non-voting common stock to an employee for an aggregate purchase price of $200,000. |
• | On August 8, 2014, we issued 176,875 shares of our non-voting common stock to certain employees for an aggregate purchase price of $1,768,750. (128,750 of these shares were repurchased upon the termination of the holder’s employment.) |
• | On March 11, 2015, we issued 20,673 shares of our non-voting common stock to certain employees for an aggregate purchase price of $301,826. |
• | On March 12, 2015, we issued 2,548 shares of our non-voting common stock to an employee for an aggregate purchase price of $40,004. (These shares were repurchased upon the termination of the holder’s employment.) |
• | On May 29, 2015, in connection with the acquisition of Amaya Americas Corporation (“Cadillac Jack”), we issued 4,931,529 of our non-voting common stock to Apollo Gaming Holdings, L.P. for total proceeds of $77.4 million. |
• | On June 1, 2015, we issued 10,375 shares of our non-voting common stock to certain employees for an aggregate purchase price of $162,888. |
• | On September 7, 2015, we issued 4,777 shares of our non-voting common stock to an employee for an aggregate purchase price of $74,999. |
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• | On December 6, 2016, we issued 4,357 shares of our non-voting common stock to an employee for an aggregate purchase price of $75,000. |
• | On February 8, 2017, we issued 1,525 shares of our non-voting common stock to an employee for an aggregate purchase price of $25,000. |
Except as otherwise noted above, these transactions were exempt from registration pursuant to Section 4(a)(2) of the Securities Act, as they were transactions by an issuer that did not involve a public offering of securities.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit
|
Exhibit Description |
|
1.1* | Form of Underwriting Agreement. | |
3.1 | Form of Amended and Restated Articles of Incorporation of PlayAGS, Inc. | |
3.2 | Form of Amended and Restated Bylaws of PlayAGS, Inc. | |
4.1 | Amended and Restated Note Purchase Agreement, dated as of May 30, 2017, among AP Gaming Holdco, Inc., as issuer, AP Gaming Holdings, LLC, as subsidiary guarantor, Deutsche Bank AG, London Branch, as holder, and Deutsche Bank Trust Company Americas, as collateral agent. | |
4.2 | PIK Promissory Note, dated as of May 29, 2015, by and between AP Gaming Holdco, Inc. and Amaya Inc. | |
5.1* | Opinion of Brownstein Hyatt Farber Schreck, LLP as to the validity of the securities being offered. | |
10.1 | 2014 Managerial Incentive Plan. | |
10.2 | First Lien Credit Agreement, dated as of June 6, 2017, among AP Gaming Holdings, LLC, as Holdings, AP Gaming I, LLC, as Borrower, the lenders party thereto, Jefferies Finance LLC, as Administrative Agent, Jefferies Finance LLC and Macquarie Capital (USA) Inc., as Joint Lead Arrangers and Joint Bookrunners, and Apollo Global Securities, LLC, as Co-Manager. | |
10.3 | Incremental Assumption Agreement, dated as of December 6, 2017, by and among AP Gaming Holdings, LLC, AP Gaming I, LLC, each subsidiary loan party listed on the signature pages thereof, Jefferies Finance LLC and the lenders from time to time party thereto. | |
10.4 | Collateral Agreement among AP Gaming, LLC, each Subsidiary Party and Jefferies Finance, LLC, dated as of June 6, 2017. | |
10.5 | Holdings Guarantee and Pledge Agreement, by and among AP Gaming Holdings, LLC and Jefferies Finance LLC, dated as of June 6, 2017. | |
10.6 | Subsidiary Guarantee between AP Gaming II, Inc., AP Gaming Acquisition, LLC, AGS Capital, LLC, AGS LLC, AGS Partners, LLC, AGS Illinois, LLP, AP Gaming NV, LLC and Jefferies Finance, LLC dated as of June 6, 2017. | |
10.7 | Form of Amended and Restated Securityholders Agreement, by and among Apollo Gaming Holdings, L.P., AP Gaming VoteCo, LLC, PlayAGS, Inc. (f/k/a AP Gaming Holdco, Inc.) and the other Holders party thereto. | |
10.8 | AP Gaming Holdco, Inc. 2014 Long Term Incentive Plan. | |
10.9* | Form of Option Agreement. |
II-5
Exhibit
|
Exhibit Description |
|
10.10* | PlayAGS, Inc. Omnibus Incentive Plan | |
10.11* | Form of Subscription Agreement. | |
10.12* | Form of Lock-up. | |
10.13 | Subscription Agreement between Apollo Gaming Holdings, L.P. and AP Gaming Holdco, Inc., dated as of May 28, 2015. | |
10.14 | Employment Agreement, dated April 28, 2014, by and between David Lopez and AP Gaming Holdco, Inc. | |
10.15 | Nonqualified Stock Option Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc. and David Lopez. | |
10.16 | Restricted Stock Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc. and David Lopez. | |
10.17 | Employment Agreement, dated as of July 1, 2015, by and between AGS LLC and Sigmund Lee. | |
10.18 | First Amendment to the July 1, 2015 Employment Agreement, dated as of January 14, 2016, by and between AGS LLC and Sigmund Lee. | |
10.19 | Nonqualified Time-Based Stock Option Agreement, dated July 17, 2015, by and between AP Gaming Holdco, Inc. and Sigmund Lee. | |
10.20 | Nonqualified Performance-Based Stock Option Agreement, dated July 17, 2015, by and between AP Gaming Holdco, Inc. and Sigmund Lee. | |
10.21 | Nonqualified Stock Option Agreement, dated January 18, 2016, by and between AP Gaming Holdco, Inc. and Sigmund Lee. | |
10.22 | Employment Agreement, dated February 23, 2015, by and between Kimo Akiona and AGS LLC. | |
10.23 | Form of Stockholders Agreement, by and among PlayAGS, Inc., Apollo Gaming Holdings, L.P. and AP Gaming VoteCo, LLC | |
10.24 | Form of Irrevocable Proxy of AP Gaming VoteCo, LLC | |
16.1 |
Letter from Ernst & Young LLP to the Securities and Exchange Commission dated July 11, 2016, pursuant to Section 304(a)(3) of Regulation S-K of the rules and regulations of the Securities and Exchange Commission. |
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21.1 | Subsidiaries of PlayAGS, Inc. | |
23.1 | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. | |
23.2 | Consent of Ernst & Young LLP, independent registered public accounting firm. | |
23.3 | Consent of Deloitte & Touche LLP, independent auditors. | |
23.4* | Consent of Brownstein Hyatt Farber Schreck, LLP (included in Exhibit 5.1) | |
24.1 | Powers of Attorney (included in signature page). | |
101.INS* | XBRL Instance Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
II-6
Exhibit
|
Exhibit Description |
|
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
* | To be filed by amendment. |
(b) Financial Statement Schedule
All schedules are omitted because the required information is either not present, not present in material amounts or presented within the consolidated financial statements included in the prospectus and are incorporated herein by reference.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable . In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-7
EXHIBIT INDEX
II-8
* | To be filed by amendment. |
II-9
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada, on the 19 day of December, 2017.
PlayAGS, Inc. | ||
By: |
/s/ David Lopez |
|
David Lopez | ||
Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Victor Gallo, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and all actions which may be necessary or appropriate in connection therewith, granting unto such agents, proxies and attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact or any of their substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ David Lopez David Lopez |
President, Chief Executive Officer and Director (Principal Executive Officer) |
December 19, 2017 | ||
/s/ Kimo Akiona Kimo Akiona |
Treasurer (Principal Financial and Accounting Officer) |
December 19, 2017 | ||
/s/ David Sambur David Sambur |
Director | December 19, 2017 | ||
/s/ Daniel Cohen Daniel Cohen |
Director | December 19, 2017 |
II-10
Exhibit 3.1
FORM OF CERTIFICATE OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PLAYAGS, INC.
Pursuant to the provisions of Nevada Revised Statutes 78.390 and 78.403, the undersigned officer of PlayAGS, Inc., a Nevada corporation, does hereby certify as follows:
A. The board of directors of the corporation has duly adopted resolutions proposing to amend and restate the articles of incorporation of the corporation as set forth below, declaring such amendment and restatement to be advisable and in the best interests of the corporation.
B. The amendment and restatement of the articles of incorporation as set forth below has been approved by at least a majority of the voting power of the stockholders of the corporation, which is sufficient for approval thereof.
C. This certificate sets forth the text of the articles of incorporation of the corporation as amended and restated in their entirety to this date as follows on the following pages attached hereto.
IN WITNESS WHEREOF, I have executed this Certificate of Amended and Restated Articles of Incorporation of PlayAGS, Inc. as of , 201 .
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Name: |
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Title: |
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[ Remainder of Page Intentionally Blank ]
FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PlayAGS, Inc.
ARTICLE I
NAME OF THE CORPORATION
The name of the corporation (the “ Corporation ”) is PlayAGS, Inc.
ARTICLE II
REGISTERED OFFICE; REGISTERED AGENT
The Corporation may, from time to time, in the manner provided by law, change the registered agent and registered office of the Corporation within the State of Nevada. The Corporation may also maintain an office or offices for the conduct of its business, either within or without the State of Nevada.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized and incorporated under the laws of the State of Nevada, including the Nevada Revised Statutes, as amended from time to time (the “ NRS ”).
ARTICLE IV
CAPITAL STOCK
Section 1. Capital Stock . The total number of shares of capital stock that the Corporation shall have authority to issue is [●] shares, which shall consist of (a) [●] shares of common stock, par value $0.01 per share (“ Common Stock ”) and (b) [●] shares of Preferred Stock, par value $0.01 per share (“ Preferred Stock ”). Except as otherwise provided in these these Amended and Restated Articles of Incorporation (as amended from time to time, these “ Articles ”), including any certificate of designation establishing the terms of a series of Preferred Stock in accordance with these Articles (each, a “ Preferred Stock Designation ”), these Articles may be amended, in accordance with NRS 78.390, to increase or decrease the number of authorized shares of Preferred Stock or Common Stock (but no such decrease shall reduce the number of authorized shares of any class or series of the Corporation’s capital stock below the number of shares of such class or series then outstanding) with the approval of a majority of the voting power of the outstanding capital stock of the Corporation entitled to vote thereon, voting together as a single class, and without any separate vote by the holders of any class or series of the Corporation’s capital stock, irrespective of the provisions of NRS 78.1955(2) (or any successor provision thereto)
Section 2. Preferred Stock . The Board of Directors of the Corporation (the “ Board ”) is hereby vested, to the fullest extent permitted under the NRS, with the authority to designate from time to time one or more series of the Preferred Stock, to fix the number of shares constituting such series and to prescribe the voting powers, designations, preferences, qualifications, limitations, restrictions and relative, participating, optional and other rights of such series. Any resolution prescribing a series of Preferred Stock must include a distinguishing designation for such series. Except as otherwise required by law, holders of any series of Preferred Stock shall be entitled to only such voting rights, if any, as shall expressly be granted thereto by these Articles, including the Preferred Stock Designation relating to such series of Preferred Stock, or the NRS. To the extent provided in the Preferred Stock Designation relating to a series of Preferred Stock, the board of directors may increase (but not above the total number of then authorized and undesignated shares of preferred stock) or decrease (but not below the number of shares of that series then outstanding) the number of shares of such series. The powers, designations, preferences and relative, participating, optional or other rights of each series of Preferred Stock, and the qualifications,
2
limitations or restrictions thereof, may differ from those of any and all other series at any time outstanding. Notwithstanding anything to the contrary in these Articles, the rights of each holder of the Preferred Stock shall be at all times subject to, and limited by, all applicable gaming and other statutes, laws, rules and regulations.
Section 3. Common Stock .
(a) Dividends and other Distributions . Except as may otherwise be required by these Articles and subject to the rights of holders of any Preferred Stock, the holders of Common Stock shall be entitled to share equally, share for share, in such dividends and other distributions (as defined in NRS 78.191) as may from time to time be declared by the Board out of funds legally available therefor.
(b) Liquidation or Dissolution . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, subject to the rights of holders of any Preferred Stock, holders of Common Stock shall be entitled to receive the assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares held by each such holder.
(c) Voting Rights . Except as may otherwise be required by applicable law or these Articles, each holder of Common Stock shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters to be voted on by the stockholders of the Corporation.
Section 4. Reclassification of Previously Issued and Outstanding Non-Voting Common Stock of the Corporation . As of immediately prior to the effective time of these Articles (the “ Effective Time ”), the Corporation had 30,000,000 authorized shares of non-voting common stock, $0.01 par value per share, of which 15,041,361 shares were issued and outstanding (the “ Outstanding Non-Voting Common Stock ”). At and as of the Effective Time, by virtue of filing these Articles, each share of Outstanding Non-Voting Common Stock issued and outstanding or held in treasury immediately prior to the Effective Time shall be automatically reclassified, without any action by the holder thereof, as one share of Common Stock. Any stock certificate that, immediately prior to the Effective Time, represented shares of Outstanding Non-Voting Common Stock shall, from and after the Effective Time, automatically and without necessity of presenting the same for exchange, represent an equal number of shares of Common Stock.
Section 5. Cancellation of Previously Issued and Outstanding Voting Stock of the Corporation . Immediately prior to the Effective Time, the Corporation had 100 authorized shares of voting common stock, $0.01 par value per share, of which 100 shares were issued and outstanding (the “ Outstanding Voting Common Stock ”). At and as of the Effective Time, by virtue of filing of these Articles, each share of Outstanding Voting Common Stock issued and outstanding or held in treasury immediately prior to the Effective Time shall be automatically cancelled for no consideration, without any action by the holder thereof.
ARTICLE V
BYLAW AMENDMENTS
In furtherance and not in limitation of the powers conferred by the laws of the State of Nevada, the Board is expressly authorized to adopt, amend and repeal Bylaws of the Corporation (each, a “ Bylaw ” and collectively, the “ Bylaws ”), subject to the power of the stockholders of the Corporation to adopt, amend and repeal any Bylaw whether adopted by them or otherwise; provided , that, to the fullest extent permitted by the NRS, prior to the time when the Apollo Group (as defined below) first ceases to beneficially own at least 25% of the voting power of the Corporation’s outstanding shares entitled to vote generally in the election of directors, the Board shall not adopt any resolution providing for any adoption, amendment or repeal of any Bylaw by the Board unless such resolution is approved by a majority of the directors then in office, which majority must include a majority of the Apollo Directors (as defined below) then in office. Notwithstanding any other provisions of these Articles or the Bylaws (and notwithstanding the fact that a lesser percentage otherwise might have been permitted by applicable law, these Articles or the Bylaws), but in addition to any other affirmative vote of the holders of any particular class or series of stock of the Corporation required by applicable law or these Articles (including any Preferred Stock), the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of the outstanding shares of stock of the Corporation entitled to vote thereon, voting together as a single class, shall be required for the stockholders to adopt, amend or repeal any Bylaw; provided , however , that prior to the Triggering Event (as defined below), Bylaws
3
may be adopted, amended or repealed upon the affirmative vote of the holders of a majority of the voting power of the outstanding shares of stock of the Corporation entitled to vote thereon, voting together as a single class.
ARTICLE VI
ARTICLES AMENDMENTS
To the fullest extent permitted by the NRS, prior to the time when the Apollo Group (as defined below) first ceases to beneficially own at least 25% of the voting power of the Corporation’s outstanding shares entitled to vote generally in the election of directors, the Board shall not adopt any resolution providing for any amendment to these Articles unless such resolution is approved by a majority of the directors then in office, which majority must include a majority of the Apollo Directors then in office.
ARTICLE VII
MEETINGS OF STOCKHOLDERS
Section 1. Stockholder Written Consent . Subject to applicable law, at any time prior to the Triggering Event, any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting if a consent or consents in writing, setting forth the action so taken, shall be signed (including for avoidance of doubt electronic signatures in accordance with the applicable provisions of the NRS) by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation in accordance with the NRS. Except as otherwise provided for or fixed pursuant to the Preferred Stock Designation relating to any then-outstanding series of Preferred Stock, from and after the Triggering Event, any action required or permitted to be taken by the stockholders of the Corporation may be effected only at a duly called annual or special meeting of stockholders of the Corporation and may not be taken by any consent of stockholders in lieu of a meeting.
Section 2. Special Meetings of Stockholders . In addition to such persons as may be authorized by the Bylaws or any Preferred Stock Designation relating to the rights of holders of any series of Preferred Stock, at any time prior to the Triggering Event, special meetings of stockholders of the Corporation, for any purpose or purposes, may be called from time to time (i) by the affirmative vote of a majority of the Board, (ii) by the chairman of the Board, (iii) by the Chief Executive Officer of the Corporation or (iv) by stockholder(s) individually or collectively holding a majority of the voting power of the outstanding shares of stock of the Corporation.
Section 3. Election of Directors by Written Ballot . Unless and except to the extent that the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.
ARTICLE VIII
BOARD OF DIRECTORS
Section 1. Powers; Number and Term of Directors .
(a) Except as otherwise provided in these Articles, the business and affairs of the Corporation shall be managed by, or under the direction of, the Board. Except as otherwise provided for or fixed pursuant to the terms of any Preferred Stock Designation and subject to the Stockholders Agreement (as defined below), the number of directors constituting the entire Board shall be fixed from time to time by resolution of the Board, but shall not be less than three (3) nor more than ten (10).
(b) On each matter submitted to the Board, any committee of the Board or any subcommittee of any committee of the Board, each director (including each Apollo Director and each Non-Apollo Director (as defined below)) shall have one vote; provided that (i) at any meeting of the Board at which the number of Apollo Directors present is less than the total number of Apollo Directors then in office, each Apollo Director so present shall have, with respect to any matter submitted to the Board, the number of votes as is equal to the quotient of the total number of Apollo Directors then in office, divided by the number of Apollo Directors present at such meeting, and (ii) at any meeting of any committee of the Board or
4
subcommittee thereof at which the number of Apollo Directors present is less than the total number of Apollo Directors appointed to such committee or subcommittee, as applicable, each Apollo Director so present shall have, with respect to any matter submitted to the committee or subcommittee, as applicable, the number of votes as is equal to the quotient of the total number of Apollo Directors appointed to such committee or subcommittee, as applicable, divided by the number of Apollo Directors present at such meeting.
(c) At any time that any Apollo Director has more than one vote on any matter, every reference in the NRS, these Articles or the Bylaws to a majority or other proportion of directors shall be deemed a reference to a majority or such other proportion of the voting power of all of the directors.
Section 2. Classification of Directors . The Board (other than those directors elected or otherwise designated by the holders of any Preferred Stock pursuant to the terms of any Preferred Stock Designation (the “ Preferred Stock Directors ”)) shall be divided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III. The Class I directors initially shall serve for a term expiring at the annual meeting of stockholders first occurring after the Effective Time; the Class II directors shall initially serve for a term expiring at the second annual meeting of stockholders occurring after the Effective Time; and the Class III directors shall initially serve for a term expiring at the third annual meeting of stockholders occurring after the Effective Time. Commencing with the first annual meeting of stockholders following the Effective Time, at each annual meeting of stockholders, the successor or successors to the class of directors whose term expires at that meeting shall be elected in accordance with the Bylaws, and shall hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The directors elected to each class shall hold office until their successors are duly elected and qualify, or until their earlier death, disqualification, resignation or removal. In case of any increase or decrease, from time to time, in the number of directors (other than Preferred Stock Directors), the number of directors in each class shall be apportioned as nearly equal as possible. The Board is authorized to assign members of the Board already in office to such classes at the Effective Time; provided , that if any change in the classification of the directors would otherwise increase the term of a director, and unless such change is effected by way of a duly adopted amendment to these Articles and otherwise provides, the term of each incumbent director on the effective date of such change terminates on the date that such term would have terminated had there been no such change in the classification of directors.
Section 3. Removal of Directors . Except for Preferred Stock Directors, if any, any director or the entire Board may be removed from office at any time, with or without cause, by the affirmative vote of not less than two-thirds (2/3) of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
Section 4. Newly Created Directorships and Vacancies . Subject to the rights of holders of any series of Preferred Stock to elect or otherwise designate Preferred Stock Directors, any newly created directorships resulting from an increase in the authorized number of Directors and any vacancies occurring in the Board, may be filled solely by the affirmative vote of a majority of the voting power of the remaining members of the Board, although less than a quorum, or a sole remaining Director. A Director so elected shall be elected to hold office until the expiration of the term of office of the Director whom he or she has replaced, and a successor is elected and qualified or the Director’s earlier death, resignation, disqualification or removal.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification . The Corporation shall indemnify any person (an “ indemnitee ”) who was or is involved in or is threatened to be involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”), by reason of the fact that such person is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent (including, without limitation, service as a trustee) of another entity or enterprise, to the fullest extent authorized by the NRS, as the same exists or may hereafter be amended (but, in the case of any such amendment and unless applicable law otherwise requires, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all liability and loss suffered and
5
expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (except for judgments, fines and amounts paid in settlement in any action or suit by or in the right of the Corporation to procure a judgment in its favor) actually and reasonably incurred by such person in connection with such Proceeding. Notwithstanding the preceding sentence, except as provided below in Article IX , Section 6 of these Articles with respect to Proceedings to enforce rights to indemnification and advancement of expenses, the Corporation shall be required to indemnify an indemnitee in connection with a Proceeding (or part thereof) initiated by the indemnitee if and only if the Board authorized the commencement of such Proceeding (or part thereof).
Section 2. Advance Payment of Expenses . To the extent not prohibited by applicable law, expenses (including attorneys’ fees) incurred by an indemnitee in defending any Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding; provided , however , that, to the extent required by the NRS, a present director or officer of the Corporation shall be required to submit to the Corporation, prior to the payment of such expenses, an undertaking (an “ undertaking ”) by or on behalf of such director or officer to repay such amount if it shall ultimately be determined in a final, non-appealable judicial decision that such director or officer is not entitled to be indemnified by the Corporation for such expenses as authorized in this Article IX .
Section 3. Rights Not Exclusive . The rights to indemnification and advancement of expenses provided by, or granted pursuant to, this Article IX shall not be deemed exclusive of any other rights to which an indemnitee may be entitled under any statute, provision of these Articles, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.
Section 4. Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent (including, without limitation, as a trustee) of another entity or enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the NRS or the provisions of this Article IX .
Section 5. Certain Definitions . For the purposes of this Article IX , (a) any director or officer of the Corporation who shall serve or has served as a director, officer, employee or agent of any other entity or enterprise of which the Corporation, directly or indirectly, is or was a stockholder or creditor, or in which the Corporation is or was in any way interested, or (b) any current or former director or officer of any subsidiary entity or enterprise wholly owned by the Corporation, in each case, shall be deemed to be serving at the request of the Corporation. In all other instances where any person shall serve or has served as a director, officer, employee or agent (including, without limitation, as a trustee) of another entity or enterprise of which the Corporation is or was a stockholder or creditor, or in which it is or was otherwise interested, if it is not otherwise established that such person is or was serving in such capacity at the request of the Corporation, the Board may determine whether such service is or was at the request of the Corporation, and it shall not be necessary to show any actual or prior request for such service. For purposes of this Article IX , references to an entity include all predecessor entities and constituent entities absorbed in a consolidation or merger (including any constituent of a constituent) as well as the resulting or surviving entity so that any person who is or was serving at the request of the Corporation as a director, officer, employee or agent (including, without limitation, as a trustee) of such a constituent entity shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving entity as such person would if such person had served the resulting or surviving entity in the same capacity. For purposes of this Article IX , references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director or officer of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants, or beneficiaries, and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in NRS 78.7502.
6
Section 6. Proceedings to Enforce Rights to Indemnification .
(a) If a claim under Article IX , Section 1 of these Articles is not paid in full by the Corporation within 60 days after a written claim therefor has been received by the Corporation, or a claim under Article IX , Section 2 is not paid in full by the Corporation within 30 days after a written claim therefor has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of such claim. Any such written claim under Article IX , Section 1 shall include such documentation and information as is reasonably available to the indemnitee and reasonably necessary to determine whether and to what extent the indemnitee is entitled to indemnification. Any written claim under Article IX , Sections 1-2 , shall include reasonable documentation of the expenses incurred by the indemnitee.
(b) If successful in whole or in part in any suit brought pursuant to Article IX , Section 6(a) , or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be paid and indemnified for the expense of prosecuting or defending such suit.
(c) In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the NRS. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the NRS, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article IX or otherwise shall be on the Corporation.
Section 7. Preservation of Rights . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article IX shall continue as to a person who has ceased to be a director or officer of the Corporation, or has ceased to serve at the request of the Corporation as a director, officer, employee or agent (including, without limitation, a trustee) of another entity or enterprise, and shall inure to the benefit of the heirs, executors and administrators of such a person. Any repeal or modification of this Article IX by the stockholders of the Corporation entitled to vote thereon shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.
ARTICLE X
DIRECTOR AND OFFICER LIABILITY TO THE CORPORATION
Section 1. Limitation on Liability . The liability of directors and officers of the Corporation shall be eliminated or limited to the fullest extent permitted by the NRS. If the NRS are amended to further eliminate or limit or authorize corporate action to further eliminate or limit the liability of directors or officers, the liability of directors and officers of the Corporation shall be eliminated or limited to the fullest extent permitted by the NRS, as so amended from time to time.
Section 2. Repeal or Modification . Any repeal or modification of the foregoing Article X , Section 1 by the stockholders of the Corporation entitled to vote thereon shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.
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ARTICLE XI
MANDATORY FORUM FOR ADJUDICATION OF DISPUTES
To the fullest extent permitted by law, and unless the Corporation consents in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada, shall be the sole and exclusive forum for any or all actions, suits or proceedings, whether civil, administrative or investigative or that asserts any claim or counterclaim (each, an “ Action ”): (a) brought in the name or right of the Corporation or on its behalf; (b) asserting a claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders; (c) arising or asserting a claim arising pursuant to any provision of NRS Chapters 78 or 92A or any provision of these Articles or the Bylaws; (d) to interpret, apply, enforce or determine the validity of these Articles or the Bylaws; or (e) asserting a claim governed by the internal affairs doctrine. In the event that the Eighth Judicial District Court of Clark County, Nevada, does not have jurisdiction over any such Action, then any other state district court located in the State of Nevada shall be the sole and exclusive forum for such Action. In the event that no state district court in the State of Nevada has jurisdiction over any such Action, then a federal court located within the State of Nevada shall be the sole and exclusive forum for such Action.
ARTICLE XII
COMBINATIONS WITH INTERESTED STOCKHOLDERS
At such time, if any, as the Corporation becomes a “resident domestic corporation” (as defined in NRS 78.427), the Corporation shall not be subject to, or governed by, any of the provisions in NRS 78.411 to 78.444, inclusive, as amended from time to time, or any successor statutes.
ARTICLE XIII
CORPORATE OPPORTUNITIES
Section 1. Corporate Opportunities .
(a) Subject to any express agreement that may from time to time be in effect, a Covered Apollo Person (as defined below) may, and shall have no duty not to, in each case on behalf of Apollo, (i) carry on and conduct, whether directly, or as a partner in any partnership, or as a joint venturer in any joint venture, or as an officer, director or stockholder of any corporation, or as a participant in any syndicate, pool, trust or association, any business of any kind, nature or description, whether or not such business is competitive with or in the same or similar lines of business as the Corporation, (ii) do business with any client, customer, vendor or lessor of any of the Corporation or its Affiliates, and (iii) make investments in any kind of property in which the Corporation may make investments. To the fullest extent permitted by Nevada law, including NRS 78.070(8), the Corporation hereby renounces any interest or expectancy of the Corporation to participate in any business of the Apollo Group, and waives any claim against a Covered Apollo Person and shall indemnify a Covered Apollo Person against any claim that such Covered Apollo Person is liable to the Corporation or its stockholders for breach of any fiduciary duty solely by reason of such Person’s participation in any such business. The Corporation shall pay in advance any expenses incurred in defense of such claim as provided in Article IX .
(b) In the event that a Covered Apollo Person acquires knowledge of a potential transaction or matter which may constitute a corporate opportunity for both (x) the Covered Apollo Person, in his or her Apollo-related capacity, or Apollo and (y) the Corporation, the Covered Apollo Person shall not have any duty to offer or communicate information regarding such corporate opportunity to the Corporation. To the fullest extent permitted by Nevada law, including NRS 78.070(8), the Corporation hereby renounces any interest or expectancy of the Corporation in such corporate opportunity and waives any claim against each Covered Apollo Person and shall indemnify a Covered Apollo Person against any claim, that such Covered Apollo Person is liable to the Corporation or its stockholders for breach of any fiduciary duty solely by reason of the fact that such Covered Apollo Person (a) pursues or acquires any corporate opportunity for its own account or the account of any Affiliate, (b) directs, recommends, sells, assigns, or otherwise transfers such corporate opportunity to another Person or (c) does not communicate information regarding such corporate opportunity to the Corporation; provided , however , in each case, that any corporate opportunity which is
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expressly offered to a Covered Apollo Person in writing solely in his or her capacity as an officer or director of the Corporation shall belong to the Corporation. The Corporation shall pay in advance any expenses incurred in defense of such claim as provided in Article IX .
Section 2. Amendments . Notwithstanding any other provision of these Articles or the Bylaws and in addition to any other affirmative vote of the holders of any particular class or series of stock of the Corporation required by applicable law, these Articles (including any Preferred Stock Designation) or the Bylaws, the affirmative vote of the holders of at least two-thirds (2/3) of the voting power of the outstanding shares of capital stock of the Corporation, voting together as a single class, shall be required to amend or repeal, or adopt any provision inconsistent with, this Article XIII , provided that the foregoing restriction shall not apply to any amendment or restatement of these Articles (including, without limitation, pursuant to articles of merger, conversion or exchange) to be effected pursuant to, or to be effective upon or after the consummation of, a merger, conversion or exchange to which the Corporation is a constituent entity, in each case which has been otherwise duly authorized and approved by a majority of the directors then in office, which majority must include a majority of the Apollo Directors then in office, and the stockholders of the Corporation in accordance with these Articles (including any Preferred Stock Designation), the Bylaws, the NRS and other applicable law.
Section 3. Conflict . In the event of a conflict between this Article XIII and any other Article or provision of these Articles, this Article XIII shall prevail in all circumstances.
Section 4. Certain Definitions . For purposes of this Article XIII only:
(a) “ Corporation ” shall be deemed to refer to PlayAGS, Inc. and all Persons in which PlayAGS, Inc. beneficially owns (directly or indirectly) 50% or more of the outstanding voting stock, voting power, partnership interests or similar voting interests or which PlayAGS, Inc. otherwise controls.
(b) “ Covered Apollo Person ” means (i) any director or officer of the Corporation who is also an officer, director, employee, managing director or other affiliate of a member of the Apollo Group and (ii) Apollo.
ARTICLE XIV
GAMING AND REGULATORY MATTERS
Section 1. Compliance with Gaming Laws . All Securities shall be held subject to the restrictions and requirements of all applicable Gaming Laws. All Persons Owning or Controlling Securities shall comply with all applicable Gaming Laws, including any provisions of such Gaming Laws that require such Person to file applications for Gaming Licenses with, and provide information to, the applicable Gaming Authorities. Any Transfer of Securities may be subject to the prior approval of the Gaming Authorities and/or the Corporation or the applicable Affiliated Company, and any purported Transfer thereof in violation of such requirements shall be void ab initio .
Section 2. Ownership Restrictions . Any Person who Owns or Controls five percent (5%) or more of any class or series of the Corporation’s Securities shall promptly notify the Corporation of such fact. In addition, any Person who Owns or Controls any shares of any class or series of the Corporation’s Securities may be required by Gaming Law to (i) provide to the Gaming Authorities in each Gaming Jurisdiction in which the Corporation or any subsidiary thereof either conducts Gaming or has a pending application for a Gaming License all information regarding such Person as may be requested or required by such Gaming Authorities and (ii) respond to written or oral questions or inquiries from any such Gaming Authorities. Any Person who Owns or Controls any shares of any class or series of the Corporation’s Securities, by virtue of such Ownership or Control, consents to the performance of any personal background investigation that may be required by any Gaming Authorities.
Section 3. Finding of Unsuitability .
(a) The Securities Owned or Controlled by an Unsuitable Person or an Affiliate of an Unsuitable Person shall be redeemable by the Corporation or the applicable Affiliated Company, out of funds legally available therefor, as directed by a Gaming Authority and, if not so directed, as and to the extent deemed necessary
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or advisable by the Board, in which event the Corporation shall deliver a Redemption Notice to the Unsuitable Person or its Affiliate and shall redeem or purchase or cause one or more Affiliated Companies to purchase the Securities on the Redemption Date and for the Redemption Price set forth in the Redemption Notice. From and after the Redemption Date, such Securities shall no longer be deemed to be outstanding, such Unsuitable Person or Affiliate of such Unsuitable Person shall cease to be a stockholder, member, partner or owner, as applicable, of the Corporation and/or Affiliated Company, and all rights of such Unsuitable Person or Affiliate of such Unsuitable Person in such Securities, other than the right to receive the Redemption Price, shall cease. In accordance with the requirements of the Redemption Notice, such Unsuitable Person or its Affiliate shall surrender the certificate(s), if any, representing the Securities to be so redeemed.
(b) Commencing on the date that a Gaming Authority serves notice of a determination of unsuitability or disqualification of a holder of Securities, or the Board otherwise determines that a Person is an Unsuitable Person, and unless and until the Securities Owned or Controlled by such Person cease to be outstanding or are Owned or Controlled by a Person who is not an Unsuitable Person in accordance with these Articles and applicable law, it shall be unlawful for such Unsuitable Person or any of its Affiliates to and such Unsuitable Person and its Affiliates shall not: (i) receive any dividend, payment, distribution or interest with regard to the Securities, (ii) exercise, directly or indirectly or through any proxy, trustee, or nominee, any voting or other right conferred by such Securities, and such Securities shall not for any purposes be included in the Securities of the Corporation or the applicable Affiliated Company entitled to vote, or (iii) receive any remuneration that may be due to such Person, accruing after the date of such notice of determination of unsuitability or disqualification by a Gaming Authority, in any form from the Corporation or any Affiliated Company for services rendered or otherwise (except in exchange for such Securities as provided in this Article XIV ), or (iv) be or continue as a manager, officer, partner or director of the Corporation or any Affiliated Company.
Section 4. Notices . All notices given by the Corporation or an Affiliated Company pursuant to this Article, including Redemption Notices, shall be in writing and shall be deemed given when delivered by personal service, overnight courier, first-class mail, postage prepaid, addressed to the Person at such Person’s address as it appears on the books and records of the Corporation or Affiliated Company.
Section 5. Indemnification . Each Unsuitable Person and any Affiliate of an Unsuitable Person shall indemnify and hold harmless the Corporation and its Affiliated Companies for any and all losses, costs, and expenses, including attorneys’ costs, fees and expenses, incurred by the Corporation and its Affiliated Companies as a result of, or arising out of, such Unsuitable Person’s continuing Ownership or Control of Securities, failure or refusal to comply with the provisions of this Article, or failure to divest himself, herself or itself of any Securities when and in the specific manner required by the Gaming Authorities or this Article.
Section 6. Injunctive Relief . The Corporation shall be entitled to injunctive or other equitable relief in any court of competent jurisdiction to enforce the provisions of this Article XIV and each Person who Owns or Controls Securities shall be deemed to have consented to injunctive or other equitable relief and acknowledged, by virtue of such Ownership or Control, that the failure to comply with this Article XIV will expose the Corporation and the Affiliated Companies to irreparable injury for which there is no adequate remedy at law and that the Corporation and the Affiliated Companies shall be entitled to injunctive or other equitable relief to enforce the provisions of this Article XIV .
Section 7. Non-Exclusivity of Rights . The rights of the Corporation or any Affiliated Company pursuant to this Article shall not be exclusive of any other rights the Corporation or any Affiliated Company may have or hereafter acquire under any agreement, provision of the Bylaws or organizational documents of such Affiliated Company or otherwise. To the extent not prohibited under applicable Gaming Laws, the Corporation shall have the right, exercisable in the sole discretion of the Board, to propose that the parties, immediately upon the delivery of the Redemption Notice, enter into an agreement or other arrangement, including, without limitation, a divestiture trust or divestiture plan, which will reduce or terminate an Unsuitable Person’s Ownership or Control of all or a portion of its Securities.
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Section 8. Further Actions . Nothing contained in this Article XIV shall limit the authority of the Board to take such other action, to the extent not prohibited by law, as it deems necessary or advisable to protect the Corporation or the Affiliated Companies from the denial or loss or threatened denial or loss of any Gaming License of the Corporation or any of its Affiliated Companies (or any pending or contemplated application for any such Gaming License). Without limiting the generality of the foregoing, the Board may, to the extent not prohibited by law, interpret or conform any provisions of this Article XIV to the extent necessary to make such provisions consistent with Gaming Laws. In addition, the Board may, to the extent not prohibited by law, from time to time establish, modify, amend or rescind Bylaws, regulations, and procedures of the Corporation not inconsistent with the express provisions of this Article XIV for the purpose of determining whether any Person is an Unsuitable Person and for the orderly application, administration and implementation of the provisions of this Article XIV . Such procedures and regulations shall be kept on file with the Secretary of the Corporation, the secretary of each of the Affiliated Companies and with the transfer agent, if any, of the Corporation and/or any Affiliated Companies, and shall be made available for inspection and, upon reasonable request, mailed to any record holder of Securities.
Section 9. Authority of the Board . The Board shall have exclusive authority and power to administer this Article XIV and to exercise all rights and powers specifically granted to the Board or the Corporation, or as may be necessary or advisable in the administration of this Article XIV . All such actions which are done or made by the Board in good faith shall be final, conclusive and binding on the Corporation and all other Persons; provided , that the Board may delegate all or any portion of its duties and powers under this Article XIV to a committee of the Board as it deems necessary or advisable.
Section 10. Compliance with NRS; Severability . Each provision of this Article XIV shall be deemed to be qualified as being to the fullest extent not prohibited by the NRS. If any provision of this Article XIV or the application of any such provision to any Person or under any circumstance shall be held invalid, illegal, or unenforceable in any respect (whether under the NRS or otherwise) by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Article XIV .
Section 11. Termination and Waivers . Except as may be required by any applicable Gaming Law or Gaming Authority, the Board may waive any of the rights of the Corporation or any restrictions contained in this Article XIV in any instance in which and to the extent the Board determines that a waiver would be in the interests of the Corporation. Except as required by a Gaming Authority, nothing in this Article XIV shall be deemed or construed to require the Corporation to repurchase any Securities Owned or Controlled by an Unsuitable Person or an Affiliate of an Unsuitable Person.
Section 12. Legend . The restrictions set forth in this Article XIV shall be noted on any certificate evidencing the Securities in accordance with the requirements of the NRS and any applicable Gaming Laws.
Section 13. Required New Jersey Charter Provisions . These Articles shall be deemed to include all provisions required by the New Jersey Casino Control Act, N.J.S.A. 5:12-1 et seq., as amended from time to time, and the attendant regulations promulgated thereunder (collectively, the “ New Jersey Act ”) and, to the extent that anything contained herein or in the Bylaws is inconsistent with the New Jersey Act, the provisions of the New Jersey Act shall govern. All provisions of the New Jersey Act, to the extent required by law to be stated in these Articles, are incorporated herein by this reference.
Section 14. Certain Definitions . For purposes of this Article XIV the following terms shall have the following meanings:
(a) “ Affiliated Company ” shall mean any partnership, corporation, limited liability company, trust or other entity directly or indirectly Affiliated or under common Ownership or Control with the Corporation including, without limitation, any subsidiary, holding company or intermediary company (as those or similar terms are defined under the Gaming Laws of any applicable Gaming Jurisdictions), in each case that is registered or licensed under applicable Gaming Laws.
(b) “ Control ” (and derivatives of such term) (i) with respect to any Person, shall have the meaning ascribed to such term under Rule 12b-2 promulgated by the SEC under the Exchange Act, (ii) with respect to any Interest, shall mean the possession, directly or indirectly, of the power to direct, whether by agreement,
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contract, agency or otherwise, the voting rights or disposition of such Interest, and (iii) as applicable, the meaning ascribed to the term “control” (and derivatives of such term) under the Gaming Laws of any applicable Gaming Jurisdictions).
(c) “ Gaming ” or “ Gaming Activities ” shall mean the conduct of gaming and gambling activities, race books and sports pools, or the use, manufacture or distribution of gaming devices, equipment and supplies in or for the operation of a casino, simulcasting facility, card club or other enterprise, including, without limitation, slot machines, gaming tables, cards, dice, gaming chips, player tracking systems, cashless wagering systems, mobile gaming systems, inter-casino linked systems and related and associated equipment, supplies and systems.
(d) “ Gaming Authorities ” shall mean all international, national, foreign, domestic, federal, state, provincial, regional, local, tribal, municipal and other regulatory and licensing bodies, instrumentalities, departments, commissions, authorities, boards, officials, tribunals and agencies with authority over or responsibility for the regulation of Gaming within any Gaming Jurisdiction.
(e) “ Gaming Jurisdictions ” shall mean all jurisdictions, domestic and foreign, and their political subdivisions, in which Gaming Activities are or may be lawfully conducted, including, without limitation, all Gaming Jurisdictions in which the Corporation or any of the Affiliated Companies currently conducts or may in the future conduct Gaming Activities.
(f) “ Gaming Laws ” shall mean all laws, statutes and ordinances pursuant to which any Gaming Authority possesses regulatory, permit and licensing authority over the conduct of Gaming Activities, or the Ownership or Control of an Interest in an entity which conducts Gaming Activities, in any Gaming Jurisdiction, all orders, decrees, rules and regulations promulgated thereunder, all written and unwritten policies of the Gaming Authorities and all written and unwritten interpretations by the Gaming Authorities of such laws, statutes, ordinances, orders, decrees, rules, regulations and policies.
(g) “ Gaming Licenses ” shall mean all licenses, permits, approvals, orders, authorizations, registrations, findings of suitability, franchises, exemptions, waivers, concessions and entitlements issued by any Gaming Authority necessary for or relating to the conduct of Gaming Activities by any Person or the Ownership or Control by any Person of an Interest in an entity that conducts or may in the future conduct Gaming Activities.
(h) “ Interest ” shall mean the stock or other securities of an entity or any other interest or financial or other stake therein, including, without limitation, the Securities.
(i) “ Own ” or “ Ownership ” (and derivatives of such terms) shall mean (i) ownership of record, (ii) “beneficial ownership” as defined in Rule 13d-3 or Rule 16a-1(a)(2) promulgated by the SEC under the Exchange Act, and (iii) as applicable, the meaning ascribed to the terms “own” or “ownership” (and derivatives of such terms) under the Gaming Laws of any applicable Gaming Jurisdictions.
(j) “ Redemption Date ” shall mean the date set forth in the Redemption Notice by which the Securities Owned or Controlled by an Unsuitable Person or an Affiliate of an Unsuitable Person are to be redeemed by the Corporation or any of its Affiliated Companies, which redemption date shall be determined in the sole and absolute discretion of the Board but which shall in no event be fewer than 45 calendar days following the date of the Redemption Notice, unless (i) otherwise required by a Gaming Authority or pursuant to any applicable Gaming Laws, (ii) prior to the expiration of such 45-day period, the Unsuitable Person shall have sold (or otherwise fully transferred or otherwise disposed of its Ownership of) its Securities to a Person that is not an Unsuitable Person (in which case, such Redemption Notice will only apply to those Securities that have not been sold or otherwise disposed of) by the selling Unsuitable Person and, commencing as of the date of such sale, the purchaser or recipient of such Securities shall have all of the rights of a Person that is not an Unsuitable Person), or (iii) the cash or other Redemption Price necessary to effect the redemption shall have been deposited in trust for the benefit of the Unsuitable Person or its Affiliate and shall be subject to immediate withdrawal by such Unsuitable Person or its Affiliate upon (x) surrender of the certificate(s) evidencing the Securities to be redeemed accompanied by a
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duly executed stock power or assignment or (y) if the Securities are uncertificated, upon the delivery of a duly executed assignment or other instrument of transfer.
(k) “ Redemption Notice ” shall mean that notice of redemption delivered by the Corporation pursuant to this Article to an Unsuitable Person or an Affiliate of an Unsuitable Person if a Gaming Authority so requires the Corporation, or if the Board deems it necessary or advisable, to redeem such Unsuitable Person’s or Affiliate’s Securities. Each Redemption Notice shall set forth (i) the Redemption Date, (ii) the number and type of Securities to be redeemed, (iii) the Redemption Price and the manner of payment therefor, (iv) the place where any certificates for such Securities shall be surrendered for payment, and (v) any other requirements of surrender of the certificates, including how such certificates are to be endorsed, if at all.
(l) “ Redemption Price ” shall mean, unless otherwise determined by the Board in its sole and absolute discretion, a price equal to the lesser of (i) the average closing sale price of such Securities as reported for composite transactions in securities listed on the principal trading market on which such Securities are then listed or admitted for trading during the 30 trading days preceding delivery of the Redemption Notice or, if such Securities are not so listed or traded, at the fair value of the Securities determined in good faith by the Board and (ii) the holder’s original Purchase Price.
(m) “ SEC ” shall mean the U.S. Securities and Exchange Commission.
(n) “ Securities ” shall mean the capital stock of the Corporation and the capital stock, member’s interests or membership interests, partnership interests or other equity securities of any Affiliated Company.
(o) “ Transfer ” shall mean the sale and every other method, direct or indirect, of transferring or otherwise disposing of an Interest, or the Ownership, Control or possession thereof, or fixing a lien thereupon, whether absolutely or conditionally, voluntarily or involuntarily, by or without judicial proceedings, as a conveyance, sale, payment, pledge, mortgage, lien, encumbrance, gift, security, or otherwise (including by merger or consolidation).
(p) “ Unsuitable Person ” shall mean a Person who (i) fails or refuses to file an application, or has withdrawn or requested the withdrawal of a pending application, to be found suitable by any Gaming Authority or for any Gaming License, (ii) is denied or disqualified from eligibility for any Gaming License by any Gaming Authority, (iii) is determined by a Gaming Authority to be unsuitable or disqualified to Own or Control any Securities, (iv) is determined by a Gaming Authority to be unsuitable or who is disqualified to be Affiliated, associated or involved with a Person engaged in Gaming Activities in any Gaming Jurisdiction, (v) causes any Gaming License of the Corporation or any Affiliated Company to be lost, rejected, rescinded, suspended, revoked or not renewed by any Gaming Authority, or causes the Corporation or any Affiliated Company to be threatened by any Gaming Authority with the loss, rejection, rescission, suspension, revocation or non-renewal of any Gaming License (in each of (ii) through (v) above, regardless of whether such denial, disqualification or determination by a Gaming Authority is final and/or non-appealable), or (vi) is deemed by the Board, in its sole and absolute discretion, likely to (A) preclude or materially delay, impede, impair, threaten or jeopardize any Gaming License held by the Corporation or any Affiliated Company or the Corporation’s or any Affiliated Company’s application for, right to the use of, entitlement to, or ability to obtain or retain, any Gaming License, (B) cause or otherwise result in, the disapproval, cancellation, termination, material adverse modification or non-renewal of any material contract to which the Corporation or any Affiliated Company is a party, or (C) cause or otherwise result in the imposition of any materially burdensome or unacceptable terms or conditions on any Gaming License of the Corporation or any Affiliated Company whose ownership of Securities or whose failure to make application to seek licensure from or otherwise comply with the requirements of a Gaming Authority will result in the Corporation losing a Gaming License, or the Corporation being unable to reinstate prior a Gaming License, or the Corporation being unable to obtain a new Gaming License, as determined by the Board, in its sole and absolute discretion, after consultation with counsel.
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ARTICLE XV
DEFINITIONS
As used in these Articles, unless the context otherwise requires or as set forth in another Article or Section of these Articles, the term:
(a) “ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person; provided , that neither the Corporation nor any of its subsidiaries will be deemed an Affiliate of any stockholder of the Corporation or any of such stockholders’ Affiliates.
(b) “ Apollo ” means Apollo Global Management, LLC, together with its subsidiaries.
(c) “ Apollo Director ” means any director of the Corporation nominated by the Apollo Group and designated as such pursuant to the Stockholders Agreement.
(d) “ Apollo Group ” means, collectively, (i) Apollo, (ii) certain investment funds affiliated with or managed by Apollo, including Apollo Investment Fund VIII, L.P., along with their parallel investment funds, (iii) any other investment fund or other collective investment vehicle affiliated with or managed by Apollo or whose general partner or managing member is owned, directly or indirectly, by Apollo, (iv) AP Gaming VoteCo, LLC, to the extent that it has beneficial ownership of shares of Common Stock pursuant to that certain Irrevocable Proxy and Power of Attorney of the Corporation, dated as of the date hereof, and (v) any Affiliate of the foregoing (in each case, other than the Corporation and its subsidiaries).
(e) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and any successor law or statute, in each case together with the rules and regulations promulgated thereunder.
(f) “ Non-Apollo Director ” means any director of the Corporation other than an Apollo Director.
(g) “ Person ” means any individual, partnership, firm, corporation, limited liability company, joint venture, association, trust, unincorporated organization or other entity.
(h) “ Stockholders Agreement ” means the Stockholders Agreement, dated as of the closing of the initial public offering of Common Stock, by and among the Corporation, Apollo Gaming Holdings, L.P. and AP Gaming VoteCo, LLC, as the same may be amended, restated, supplemented and/or otherwise modified, from time to time.
(i) “ Triggering Event ” means the first date on which the Apollo Group ceases to beneficially own (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) shares representing at least fifty percent (50%) of the voting power of the issued and outstanding shares of stock of the Corporation.
ARTICLE XVI
DEEMED NOTICE AND CONSENT
To the fullest extent permitted by law, each and every natural person, corporation, general or limited partnership, limited liability company, joint venture, trust, association or any other entity purchasing or otherwise acquiring any interest (of any nature whatsoever) in any shares of the capital stock of the Corporation shall be deemed, by reason of and from and after the time of such purchase or other acquisition, to have notice of and to have consented to all of the provisions of (a) these Articles, (b) the Bylaws and (c) any amendment to these Articles or the Bylaws enacted or adopted in accordance with these Articles, the Bylaws and applicable law.
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Exhibit 3.2
FORM OF AMENDED AND RESTATED BYLAWS
OF
PLAYAGS, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE — The registered office of PlayAGS, Inc., a Nevada corporation (the “ Corporation ”) shall be the office of the Corporation’s registered agent in the State of Nevada or such other office of the Corporation in the State of Nevada as established from time to time by the Board of Directors.
SECTION 2. OTHER OFFICES — The Corporation may have other offices, either within or without the State of Nevada, at such place or places as the Board of Directors may from time to time select or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS — Subject to Article II , Section 9 of these Amended and Restated Bylaws (as amended from time to time, these “ Bylaws ”), annual meetings of stockholders for the election of Directors, and for such other business as may be properly brought before the meeting, shall be held at such place, if any, either within or without the State of Nevada, or by means of remote communication, and at such time and date as the Board of Directors, by resolution, shall designate from time to time.
SECTION 2. SPECIAL MEETINGS — Subject to applicable law, the Corporation’s Amended and Restated Articles of Incorporation (as amended from time to time, the “ Articles of Incorporation ”), and the rights of the holders of any series of Preferred Stock (as defined in the Articles of Incorporation), special meetings of stockholders of the Corporation, for any purpose or purposes, may be called from time to time by such persons authorized to do so by the Articles of Incorporation and not by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice of the meeting sent by or on behalf of the Corporation. For avoidance of doubt, any nomination of Directors for election at a special meeting of stockholders called for the purpose of electing Directors shall be subject to Article II , Section 9 of these Bylaws.
SECTION 3. VOTING - When a quorum is present at any meeting of stockholders, action by the stockholders on a matter will be approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, except (i) Directors shall be elected by a plurality of the votes cast, (ii) if the action is one upon which, by provision of applicable law, the Articles of Incorporation or these Bylaws, a different vote is required, then such express provision shall govern and control the decision of such action. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after six months from its date unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by delivering to the secretary a revocation of the proxy or by delivering a new duly authorized proxy bearing a later date.
SECTION 4. STOCKHOLDER LIST - The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete, alphabetical list of the stockholders entitled to vote at the meeting, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list may be examined by any stockholder for any purpose germane to the meeting for a period of at least ten days prior to the meeting, during ordinary business hours at the principal place of business of the Corporation or on a reasonably accessible electronic network as provided by applicable law. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by
any stockholder who is present. If the meeting is held solely by means of remote communication, the list shall also be open for inspection as provided by applicable law. Except as provided by applicable law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders or to vote in person or by proxy at any meeting of stockholders.
SECTION 5. QUORUM — Except as otherwise required by law, by the Articles of Incorporation or by these Bylaws, the presence, in person or by proxy, of stockholders holding a majority of the voting power of all outstanding shares of the Corporation entitled to vote at the meeting shall constitute a quorum for the transaction of business at such meeting. In case a quorum shall not be present at any meeting, the person presiding over such meeting or a majority of the voting power of the shares so present, in person or by proxy, and entitled to vote at the meeting shall have the power to adjourn the meeting from time to time, without notice other than announcement of the time and place of the adjourned meeting at the meeting at which the adjournment is taken, until the requisite quorum shall be present; provided , however , that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, notice of the time and place of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix a new record date for notice of such adjourned meeting in accordance with these Bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting. At any such adjourned meeting at which the requisite quorum shall be represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
SECTION 6. NOTICE OF MEETINGS — Whenever stockholders are required or permitted to take any action at a meeting, notice of the meeting shall be given which notice shall state the place, if any, date and time of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for determining stockholders entitled to notice of the meeting), and in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law (meaning, here and hereinafter, as required from time to time by the Nevada Revised Statutes, as amended from time to time (the “ NRS ”) or the Articles of Incorporation), the notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting. The Board of Directors may postpone or reschedule any previously scheduled meeting. Attendance of a stockholder, in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except where the stockholder, in person or by proxy, attends a meeting for the express purpose of objecting at the beginning of such meeting to the transaction of any business because the meeting is not lawfully called or convened. Whenever the giving of any notice to Stockholders is required by applicable law, the Articles of Incorporation or these Bylaws, a written waiver, signed by the stockholder entitled to notice, or a waiver by electronic transmission by such stockholder, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purposes of, any regular or special meeting of the stockholders need be specified in any waiver of notice.
SECTION 7. VOTING PROCEDURES AND INSPECTORS — The Board of Directors, in advance of any meeting of stockholders, shall appoint one or more inspectors, who may be employees of the Corporation, to act at the meeting and make a written report thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting, the person presiding over the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (a) ascertain the number of shares outstanding and the voting power of each, (b) determine the shares present in person or represented by proxy at the meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and (e) certify their determination of the number of shares present in person or represented by proxy at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. Unless otherwise provided by the Board of
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Directors, the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be determined by the person presiding over the meeting and shall be announced at the meeting. No ballots, proxies, votes or any revocation thereof or change thereto shall be accepted by the inspectors after the closing of the polls unless an appropriate court (as determined in accordance with the mandatory forum provisions of the Articles of Incorporation) upon application by a stockholder shall determine otherwise. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for office at an election may serve as an inspector at such election.
SECTION 8. CONDUCT OF MEETINGS — The Board of Directors may adopt such rules and procedures for the conduct of stockholder meetings as it deems appropriate. At each meeting of stockholders, unless the Board of Directors otherwise provides, the Chief Executive Officer or, in the absence of the Chief Executive Officer, the Chairman of the Board or, if the Chairman of the Board is absent, the most senior officer of the Corporation present, shall preside over the meeting. Except to the extent inconsistent with any rules and procedures adopted by the Board of Directors, the person presiding over the meeting of stockholders shall have the right and authority to convene, adjourn and reconvene the meeting from time to time, to prescribe such additional rules and procedures and to do all such acts as, in the judgment of such person, are appropriate for the proper conduct of the meeting. Such rules and procedures, whether adopted by the Board of Directors or prescribed by the person presiding over the meeting, may include, (a) the establishment of an agenda or order of business for the meeting, (b) rules and procedures for maintaining order at the meeting and the safety of those present, (c) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the person presiding over the meeting shall determine, (d) restrictions on entry to the meeting after the time fixed for the commencement thereof and (e) limitations on the time allotted to questions or comments by participants. The order of business at all meetings of stockholders shall be as determined by the person presiding over the meeting. The person presiding over any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, may determine and declare to the meeting that a matter or business was not properly brought before the meeting and, if such presiding person should so determine, he or she shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. The Secretary or, in his or her absence, one of the Assistant Secretaries, shall act as secretary of the meeting. If none of the officers above designated to act as the person presiding over the meeting or as secretary of the meeting shall be present, a person presiding over the meeting or a secretary of the meeting, as the case may be, shall be designated by the Board of Directors and, if the Board of Directors has not so acted, in the case of the designation of a person to act as secretary of the meeting, designated by the person presiding over the meeting.
SECTION 9. NOTICE OF DIRECTOR NOMINATIONS AND STOCKHOLDER BUSINESS —
(a) At any meeting of stockholders, only persons nominated in accordance with the procedures set forth in this Section 9 shall be eligible and qualified for election as Directors, and only business that has been properly brought before the meeting in accordance with the procedures set forth in this Section 9 shall be conducted. For persons nominated for election as Directors to be eligible and qualified for election and for businesses to be properly brought before a meeting, the nomination must be made or the business must be brought, as applicable, (i) by or at the direction of the Board of Directors or any committee thereof or (ii) by any stockholder who is a stockholder of record at the time of the giving of the notice provided for in this Section 9 , who is entitled to vote at the meeting and who complies with the notice requirements and other provisions set forth in this Section 9 . Subject to Section 9(f) , Section 9(a)(ii) is the exclusive means by which a stockholder may nominate persons for election as Directors or bring business before a meeting of stockholders. Any nomination made in accordance with Section 9(a)(ii) is referred to as a “ Stockholder Nomination ” and any business brought in accordance with Section 9(a)(ii) is referred to as “ Stockholder Business ”. Notwithstanding anything to the contrary in this Section 9(a) , the business transacted at any special meeting of stockholders shall be limited to the purpose(s) stated in the notice of the meeting sent by or on behalf of the Corporation, stockholders shall not be permitted to propose Stockholder Business at any
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special meeting of stockholders, and Stockholder Nominations shall be permitted in connection with special meetings only if the election of Directors is among the purposes stated in the notice of the meeting sent by or on behalf of the Corporation and the Stockholder Nomination otherwise complies with the provisions of this Section 9 .
(b) Subject to Section 9(f) , all Stockholder Nominations and proposals of Stockholder Business must be made by timely notice thereof in proper written form to the Secretary of the Corporation and, in the case of proposals of Stockholder Business, must constitute a proper matter for stockholder action.
(i) To be timely in the case of an annual meeting of stockholders, a stockholder’s notice must be sent and received by the Secretary at the principal executive offices of the Corporation not later than 5:00 p.m., Pacific Time, on the ninetieth (90th) day, nor earlier than 5:00 p.m., Pacific Time, on the one hundred twentieth (120th) day, prior to the first anniversary of the date of the immediately preceding annual meeting; provided , however , that if (1) the date of the annual meeting is more than thirty (30) days earlier or more than sixty (60) days later than such anniversary date, (2) no annual meeting was held in the immediately preceding year or (3) in the case of the Corporation’s first annual meeting of stockholders as a corporation with a class of equity security registered under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), then the notice by the stockholder to be timely must be so sent and received (A) not earlier than 5:00 p.m., Pacific Time, on the one hundred twentieth (120th) day prior to such annual meeting and (B) not later than 5:00 p.m., Pacific Time, on the later of the ninetieth (90th) day prior to such annual meeting and the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. Notwithstanding anything to the contrary in this Section 9(b)(i) , if the number of Directors to be elected to the Board of Directors at a meeting of stockholders is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least 100 days before the first anniversary of the preceding year’s annual meeting, notice of a Stockholder Nomination shall also be considered timely, but only with respect to nominees for the additional directorships, if it is sent and received by the Secretary at the principal executive offices of the Corporation not later than 5:00 p.m., Pacific Time, on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. To be timely in the case of a special meeting of stockholders called for the purpose of electing Directors, a stockholder’s notice of a Stockholder Nomination to be timely must be sent and received by the Secretary at the principal executive offices of the Corporation (A) not later than 5:00 p.m., Pacific Time, on the one hundred twentieth (120th) day prior to such special meeting and (B) not later than 5:00 p.m., Pacific Time, on the later of the ninetieth (90th) day prior to such special meeting and the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment or postponement of any annual or special meeting commence a new time period (or extend any time period) for the giving of a stockholder notice as described herein.
(ii) To be in proper written form, a stockholder’s notice to the Secretary shall set forth in writing (1) in the case of a Stockholder Nomination, as to each person whom the stockholder proposes to nominate for election as a Director, (A) all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected) and (B) a completed signed questionnaire, representation and agreement required by Article III , Section 11 ; (2) as to any Stockholder Business, a brief description of the Stockholder Business, the text of the proposal or business (including the complete text of any resolutions proposed for consideration or any amendment to any Corporation document intended to be presented at the meeting), the reasons for conducting such Stockholder Business at the annual meeting and any material interest in the Stockholder Business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (3) as to the stockholder giving the notice and the
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beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (B) (I) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder, such beneficial owner, and their respective affiliates, associates and any others acting in concert therewith, (II) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the Corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the Corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the Corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise, through the delivery of cash or other property, or otherwise, and without regard of whether such stockholder, beneficial owner, or any affiliates, associates or others acting in concert therewith may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right (any of the foregoing, a “ Derivative Instrument ”) directly or indirectly owned beneficially by such stockholder, beneficial owner, or any affiliates, associates or others acting in concert therewith and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation, (III) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder or beneficial owner has a right to vote any shares of the Corporation, (IV) any contract, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such stockholder or beneficial owner, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder or beneficial owner with respect to any class or series of the shares of the Corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any security of the Corporation (any of the foregoing, a “ Short Interest ”), (V) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder or beneficial owner that are separated or separable from the underlying shares of the Corporation, (VI) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder or beneficial owner is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership, (VII) any performance-related fees (other than an asset-based fee) that such stockholder or beneficial owner is entitled to, based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such stockholder’s or beneficial owner’s immediate family sharing the same household, (VIII) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the Corporation held by such stockholder or beneficial owner and (IX) any direct or indirect interest of such stockholder or beneficial owner in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (X) any other information relating to such stockholder and beneficial owner that would be required to be disclosed in a proxy statement and form of proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the Stockholder Business and/or Stockholder Nomination in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, (C) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear
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in person or by proxy at the meeting to propose such Stockholder Business and/or Stockholder Nomination, as applicable and (D) a representation whether the stockholder or the beneficial owner intends to solicit proxies in support of such Stockholder Business and/or Stockholder Nomination, as applicable, including whether such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of at least the percentage of the voting power of the Corporation’s shares required under applicable law, the Articles of Incorporation or these Bylaws to adopt and/or carry out the Stockholder Business or elect the persons nominated pursuant to the Stockholder Nomination, as applicable. The Corporation may require any person nominated pursuant to a Stockholder Nomination to furnish such other information as the Corporation may reasonably require in order to determine the eligibility of such person to serve as a Director.
(c) Only such persons who are nominated in accordance with the requirements and procedures set forth in this Section 9 and fully comply with Article III , Section 11 shall be eligible and qualified to be elected at an annual or special meeting of stockholders of the Corporation to serve as Directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the requirements set forth in this Section 9 . Except as otherwise provided by law, the person presiding over the meeting shall have the power and duty to determine whether a Stockholder Nomination or Stockholder Business was made or proposed, as the case may be, in accordance with the requirements and procedures set forth in this Section 9 (including whether the stockholder or beneficial owner, if any, on whose behalf the Stockholder Nomination or Stockholder Business is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s nominee or proposal in compliance with such stockholder’s or beneficial owner’s representation as required by Section 9(b)(ii)(3) ) and, in the event any proposed Stockholder Nomination or Stockholder Business was not so made or proposed in compliance with this Section 9 , to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 9 , unless otherwise required by law, if the stockholder (or a qualified representative (as defined below) of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a Stockholder Nomination or Stockholder Business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 9 , to be considered a “ qualified representative ” of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(d) For purposes of this Section 9 , “ public announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, or any comparable or successor national news service or in a document publicly filed by the Corporation with the Securities Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(e) Notwithstanding the foregoing provisions of this Section 9 , a stockholder or beneficial owner, if any, on whose behalf a Stockholder Nomination or Stockholder Business is made shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 9 .
(f) The notice requirements of this Section 9 shall be deemed satisfied with respect to shareholder proposals that have been properly brought under Rule 14a-8 of the Exchange Act and that are included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. Further, nothing in this Section 9 shall be deemed to affect any rights of the holders of any Preferred Stock pursuant to any applicable provision of the Articles of Incorporation.
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SECTION 10. MEETINGS THROUGH ELECTRONIC COMMUNICATIONS. Unless otherwise restricted by the NRS, the Articles of Incorporation or these Bylaws, Stockholders may participate in a meeting of the stockholders by any means of electronic communications, videoconferencing, teleconferencing or other available technology permitted under the NRS (including, without limitation, a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other). If any such means are utilized, the Corporation shall, to the extent required under the NRS, implement reasonable measures to (a) verify the identity of each person participating through such means as a stockholder and (b) provide the stockholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to communicate, and to read or hear the proceedings of the meeting in a substantially concurrent manner with such proceedings. Participation in a meeting pursuant to this Section 10 constitutes presence in person at the meeting.
ARTICLE III
DIRECTORS
SECTION 1. POWERS; NUMBER AND TERM — Except as otherwise provided in the Articles of Incorporation, the business and affairs of the Corporation shall be managed under the direction of a Board of Directors. Each Director shall have such voting power as provided in the Articles of Incorporation. The Board of Directors may adopt such rules and procedures, not inconsistent with the Articles of Incorporation, these Bylaws or applicable law, as it may deem proper for the conduct of its meetings and the management of the Corporation. Subject to the Articles of Incorporation and the Stockholders Agreement (as defined in the Articles of Incorporation), the number of directors constituting the entire Board of Directors shall be fixed from time to time by resolution of the Board of Directors, but shall never be less than three (3) nor more than ten (10). The term of each Director shall be as set forth in the Articles of Incorporation. Directors need not be stockholders.
SECTION 2. RESIGNATIONS — Any Director may resign at any time. Such resignation shall be made in writing or by electronic transmission permitted under the NRS, and shall take effect at the time specified therein or, if no time be specified, at the time of its receipt by the Chairman of the Board, the Chief Executive Officer, the President or the Secretary. The acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES — Subject to the rights of holders of any Preferred Stock to elect or otherwise designate Directors pursuant to the terms of any Preferred Stock Designation (as defined in the Articles of Incorporation), any newly created directorships resulting from an increase in the authorized number of Directors and any vacancies occurring in the Board or Directors, may be filled solely by the affirmative vote of a majority of the voting power of the remaining members of the Board of Directors, although less than a quorum, or a sole remaining Director. A Director so elected shall be elected to hold office until the expiration of the term of office of the Director whom he or she has replaced, and a successor is elected and qualified or the Director’s earlier death, resignation, disqualification or removal.
SECTION 4. COMMITTEES — The provisions of this Section 4 shall be subject in all respects to the terms of the Stockholders Agreement. The Board of Directors may designate one or more committees in accordance with the NRS. Unless the Board of Directors provides otherwise, at all meetings of such committee, the attendance of members of such committee who are entitled to vote a majority of the aggregate number of votes of the total number of Directors who are members of the committee shall constitute a quorum for the transaction of business, and affirmative vote of a majority of the aggregate number of votes of the members present at a meeting at which a quorum is present shall be the act of the committee. Each committee shall keep regular minutes of its meetings. Unless the Board of Directors provides otherwise, each committee designated by the Board of Directors may make, alter and repeal rules and procedures for the conduct of its business. In the absence of such rules and procedures each committee shall conduct its business in the same manner as the Board of Directors conducts its business.
SECTION 5. MEETINGS — Regular meetings of the Board of Directors may be held without notice at such places, if any, and times as shall be determined from time to time by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the President, or by the Secretary if directed by Directors representing a majority of the voting power of the Board of Directors, on at least
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one day’s notice to each Director, and shall be held at such places, if any, and times as may be determined by the person or persons at whose direction the meeting is called. Unless otherwise restricted by the NRS, the Articles of Incorporation or these Bylaws, Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or any committee thereof by any means of electronic communications, videoconferencing, teleconferencing or other available technology permitted under the NRS (including, without limitation, a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other). If any such means are utilized, the Corporation shall, to the extent required under the NRS, implement reasonable measures to (a) verify the identity of each person participating through such means as a Director or committee member and (b) provide the Directors or committee members a reasonable opportunity to participate in the meeting and to vote on matters submitted to the Board of Directors or such committee, including an opportunity to communicate, and to read or hear the proceedings of the meeting in a substantially concurrent manner with such proceedings. Participation in a meeting pursuant to this Section 5 constitutes presence in person at the meeting. A majority of the aggregate number of votes of the Directors present at any meeting of the Board of Directors, including an adjourned meeting, whether or not a quorum is present, may adjourn and reconvene such meeting to another time and place. At least 24 hours’ notice of any adjourned meeting of the Board of Directors shall be given to each Director whether or not present at the time of the adjournment; provided , however , that notice of the adjourned meeting need not be given if (i) the adjournment is for 24 hours or less and (ii) the time, place, if any, and means of remote communication, if any, are announced at the meeting at which the adjournment is taken. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called. At each meeting of the Board of Directors, the Chairman of the Board or, in his or her absence, another Director selected by the Board of Directors shall preside. Unless the Board of Directors present at a meeting shall select another person to act as secretary of the meeting, the Secretary shall act as secretary at each meeting of the Board of Directors or, in the absence of the Secretary, an Assistant Secretary shall perform the duties of secretary at such meeting or, in the absence of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting.
SECTION 6. NOTICE OF MEETINGS — Except in the case of an adjourned meeting for 24 hours or less as provided in Section 5 above, whenever notice is required to be given to any Director by applicable law, the Articles of Incorporation or these Bylaws, such notice shall be deemed given effectively if given in person or by telephone, mail or electronic mail addressed to such Director at such Director’s address or email address, as applicable, as it appears on the records of the Corporation, telecopy or by other means of electronic transmission. Whenever the giving of any notice to Directors is required by applicable law, the Articles of Incorporation or these Bylaws, a written waiver signed by the Director, or a waiver by electronic transmission by such Director, whether before or after such notice is required, shall be deemed equivalent to notice. Attendance by a Director at a meeting shall constitute a waiver of notice of such meeting except when the Director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special Board of Directors or committee meeting need be specified in any waiver of notice.
SECTION 7. QUORUM — Unless otherwise provided in the Articles of Incorporation, the attendance of members of the Board of Directors who then possess a majority of the voting power of all of the Directors then in office shall constitute a quorum for the transaction of business of the Board of Directors.
SECTION 8. VOTING — Subject to the Stockholders Agreement and the Articles of Incorporation, the affirmative vote of a majority of the voting power of all of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
SECTION 9. COMPENSATION — Unless otherwise restricted by the Articles of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation, including fees and reimbursement of expenses, of Directors for services to the Corporation in any capacity.
SECTION 10. ACTION WITHOUT MEETING — Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is
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signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee.
SECTION 11. NOMINEE QUALIFICATIONS — To be eligible to be a nominee for election or reelection as a Director, a person must deliver (in accordance with the time periods prescribed for delivery of notice of Stockholder Nominations in Article II , Section 9 ) to the Secretary at the principal executive offices of the Corporation (a) a completed and signed written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request), (b) information necessary to permit the Board of Directors to determine if the nominee (i) is independent under applicable listing standards, any applicable rules of the Securities and Exchange Commission and any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the Directors, (ii) qualifies as an “outside director” for the purposes of Section 162(m) of the Internal Revenue Code (or any successor provision), (iii) is not or has not been, within the past three years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, as amended, or (iv) is not a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in a criminal proceeding within the past ten years and (c) a written representation and agreement (in the form provided by the Secretary upon written request) that such nominee (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such nominee, if elected as a Director, will act or vote on any issue or action (a “ Voting Commitment ”) that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such nominee’s ability to comply, if elected as a Director, with such nominee’s fiduciary duties under applicable law, (ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a Director that has not been disclosed therein, (iii) would be in compliance, if elected as a Director, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation and (iv) currently intends to serve as a Director for the full term for which he or she is standing for election.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS — The officers of the Corporation shall be a Chief Executive Officer, a President, a Treasurer and a Secretary, all of whom shall be elected by the Board of Directors and shall hold office until their successors are duly elected and qualified. In addition, the Board of Directors may elect a Chairman of the Board as well as such Executive Vice Presidents, Vice Presidents, Assistant Secretaries and Assistant Treasurers as they may deem proper. Any number of the above offices may be held by the same person. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD — The Chairman of the Board, if elected by the Board of Directors, shall have such powers and duties as may be prescribed by the Board of Directors. Such officer shall preside at all meetings of the Board of Directors.
SECTION 3. CHIEF EXECUTIVE OFFICER — The Chief Executive Officer shall have the general powers and duties of supervision and management usually vested in the office of Chief Executive Officer of a corporation and perform such other duties as may be assigned to him or her by the Board of Directors. The Chief Executive Officer shall have the power to execute bonds, mortgages and other contracts on behalf of the Corporation, and to cause the seal of the Corporation to be affixed to any instrument requiring it, and when so affixed the seal shall be attested to by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 4. PRESIDENT — The President shall be the Chief Operating Officer of the Corporation. He or she shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation and perform such other duties as may be assigned to him or her by the Board of Directors or the Chief
9
Executive Officer. The President shall have the power to execute bonds, mortgages and other contracts on behalf of the Corporation, and to cause the seal to be affixed to any instrument requiring it, and when so affixed the seal shall be attested to by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. EXECUTIVE VICE PRESIDENTS — Each Executive Vice President, if elected by the Board of Directors, shall have such powers and shall perform such duties as shall be assigned to him or her by the Chief Executive Officer, President or Board of Directors.
SECTION 6. VICE PRESIDENTS — Each Vice President, if elected by the Board of Directors, shall have such powers and shall perform such duties as shall be assigned to him or her by the Chief Executive Officer, President, an Executive Vice President or Board of Directors.
SECTION 7. TREASURER — The Treasurer shall be the Chief Financial Officer of the Corporation. He or she shall have the custody of the Corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation. He or she shall deposit all moneys and other valuables in the name and to the credit of the Corporation in such depositaries as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chief Executive Officer or the President, taking proper vouchers for such disbursements. He or she shall render to the Chief Executive Officer, the President and Board of Directors at the regular meetings of the Board of Directors, or whenever any of them may request it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he or she shall give the Corporation a bond for the faithful discharge of his or her duties in such amount and with such surety as the Board of Directors shall prescribe.
SECTION 8. SECRETARY — The Secretary shall give, or cause to be given, notice of all meetings of stockholders and of the Board of Directors and all other notices required by law or by these Bylaws, and in case of his or her absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the Chief Executive Officer or the President, or by the Board of Directors, upon whose request the meeting is called as provided in these Bylaws. He or she shall record all the proceedings of the meetings of the Board of Directors, any committees thereof and the stockholders of the Corporation in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him or her by the Board of Directors, the Chief Executive Officer or the President. He or she shall have the custody of the seal of the Corporation and shall affix the same to all instruments requiring it, when authorized by the Board of Directors, the Chief Executive Officer or the President, and attest to the same.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES — Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the Board of Directors.
SECTION 10. ACTIONS WITH RESPECT TO SECURITIES OF OTHER ENTITIES — All stock and other securities of other entities owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted (including by written consent), and all proxies with respect thereto shall be executed, by the person or persons authorized to do so by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board, the Chief Executive Officer or the President.
ARTICLE V
MISCELLANEOUS
SECTION 1. STOCK CERTIFICATES — The shares of stock of the Corporation shall be represented by certificates; provided , that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. If any shares are represented by certificates, such certificates shall be in the form approved by the Board of Directors. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of, the Corporation by any two authorized officers of the Corporation. Any or all such signatures may be facsimiles. Although any officer, transfer agent or
10
registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate or his legal representative to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
SECTION 2. STOCKHOLDERS RECORD DATE —
(a) For the purpose of determining the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, unless otherwise required by the Articles of Incorporation or applicable law, the Board of Directors may fix a record date (the “ Notice Record Date ”), which record date shall not precede the date on which the resolution fixing the record date was adopted by the Board of Directors and shall not be more than 60 nor less than ten days before the date of such meeting. The Notice Record Date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such Notice Record Date, that a later date on or before the date of the meeting shall be the date for making such determination (the “ Voting Record Date ”). If no such record date is fixed, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. When a determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders has been made as provided in this Section 2(a) , such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new Voting Record Date for the adjourned meeting, in which case the Board of Directors shall also fix such Voting Record Date or a date earlier than such date as the new Notice Record Date for the adjourned meeting.
(b) For the purposes of determining the stockholders entitled to express consent to corporate action in writing without a meeting, unless otherwise required by the Articles of Incorporation or applicable law, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date was adopted by the Board of Directors and shall not be more than ten days after the date on which the record date was fixed by the Board of Directors. If no such record date is fixed, the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting (unless otherwise provided in the Articles of Incorporation), when no prior action by the Board of Directors is required by applicable law, shall be the first day on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law and, when prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors takes such prior action.
(c) For the purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, exercise any rights in respect of any change, conversion or exchange of stock or take any other lawful action (collectively, “ Other Actions ”), unless otherwise required by the Articles of Incorporation or applicable law, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date was adopted by the Board of Directors and shall not be more than 60 days prior to such Other Action. If no such record date is fixed, the record date for determining stockholders for Other Actions shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 3. REGISTERED STOCKHOLDERS — The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any
11
other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada.
SECTION 3. DIVIDENDS AND OTHER DISTRIBUTIONS — Subject to the provisions of the Articles of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare and cause to be paid dividends or other distributions (as defined in NRS 78.191) on the stock of the Corporation as and when they deem appropriate. Before declaring any dividend or distribution there may be set apart out of any funds of the Corporation available for dividends, such sum or sums as the Board of Directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the Board of Directors shall deem conducive to the interests of the Corporation.
SECTION 4. SEAL — The corporate seal of the Corporation shall be in such form as shall be determined by resolution of the Board of Directors. Such seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 5. FISCAL YEAR — The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.
SECTION 6. CHECKS — All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, or agent or agents, of the Corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors.
SECTION 7. NOTICE AND WAIVER OF NOTICE —Whenever any notice is required to be given under these Bylaws, personal notice is not required unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his or her address as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by law.
SECTION 8. FORM OF RECORDS — Subject to any requirements or limitations under applicable law, any records maintained by or on behalf of the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be maintained on any information storage device, method or one or more electronic networks or databases (including one or more distributed electronic networks or databases). The Corporation shall convert any records so kept into clearly legible paper form upon the request of any person entitled to inspect such records pursuant to applicable law.
SECTION 9. CERTAIN DEFINITIONS — As used in these Bylaws, unless the context otherwise requires, the term:
(a) “ Articles of Incorporation ” means the Articles of Incorporation of the Corporation as amended and otherwise in effect from time to time, including any certificates of designation with respect to any Preferred Stock.
(b) “ Board of Directors ” means the Board of Directors of the Corporation.
(c) “ Corporation ” means AP Gaming Holdco, Inc.
(c) “ Director ” means a director of the Corporation.
(e) “ law ” means any U.S. or non-U.S., federal, state or local law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement enacted, adopted, promulgated or applied by a governmental authority
12
(including any department, court, agency or official, or non-governmental self-regulatory organization, agency or authority and any political subdivision or instrumentality thereof).
(f) “ stockholder ” means a stockholder of record of the Corporation.
ARTICLE VI
AMENDMENTS
These Bylaws may be altered, amended or repealed in accordance with the Articles of Incorporation and the NRS, subject to the Stockholders Agreement (as long as such agreement is in effect).
ARTICLE VII
ACQUISITION OF CONTROLLING INTEREST STATUTES
In accordance with the provisions of NRS 78.378, the provisions of NRS 78.378 to 78.3793, inclusive, as amended from time to time, or any successor statutes, relating to acquisitions of controlling interests in the Corporation, shall not apply to any acquisition of any shares of the Corporation’s capital stock by (a) any member of the Apollo Group (as defined in the Articles of Incorporation) or (b) any direct transferee of shares of the Corporation’s capital stock from any member of the Apollo Group and the controlled affiliates of such direct transferee.
* * * *
13
EXHIBIT 4.1
THE 11.25% SENIOR SECURED PIK NOTES DUE 2024 (THE “NOTES”) HAVE NOT BEEN REGISTERED PURSUANT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), OR QUALIFIED PURSUANT TO ANY APPLICABLE STATE SECURITIES LAW. BY ITS ACQUISITION OF A NOTE, EACH HOLDER (1) REPRESENTS THAT (A) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), OR (B) IT IS AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER REGULATION D OF THE SECURITIES ACT, OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER REGULATION D OF THE SECURITIES ACT THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE ISSUER A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THE NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE ISSUER) AND AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM A NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
$115,000,000
AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
Dated as of May 30, 2017,
by and among
AP GAMING HOLDCO, INC.,
as Issuer,
AP GAMING HOLDINGS, LLC,
as Subsidiary Guarantor,
DEUTSCHE BANK AG, LONDON BRANCH,
as Holder,
and
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Collateral Agent
TABLE OF CONTENTS
Page | ||||||
ARTICLE I Definitions |
1 | |||||
Section 1.01 |
Defined Terms |
1 | ||||
Section 1.02 |
Terms Generally |
32 | ||||
Section 1.03 |
Effectuation of 2015 Transactions |
33 | ||||
Section 1.04 |
Exchange Rates; Currency Equivalents |
33 | ||||
Section 1.05 |
Timing of Payment or Performance |
33 | ||||
Section 1.06 |
Times of Day |
33 | ||||
ARTICLE II The Notes and Purchase and Sale |
33 | |||||
Section 2.01 |
Senior Secured PIK Notes |
33 | ||||
Section 2.02 |
[Reserved] |
34 | ||||
Section 2.03 |
[Reserved] |
34 | ||||
Section 2.04 |
Repayment of Principal |
34 | ||||
Section 2.05 |
Interest |
36 | ||||
Section 2.06 |
Optional Redemption |
37 | ||||
Section 2.07 |
Mandatory Redemption |
38 | ||||
ARTICLE III Representations and Warranties |
39 | |||||
Section 3.01 |
Organization; Powers |
39 | ||||
Section 3.02 |
Authorization |
39 | ||||
Section 3.03 |
Enforceability |
40 | ||||
Section 3.04 |
Governmental Approvals |
40 | ||||
Section 3.05 |
Financial Statements |
40 | ||||
Section 3.06 |
No Material Adverse Effect |
40 | ||||
Section 3.07 |
Title to Properties; Possession Under Leases |
40 | ||||
Section 3.08 |
Subsidiaries |
41 | ||||
Section 3.09 |
Litigation; Compliance with Laws |
41 | ||||
Section 3.10 |
Federal Reserve Regulations |
42 | ||||
Section 3.11 |
Investment Company Act |
42 | ||||
Section 3.12 |
Use of Proceeds |
42 | ||||
Section 3.13 |
Tax Returns |
42 |
i
Section 3.14 |
No Material Misstatements |
43 | ||||
Section 3.15 |
Employee Benefit Plans |
43 | ||||
Section 3.16 |
Environmental Matters |
44 | ||||
Section 3.17 |
Pledge Agreement |
44 | ||||
Section 3.18 |
[Reserved] |
45 | ||||
Section 3.19 |
Solvency |
45 | ||||
Section 3.20 |
Labor Matters |
45 | ||||
Section 3.21 |
Insurance |
45 | ||||
Section 3.22 |
No Default |
46 | ||||
Section 3.23 |
Intellectual Property; Licenses, Etc. |
46 | ||||
Section 3.24 |
Senior Debt |
46 | ||||
Section 3.25 |
USA PATRIOT Act; OFAC |
46 | ||||
Section 3.26 |
Foreign Corrupt Practices Act |
46 | ||||
Section 3.27 |
Money Laundering Laws |
47 | ||||
Section 3.28 |
Securities Laws |
47 | ||||
ARTICLE IIIA Representations and Warranties of the Purchaser and Holders |
48 | |||||
ARTICLE IV [Reserved] |
49 | |||||
ARTICLE V Affirmative Covenants |
49 | |||||
Section 5.01 |
Existence; Business and Properties |
49 | ||||
Section 5.02 |
Insurance |
49 | ||||
Section 5.03 |
Taxes |
50 | ||||
Section 5.04 |
Financial Statements, Reports, etc. |
50 | ||||
Section 5.05 |
Litigation and Other Notices |
51 | ||||
Section 5.06 |
Compliance with Laws |
52 | ||||
Section 5.07 |
Maintaining Records; Access to Properties and Inspections |
52 | ||||
Section 5.08 |
Use of Proceeds |
52 | ||||
Section 5.09 |
Compliance with Environmental Laws |
52 | ||||
Section 5.10 |
Further Assurances |
53 | ||||
ARTICLE VI Negative Covenants |
53 | |||||
Section 6.01 |
Indebtedness |
53 | ||||
Section 6.02 |
Liens |
59 |
ii
Section 6.03 |
Sale and Lease-Back Transactions |
64 | ||||
Section 6.04 |
Investments, Loans and Advances |
64 | ||||
Section 6.05 |
Mergers, Consolidations, Sales of Assets and Acquisitions |
68 | ||||
Section 6.06 |
Dividends and Distributions |
71 | ||||
Section 6.07 |
Transactions with Affiliates |
74 | ||||
Section 6.08 |
Business of the Issuer and the Subsidiaries |
77 | ||||
Section 6.09 |
Limitation on Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. | 77 | ||||
ARTICLE VII Events of Default |
81 | |||||
Section 7.01 |
Events of Default |
81 | ||||
Section 7.02 |
Treatment of Certain Payments |
83 | ||||
ARTICLE VIII The Collateral Agent |
84 | |||||
Section 8.01 |
Appointment |
84 | ||||
Section 8.02 |
Delegation of Duties |
84 | ||||
Section 8.03 |
Exculpatory Provisions |
85 | ||||
Section 8.04 |
Reliance by the Collateral Agent |
87 | ||||
Section 8.05 |
Notice of Default |
87 | ||||
Section 8.06 |
Non-Reliance on the Collateral Agent and Other Holders |
88 | ||||
Section 8.07 |
Indemnification |
88 | ||||
Section 8.08 |
Collateral Agent in Its Individual Capacity |
88 | ||||
Section 8.09 |
Successor Collateral Agent |
89 | ||||
Section 8.10 |
[Reserved] |
89 | ||||
Section 8.11 |
Pledge Agreement and Collateral Agent |
89 | ||||
Section 8.12 |
Right to Realize on Collateral and Enforce Guarantee |
89 | ||||
ARTICLE IX Miscellaneous |
90 | |||||
Section 9.01 |
Notices; Communications |
90 | ||||
Section 9.02 |
Survival of Agreement |
91 | ||||
Section 9.03 |
Binding Effect |
91 | ||||
Section 9.04 |
Successors and Assigns |
91 | ||||
Section 9.05 |
Expenses; Indemnity |
91 | ||||
Section 9.06 |
[Reserved] |
93 |
iii
Section 9.07 |
Applicable Law |
93 | ||||
Section 9.08 |
Waivers; Amendment |
93 | ||||
Section 9.09 |
[Reserved] |
95 | ||||
Section 9.10 |
Entire Agreement |
95 | ||||
Section 9.11 |
WAIVER OF JURY TRIAL |
95 | ||||
Section 9.12 |
Severability |
96 | ||||
Section 9.13 |
Counterparts |
96 | ||||
Section 9.14 |
Headings |
96 | ||||
Section 9.15 |
Jurisdiction; Consent to Service of Process |
96 | ||||
Section 9.16 |
Non-Public Information; Confidentiality |
97 | ||||
Section 9.17 |
Public Information |
97 | ||||
Section 9.18 |
Release of Liens and Guarantee |
98 | ||||
Section 9.19 |
[Reserved] |
99 | ||||
Section 9.20 |
Compliance with Applicable Anti-Terrorism and Money Laundering Regulations. |
99 | ||||
Section 9.21 |
Availability of Certificates |
99 | ||||
Section 9.22 |
Agency of the Issuer for the Subsidiary Guarantor |
99 | ||||
Section 9.23 |
[Reserved] |
99 | ||||
Section 9.24 |
Application of Gaming Laws |
99 |
iv
Exhibits and Schedules (as attached to the Existing Note Purchase Agreement)
Exhibit A | Form of Transfer Agreement | |
Exhibit B | Form of Secured Senior Secured PIK Note | |
Exhibit C | Form of Global Intercompany Note | |
Schedule 3.08(a) | Subsidiaries | |
Schedule 3.08(b) | Subscriptions | |
Schedule 6.01(a) | Obligor Indebtedness | |
Schedule 6.01(b) | Opco Indebtedness | |
Schedule 6.02(a) | Liens | |
Schedule 6.04 | Investments | |
Schedule 6.06(f) | Restricted Payments | |
Schedule 6.07 | Transactions with Affiliates | |
Schedule 9.01 | Notice Addresses |
v
AMENDED AND RESTATED NOTE PURCHASE AGREEMENT, dated as of May 30, 2017 (this “ Agreement ”), by and among AP GAMING HOLDCO, INC., a Delaware corporation, as issuer (together with its successors and permitted assigns, the “ Issuer ”), AP GAMING HOLDINGS, LLC, a Delaware limited liability company, as guarantor (together with its successors and permitted assigns, the “ Subsidiary Guarantor ”), DEUTSCHE BANK AG, LONDON BRANCH, as holder (the “ Holder ”), and DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as collateral agent (together with its successors and permitted assigns in such capacity, the “ Collateral Agent ”) for the benefit of the Holders party hereto from time to time.
WHEREAS, as of the Closing Date, AP Gaming I, LLC, a Delaware limited liability company and an indirect subsidiary of the Issuer (the “ Acquiror ”), directly or indirectly, acquired all of the outstanding Equity Interests of Cadillac Jack, Inc., a Georgia corporation (the “ Target ”), pursuant to a stock purchase agreement, dated as of March 30, 2015 (the “ 2015 Acquisition Agreement ”), entered into by and among AGS, LLC, a Delaware limited liability company, Amaya Inc., a corporation organized under the laws of Quebec (“ Seller ”), and the Target (such transaction, the “ Acquisition ”);
WHEREAS, the Target, upon the consummation of the Acquisition, became a wholly-owned subsidiary of the Acquiror;
WHEREAS, in connection with the consummation of the Acquisition, and pursuant to the Note Purchase Agreement, dated as of May 29, 2015, by and among the Issuer, the Subsidiary Guarantor, the Holder and the Collateral Agent (the “ Existing Note Purchase Agreement ”), the Issuer issued and sold to the Holder, and the Holder purchased from the Issuer, 11.25% Senior Secured PIK Notes due 2021 in the aggregate principal amount of $115,000,000;
WHEREAS, pursuant to the Amendment Agreement (as defined below), the Issuer and the Holder have agreed to amend and restate the Existing Note Purchase Agreement in the form of this Agreement; and
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01 Defined Terms . As used in this Agreement, the following terms shall have the meanings specified below:
“ 2013 Purchase Agreement ” shall have the meaning assigned to the term “Purchase Agreement” in the Existing Credit Agreement (as in effect on the Closing Date).
“ 2013 Transactions ” shall have the meaning assigned to the term “Transactions” in the Existing Credit Agreement (as in effect on the Closing Date).
1
“ 2013 Transaction Expenses ” shall have the meaning assigned to the term “Transaction Expenses” in the Existing Credit Agreement (as in effect on the Closing Date).
“ 2013 Transaction Documents ” shall have the meaning assigned to the term “Transaction Documents” in the Existing Credit Agreement (as in effect on the Closing Date).
“ 2015 Acquisition Agreement ” shall have the meaning assigned to such term in the recitals hereto.
“ 2015 Information Memorandum ” shall mean the Confidential Offering Memorandum dated May 26, 2015, as modified or supplemented in writing to the Purchaser prior to the Closing Date.
“ 2015 Transactions ” shall have the meaning assigned to the term “2015 Transactions” in the Existing Note Purchase Agreement.
“ 2015 Transaction Documents ” shall have the meaning assigned to the term “2015 Transaction Documents” in the Existing Note Purchase Agreement.
“ 2015 Transaction Expenses ” shall have the meaning assigned to the term “2015 Transaction Expenses” in the Existing Note Purchase Agreement.
“ 2017 Transactions ” shall mean, collectively, the transactions to occur in connection with the Refinancing.
“ 2017 Transaction Documents ” shall mean the amendment to the Existing Credit Agreement (or a replacement thereof in connection with the Refinancing) and the loan documents related thereto, and the Note Documents.
“ 2017 Transaction Expenses ” shall mean any fees or expenses incurred or paid by the Issuer or any of its Subsidiaries in connection with the 2017 Transactions, the 2017 Transaction Documents and the transactions contemplated hereby and thereby.
“ Acquiror ” shall have the meaning assigned to such term in the recitals hereto.
“ Acquisition ” shall have the meaning assigned to such term in the recitals hereto.
“ Affiliate ” shall mean, when used 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.
“ Agreement ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement, as amended, restated, supplemented or otherwise modified from time to time.
“ Amendment Agreement ” shall mean the Amendment Agreement, dated as of the date hereof, by and among the Issuer, the Subsidiary Guarantor, the Holder and the Collateral Agent, as amended, restated, supplemented or otherwise modified from time to time.
2
“ Applicable Premium ” shall mean, with respect to any Note on any applicable redemption date (as determined by the Issuer in good faith), the excess of:
(a) the present value at such redemption date of (i) 100% of the accreted principal amount of the Note outstanding on such date plus (ii) all required interest payments due on the Note after such redemption date through the first anniversary of the Closing Date assuming such interest payments were made in cash (excluding accrued but unpaid interest as of the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over
(b) the then accreted principal amount of the Note on such date.
“ Approved Fund ” means any person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered or managed by (a) a Holder, (b) an Affiliate of a Holder or (c) an entity or an Affiliate of an entity that administers or manages a Holder. Notwithstanding the foregoing or anything to the contrary herein, no Holder shall be permitted to assign or transfer any portion of its rights and obligations under this Agreement (A) to any Ineligible Institution, (B) to a natural person or (C) in a manner that would violate United States Federal or state securities laws.
“ Asset Sale ” shall mean any loss, damage, destruction or condemnation of, or any Disposition (including any sale and leaseback of assets and any mortgage or lease of Real Property) to any person of, any asset or assets of the Issuer or any Subsidiary.
“ Board ” shall mean the Board of Governors of the Federal Reserve System of the United States of America.
“ Board of Directors ” shall mean, as to any person, the board of directors or other governing body of such person, or if such person is owned or managed by a single entity, the board of directors or other governing body of such entity.
“ Budget ” shall have the meaning assigned to such term in Section 5.04(e).
“ Business Day ” shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City or in London are authorized or required by law to remain closed.
“ Capitalized Lease Obligations ” shall mean, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
“ Capitalized Software Expenditures ” shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) by a person during such period in respect of licensed or purchased software or internally developed software and software enhancements that, in accordance with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of such person and its subsidiaries.
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“ Cash Interest ” shall have the meaning assigned to such term in Section 2.05(a).
“ Cash Management Agreement ” shall mean any agreement to provide to the Issuer or any Subsidiary cash management services for collections, treasury management services (including controlled disbursement, overdraft, automated clearing house fund transfer services, return items and interstate depository network services), any demand deposit, payroll, trust or operating account relationships, commercial credit cards, merchant card, purchase or debit cards, non-card e-payables services, and other cash management services, including electronic funds transfer services, lockbox services, stop payment services and wire transfer services.
“ CFC ” shall mean a “controlled foreign corporation” within the meaning of section 957(a) of the Code.
A “ Change in Control ” shall be deemed to occur if:
(a) (i) at any time prior to a Qualified IPO, (x) the Permitted Holders shall at any time cease to have, directly or indirectly, the power to vote or direct the voting of at least 35% of the Voting Stock of the Issuer or (y) any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such person, entity or “group” and its subsidiaries and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders, shall at any time have acquired direct or indirect beneficial ownership (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of a percentage of the voting power of the outstanding Voting Stock of the Issuer that is greater than the percentage of such voting power of such Voting Stock in the aggregate, directly or indirectly, beneficially owned by the Permitted Holders or (ii) at any time on and after a Qualified IPO, any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such person, entity or “group” and its subsidiaries and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders (or any holding company parent of the Issuer owned directly or indirectly by the Permitted Holders), shall at any time have acquired direct or indirect beneficial ownership (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of voting power of the outstanding Voting Stock of the Issuer having more than the greater of (A) 35% of the ordinary voting power for the election of directors of the Issuer and (B) the percentage of the ordinary voting power for the election of directors of the Issuer owned in the aggregate, directly or indirectly, beneficially, by the Permitted Holders, unless in the case of either clause (i) or (ii) of this clause (a), the Permitted Holders have, at such time, the right or the ability by voting power, contract or otherwise to elect or designate for election at least a majority of the members of the Board of Directors of the Issuer; or
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(b) at any time on or after a Qualified IPO, during any period of twelve (12) consecutive months, a majority of the seats (other than vacant seats) on the Board of Directors of the Issuer shall be occupied by individuals who were neither (1) nominated by the Board of Directors of the Issuer or a Permitted Holder, (2) appointed by directors so nominated nor (3) appointed by a Permitted Holder; or
(c) (i) the Issuer shall fail to beneficially own, directly or indirectly, 100% of the issued and outstanding Equity Interests of AP Gaming, Inc. (or its successors and assigns); (ii) AP Gaming, Inc. shall fail to beneficially own, directly or indirectly, 100% of the issued and outstanding Equity Interests of the Subsidiary Guarantor; and (iii) the Subsidiary Guarantor shall fail to beneficially own, directly or indirectly, 100% of the issued and outstanding Equity Interests of Opco.
“ Closing Date ” shall mean May 29, 2015.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended.
“ Co-Investors ” shall mean each of (a) the Fund and the Fund Affiliates (excluding any of their portfolio companies) and (b) the Management Group.
“ Collateral Agent ” shall have the meaning assigned to such term in the introductory paragraph to this Agreement.
“ Consolidated Debt ” at any date shall mean the sum of (without duplication) all Indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of Capitalized Lease Obligations, Indebtedness for borrowed money and Disqualified Stock of the Issuer and the Subsidiaries determined on a consolidated basis on such date in accordance with GAAP.
“ Consolidated Net Income ” shall mean, with respect to any person for any period, the aggregate of the Net Income of such person and its subsidiaries for such period, on a consolidated basis; provided , however , that, without duplication,
(i) any net after-tax extraordinary, nonrecurring or unusual gains or losses or income or expense or charge (less all fees and expenses relating thereto), including any severance, relocation or other restructuring expenses, any expenses related to any New Project or any reconstruction, decommissioning, recommissioning or reconfiguration of fixed assets for alternative uses, fees, expenses or charges relating to facilities closing costs, curtailments or modifications to pension and post-retirement employee benefit plans, excess pension charges, acquisition integration costs, facilities opening costs, signing, retention or completion bonuses, and expenses or charges related to any offering of Equity Interests or debt securities of Opco, the Issuer or any Parent Entity, any Investment, acquisition, Disposition, recapitalization or issuance, repayment, refinancing, amendment or modification of Indebtedness (in each case, whether or not successful), any fees, expenses, charges or change in control payments related to the 2013 Transactions (including any costs relating to auditing prior periods, any transition-related expenses, and 2013 Transaction Expenses incurred before, on or after December 20, 2013),
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any fees, expenses, charges or change in control payments related to the 2015 Transactions (including any costs relating to auditing prior periods, any transition-related expenses, and 2015 Transaction Expenses incurred before, on or after the Closing Date), and any fees, expenses, charges or change in control payments related to the 2017 Transactions (including any costs relating to auditing prior periods, any transition-related expenses, and 2017 Transaction Expenses incurred before, on or after the Effective Date), in each case, shall be excluded,
(ii) any net after-tax income or loss from Disposed of, abandoned, closed or discontinued operations or fixed assets and any net after-tax gain or loss on the Dispositions of Disposed of, abandoned, closed or discontinued operations or fixed assets shall be excluded,
(iii) any net after-tax gain or loss (less all fees and expenses or charges relating thereto) attributable to business Dispositions or asset Dispositions other than in the ordinary course of business (as determined in good faith by the management of the Issuer) shall be excluded,
(iv) any net after-tax income or loss (less all fees and expenses or charges relating thereto) attributable to the early extinguishment of indebtedness, Hedging Agreements or other derivative instruments shall be excluded,
(v) (A) the Net Income for such period of any person that is not a subsidiary of such person, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent person or a subsidiary thereof (other than an Unrestricted Subsidiary of such referent person) in respect of such period and (B) the Net Income for such period shall include any dividend, distribution or other payment in cash (or to the extent converted into cash) received by the referent person or a subsidiary thereof (other than an Unrestricted Subsidiary of such referent person) from any person in excess of, but without duplication of, the amounts included in subclause (A),
(vi) the cumulative effect of a change in accounting principles during such period shall be excluded,
(vii) effects of purchase accounting adjustments (including the effects of such adjustments pushed down to such person and its subsidiaries) in component amounts required or permitted by GAAP, resulting from the application of purchase accounting or the amortization or write-off of any amounts thereof, net of taxes, shall be excluded,
(viii) any impairment charges or asset write-offs, in each case pursuant to GAAP, and the amortization of intangibles and other fair value adjustments arising pursuant to GAAP, shall be excluded,
(ix) any non-cash compensation charge or expenses realized or resulting from stock option plans, employee benefit plans or post-employment benefit plans, or grants or sales of stock, stock appreciation or similar rights, stock options, restricted stock, preferred stock or other rights shall be excluded,
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(x) accruals and reserves that are established or adjusted within twelve months after the Closing Date and that are so required to be established or adjusted in accordance with GAAP or as a result of adoption or modification of accounting policies shall be excluded,
(xi) non-cash gains, losses, income and expenses resulting from fair value accounting required by the applicable standard under GAAP and related interpretation shall be excluded,
(xii) [Reserved],
(xiii) any non-cash charges for deferred tax asset valuation allowances shall be excluded,
(xiv) any currency translation gains and losses related to currency remeasurements of Indebtedness, and any net loss or gain resulting from Hedging Agreements for currency exchange risk, shall be excluded,
(xv) any deductions attributable to minority interests shall be excluded,
(xvi) (A) the non-cash portion of “straight-line” rent expense shall be excluded and (B) the cash portion of “straight-line” rent expense which exceeds the amount expensed in respect of such rent expense shall be included,
(xvii) (A) to the extent covered by insurance and actually reimbursed, or, so long as such person has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is (x) not denied by the applicable carrier in writing within 180 days and (y) in fact reimbursed within 365 days following the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within such 365 days), expenses with respect to liability or casualty events or business interruption shall be excluded; and (B) amounts estimated in good faith to be received from insurance in respect of lost revenues or earnings in respect of liability or casualty events or business interruption shall be included (with a deduction for amounts actually received up to such estimated amount to the extent included in Net Income in a future period), and
(xviii) without duplication, an amount equal to the amount of distributions actually made to any parent or equity holder of such person in respect of such period in accordance with Section 6.06(b)(v) shall be included as though such amounts had been paid as income taxes directly by such person for such period.
“ Consolidated Total Assets ” shall mean, as of any date of determination, the total assets of the Issuer and the consolidated Subsidiaries without giving effect to any amortization of the amount of intangible assets since December 31, 2013, determined on a consolidated basis in
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accordance with GAAP, as set forth on the consolidated balance sheet of the Issuer as of the last day of the fiscal quarter most recently ended for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b), as applicable, calculated on a Pro Forma Basis after giving effect to any acquisition or Disposition of a person or assets that may have occurred on or after the last day of such fiscal quarter, provided that if any date of determination occurs prior to the first delivery (or required delivery) pursuant to Section 5.04(a) or 5.04(b) hereunder, Consolidated Total Assets shall be determined utilizing the consolidated balance sheet of the Issuer as of the last day of the fiscal quarter most recently ended for which financial statements of the Issuer have been (or were required to be) filed with the SEC. For purposes of testing whether any Lien, Investment, Immaterial Subsidiary, Disposition, Indebtedness or other item that is incurred (or made) based on a basket or threshold related to Consolidated Total Assets, such item shall be permitted if such basket or threshold was available on the date of such incurrence (or making) even if Consolidated Total Assets subsequently decreases.
“ Control ” shall mean 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 ownership of voting securities, by contract or otherwise, and “ Controlling ” and “ Controlled ” shall have meanings correlative thereto.
“ Cumulative Credit ” shall mean, at any date, an amount equal to the amount calculated pursuant to the defined term “Cumulative Credit” under the Existing Credit Agreement on such date; provided , however , that (i) the “Cumulative Credit” hereunder shall be deemed reduced by the amount of any reliance thereon hereunder even if such reliance does not reduce the “Cumulative Credit” amount calculated pursuant to such defined term in the Existing Credit Agreement (for example, if the Issuer, but not Opco, makes use thereof) and (ii) the “Cumulative Credit” hereunder shall not be reduced to the extent the “Cumulative Credit” amount calculated pursuant to such defined term in the Existing Credit Agreement is utilized under the Existing Credit Agreement but without reliance thereon hereunder (for example, if the Opco, but not the Issuer, makes use thereof).
“ Customer Development Agreement ” shall mean any loan agreement or other financing instrument entered into in the ordinary course of business pursuant to which the Issuer or one of its Subsidiaries extends credit from time to time or makes payments to a customer party on one or more equipment and/or supplies lease or sale agreements with the Issuer or its Subsidiaries to finance such customer’s operation of the leased or purchased equipment and/or supplies (including rental or purchase payments owed to the Issuer or any of its Subsidiaries) and/or the development or acquisition of video gaming routes.
“ Customer Note ” shall mean any promissory note issued pursuant to a Customer Development Agreement by the customer borrower thereunder and made payable to the Issuer or a Subsidiary to evidence all obligations owed by such customer under such Customer Development Agreement.
“ Default ” shall mean any event or condition that upon notice, lapse of time or both would constitute an Event of Default.
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“ Designated Non-Cash Consideration ” shall mean the fair market value (as determined in good faith by the Issuer) of non-cash consideration received by the Issuer or one of its Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-Cash Consideration pursuant to a certificate of a Responsible Officer of the Issuer, setting forth such valuation, less the amount of cash or cash equivalents received in connection with a subsequent disposition of such Designated Non-Cash Consideration, and available pursuant to Section 9.21.
“ Disinterested Director ” shall mean, with respect to any person and transaction, a member of the Board of Directors of such person who does not have any material direct or indirect financial interest in or with respect to such transaction.
“ Dispose ” or “ Disposed of” shall mean to convey, sell, lease, sell and leaseback, assign, farm-out, transfer or otherwise dispose of any property, business or asset. The term “ Disposition ” shall have a correlative meaning to the foregoing.
“ Disqualification ” shall mean, with respect to any Holder:
(a) the failure of that person timely to file pursuant to applicable Gaming Laws:
(i) any application required of that person by any Gaming Authority in connection with any licensing required of that person as a Holder of the Notes; or
(ii) any required application or other papers in connection with determination of the suitability of that person as a Holder of the Notes;
(b) the withdrawal by that person (except where requested or permitted by the Gaming Authority) of any such required application or other required papers;
(c) any finding by a Gaming Authority that there is reasonable cause to believe that such person may be found unqualified or unsuitable; or
(d) any final determination by a Gaming Authority pursuant to applicable Gaming Laws:
(i) that such person is “unsuitable” as a Holder of the Notes;
(ii) that such person shall be “disqualified” as a Holder of the Notes; or
(iii) denying the issuance to that person of any license or other approval required under applicable Gaming Laws to be held by all Holders of Notes of the Issuer; and the word “Disqualified” as used herein shall have a meaning correlative thereto.
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“ Disqualified Stock ” shall mean, with respect to any person, any Equity Interests of such person that, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Notes and all other Obligations that are accrued and payable hereunder), (b) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part, (c) provides for the scheduled payments of dividends in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Stock, in each case, prior to the date that is ninety-one (91) days after the Maturity Date ( provided , that only the portion of the Equity Interests that so mature or are mandatorily redeemable, are so convertible or exchangeable or are so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock). Notwithstanding the foregoing: (i) any Equity Interests issued to any employee or to any plan for the benefit of employees of the Issuer or the Subsidiaries or by any such plan to such employees shall not constitute Disqualified Stock solely because they may be required to be repurchased by the Issuer or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability and (ii) any class of Equity Interests of such person that by its terms authorizes such person to satisfy its obligations thereunder by delivery of Equity Interests that are not Disqualified Stock shall not be deemed to be Disqualified Stock.
“ Dollar Equivalent ” shall mean, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any currency other than Dollars, the equivalent amount thereof in Dollars as determined in good faith by the Issuer at such time on the basis of the Spot Rate (determined in respect of the applicable date of determination) for the purchase of Dollars with such currency.
“ Dollars ” or “ $ ” shall mean lawful money of the United States of America.
“ EBITDA ” shall mean, with respect to the Issuer and the Subsidiaries on a consolidated basis for any period, the Consolidated Net Income of the Issuer and the Subsidiaries for such period plus (a) the sum of (in each case without duplication and to the extent the respective amounts described in subclauses (i) through (xiv) of this clause (a) reduced such Consolidated Net Income (and were not excluded therefrom) for the respective period for which EBITDA is being determined):
(i) provision for Taxes based on income, profits or capital of the Issuer and the Subsidiaries for such period, including, without limitation, state, franchise and similar taxes and foreign withholding taxes (including penalties and interest related to taxes or arising from tax examinations),
(ii) Interest Expense (and to the extent not included in Interest Expense, (x) all cash dividend payments (excluding items eliminated in consolidation) on any series of preferred stock or Disqualified Stock and (y) costs of surety bonds in connection with financing activities) of the Issuer and the Subsidiaries for such period,
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(iii) depreciation and amortization expenses of the Issuer and the Subsidiaries for such period including the amortization of intangible assets, deferred financing fees, customer placement fees and Capitalized Software Expenditures and amortization of unrecognized prior service costs and actuarial gains and losses related to pensions and other post-employment benefits,
(iv) business optimization expenses and other restructuring charges or reserves (which, for the avoidance of doubt, shall include the effect of inventory optimization programs, facility closure, facility consolidations, retention, severance, systems establishment costs, contract termination costs, future lease commitments and excess pension charges); provided , that with respect to each business optimization expense or other restructuring charge, a Responsible Officer of the Issuer shall have executed an officer’s certificate specifying and quantifying such expense or charge, which shall be available pursuant to Section 9.21,
(v) any other non-cash charges; provided , that for purposes of this subclause (v) of this clause (a), any non-cash charges or losses shall be treated as cash charges or losses in any subsequent period during which cash disbursements attributable thereto are made (but excluding, for the avoidance of doubt, amortization of a prepaid cash item that was paid in a prior period),
(vi) the amount of management, consulting, monitoring, transaction and advisory fees and related expenses paid to the Fund or any Fund Affiliate (or any accruals related to such fees and related expenses) during such period not in contravention of this Agreement,
(vii) any expenses or charges (other than depreciation or amortization expense as described in the preceding clause (iii)) related to any issuance of Equity Interests, Investment, acquisition, New Project, Disposition, recapitalization or the incurrence, modification or repayment of Indebtedness permitted to be incurred by this Agreement (including a refinancing thereof) (whether or not successful), including (x) such fees, expenses or charges related to this Agreement, (y) any amendment or other modification of the Obligations or other Indebtedness and (z) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Permitted Receivables Financing,
(viii) the amount of loss on sale of receivables and related assets to a Special Purpose Receivables Subsidiary in connection with a Permitted Receivables Financing,
(ix) any costs or expenses incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed to the capital of the Issuer or a Subsidiary (other than contributions received from the Issuer or another Subsidiary) or net cash proceeds of an issuance of Equity Interests of the Issuer (other than Disqualified Stock),
(x) non-operating expenses,
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(xi) the amount of any loss attributable to a New Project, until the date that is 12 months after the date of completing the construction, acquisition, assembling or creation of such New Project, as the case may be; provided , that (A) such losses are reasonably identifiable and factually supportable and certified by a Responsible Officer of the Issuer and (B) losses attributable to such New Project after 12 months from the date of completing such construction, acquisition, assembling or creation, as the case may be, shall not be included in this clause (xi),
(xii) with respect to any joint venture that is not a Subsidiary and solely to the extent relating to any net income referred to in clause (v) of the definition of “Consolidated Net Income”, an amount equal to the proportion of those items described in clauses (i) and (ii) above relating to such joint venture corresponding to the Issuer’s and the Subsidiaries’ proportionate share of such joint venture’s Consolidated Net Income (determined as if such joint venture were a Subsidiary), and
(xiii) one-time costs associated with commencing Public Company Compliance;
minus (b) the sum of (without duplication and to the extent the amounts described in this clause (b) increased such Consolidated Net Income for the respective period for which EBITDA is being determined) non-cash items increasing Consolidated Net Income of the Issuer and the Subsidiaries for such period (but excluding any such items (A) in respect of which cash was received in a prior period or will be received in a future period or (B) which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges that reduced EBITDA in any prior period).
“ Effective Date ” shall have the meaning assigned to such term in the Amendment Agreement.
“ Environment ” shall mean ambient and indoor air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources such as flora and fauna, the workplace or as otherwise defined in any Environmental Law.
“ Environmental Laws ” shall mean all applicable laws (including common law), rules, regulations, codes, ordinances, orders, binding agreements, decrees or judgments, promulgated or entered into by or with any Governmental Authority, relating in any way to the Environment, preservation or reclamation of natural resources, the generation, management, Release or threatened Release of, or exposure to, any Hazardous Material or to occupational health and safety matters (to the extent relating to the Environment or Hazardous Materials).
“ Environmental Permits ” shall have the meaning assigned to such term in Section 3.16.
“ Equity Interests ” of any person shall mean any and all shares, interests, rights to purchase or otherwise acquire, warrants, options, participations or other equivalents of or interests in (however designated) equity or ownership of such person, including any preferred stock, any limited or general partnership interest and any limited liability company membership interest, and any securities or other rights or interests convertible into or exchangeable for any of the foregoing.
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“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time and any final regulations promulgated and the rulings issued thereunder.
“ ERISA Affiliate ” shall mean any trade or business (whether or not incorporated) that, together with the Issuer or a Subsidiary, is treated as a single employer under Section 414(b) or (c) of the Code, or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“ ERISA Event ” shall mean (a) any Reportable Event or the requirements of Section 4043(b) of ERISA apply with respect to a Plan; (b) with respect to any Plan, the failure to satisfy the minimum funding standard under Section 412 of the Code or Section 302 of ERISA, whether or not waived; (c) a determination that any Plan is, or is expected to be, in “at-risk” status (as defined in Section 303(i)(4) of ERISA or Section 430(i)(4) of the Code); (d) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan, the failure to make by its due date a required installment under Section 430(j) of the Code with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan; (e) the incurrence by the Issuer, a Subsidiary or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan or Multiemployer Plan; (f) the receipt by the Issuer, a Subsidiary or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or to appoint a trustee to administer any Plan under Section 4042 of ERISA; (g) the incurrence by the Issuer, a Subsidiary or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; (h) the receipt by the Issuer, a Subsidiary or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Issuer, a Subsidiary or any ERISA Affiliate of any notice, concerning the impending 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, or in “endangered” or “critical” status, within the meaning of Section 432 of the Code or Section 305 of ERISA; (i) the conditions for imposition of a lien under Section 303(k) of ERISA shall have been met with respect to any Plan; or (j) the withdrawal of any of the Issuer, a Subsidiary or any ERISA Affiliate from a Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA.
“ Event of Default ” shall have the meaning assigned to such term in Section 7.01.
“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
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“ Excluded Contributions ” shall mean the amount received in cash (and the fair market value (as determined by the Issuer in good faith) of property other than cash) by the Issuer after the Closing Date from:
(a) contributions to its common Equity Interests, and
(b) the sale (other than to a Subsidiary of the Issuer or to any Subsidiary management equity plan or stock option plan or any other management or employee benefit plan or agreement) of Equity Interests (other than Disqualified Stock) of the Issuer,
in each case designated as Excluded Contributions pursuant to an officer’s certificate, which shall be available pursuant to Section 9.21, from a Responsible Officer of the Issuer on or promptly after the date on which such capital contributions are made or the date on which such Equity Interests is sold, as the case may be.
“ Existing Credit Agreement ” shall mean the First Lien Credit Agreement, dated as of December 20, 2013, among AP Gaming Holdings, LLC, Opco, the lenders party thereto and Citicorp North America, Inc., as administrative agent and collateral agent, as amended, restated, supplemented or otherwise modified, refinanced or replaced from time to time.
“ Existing Note Purchase Agreement ” shall have the meaning assigned to such term in the recitals hereto.
“ Financial Officer ” of any person shall mean the Chief Financial Officer, principal accounting officer, Treasurer, Assistant Treasurer or Controller of such person, or a duly authorized employee of such person who is a Financial Officer of a subsidiary of such person.
“ Foreign Subsidiary ” shall mean any Subsidiary that is incorporated or organized under the laws of any jurisdiction other than the United States of America, any state thereof or the District of Columbia.
“ Fund ” shall mean, collectively, investment funds managed by Affiliates of Apollo Global Management, LLC.
“ Fund Affiliate ” shall mean (i) each Affiliate of the Fund that is neither a “portfolio company” (which means a company actively engaged in providing goods or services to unaffiliated customers), whether or not controlled, nor a company controlled by a “portfolio company” and (ii) any individual who is a partner or employee of Apollo Management, L.P., Apollo Management VIII, L.P. or Apollo Commodities Management, L.P.
“ GAAP ” shall mean generally accepted accounting principles in effect from time to time in the United States of America, applied on a consistent basis, subject to the provisions of Section 1.02; provided , that any reference to the application of GAAP in Sections 3.13(b), 3.20, 5.03, 5.07 and 6.02(e) to a Foreign Subsidiary (and not as a consolidated subsidiary of the Issuer) shall mean generally accepted accounting principles in effect from time to time in the jurisdiction of organization of such Foreign Subsidiary.
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“ Gaming Authority ” shall mean any commission, panel, board or similar body or organization of any Governmental Authority or of any Indian Tribe, in each case, with authority to regulate gaming or other games of chance or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations in a jurisdiction.
“ Gaming Laws ” shall mean all laws, rules, regulations, judgments, injunctions, orders, decrees or other restrictions of any Gaming Authority, applicable to the business or activities of the Issuer or any of its Subsidiaries, including to the extent applicable, the gaming industry or Indian Tribes or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations.
“ Governmental Authority ” shall mean any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory or legislative body.
“ Guarantee ” of or by any person (the “ guarantor ”) shall mean (a) any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation payable or performable by another person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) 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, (iii) 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 (iv) entered into for the purpose of assuring in any other manner the holders of such Indebtedness or other obligation of the payment thereof or to protect such holders against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of the guarantor securing any Indebtedness or other obligation (or any existing right, contingent or otherwise, of the holder of Indebtedness or other obligation to be secured by such a Lien) of any other person, whether or not such Indebtedness or other obligation is assumed by the guarantor; provided , however , that the term “Guarantee” shall not include endorsements of instruments for deposit or collection in the ordinary course of business or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition or Disposition of assets permitted by this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such person in good faith.
“ guarantor ” shall have the meaning assigned to such term in the definition of the term “Guarantee.”
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“ Hazardous Materials ” shall mean all pollutants, contaminants, wastes, chemicals, materials, substances and constituents, including, without limitation, explosive or radioactive substances or petroleum by products or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas or pesticides, fungicides, fertilizers or other agricultural chemicals, of any nature subject to regulation or which can give rise to liability under any Environmental Law.
“ Hedging Agreement ” shall mean 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 credit spread transaction, repurchase transaction, reserve repurchase transaction, securities lending transaction, weather index transaction, spot contracts, fixed price physical delivery contracts, or any similar transaction or any combination of these transactions, in each case of the foregoing, whether or not exchange traded; 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 Issuer or any of the Subsidiaries shall be a Hedging Agreement.
“ Holder ” shall mean the Purchaser as of the Closing Date (for so long as such person holds any Notes), as well as any person that is a “Holder” of the Notes pursuant to Sections 2.04 and 9.04.
“ Immaterial Subsidiary ” shall mean any Opco Subsidiary that (a) did not, as of the last day of the fiscal quarter of the Issuer most recently ended for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b), have assets with a value in excess of 5.0% of the Consolidated Total Assets or revenues representing in excess of 5.0% of total revenues of the Issuer and the Subsidiaries on a consolidated basis as of such date, and (b) taken together with all Immaterial Subsidiaries as of such date, did not have assets with a value in excess of 10% of Consolidated Total Assets or revenues representing in excess of 10% of total revenues of the Issuer and the Subsidiaries on a consolidated basis as of such date; provided , that the Issuer may elect in its sole discretion to exclude as an Immaterial Subsidiary any Opco Subsidiary that would otherwise meet the definition thereof.
“ Increased Amount ” of any Indebtedness shall mean any increase in the amount of such Indebtedness in connection with any accrual of interest, the accretion of accreted value, the amortization of original issue discount, the payment of interest in the form of additional Indebtedness or in the form of common stock of the Issuer, the accretion of original issue discount or liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies.
“ Indebtedness ” of any person shall mean, if and to the extent (other than with respect to clause (i)) the same would constitute indebtedness or a liability in accordance with GAAP, 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 under conditional sale or other title retention agreements relating to property or assets purchased by such person, to the extent that the same would be required to be
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shown as a long term liability on a balance sheet prepared in accordance with GAAP, (d) all obligations of such person issued or assumed as the deferred purchase price of property or services (other than such obligations accrued in the ordinary course), to the extent that the same would be required to be shown as a long term liability on a balance sheet prepared in accordance with GAAP, (e) all Capitalized Lease Obligations of such person, (f) all net payments that such person would have to make in the event of an early termination, on the date Indebtedness of such person is being determined, in respect of outstanding Hedging Agreements, (g) the principal component of all obligations, contingent or otherwise, of such person as an account party in respect of letters of credit, (h) the principal component of all obligations of such person in respect of bankers’ acceptances, (i) all Guarantees by such person of Indebtedness described in clauses (a) to (h) above and (j) the amount of all obligations of such person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (excluding accrued dividends that have not increased the liquidation preference of such Disqualified Stock); provided , that Indebtedness shall not include (A) trade and other ordinary-course payables, accrued expenses, and intercompany liabilities arising in the ordinary course of business, (B) prepaid or deferred revenue, (C) purchase price holdbacks arising in the ordinary course of business in respect of a portion of the purchase prices of an asset to satisfy unperformed obligations of the seller of such asset, (D) earn-out obligations until such obligations become a liability on the balance sheet of such person in accordance with GAAP and any earn-outs or other purchase price adjustments payable pursuant to the terms of the 2013 Purchase Agreement, (E) obligations in respect of Third Party Funds or (F) in the case of the Issuer and its Subsidiaries, (I) all intercompany Indebtedness having a term not exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary course of business and (II) intercompany liabilities in connection with the cash management, tax and accounting operations of the Issuer and the Subsidiaries. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner, other than to the extent that the instrument or agreement evidencing such Indebtedness limits the liability of such person in respect thereof. To the extent not otherwise included, Indebtedness shall include the amount of any Receivables Net Investment.
“ Indemnitee ” shall have the meaning assigned to such term in Section 9.05(b).
“ Indian Tribe ” shall mean any United States Native American Indian tribe, band, nation or other organized group or community recognized by the Secretary of the Interior of the United States of America as being eligible for special status as Indians and recognized as possessing powers of self-government.
“ Ineligible Institution ” shall mean the persons identified in writing to the Purchaser by the Issuer on or prior to the Closing Date, and as may be identified in writing to the Holders by the Issuer from time to time thereafter in respect of bona fide business competitors of the Issuer (in the good faith determination of the Issuer) by delivery of a notice thereof to the Holders setting forth such person or persons (or the person or persons previously identified to the Purchaser or Holders that are to be no longer considered “Ineligible Institutions”).
“ Information ” shall have the meaning assigned to such term in Section 3.14(a).
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“ Intellectual Property ” shall mean all intellectual property of every kind and nature of any person, whether now owned or hereafter acquired by any person, including inventions, designs, patents, copyrights, trademarks, patent licenses, copyright licenses, trademark licenses, trade secrets, domain names, confidential or proprietary technical and business information, know-how, show-how or other data or information and all related documentation.
“ Interest Expense ” shall mean, with respect to any person for any period, the sum of (a) gross interest expense of such person for such period on a consolidated basis, including (i) the amortization of debt discounts, (ii) the amortization of all fees (including fees with respect to Hedging Agreements) payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of any payments or accruals with respect to Capitalized Lease Obligations allocable to interest expense, (b) capitalized interest of such person, and (c) commissions, discounts, yield and other fees and charges incurred in connection with any Permitted Receivables Financing which are payable to any person other than the Issuer or a Subsidiary. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received and costs incurred by the Issuer and the Subsidiaries with respect to Hedging Agreements, and interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Issuer in good faith to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
“ Interest Payment Date ” shall have the meaning assigned to such term in Section 2.05(b).
“ Investment ” shall have the meaning assigned to such term in Section 6.04.
“ Issuer ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Lien ” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, hypothecation, pledge, charge, security interest or similar monetary encumbrance in or on such asset and (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; provided , that in no event shall an operating lease or an agreement to sell be deemed to constitute a Lien.
“ Management Group ” shall mean the group consisting of the directors, executive officers and other management personnel of the Issuer or any Parent Entity, as the case may be, on the Closing Date together with (a) any new directors whose election by such boards of directors or whose nomination for election by the shareholders of the Issuer or any Parent Entity, as the case may be, was approved by a vote of a majority of the directors of the Issuer or any Parent Entity, as the case may be, then still in office who were either directors on the Closing Date or whose election or nomination was previously so approved and (b) executive officers and other management personnel of the Issuer or any Parent Entity, as the case may be, hired at a time when the directors on the Closing Date together with the directors so approved constituted a majority of the directors of the Issuer or any Parent Entity, as the case may be.
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“ Material Adverse Effect ” shall mean a material adverse effect on the business, property, operations or financial condition of the Issuer and its Subsidiaries, taken as a whole, or the validity or enforceability of any of the Note Documents or the rights and remedies of the Holders thereunder.
“ Material Indebtedness ” shall mean Indebtedness (other than the Notes) of any one or more of the Issuer or any Subsidiary in an aggregate principal amount exceeding $18,000,000.
“ Material Subsidiary ” shall mean any Subsidiary other than an Immaterial Subsidiary.
“ Maturity Date ” shall mean May 20, 2024.
“ Moody’s ” shall mean Moody’s Investors Service, Inc.
“ Mortgaged Properties ” shall have the meaning assigned to such term in the Existing Credit Agreement.
“ Multiemployer Plan ” shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Issuer or any Subsidiary or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414) is making or accruing an obligation to make contributions, or has within any of the preceding six plan years made or accrued an obligation to make contributions.
“ Net Distribution Proceeds ” shall mean 100% of the aggregate amount of the proceeds of any dividend or other distribution initially originating from Opco or any Opco Subsidiary (other than (i) dividends or other distributions on Equity Interests payable solely by the issuance of additional Equity Interests other than Disqualified Stock, (ii) dividends or other distributions made by any Opco Subsidiary to Opco or any Opco Subsidiary, (iii) those made pursuant to Section 6.06(b) of the Existing Credit Agreement (but with respect to Section 6.06(b)(iv) thereof, only those made pursuant to subclauses (iv), (vi), (ix), (xiv) and (xvii) of Section 6.07(b) thereof) and Sections 6.06(c), (g), (i) or (k) of the Existing Credit Agreement and (iv) those made in connection with the 2017 Transactions), in each case net of (a) costs incurred in connection therewith (including legal, advisory and accounting) and (b) taxes paid or payable as a result thereof.
“ Net First Lien Leverage Ratio ” shall mean, on any date, the ratio of (A) (i) the sum of, without duplication, (a) the aggregate principal amount of any Term B Loans and Revolving Facility Loans (as such terms are defined under the Existing Credit Agreement) and any Indebtedness incurred to Refinance any Term B Loans and Revolving Facility Loans that is secured by first priority liens on the Opco Collateral, in each case outstanding as of the last day of the Test Period most recently ended as of such date and (b) the aggregate principal amount of any other Consolidated Debt (including Capitalized Lease Obligations) of the Issuer and its Subsidiaries as of the last day of such Test Period that is then secured by Liens that are senior to or pari passu with the Liens securing the Term B Loans less (ii) without duplication, up to $50,000,000 of Unrestricted Cash and unrestricted Permitted Investments of the Issuer and its Subsidiaries as of the last day of such Test Period, to (B) EBITDA for such Test Period, all determined on a consolidated basis in accordance with GAAP; provided , that the Net First Lien Leverage Ratio shall be determined for the relevant Test Period on a Pro Forma Basis.
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“ Net Income ” shall mean, with respect to any person, the net income (loss) of such person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends.
“ New Project ” shall mean (x) each plant, facility or branch which is either a new plant, facility or branch or an expansion of an existing plant, facility or branch owned by the Issuer or the Subsidiaries which in fact commences operations and (y) each creation (in one or a series of related transactions) of a business unit to the extent such business unit commences operations or each expansion (in one or a series of related transactions, and including the process of obtaining regulatory approvals for entering into any new geographical jurisdiction) of business into a new market.
“ Note ” shall have the meaning assigned to such term in Section 2.01.
“ Note Documents ” shall mean (i) the Amendment Agreement, (ii) this Agreement, (iii) the Subsidiary Guarantee, (iv) the Pledge Agreement and (v) each Note issued by the Issuer to a Holder in substantially the form of Exhibit B of the Existing Note Purchase Agreement.
“ Obligations ” shall mean, collectively, (a) the obligations of the Issuer with respect to (i) the unpaid accreted amount of principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding and unpaid interest, if any, on overdue amounts as set forth in Section 2.05(c)), on the Notes under this Agreement and the Notes, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations of the Issuer owed under or pursuant to this Agreement and each other Note Document, including obligations to pay fees, premium, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), and (b) the due and punctual payment of all obligations of the Subsidiary Guarantor under or pursuant to each of the Note Documents.
“ Obligors ” shall mean collectively the Issuer and the Subsidiary Guarantor.
“ OFAC ” shall have the meaning provided in Section 3.25(b).
“ Opco ” shall mean AP Gaming I, LLC, together with its successors and assigns.
“ Opco Collateral ” shall mean the “Collateral” as defined in the Existing Credit Agreement.
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“ Opco Loan Documents ” shall mean the “Loan Documents” as defined in the Existing Credit Agreement.
“ Opco Loan Parties ” shall mean the “Loan Parties” as defined in the Existing Credit Agreement.
“ Opco Subsidiaries ” shall mean any Subsidiary that is a subsidiary of Opco.
“ Other Taxes ” shall mean any and all present or future stamp or documentary Taxes or any other excise, transfer, sales, property, intangible, mortgage recording or similar Taxes arising from any payment made hereunder or under any other Note Document or from the execution, registration, delivery or enforcement of, consummation or administration of, from the receipt or perfection of security interest under, or otherwise with respect to, the Note Documents.
“ Parent Entity ” shall mean any direct or indirect parent of the Issuer.
“ Partial PIK Interest ” shall have the meaning assigned to such term in Section 2.05(a).
“ PBGC ” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
“ Permitted Business Acquisition ” shall mean any acquisition of all or substantially all the assets of, or all or substantially all the Equity Interests (other than directors’ qualifying shares) not previously held by the Issuer and its Subsidiaries in, or merger, consolidation or amalgamation with, a person or division or line of business of a person (or any subsequent investment made in a person, division or line of business previously acquired in a Permitted Business Acquisition), if immediately after giving effect thereto: (i) no Default or Event of Default shall have occurred and be continuing or would result therefrom; (ii) all transactions related thereto shall be consummated in accordance with applicable laws; and (iii) any acquired or newly formed Subsidiary shall not be liable for any Indebtedness except for Indebtedness permitted by Section 6.01.
“ Permitted Holder Group ” shall have the meaning assigned to such term in the definition of “Permitted Holders.”
“ Permitted Holders ” shall mean (i) the Co-Investors (and each person to whom any Co-Investor transfers Equity Interests of the Issuer or any Parent Entity in connection with the primary equity syndication following the Closing Date), (ii) any person that has no material assets other than the capital stock of the Issuer or any Parent Entity and that, directly or indirectly, holds or acquires beneficial ownership of 100% on a fully diluted basis of the voting Equity Interests of the Issuer, and of which no other person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on December 20, 2013), other than any of the other Permitted Holders specified in clause (i), beneficially owns more than 50% (or, following a Qualified IPO, the greater of 35% and the percentage beneficially owned by the Permitted Holders specified in clause (i)) on a fully diluted basis of the voting Equity Interests thereof and (iii) any “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange
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Act as in effect on December 20, 2013) the members of which include any of the other Permitted Holders specified in clause (i) or (ii) and that, directly or indirectly, hold or acquire beneficial ownership of the voting Equity Interests of the Issuer (a “ Permitted Holder Group ”), so long as (1) each member of the Permitted Holder Group has voting rights proportional to the percentage of ownership interests held or acquired by such member (or more favorable basis, in the case of any Permitted Holder) and (2) no person or other “group” (other than the other Permitted Holders specified in clause (i) or (ii)) beneficially owns more than 50% (or, following a Qualified IPO, the greater of 35% and the percentage beneficially owned by the Permitted Holders specified in clause (i) or (ii)) on a fully diluted basis of the voting Equity Interests held by the Permitted Holder Group.
“ Permitted Investments ” shall mean:
(a) direct obligations of the United States of America or any member of the European Union or any agency thereof or obligations guaranteed by the United States of America or any member of the European Union or any agency thereof, in each case with maturities not exceeding two years;
(b) time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company that is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits in excess of $250,000,000 and whose long-term debt, or whose parent holding company’s long-term debt, is rated A (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Section 3(a)(62) of the Exchange Act));
(c) repurchase obligations with a term of not more than 180 days for underlying securities of the types described in clause (a) above entered into with a bank meeting the qualifications described in clause (b) above;
(d) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of the Issuer) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of P-1 (or higher) according to Moody’s, or A-1 (or higher) according to S&P (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Section 3(a)(62) of the Exchange Act));
(e) securities with maturities of two years or less from the date of acquisition, issued or fully guaranteed by any State, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least A by S&P or A by Moody’s (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Section 3(a)(62) of the Exchange Act));
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(f) shares of mutual funds whose investment guidelines restrict 95% of such funds’ investments to those satisfying the provisions of clauses (a) through (e) above;
(g) money market funds that (i) comply with the criteria set forth in Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000;
(h) time deposit accounts, certificates of deposit and money market deposits in an aggregate face amount not in excess of 0.5% of the total assets of the Issuer and the Subsidiaries, on a consolidated basis, as of the end of the Issuer’s most recently completed fiscal year; and
(i) instruments equivalent to those referred to in clauses (a) through (h) above denominated in any foreign currency comparable in credit quality and tenor to those referred to above and commonly used by corporations for cash management purposes in any jurisdiction outside the United States of America to the extent reasonably required in connection with any business conducted by any Subsidiary organized in such jurisdiction.
“ Permitted Liens ” shall have the meaning assigned to such term in Section 6.02.
“ Permitted Receivables Documents ” shall mean all documents and agreements evidencing, relating to or otherwise governing a Permitted Receivables Financing.
“ Permitted Receivables Financing ” shall mean one or more transactions pursuant to which (i) Receivables Assets or interests therein are sold to or financed by one or more Special Purpose Receivables Subsidiaries, and (ii) such Special Purpose Receivables Subsidiaries finance their acquisition of such Receivables Assets or interests therein, or the financing thereof, by selling or borrowing against Receivables Assets; provided , that recourse to the Issuer or any Subsidiary (other than the Special Purpose Receivables Subsidiaries) in connection with such transactions shall be limited to the extent customary for similar transactions in the applicable jurisdictions (including, to the extent applicable, in a manner consistent with the delivery of a “true sale”/“absolute transfer” opinion with respect to any transfer by the Issuer or any Subsidiary (other than a Special Purpose Receivables Subsidiary).
“ Permitted Refinancing Indebtedness ” shall mean any Indebtedness issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund (collectively, to “ Refinance ”), the Indebtedness being Refinanced (or previous refinancings thereof constituting Permitted Refinancing Indebtedness); provided , that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so Refinanced ( plus unpaid accrued interest and premium (including tender premiums) thereon and underwriting discounts, defeasance costs, fees, commissions, expenses, plus an amount equal to any existing commitment unutilized thereunder and letters of credit undrawn thereunder), (b) except with respect to Section 6.01(i), (i) the final maturity date of such Permitted Refinancing Indebtedness is on or after the earlier of (x) the final maturity date of the Indebtedness being Refinanced and (y) the Maturity Date and (ii) the Weighted Average Life to Maturity of such Permitted Refinancing Indebtedness is greater than or equal to the lesser of
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(i) the Weighted Average Life to Maturity of the Indebtedness being Refinanced and (ii) the Weighted Average Life to Maturity of the Notes then outstanding, (c) if the Indebtedness being Refinanced is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness shall be subordinated in right of payment to the Notes on terms in the aggregate not materially less favorable to the Holders as those contained in the documentation governing the Indebtedness being Refinanced, (d) no Permitted Refinancing Indebtedness of any direct or indirect parent of Opco shall have obligors that are not (or would not have been) obligated with respect to the Indebtedness being so Refinanced (except that the Subsidiary Guarantor may be added as an additional obligor in respect of Permitted Refinancing Indebtedness of the Issuer) and (e) if the Indebtedness being Refinanced is secured by Liens on any Pledged Collateral (whether senior to, equally and ratably with, or junior to the Liens on such Pledged Collateral securing the Obligations or otherwise), such Permitted Refinancing Indebtedness may be secured by such Pledged Collateral only on terms, taken as a whole, no less favorable to the Secured Parties than the Indebtedness being refinanced or on terms otherwise permitted by Section 6.02.
“ person ” shall mean any natural person, corporation, business trust, joint venture, association, company, partnership, limited liability company or government, individual or family trusts, or any agency or political subdivision thereof.
“ PIK Interest ” shall have the meaning assigned to such term in Section 2.05(a).
“ PIK Notes ” shall have the meaning assigned to such term in Section 2.01.
“ Plan ” shall mean any employee pension benefit plan (other than a Multiemployer Plan) that is (i) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, (ii) sponsored or maintained (at the time of determination or at any time within the five years prior thereto) by the Issuer, any Subsidiary or any ERISA Affiliate, and (iii) in respect of which the Issuer, any Subsidiary or any ERISA Affiliate 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.
“ Pledge Agreement ” shall mean the Pledge Agreement, dated as of the date hereof between the Issuer and the Collateral Agent, as amended, restated, supplemented or otherwise modified from time to time.
“ Pledged Collateral ” shall have the meaning assigned to such term in the Pledge Agreement.
“ primary obligor ” shall have the meaning assigned to such term in the definition of the term “Guarantee.”
“ Principal ” shall have the meaning assigned to such term in Section 2.04.
“ Pro Forma Basis ” shall mean, as to any person, for any events as described below that occur subsequent to the commencement of a period for which the financial effect of such events is being calculated, and giving effect to the events for which such calculation is being made, such calculation as will give pro forma effect to such events as if such events
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occurred on the first day of the four consecutive fiscal quarter period ended on or before the occurrence of such event (the “ Reference Period ”): (i) pro forma effect shall be given to any Disposition, any acquisition, Investment, capital expenditure, construction, repair, replacement, improvement, development, disposition, merger, amalgamation, consolidation (including the 2013 Transactions, the 2015 Transactions and the 2017 Transactions) (or any similar transaction or transactions not otherwise permitted under Section 6.04 or 6.05 that require a waiver or consent of the Required Holders and such waiver or consent has been obtained), any dividend, distribution or other similar payment, any designation of any Subsidiary as an Unrestricted Subsidiary and any Subsidiary Redesignation, New Project, and any restructurings of the business of the Issuer or any of its Subsidiaries that the Issuer or any of the Subsidiaries has determined to make and/or made and are expected to have a continuing impact and are factually supportable, which would include cost savings resulting from head count reduction, closure of facilities and similar operational and other cost savings, which adjustments the Issuer determines are reasonable as set forth in a certificate (which shall be available pursuant to Section 9.21) of a Financial Officer of the Issuer (the foregoing, together with any transactions related thereto or in connection therewith, the “ relevant transactions ”), in each case occurring during the Reference Period or thereafter and through and including the date upon which the relevant transaction is consummated, (ii) in making any determination on a Pro Forma Basis, (x) all Indebtedness (including Indebtedness issued, incurred or assumed as a result of, or to finance, any relevant transactions and for which the financial effect is being calculated, whether incurred under this Agreement or otherwise, but excluding normal fluctuations in revolving Indebtedness incurred for working capital purposes and amounts outstanding under any Permitted Receivables Financing, in each case not to finance any acquisition) issued, incurred, assumed or permanently repaid during the Reference Period or thereafter and through and including the date upon which the relevant transaction is consummated shall be deemed to have been issued, incurred, assumed or permanently repaid at the beginning of such period, (y) Interest Expense of such person attributable to interest on any Indebtedness, for which pro forma effect is being given as provided in the preceding clause (x), bearing floating interest rates shall be computed on a pro forma basis as if the rates that would have been in effect during the period for which pro forma effect is being given had been actually in effect during such periods, and (z) in giving effect to clause (i) above with respect to each New Project which commences operations and records not less than one full fiscal quarter’s operations during the Reference Period, the operating results of such New Project shall be annualized on a straight line basis during such period, taking into account any seasonality adjustments determined by the Issuer in good faith, and (iii) (A) any Subsidiary Redesignation then being designated, effect shall be given to such Subsidiary Redesignation and all other Subsidiary Redesignations after the first day of the relevant Reference Period and on or prior to the date of the respective Subsidiary Redesignation then being designated, collectively, and (B) any designation of a Subsidiary as an Unrestricted Subsidiary, effect shall be given to such designation and all other designations of Subsidiaries as Unrestricted Subsidiaries after the first day of the relevant Reference Period and on or prior to the date of the then applicable designation of a Subsidiary as an Unrestricted Subsidiary, collectively.
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Pro forma calculations made pursuant to the definition of the term “Pro Forma Basis” shall be determined in good faith by a Responsible Officer of the Issuer and may include adjustments to reflect (1) operating expense reductions and other operating improvements, synergies or cost savings, in each case, related to mergers and other business combinations, acquisitions and divestitures projected by the Issuer in good faith to result from actions taken or expected to be taken (in the good faith determination of the Issuer) after the date any such transaction is consummated (including, to the extent applicable, the 2013 Transactions, the 2015 Transactions and the 2017 Transaction), (2) all adjustments of the type used in connection with the calculation of “Pro Forma EBITDA” as set forth in the Confidential Information Memorandum, dated May 2017, relating to the Refinancing, to the extent such adjustments, without duplication, continue to be applicable to such Reference Period, provided that any adjustment relating to new machines placed or to be placed on casino floors or other gaming establishments will be permitted to be given pro forma effect to the extent (i) such machines are under contract and expected to be placed in such locations within 6 months of the Reference Period in the good faith determination of the Issuer or (ii) the Issuer or a Subsidiary has incurred the capital or inventory cost of producing the machines, whether the machines are placed in inventory or delivered to customers, and (3) other operating expense reductions and other operating improvements, synergies or cost savings, in each case, projected by the Issuer in good faith to result from actions either taken or commenced or expected to be taken or commenced (in the good faith determination of the Issuer) within 12 months after the date any such transaction is consummated. A Financial Officer of the Issuer shall certify such demonstrable or additional operating expense reductions, other operating improvements or synergies and adjustments pursuant to clause (2) above, and information and calculations supporting them in reasonable detail.
For purposes of this definition, any amount in a currency other than Dollars will be converted to Dollars based on the average exchange rate for such currency for the most recent twelve month period immediately prior to the date of determination in a manner consistent with that used in calculating EBITDA for the applicable period.
“ Projections ” shall mean (i) the projections and any forward-looking statements (including statements with respect to booked business) of the Issuer and its Subsidiaries included in the 2015 Information Memorandum and (ii) any other projections furnished to the Purchaser by or on behalf of the Issuer, any of its subsidiaries, and Fund or any affiliate of a Fund, or any representatives of the foregoing, in each case, in connection with the 2015 Transactions.
“ Public Company Compliance ” shall mean compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, the provisions of the Securities Act and the Exchange Act, and the rules of national securities exchange listed companies (in each case, as applicable to companies with equity or debt securities held by the public), including procuring directors’ and officers’ insurance, legal and other professional fees, and listing fees.
“ Purchaser ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Purchase Price ” shall have the meaning assigned to such term in Section 2.01.
“ Qualified Equity Interests ” shall mean any Equity Interest other than Disqualified Stock.
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“ Qualified IPO ” shall mean an underwritten public offering of the Equity Interests of the Issuer or any Parent Entity which generates cash proceeds of at least $25,000,000.
“ Real Property ” shall mean, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned in fee or leased by the Issuer or its Subsidiaries, whether by lease, license, or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, incidental to the ownership, lease or operation thereof.
“ Receivables Assets ” shall mean accounts receivable (including any bills of exchange) and related assets and property from time to time originated, acquired or otherwise owned by the Issuer or any Subsidiary.
“ Receivables Net Investment ” shall mean the aggregate cash amount paid by the lenders or purchasers under any Permitted Receivables Financing in connection with their purchase of, or the making of loans secured by, Receivables Assets or interests therein, as the same may be reduced from time to time by collections with respect to such Receivables Assets or otherwise in accordance with the terms of the Permitted Receivables Documents (but excluding any such collections used to make payments of items included in clause (c) of the definition of Interest Expense); provided , however , that if all or any part of such Receivables Net Investment shall have been reduced by application of any distribution and thereafter such distribution is rescinded or must otherwise be returned for any reason, such Receivables Net Investment shall be increased by the amount of such distribution, all as though such distribution had not been made.
“ Record Date ” shall have the meaning assigned to such term in Section 2.05(e).
“ Reference Period ” shall have the meaning assigned to such term in the definition of the term “Pro Forma Basis.”
“ Refinance ” shall have the meaning assigned to such term in the definition of the term “Permitted Refinancing Indebtedness,” and “ Refinanced ” shall have a meaning correlative thereto.
“ Refinancing ” shall have the meaning assigned to such term in the Amendment Agreement.
“ Register ” shall have the meaning assigned to such term in Section 2.04(b).
“ Regulation T ” shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation U ” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation X ” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
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“ Related Parties ” shall mean, with respect to any specified person, such person’s Affiliates and the respective directors, trustees, officers, employees, agents and advisors of such person and such person’s Affiliates.
“ Related Sections ” shall have the meaning assigned to such term in Section 6.04.
“ Release ” shall mean any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, emanating or migrating in, into, onto or through the Environment.
“ Reportable Event ” shall mean any reportable event as defined in Section 4043(c) of ERISA or the regulations issued thereunder, other than those events as to which the 30-day notice period referred to in Section 4043(c) of ERISA has been waived, with respect to a Plan (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code).
“ Required Holders ” shall mean, at any time, Holders holding more than fifty percent (50%) of the then aggregate outstanding principal amount of the Notes.
“ Requirement of Law ” shall mean, as to any person, any law, treaty, rule, regulation, statute, order, ordinance, decree, judgment, consent decree, writ, injunction, settlement agreement or governmental requirement enacted, promulgated or imposed or entered into or agreed by any Governmental Authority or Gaming Authority, including Gaming Laws, in each case applicable to or binding upon such person or any of its property or assets or to which such person or any of its property or assets is subject.
“ Responsible Officer ” of any person shall mean any executive officer or Financial Officer of such person, any other officer or similar official thereof responsible for the administration of the obligations of such person in respect of this Agreement or any other Note Document, or any other duly authorized employee or signatory of such person, and when used with respect to the Collateral Agent, means any officer of the Collateral Agent with direct responsibility for the administration of this Agreement or any other Note Document and also, with respect to a particular matter, any other officer, to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject.
“ Restricted Payments ” shall have the meaning assigned to such term in Section 6.06. The amount of any Restricted Payment made other than in the form of cash or cash equivalents shall be the fair market value thereof (as determined by the Issuer in good faith).
“ S&P ” shall mean Standard & Poor’s Ratings Group, Inc.
“ Sale and Lease-Back Transaction ” shall have the meaning assigned to such term in Section 6.03.
“ SEC ” shall mean the Securities and Exchange Commission or any successor thereto.
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“ Secured Parties ” shall mean, collectively, the Collateral Agent, each Holder, and each sub-agent appointed pursuant to Section 8.02 by the Collateral Agent with respect to matters relating to the Pledge Agreement.
“ Securities Act ” shall mean the Securities Act of 1933, as amended.
“ Seller ” shall have the meaning assigned to such term in the recitals hereto.
“ Similar Business ” shall mean any business, the majority of whose revenues are derived from (i) business or activities conducted by the Issuer and its Subsidiaries on the Closing Date, (ii) any business that is a natural outgrowth or reasonable extension, development or expansion of any such business or any business similar, reasonably related, incidental, complementary or ancillary to any of the foregoing or (iii) any business that in the Issuer’s good faith business judgment constitutes a reasonable diversification of businesses conducted by the Issuer and its Subsidiaries.
“ Special Purpose Receivables Subsidiary ” shall mean (i) a direct or indirect Subsidiary of the Issuer established in connection with a Permitted Receivables Financing for the acquisition of Receivables Assets or interests therein, and which is organized in a manner intended to reduce the likelihood that it would be substantively consolidated with the Issuer or any of the Subsidiaries (other than Special Purpose Receivables Subsidiaries) in the event the Issuer or any such Subsidiary becomes subject to a proceeding under the U.S. Bankruptcy Code (or other insolvency law) and (ii) any Subsidiary of a Special Purpose Receivable Subsidiary.
“ Specified Permitted Liens ” shall mean Liens permitted by clauses (b)(ii), (d), (e), (k) and (o)(i) of Section 6.02.
“ Spot Rate ” shall mean, with respect to any currency, the rate at which such currency may be exchanged into another currency based on the exchange rate on the immediately prior Business Day as determined by OANDA Corporation and made available on its website at http: www.oanda.com/convert/fxhistory; provided , that the Issuer may obtain such spot rate from a financial institution of national standing if at any such determination, for any reason, no such rate is being quoted.
“ Subagent ” shall have the meaning assigned to such term in Section 8.02.
“ subsidiary ” shall mean, with respect to any person (herein referred to as the “parent”), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, directly or indirectly, owned, Controlled or held, or (b) that is, at the time any determination is made, 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 ” shall mean, unless the context otherwise requires, a subsidiary of the Issuer. Notwithstanding the foregoing, except for purposes of Sections 3.08, 3.09, 3.13, 3.15, 3.16, 3.25(b), 3.26, 5.03, 5.09 and 7.01(k), and the definition of Unrestricted Subsidiary contained herein), an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of the Issuer or any of its Subsidiaries for purposes of this Agreement.
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“ Subsidiary Guarantor ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Subsidiary Guarantee ” shall mean the Subsidiary Guarantee, dated as of the date hereof, issued by the Subsidiary Guarantor to the Holders, as amended, restated, supplemented or otherwise modified from time to time.
“ Subsidiary Redesignation ” shall have the meaning provided in the definition of “Unrestricted Subsidiary” contained in this Section 1.01.
“ Taxes ” shall mean any and all present or future taxes, duties, levies, imposts, assessments, deductions, withholdings or other similar charges imposed by any Governmental Authority, whether computed on a separate, consolidated, unitary, combined or other basis and any interest, fines, penalties or additions to tax with respect to the foregoing.
“ Term B Loans ” shall have the meaning assigned to such term in the Existing Credit Agreement.
“ Termination Date ” shall mean the date on which the principal of and interest on each Note, and all other expenses, premium or other amounts due and payable under any Note Document, shall have been paid in full (other than in respect of contingent indemnification and expense reimbursement claims not then due).
“ Test Period ” shall mean, on any date of determination, the period of four consecutive fiscal quarters of the Issuer then most recently ended (taken as one accounting period) for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b) and, initially, the four fiscal quarter period ended March 31, 2015.
“ Third Party Funds ” shall mean any accounts or funds, or any portion thereof, received by Issuer or any of its Subsidiaries as agent on behalf of third parties in accordance with a written agreement that imposes a duty upon Issuer or one or more of its Subsidiaries to collect and remit those funds to such third parties.
“ Total Net Leverage Ratio ” shall mean, on any date, the ratio of (a) (i) the aggregate principal amount of Consolidated Debt of Opco and the Opco Subsidiaries outstanding as of the last day of the Test Period most recently ended as of such date less (ii) without duplication, up to $50,000,000 of Unrestricted Cash and Permitted Investments of Opco and the Opco Subsidiaries as of the last day of such Test Period, to (b) EBITDA for such Test Period, all determined on a consolidated basis in accordance with GAAP; provided , that the Total Net Leverage Ratio shall be determined for the relevant Test Period on a Pro Forma Basis.
“ Transfer ” means the sale, pledge, assignment, or other transfer of the Notes, in whole or in part, and of the rights of the Holder thereof with respect thereto and under this Agreement pursuant to Section 2.04.
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“ Transfer Agreement ” shall mean a transfer agreement entered into by a Holder and a transferee, and promptly delivered to the Issuer, substantially in the form of Exhibit A of the Existing Note Purchase Agreement or such other form as shall be approved by the transferring Holder and reasonably satisfactory to the Issuer.
“ Treasury Rate ” shall mean, as of the applicable redemption date, as determined by the Issuer in good faith, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to such redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)).
“ Uniform Commercial Code ” shall mean the Uniform Commercial Code as the same may from time to time be in effect in the State of New York or the Uniform Commercial Code (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to any item or items of Pledged Collateral.
“ Unrestricted Cash ” shall mean cash or cash equivalents of the Issuer or any of its Subsidiaries that would not appear as “restricted” on a consolidated balance sheet of the Issuer or any of its Subsidiaries.
“ Unrestricted Subsidiary ” shall mean (1) any Subsidiary of the Issuer, whether now owned or acquired or created after the Closing Date, that is designated by the Issuer as an Unrestricted Subsidiary hereunder by written notice to the Holders; provided , that the Issuer shall only be permitted to so designate a new Unrestricted Subsidiary after the Closing Date so long as (a) no Default or Event of Default has occurred and is continuing or would result therefrom, (b) such Unrestricted Subsidiary shall be capitalized (to the extent capitalized by the Issuer or any of its Subsidiaries) through Investments as permitted by, and in compliance with, Section 6.04, and any prior or concurrent Investments in such Subsidiary by the Issuer or any of its Subsidiaries shall be deemed to have been made under Section 6.04 and (c) without duplication of clause (b), any assets owned by such Unrestricted Subsidiary at the time of the initial designation thereof shall be treated as Investments pursuant to Section 6.04; and (2) any subsidiary of an Unrestricted Subsidiary, provided that notwithstanding the foregoing, none of AP Gaming, Inc., the Subsidiary Guarantor or Opco shall be Unrestricted Subsidiaries at any time. The Issuer may designate any Unrestricted Subsidiary to be a Subsidiary for purposes of this Agreement (each, a “ Subsidiary Redesignation ”); provided , that (i) no Default or Event of Default has occurred and is continuing or would result therefrom, and (ii) the Issuer shall have delivered to the Holders an officer’s certificate executed by a Responsible Officer of the Issuer, certifying to the best of such officer’s knowledge, compliance with the requirements of preceding clause (i), and available pursuant to Section 9.21.
“ U.S. Bankruptcy Code ” shall mean Title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors.
“ USA PATRIOT Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. No. 107 56 (signed into law October 26, 2001)).
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“ Voting Stock ” shall mean, with respect to any person, such person’s Equity Interests having the right to vote for the election of directors of such person under ordinary circumstances.
“ Weighted Average Life to Maturity ” shall mean, when applied to any Indebtedness at any date, the number of years obtained by dividing : (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then outstanding principal amount of such Indebtedness.
“ Wholly Owned Subsidiary ” of any person shall mean a subsidiary of such person, all of the Equity Interests of which (other than directors’ qualifying shares or nominee or other similar shares required pursuant to applicable law) are owned by such person or another Wholly Owned Subsidiary of such person. Unless the context otherwise requires, “Wholly Owned Subsidiary” shall mean a Subsidiary of the Issuer that is a Wholly Owned Subsidiary of the Issuer.
“ Withdrawal Liability ” shall mean 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 Terms Generally . The definitions set forth or referred to in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, any reference in this Agreement to any Note Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time. 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 Issuer notifies the Holders that the Issuer requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Closing Date in GAAP or in the application thereof on the operation of such provision (or if the Required Holders 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 changes in GAAP after the Closing Date, any lease of the Issuer or the Subsidiaries, or of a special purpose or other entity not consolidated with the Issuer and its Subsidiaries at the time of its incurrence of such lease, that would be characterized as an operating lease under GAAP in effect on the Closing Date (whether such lease is entered into before or after the Closing Date) shall not constitute Indebtedness or a Capitalized Lease Obligation of the Issuer or any Subsidiary under this Agreement or any other Note Document as a result of such changes in GAAP.
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Section 1.03 Effectuation of 2015 Transactions . Each of the representations and warranties of the Issuer contained in this Agreement (and all corresponding definitions) are made after giving effect to the 2015 Transactions as shall have taken place on or prior to the date of determination, unless the context otherwise requires.
Section 1.04 Exchange Rates; Currency Equivalents . Except for purposes of financial statements delivered by the Issuer hereunder or calculating financial ratios hereunder or except as otherwise provided herein, the applicable amount of any currency (other than Dollars) for purposes of the Note Documents shall be such Dollar Equivalent amount as determined by the Issuer in good faith in accordance with this Agreement. No Default or Event of Default shall arise as a result of any limitation or threshold set forth in Dollars in Article VI or clause (f) or (j) of Section 7.01 being exceeded solely as a result of changes in currency exchange rates from those rates applicable on the first day of the fiscal quarter in which such determination occurs or in respect of which such determination is being made.
Section 1.05 Timing of Payment or Performance . Except as otherwise expressly provided herein, when the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day which is not a Business Day, the date of such payment or performance shall extend to the immediately succeeding Business Day.
Section 1.06 Times of Day . Unless otherwise specified herein, all references herein to times of day shall be references to New York City time (daylight or standard, as applicable).
ARTICLE II
The Notes and Purchase and Sale
Section 2.01 The Senior Secured PIK Notes . Pursuant to the Existing Note Purchase Agreement, the Issuer has previously authorized the issuance and sale of $115,000,000 aggregate principal amount of 11.25% Senior Secured PIK Notes (the “ Notes ”, such term to include any such Notes issued in substitution therefor pursuant to Section 2.04 of this Agreement) at a purchase price equal to 97.00% of the principal amount thereof (the “ Purchase Price ”). The Notes are substantially in the form set out in Exhibit B of the Existing Note Purchase Agreement. In connection with the payment of PIK Interest or Partial PIK Interest in respect of the Notes in accordance with Section 2.05, the Issuer is entitled to, without the consent of the Holders, increase the outstanding principal amount of the Notes or issue additional Notes (the “ PIK Notes ”) under this Agreement having the same terms as the initial Notes (other than terms with respect to the issuance date and the first Interest Payment Date applicable thereto). Unless the context otherwise requires, for all purposes of this Agreement and the Notes, references to the Notes includes any PIK Notes issued and references to “principal amount” of the Notes include any increase or accretion in the principal amount of the outstanding Notes, including as a result of the payment of PIK Interest or Partial PIK Interest. The issuance of PIK
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Notes and/or the increase in the principal amount of any Notes as a result of PIK Interest or Partial PIK Interest will be reflected in the Register by the Issuer. Other than the Notes and the PIK Notes, no additional principal amount of Notes may be issued pursuant to this Agreement without the written consent of the Required Holders.
Section 2.02 [Reserved] .
Section 2.03 [Reserved] .
Section 2.04 Repayment of Principal .
(a) Unless otherwise required or permitted to be sooner paid pursuant to the provisions hereof and of the Notes (in which case the Notes shall be due and repaid in accordance with such provisions), the Issuer shall repay the unpaid principal amount of the Notes (including outstanding PIK Notes issued that increased principal) (the “ Principal ”), together with accrued and unpaid interest to be paid in cash, if any, and all other monetary Obligations then due, in full upon the Maturity Date. The aggregate principal amount of the Notes, at any date of determination, shall be the principal amount of the Notes at such date of determination.
(b) The Notes are issuable as registered notes without coupons in denominations of at least $1,000,000, except as may be necessary to (1) reflect any PIK Interest or principal amount not evenly divisible by $1,000,000 or (2) enable the registration of transfer by a Holder of its entire holding of Notes; provided , however , that no such minimum denomination shall apply to Notes issued upon transfer by any Holder to any other entity or group of Affiliates with respect to which the Notes so issued or transferred shall be managed by a single entity. The Issuer shall keep at its principal office a register (the “ Register ”) in which the Issuer shall provide for the registration of Notes and of transfers of Notes, and no transfer of a Note may be effected unless a valid Transfer Agreement is delivered to the Issuer as provided in this Section 2.04. If the Issuer determines in good faith that a Transfer Agreement is not valid, it shall within ten (10) Business Days of receipt thereof notify the Holder submitting such Transfer Agreement of the defect (a “ Defect Notice ”). In the absence of a Defect Notice, any transfer shall be deemed to be effective at the end of the tenth (10 th ) Business Day following delivery of a Transfer Agreement. The entries in the Register shall be conclusive absent manifest error, and the Issuer and the Holders shall treat each person whose name is recorded (or deemed to be recorded) in the Register pursuant to the terms hereof as a Holder hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by any Holder, at any reasonable time and from time to time upon reasonable prior notice. The Notes shall be Transferred only by surrendering any Notes to the Issuer and having new Notes reissued to the transferee. The Notes will be maintained in “registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code and under Section 5f.103-1(c) of the United States Treasury Regulations promulgated thereunder. Any Holder may make a transfer to any transferee pursuant to a Transfer Agreement; provided that (i) if the transferee is not an Affiliate or Approved Fund of such Holder, such Holder shall give the Issuer notice of such Transfer substantially concurrently (which notice shall be deemed to have been provided by delivery of a valid Transfer Agreement, as provided in this Agreement), (ii) such Transfer shall be made in compliance with the Securities Act and any applicable securities laws, (iii) such Transfer shall be in compliance with Section 9.04(a) and this Section 2.04 and (iv) such Transfer
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shall be in a principal amount of not less than $1,000,000 (or such lesser amount as shall be the then outstanding principal balance of the Notes held by such Holder). Any applicable Holder and its transferee shall deliver to the Issuer an appropriate IRS Form W-8 or W-9, as applicable, and any supporting documentation necessary for the Issuer to comply with its withholding obligations. Upon any Transfer pursuant to a Transfer Agreement, the transferee shall, to the extent of such Transfer, be entitled to exercise the rights of the Holder making such Transfer and shall thereafter be deemed a “Holder” under this Agreement. Upon surrender for registration of transfer of any Note at the Register, the Issuer shall execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. Any purported transfer of such Note, or any interest therein, to a transferee that does not comply with the requirements specified in this Agreement and in the applicable documents will be of no force and effect and shall be null and void ab initio .
(c) Every Note surrendered for registration of Transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of Transfer duly executed, by the Holder of such Note or such Holder’s attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon Transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or Transferred, so that neither gain nor loss of interest shall result from any such Transfer or exchange. Upon receipt of written notice from the Holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such Holder’s indemnity agreement satisfactory to the Issuer, or in the case of any such mutilation upon surrender and cancellation of such Note, the Issuer will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
(d) Any Note Transferred by a Holder to the Issuer or any Subsidiary of the Issuer pursuant to this Section 2.04 shall for purposes of this Agreement be deemed to be automatically and immediately cancelled and the Indebtedness evidenced thereby shall no longer be outstanding.
(e) In connection with any proposed Transfer from time to time by the Purchaser pursuant to this Section 2.04, the Issuer covenants and agrees to use commercially reasonable efforts to cooperate, and to cause its subsidiaries to cooperate, with the Purchaser by (i) having management of the Issuer available to answer reasonable due diligence questions of prospective transferees during normal business hours with advance notice so as to not unduly interrupt the working day of management, (ii) if at the time of such proposed Transfer, the Issuer is not subject to the reporting requirements of the Exchange Act, providing, upon request, customary information satisfying the requirements of Rule 144A(d)(4), (iii) facilitating any such Transfers by making appropriate entry on the Register in accordance with the provisions of this Section 2.04, and (iv) providing such other ministerial items reasonably requested by the Purchaser; provided , the Issuer shall not be required to comply with any obligation under this subsection 2.04(e) if the Purchaser is otherwise prohibited, directly or indirectly, at such time from making any such Transfer by any contractual agreement to which Purchaser or any of its Affiliates is a party.
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(f) Notwithstanding anything to the contrary herein, the rights of the Holders to make assignments and grant participations shall be subject to the approval of any Gaming Authority, to the extent required by any applicable Gaming Laws.
Section 2.05 Interest . (a) Each Note shall bear interest on the unpaid principal thereof from and including the date such Note is issued through but excluding the date on which such principal is paid (whether upon final maturity, by prepayment, acceleration or otherwise) at a rate equal to 11.25% per annum. The Issuer may, at its option, elect to pay interest due on the Notes on any Interest Payment Date: (i) entirely in cash (“ Cash Interest ”) on such date; (ii) entirely by increasing the principal of the outstanding Notes or by issuing PIK Notes (“ PIK Interest ”) on such date; or (iii) partially in cash and partially by increasing the principal amount of the outstanding Notes or by issuing PIK Notes (“ Partial PIK Interest ”) on such date. Unless the Issuer otherwise notifies the Holders at least three (3) Business Days prior to any Interest Payment Date, interest payable on such Interest Payment Date shall be payable entirely in PIK Interest, which PIK Interest shall be paid, at the option of the Issuer, by (A) the issuance of certificated PIK Notes on such Interest Payment Date or (B) by the increase in the outstanding Principal in the amount of such PIK Interest on such Interest Payment Date. If no PIK Notes are delivered on an Interest Payment Date, the outstanding Principal will be automatically increased in the amount of such PIK Interest on such Interest Payment Date and such increase shall be deemed to be reflected in the Register for all purposes hereunder.
(b) Interest Payments . Interest on each Note shall be payable (i) semiannually in arrears on June 30 and December 31 of each year, commencing with the first such date following the six-month anniversary of the Closing Date and ending with the last such date prior to the Maturity Date, and (ii) on the Maturity Date (each such date in clauses (i) and (ii), an “ Interest Payment Date ”); provided that, any such amounts due on the Maturity Date shall be paid in cash. Interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the Closing Date. Interest shall be computed on the basis of a 360-day year of twelve 30-day months.
(c) The Issuer shall pay interest on all overdue Principal at the rate borne by the Notes, and the Issuer shall pay interest on overdue installments of interest and premium, if any, at the rate borne by the Notes to the extent lawful, in each case, payable on demand.
(d) Anything herein to the contrary notwithstanding, the obligations of the Issuer hereunder shall be subject to the limitation that payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the respective Holder would be contrary to the provisions of any law applicable to such Holder limiting the highest rate of interest which may be lawfully contracted for or received by such Holder, and in such event the Issuer shall pay such Holder interest at the highest rate permitted by applicable law (the “ Maximum Lawful Rate ”); provided , however , that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, the Issuer shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by the Holders is equal to the total interest that would have been received had the interest payable hereunder been (but for the operation of this Section 2.05(d)) the interest rate payable since the Closing Date as otherwise provided in this Agreement.
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(e) The Issuer shall pay interest on the Notes (except defaulted interest) to the persons who are registered Holders at the close of business, whether or not a Business Day, on June 15 or December 15 or, in the case of an Interest Payment Date that is not on June 30 or December 31, 15 days prior to such other date (each a “ Record Date ”) immediately preceding the Interest Payment Date even if Notes are canceled after the Record Date and on or before the Interest Payment Date. The Issuer shall pay defaulted interest to the registered Holders as of a subsequent special record date, which the Issuer shall fix or caused to be fixed and notice of which the Issuer shall promptly mail or cause to be mailed to each affected Holder, which notice shall state the special record date, the payment date and the amount of defaulted interest to be paid. The Issuer shall pay Principal and cash interest, if elected, and all other monetary Obligations payable hereunder, in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Notes (including Principal, cash interest (if elected) and all other monetary Obligations) shall be made by wire transfer of immediately available funds to the accounts specified by the applicable Holders maintained with a bank in the United States.
Section 2.06 Optional Redemption . (a) (i) Prior to the first anniversary of the Closing Date, the Issuer may redeem the Notes at its option, in whole at any time or in part from time to time, upon not less than 3 Business Days’ prior notice to the Holders, at a cash redemption price equal to 100% of the accreted principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to but not including, the applicable redemption date (subject to the right of holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date); provided , that at no time shall the unredeemed principal amount of Notes be less than $10,000,000.
(ii) On or after the first anniversary of the Closing Date, the Issuer may redeem the Notes at its option, in whole at any time or in part from time to time, upon not less than 3 Business Days’ prior notice, at a redemption price equal to 100% of the accreted principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date (subject to the right of holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date); provided , that at no time shall the unredeemed principal amount of Notes be less than $10,000,000.
(iii) In the event of an optional redemption made under this Section 2.06, the Issuer shall give the Holders written notice, which may be revocable upon written notice of such revocation delivered to the Holders prior to the specified redemption date, of such redemption not less than 3 Business Days prior to the redemption date, specifying (A) such redemption date, (B) the outstanding principal amount of the Notes to be redeemed on such date, (C) the accrued interest and redemption price applicable to the redemption and (D) stating that such redemption is to be made pursuant to this Section 2.06.
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(b) With respect to any optional redemption pursuant to this Section 2.06 for less than the full aggregate principal amount of Notes then outstanding, the Notes to be redeemed pursuant thereto shall be so redeemed on a pro rata basis based on the outstanding principal amount of all of the Notes on such redemption date. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed in accordance with the preceding sentence. Upon surrender of a Note that is redeemed in part, the Issuer shall execute for the Holder a new Note equal in principal amount to the unredeemed portion of the Note surrendered.
(c) Notwithstanding anything to the contrary contained herein, all payments of principal and interest due from the Issuer hereunder on any payment date shall be applied to the Notes on a pro rata basis based on the outstanding principal amount of the Notes on such payment date.
Section 2.07 Mandatory Redemption . (a) The Issuer is not required to make sinking fund payments with respect to the Notes and the Notes will not amortize.
(b) All Net Distribution Proceeds shall be promptly distributed to the Issuer, and the Issuer shall, subject to Section 2.07(c), promptly apply the full amount of such Net Distribution Proceeds to redeem the maximum principal amount of Notes that may be redeemed using such Net Distribution Proceeds at a redemption price equal to 100% of the accreted principal amount of Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date; provided , that any Holder, at its option and in its sole discretion, may elect to decline any such mandatory redemption of any Note held by it if it shall give written notice to the Issuer at least three (3) Business Days prior to the redemption date specified in the notice delivered pursuant to clause (c) below (any such Holder, a “ Declining Holder ”) and on the date of any such redemption, any amounts that would otherwise have been applied to redeem the applicable pro rata portion of the Notes owed by such Declining Holders shall instead be retained by the Issuer for application for any purpose not prohibited by this Agreement. Each mandatory redemption pursuant to this Section 2.07 shall be applied to the outstanding principal amount of the Notes (other than the Notes held by a Declining Holder) on a pro rata basis.
(c) In the event of a mandatory redemption required under this Section 2.07, the Issuer shall give the Holders written notice, which shall be irrevocable, delivered to the Holders not less than three (3) Business Days prior to the specified redemption date, of such mandatory redemption, specifying (A) such redemption date, which shall be within six (6) Business Days of the receipt of any Net Distribution Proceeds, (B) the outstanding principal amount of the Notes to be redeemed on such date (assuming no Holder is a Declining Holder), (C) the accrued interest and redemption price applicable to the redemption and (D) stating that such redemption is to be made pursuant to this Section 2.07.
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ARTICLE III
Representations and Warranties
On the Closing Date, the Issuer and Subsidiary Guarantor, jointly and severally, represent and warrant to the Purchaser and the Collateral Agent that:
Section 3.01 Organization; Powers . The Issuer, the Subsidiary Guarantor and each of the Material Subsidiaries (a) is a partnership, limited liability company or corporation duly organized, validly existing and in good standing (or, if applicable in a foreign jurisdiction, enjoys the equivalent status under the laws of any jurisdiction of organization outside the United States of America) under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted, (c) is qualified to do business in each jurisdiction where such qualification is required, except where the failure so to qualify would not reasonably be expected to have a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform its obligations under each of the Note Documents and each other agreement or instrument contemplated thereby to which it is or will be a party and, in the case of the Issuer, to issue the Notes contemplated hereby, and, in the case of the Subsidiary Guarantor, to issue the Guarantee contemplated by the Subsidiary Guarantee.
Section 3.02 Authorization . The execution, delivery and performance by the Issuer and the Subsidiary Guarantor of each of the Note Documents to which it is a party and the issuance of the Notes and the Subsidiary Guarantee and the consummation of the 2015 Transactions (a) have been duly authorized by all corporate, stockholder or limited liability company action required to be obtained by the Issuer and the Subsidiary Guarantor and (b) will not (i) violate (A) any provision of law, statute, rule or regulation applicable to the Issuer, the Subsidiary Guarantor or any other Opco Loan Party, (B) the certificate or articles of incorporation or other constitutive documents (including any limited liability company or operating agreements) or by-laws of the Issuer or the Subsidiary Guarantor, (C) any applicable order of any court or any rule, regulation or order of any Governmental Authority applicable to the Issuer, the Subsidiary Guarantor or any other Opco Loan Party or (D) any provision of any indenture, certificate of designation for preferred stock, agreement (including, without limitation, the Existing Credit Agreement) or other instrument to which the Issuer, the Subsidiary Guarantor or any other Opco Loan Party) is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under, give rise to a right of or result in any cancellation or acceleration of any right or obligation (including any payment) under any such indenture, certificate of designation for preferred stock, agreement or other instrument, where any such conflict, violation, breach or default referred to in clause (i) or (ii) of this Section 3.02(b), would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the Issuer, the Subsidiary Guarantor or any other Opco Loan Party other than the Liens created by the Note Documents and Permitted Liens or any Lien on Pledged Collateral other than Liens created by the Note Documents and Specified Permitted Liens.
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Section 3.03 Enforceability . This Agreement has been duly executed and delivered by the Issuer and the Subsidiary Guarantor and constitutes, the Subsidiary Guarantee has been duly executed and delivered by the Subsidiary Guarantor and constitutes, and each other Note Document when executed and delivered by each Obligor that is party thereto will constitute, a legal, valid and binding obligation of such Obligor enforceable against each such Obligor in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors’ rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) implied covenants of good faith and fair dealing.
Section 3.04 Governmental Approvals . No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required for the execution, delivery or performance of each Note Document, except for (a) the filing of Uniform Commercial Code financing statements, (b) (i) such actions, consents and approvals under Gaming Laws or from Gaming Authorities the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect and (ii) approval of the Nevada Gaming Authorities with respect to the pledge of the Pledged Collateral, (c) such actions, consents and approvals as have been made or obtained and are in full force and effect, (d) such actions, consents and approvals the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect and (e) any other filings or registrations required by the Pledge Agreement.
Section 3.05 Financial Statements . (a) The audited consolidated balance sheets and related consolidated statements of income and comprehensive loss, changes in stockholders’ equity and cash flows of the Issuer and its Subsidiaries, for each of the fiscal years ended December 31, 2012, December 31, 2013 and December 31, 2014 and (b) the unaudited consolidated balance sheets and related statements of income and comprehensive loss, and cash flows of the Issuer and its subsidiaries, for the fiscal quarter ended March 31, 2015, including, in each case, the notes thereto present fairly in all material respects the consolidated financial condition of the Issuer and its subsidiaries, as of the dates and for the periods referred to therein and the results of operations, cash flows and, if applicable, changes in stockholders equity for the periods then ended, and were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, in the case of interim period financial statements, except for the absence of notes and for normal year-end adjustments and except as otherwise noted therein.
Section 3.06 No Material Adverse Effect . Since December 31, 2014, there has been no event or circumstance that, individually or in the aggregate with other events or circumstances, has had or would reasonably be expected to have a Material Adverse Effect.
Section 3.07 Title to Properties; Possession Under Leases . (a) Each of the Issuer and the Subsidiaries has good record and insurable title in fee simple to, or valid leasehold interests in, or easements or other limited property interests in, all its Real Properties (including all Mortgaged Properties) and has good and marketable title to its personal property and assets, in each case, except for Permitted Liens and except for defects in title that do not materially
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interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes and except where the failure to have such title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. All such properties and assets are free and clear of Liens, other than Permitted Liens or Liens arising by operation of law. All of the Equity Interests of AP Gaming, Inc. are owned by the Issuer free and clear of Liens, other than Specified Permitted Liens. All of the Equity Interests of the Subsidiary Guarantor are owned by AP Gaming, Inc. free and clear of Liens, other than Liens permitted by Section 6.02.
(b) The Issuer, the Subsidiary Guarantor and each of the other Subsidiaries has complied with all material obligations under all leases to which it is a party, except where the failure to comply would not reasonably be expected to have Material Adverse Effect, and all such leases are in full force and effect, except leases in respect of which the failure to be in full force and effect would not reasonably be expected to have a Material Adverse Effect.
(c) As of the Closing Date, none of the Issuer and the Subsidiaries has received any written notice of any pending or contemplated condemnation proceeding affecting any material portion of the Mortgaged Properties or any sale or disposition thereof in lieu of condemnation that remains unresolved as of the Closing Date.
(d) As of the Closing Date, none of the Issuer and the Subsidiaries is obligated under any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein, except as permitted under Section 6.02 or 6.05.
Section 3.08 Subsidiaries . (a) Schedule 3.08(a) of the Existing Note Purchase Agreement sets forth as of the Closing Date the name and jurisdiction of incorporation, formation or organization of each subsidiary of the Issuer and, as to each such subsidiary, the percentage of each class of Equity Interests owned by the Issuer or by any such subsidiary.
(b) As of the Closing Date, after giving effect to the 2015 Transactions, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors (or entities controlled by directors) and shares held by directors (or entities controlled by directors)) relating to any Equity Interests of any of the Subsidiaries of the Issuer, except as set forth on Schedule 3.08(b) of the Existing Note Purchase Agreement.
Section 3.09 Litigation; Compliance with Laws . (a) There are no actions, suits or proceedings at law or in equity or by or on behalf of any Governmental Authority or in arbitration now pending, or, to the knowledge of the Issuer or the Subsidiary Guarantor, threatened in writing against the Issuer or any of the Subsidiaries or any business, property or rights of any such person (i) that involve any Note Document or the 2015 Transactions or (ii) that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
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(b) None of the Issuer, the Subsidiaries and their respective properties or assets is in violation of (nor will the continued operation of their material properties and assets as currently conducted violate) any law, rule or regulation (including any zoning, building, ordinance, code or approval or any building permit, but excluding any Environmental Laws, which are the subject of Section 3.16) or any restriction of record or agreement affecting any Mortgaged Property, or is in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(c) The Issuer and each Subsidiary are in compliance with all Gaming Laws that are applicable to them and their businesses, except where a failure to so comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.10 Federal Reserve Regulations . Neither the issuance of the Notes nor the use of the proceeds thereof will violate the provisions of Regulation T, Regulation U or Regulation X of the Board.
Section 3.11 Investment Company Act . None of the Issuer and the Subsidiaries is required to be, nor after receipt of the proceeds for the Notes and the application thereof will be required to be, registered as an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 3.12 Use of Proceeds . The Issuer will use the proceeds of the Notes issued on the Closing Date to make a direct or indirect equity investment in the Acquiror in connection with the 2015 Transactions and to pay 2015 Transaction Expenses.
Section 3.13 Tax Returns .
(a) Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, the Issuer, the Subsidiary Guarantor and each of the other Subsidiaries has filed or caused to be filed all federal, state, local and non-U.S. Tax returns required to have been filed by it (including in its capacity as withholding agent) and each such Tax return is true and correct;
(b) Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, the Issuer, the Subsidiary Guarantor and each of the other Subsidiaries has timely paid or caused to be timely paid all Taxes shown to be due and payable by it on the returns referred to in clause (a) and all other Taxes or assessments (or made adequate provision (in accordance with GAAP) for the payment of all Taxes due), except Taxes or assessments that are being contested in good faith by appropriate proceedings in accordance with Section 5.03 and for which the Issuer or any of the Subsidiaries (as the case may be) has set aside on its books adequate reserves in accordance with GAAP; and
(c) Other than as would not be, individually or in the aggregate, reasonably expected to have a Material Adverse Effect, as of the Closing Date, with respect to the Issuer, the Subsidiary Guarantor and each of the other Subsidiaries, there are no claims being asserted in writing with respect to any Taxes.
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Section 3.14 No Material Misstatements .
(a) All written factual information (other than the Projections, forward looking information and information of a general economic nature or general industry nature) (the “ Information ”) concerning the Issuer, the Subsidiaries, Target, the 2015 Transactions and any other transactions contemplated hereby included in the 2015 Information Memorandum or otherwise prepared by or on behalf of the foregoing or their representatives and made available to the Purchaser in connection with the 2015 Transactions or the other transactions contemplated hereby, when taken as a whole, was true and correct in all material respects, as of the date such Information was furnished to the Purchaser (giving effect to all supplements and updates provided thereto) and as of the Closing Date and did not, taken as a whole, contain any untrue statement of a material fact as of any such date or omit to state a material fact necessary in order to make the statements contained therein, taken as a whole, not materially misleading in light of the circumstances under which such statements were made, provided that, with respect to Information relating to the Target and its subsidiaries, the representation in this Section 3.14(a) is made to the best of the Issuer’s and the Subsidiary Guarantor’s knowledge.
(b) The Projections and other forward looking information and information of a general economic nature prepared by or on behalf of the Issuer or any of its representatives and that have been made available to the Purchaser in connection with the 2015 Transactions (i) have been prepared in good faith based upon assumptions believed by the Issuer to be reasonable as of the date thereof (it being understood that such Projections are as to future events and are not to be viewed as facts, such Projections are subject to significant uncertainties and contingencies and that actual results during the period or periods covered by any such Projections may differ significantly from the projected results, and that no assurance can be given that the projected results will be realized), as of the date such Projections and information were furnished to the Purchaser and as of the Closing Date, and (ii) as of the Closing Date, have not been modified in any material respect by the Issuer, provided that, with respect to Information relating to the Target and its subsidiaries, the representation in this Section 3.14(b) is made to the best of the Issuer’s and the Subsidiary Guarantor’s knowledge.
(c) The reports filed under the Exchange Act prior to the Closing Date by the Issuer that are included in the 2015 Information Memorandum, when taken as a whole, are true and correct in all material respects, as of the Closing Date and do not, taken as a whole, contain any untrue statement of a material fact as of such date or omit to state a material fact necessary in order to make the statements contained therein, taken as a whole, not materially misleading in light of the circumstances under which such statements were made.
Section 3.15 Employee Benefit Plans . Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: (i) no Reportable Event has occurred during the past five years as to which the Issuer, the Subsidiary Guarantor, any of the Subsidiaries or any ERISA Affiliate was required to file a report with the PBGC; (ii) no ERISA Event has occurred or is reasonably expected to occur and (iii) none of the Issuer, the Subsidiaries or any of their ERISA Affiliates has received any written notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA.
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Section 3.16 Environmental Matters . Except as to matters that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect: (i) no written notice, request for information, order, complaint or penalty has been received by the Issuer or any of the Subsidiaries, and there are no judicial, administrative or other actions, suits or proceedings pending or, to the Issuer’s knowledge, threatened which allege a violation of or liability under any Environmental Laws, in each case relating to the Issuer or any of the Subsidiaries, (ii) each of the Issuer and its Subsidiaries has all environmental permits, licenses and other approvals necessary for its operations to comply with all Environmental Laws (“ Environmental Permits ”) and is, and in the prior eighteen (18)-month period, has been, in compliance with the terms of such Environmental Permits and with all other Environmental Laws, (iii) no Hazardous Material is located at, on or under any property currently or, to the Issuer’s knowledge, formerly owned, operated or leased by the Issuer or any of the Subsidiaries that would reasonably be expected to give rise to any cost, liability or obligation of the Issuer or any of the Subsidiaries under any Environmental Laws or Environmental Permits, and no Hazardous Material has been generated, used, treated, stored, handled, disposed of or controlled, transported or Released at any location in a manner that would reasonably be expected to give rise to any cost, liability or obligation of the Issuer or any of the Subsidiaries under any Environmental Laws or Environmental Permits, (iv) there are no agreements in which the Issuer or any of the Subsidiaries has expressly assumed or undertaken responsibility for any known or reasonably likely liability or obligation of any other person arising under or relating to Environmental Laws, which in any such case has not been made available to the Purchaser prior to the Closing Date, and (v) there has been no material written environmental assessment or audit conducted (other than customary assessments not revealing anything that would reasonably be expected to result in a Material Adverse Effect), by or on behalf of the Issuer or any of the Subsidiaries of any property currently or, to the Issuer’s knowledge, formerly owned or leased by the Issuer or any of the Subsidiaries that has not been made available to the Purchaser prior to the Closing Date.
Section 3.17 Pledge Agreement . (a) The Pledge Agreement is effective to create in favor of the Collateral Agent (for the benefit of the Secured Parties) a legal, valid and enforceable security interest in the Pledged Collateral. Upon the filing of the Uniform Commercial Code financing statement with the Secretary of State of the State of Delaware and the delivery of the certificates representing the Pledged Collateral to the Collateral Agent or its designated custodial agent in the State of Nevada, in each case in accordance with the Pledge Agreement, the Collateral Agent (for the benefit of the Secured Parties) shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Issuer in such Pledged Collateral and, subject to Section 9-315 of the New York Uniform Commercial Code, the proceeds thereof, as security for the Obligations to the extent perfection can be obtained by filing Uniform Commercial Code financing statements, in each case prior and superior in right to the Lien of any other person (except (x) Liens having priority by operation of law and (y) in the case of Collateral other than certificated securities and instruments of which the Collateral Agent has possession, Permitted Liens).
(b) Notwithstanding anything herein (including this Section 3.17) or in any other Note Document to the contrary, each of the parties hereto acknowledges and agrees that licensing by the Gaming Authorities may be required to enforce and/or exercise or foreclose upon certain security interests and such enforcement and/or exercise or foreclosure may be otherwise limited by the Gaming Laws.
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Section 3.18 [Reserved] .
Section 3.19 Solvency . (a) On the Closing Date, immediately after giving effect to the 2015 Transactions, (i) the fair value of the assets of the Issuer and its subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Issuer and its subsidiaries on a consolidated basis; (ii) the present fair saleable value of the property of the Issuer and its subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Issuer and its subsidiaries on a consolidated basis on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Issuer and its subsidiaries on a consolidated basis will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Issuer and its subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date.
(b) As of the Closing Date, immediately after giving effect to the consummation of the 2015 Transactions, the Issuer does not intend to, and the Issuer does not believe that it or any of its Subsidiaries will, incur debts beyond its or their respective abilities to pay such debts as they mature, taking into account the timing and amounts of cash to be received by it or any such Subsidiary and the timing and amounts of cash to be payable on or in respect of its Indebtedness or the Indebtedness of any such Subsidiary.
Section 3.20 Labor Matters . Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes pending or threatened against the Issuer or any of the Subsidiaries; (b) the hours worked and payments made to employees of the Issuer and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters; and (c) all payments due from the Issuer or any of the Subsidiaries or for which any claim may be made against the Issuer or any of the Subsidiaries, on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as a liability on the books of the Issuer, the Subsidiary Guarantor or such Subsidiary to the extent required by GAAP. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, the consummation of the 2015 Transactions will not give rise to a right of termination or right of renegotiation on the part of any union under any material collective bargaining agreement to which the Issuer or any of the Subsidiaries (or any predecessor) is a party or by which the Issuer or any of the Subsidiaries (or any predecessor) is bound.
Section 3.21 Insurance . The Issuer and the Subsidiaries have insurance required by Section 5.02 of this Agreement and, as of the Closing Date, such insurance is in full force and effect.
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Section 3.22 No Default . No Default or Event of Default has occurred and is continuing or would result from the consummation of the 2015 Transactions and the other transactions contemplated by this Agreement or any other Note Document.
Section 3.23 Intellectual Property; Licenses, Etc . Except as would not reasonably be expected to have a Material Adverse Effect, (a) the Issuer, the Subsidiary Guarantor and each of the Subsidiaries owns, or possesses the right to use, all Intellectual Property that are used or held for use in or are otherwise reasonably necessary for the present conduct of their respective businesses, (b) to the knowledge of the Issuer, the Issuer and the Subsidiaries are not interfering with, infringing upon, misappropriating or otherwise violating the Intellectual Property of any person, and (c) (i) no claim or litigation regarding any of the Intellectual Property owned by the Issuer and the Subsidiaries is pending or, to the knowledge of the Issuer, threatened and (ii) to the knowledge of the Issuer, no claim or litigation regarding any other Intellectual Property described in the foregoing clauses (a) and (b) is pending or threatened.
Section 3.24 Senior Debt . The Notes constitute “Senior Debt” (or the equivalent thereof) under the documentation governing any Material Indebtedness of any Obligor permitted to be incurred hereunder constituting Indebtedness that is subordinated in right of payment to the Notes.
Section 3.25 USA PATRIOT Act; OFAC .
(a) Each Obligor is in compliance in all material respects with the provisions of the USA PATRIOT Act. On or prior to the Closing Date, the Issuer has provided to the Purchaser all information related to the Obligors (including names, addresses and tax identification numbers (if applicable)) reasonably requested in writing by the Purchaser not less than ten (10) Business Days prior to the Closing Date and mutually agreed to be required under “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act, to be obtained by the Purchaser.
(b) None of the Issuer or any of its Subsidiaries nor, to the knowledge of the Issuer, any director, officer, agent, employee or Affiliate of the Issuer or any of the Subsidiaries is currently subject to any U.S. sanctions (collectively, “ Sanctions ”) administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”), nor is the Issuer or any of its subsidiaries located, organized or resident in a country or territory that is the subject of Sanctions; and, the Issuer will not directly or indirectly use the proceeds of the sale of the Notes or otherwise make available such proceeds to any person, for the purpose of financing the activities of any person that at the time of such financing is subject to any Sanctions.
Section 3.26 Foreign Corrupt Practices Act . None of the Issuer or any of its Subsidiaries, nor, to the knowledge of the Issuer or any of its Subsidiaries, any of their directors, officers, agents or employees, has in the past five (5) years (i) violated or is in violation of any provision of the United States Foreign Corrupt Practices Act of 1977, as amended (the “ FCPA ”), or similar law of a jurisdiction in which the Issuer or any of its subsidiaries conduct their business and to which they are lawfully subject or (ii) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment. No part of the proceeds of the Notes made hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of any provision of the FCPA.
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Section 3.27 Money Laundering Laws . To the Issuer’s knowledge, the operations of the Issuer and each of the Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Issuer or any of the Subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Issuer, threatened.
Section 3.28 Securities Laws .
(a) Assuming accuracy of the representations and warranties of the Purchaser in Section IIIA and the Purchaser’s compliance with this Agreement, it is not necessary in connection with the offer, sale and delivery of the Notes and the Guarantee to the Purchaser in the manner contemplated by this Agreement and the Subsidiary Guarantee to register the Notes or the Guarantee under the Securities Act or to qualify this Agreement under the Trust Indenture Act of 1939, as amended (the “ Trust Indenture Act ”).
(b) None of the Issuer, the Subsidiary Guarantor, their respective Affiliates or any person acting on any of their behalf (other than the Purchaser, as to whom the Issuer makes no representation or warranty) has engaged in (i) any form of “general solicitation” or “general advertising” (as those terms are defined in Regulation D promulgated under the Securities Act) in connection with the placement of the Notes or (ii) any “directed selling efforts” (within the meaning of Regulation S under the Securities Act).
(c) Each of the Issuer, the Subsidiary Guarantor and their respective Affiliates and any person acting on any of their behalf (other than the Purchaser, as to whom the Issuer makes no representation or warranty) has complied with the offering restrictions set forth in Regulation S under the Securities Act.
(d) None of the Issuer, the Subsidiary Guarantor, their respective Affiliates or any person acting on any of their behalf (other than the Purchaser, as to whom the Issuer makes no representation or warranty) has, directly or indirectly, solicited any offer to buy or offered to sell, in the United States or to any United States citizen or resident, any security which is or would be integrated with the sale of the Notes in a manner that would require the Notes to be registered under the Securities Act. The Issuer agrees that it will not and will cause its Affiliates not to make any offer or sale of securities of any class if, as a result of the doctrine of “integration” referred to in Rule 502 under the Securities Act, such offer or sale would render invalid (for the purpose of
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(i) the sale of the Notes to the Purchase, (ii) any subsequent transfer of the Notes by the Purchaser to a subsequent Holder pursuant to Sections 2.04 and 9.04 hereof, or (iii) any subsequent transfer by such subsequent Holder to others) the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise.
(e) At the Closing Date, the Notes are not of the same class as securities listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated interdealer quotation system.
ARTICLE IIIA
Representations and Warranties of the Purchaser and Holders
By acquisition of Notes, the Purchaser and each subsequent transferee and Holder will be deemed to have represented and warranted, as of the date on which the Purchaser or such Holder, as applicable, acquires its interest in such Notes, that (a) (i) it is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act, or (ii) it is an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act, or (iii) it (A) is not a “U.S. person” within the meaning of Regulation S under the Securities Act or acting for the account or benefit of U.S. persons; (B) is acquiring the Notes outside the United States in an “offshore transaction” (as defined in Rule 902(h) of Regulation S under the Securities Act) in compliance with Regulation S under the Securities Act; and (C) is not purchasing the Notes as a result of any “directed selling efforts” (within the meaning of Regulation S under the Securities Act) and, in the case of either clause (i), (ii) or (iii), in purchasing and/or acquiring the Notes, it is specifically understood and agreed that such person is acquiring the Notes for the purpose of investment for its own account and not with a view towards the sale or distribution thereof, although, by making such representation, the Purchaser and such subsequent transferees and Holders shall not be deemed to have committed to hold the Notes (and the related Guarantee) for any minimum duration, (b) it understands that the Notes and the Guarantee will not be registered under the Securities Act, by reason of their issuance by the Issuer in a transaction exempt from the registration requirements of the Securities Act, and that it must not offer or sell the Notes or the Guarantee and must hold such Notes unless and until a subsequent resale thereof is registered under the Securities Act and applicable state securities laws or is exempt from registration and such person further understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to such person) promulgated under the Securities Act depends on the satisfaction of various conditions, and that, if applicable, Rule 144 may afford the basis for sales only in limited amounts, (c) it has been furnished with or has had access to the information it has requested from the Issuer and has had an opportunity to discuss with the management of the Issuer and the business and financial affairs of the Issuer and its subsidiaries, and has generally such knowledge and experience in business and financial matters and with respect to investments in securities or privately held companies so as to enable it to understand and evaluate the risks of such investment and form an investment decision with respect thereto, (d) such person has made its own independent investigation into the affairs and financial conditions of the Issuer and has not relied on any other party in making its decision to purchase the Notes, (e) such person has not employed any broker or finder in connection with the transactions contemplated by this Agreement and no fees or commissions are payable to it except as otherwise provided for in this Agreement, and (f) the source of funds to be used by such person to pay the purchase price of the Notes does not include “plan assets” as defined in Section 3(42) of ERISA.
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ARTICLE IV
[Reserved]
ARTICLE V
Affirmative Covenants
The Issuer covenants and agrees with each Holder that, until the Termination Date, unless the Required Holders shall otherwise consent in writing, the Issuer will, and will cause each of its Subsidiaries to:
Section 5.01 Existence; Business and Properties . (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except, in the case of a Subsidiary of the Issuer (other than the Subsidiary Guarantor or Opco), where the failure to do so would not reasonably be expected to have a Material Adverse Effect, and except as otherwise permitted under Section 6.05, and except for the liquidation or dissolution of Subsidiaries (other than the Subsidiary Guarantor or Opco) if the assets of such Subsidiaries to the extent they exceed estimated liabilities are acquired by the Issuer or a Wholly Owned Subsidiary of the Issuer in such liquidation or dissolution.
(b) Except where the failure to do so would not reasonably be expected to have a Material Adverse Effect, do or cause to be done all things necessary to (i) lawfully obtain, preserve, renew, extend and keep in full force and effect the permits, franchises, authorizations, Intellectual Property, licenses and rights with respect thereto used in or necessary to the normal conduct of its business, and (ii) at all times maintain, protect and preserve all property necessary to the normal conduct of its business and keep such property in good repair, working order and condition (ordinary wear and tear excepted), from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith, if any, may be properly conducted at all times (in each case except as permitted by this Agreement).
Section 5.02 Insurance . Maintain, with financially sound and reputable insurance companies, insurance (subject to customary deductibles and retentions) in such amounts and against such risks as are customarily maintained by similarly situated companies engaged in the same or similar businesses operating in the same or similar locations. Notwithstanding the foregoing, the Issuer and the Subsidiaries may self-insure with respect to such risks with respect to which companies of established reputation engaged in the same general line of business in the same general area usually self-insure.
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Section 5.03 Taxes . Pay its obligations in respect of all Tax liabilities, assessments and governmental charges, before the same shall become delinquent or in default, except where (i) the amount or validity thereof is being contested in good faith by appropriate proceedings and the Issuer or a Subsidiary thereof has set aside on its books adequate reserves therefor in accordance with GAAP or (ii) the failure to make payment could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
Section 5.04 Financial Statements, Reports, etc. Furnish to the Holders:
(a) within 90 days after the end of each fiscal year, a consolidated balance sheet, related statements of operations and comprehensive loss and related statements of cash flows showing the financial position of the Issuer and its subsidiaries as of the close of such fiscal year and the consolidated results of their operations during such year and, starting with the fiscal year ending December 31, 2015, setting forth in comparative form the corresponding figures for the prior fiscal year, which consolidated balance sheet, related statements of operations and comprehensive loss and related statements of cash flows and owners’ equity shall be accompanied by customary management’s discussion and analysis and audited by independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which opinion shall not be qualified as to scope of audit or as to the status of the Issuer or any Material Subsidiary as a going concern, other than solely with respect to, or resulting solely from an upcoming maturity date under the Existing Credit Agreement or the Notes occurring within one year from the time such opinion is delivered) to the effect that such consolidated financial statements fairly present, in all material respects, the financial position and results of operations of the Issuer and its subsidiaries on a consolidated basis in accordance with GAAP (it being understood that the filing with the SEC or the delivery to the Holders by the Issuer of annual reports on Form 10-K of the Issuer and its consolidated subsidiaries shall satisfy the requirements of this Section 5.04(a) to the extent such annual reports include the information specified herein);
(b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year (commencing with the fiscal quarter ending June 30, 2015), a consolidated balance sheet and related statements of operations and comprehensive loss and related statements of cash flows showing the financial position of the Issuer and its subsidiaries as of the close of such fiscal quarter and the consolidated results of their operations during such fiscal quarter and the then-elapsed portion of the fiscal year and, starting with the fiscal quarter ending June 30, 2015, setting forth in comparative form the corresponding figures for the corresponding periods of the prior fiscal year, all of which shall be in reasonable detail, which consolidated balance sheet and related statements of operations and comprehensive loss and related statements of cash flows shall be accompanied by customary management’s discussion and analysis and shall be certified by a Financial Officer of the Issuer on behalf of the Issuer as fairly presenting, in all material respects, the financial position and results of operations of the Issuer and its subsidiaries on a consolidated basis in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes) (it being understood that the filing with the SEC or the delivery to the Holders by the Issuer of quarterly reports on Form 10-Q of the Issuer and its consolidated subsidiaries shall satisfy the requirements of this Section 5.04(b) to the extent such quarterly reports include the information specified herein);
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(c) concurrently with any delivery of financial statements under clause (a) or (b) above (or the applicable date on which such financial statements are deemed to have been delivered pursuant to this Agreement by filing such financial statements with the SEC), a certificate of a Financial Officer of the Issuer (i) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (ii) if the Cumulative Credit is utilized during such fiscal period, setting forth the calculation and uses of the Cumulative Credit for any purpose during such fiscal period;
(d) promptly after the same become publicly available, copies of all periodic and other publicly available reports, proxy statements and, to the extent requested by the Holders, other materials filed by the Issuer or any of the Subsidiaries with the SEC, or after an initial public offering, distributed to its stockholders generally, as applicable; provided , however , that such reports, proxy statements, filings and other materials required to be delivered pursuant to this clause (d) shall be deemed delivered for purposes of this Agreement when posted to the website of the Issuer or the website of the SEC;
(e) within 90 days after the beginning of each fiscal year, a consolidated annual budget for such fiscal year consisting of a projected consolidated balance sheet of the Issuer and its subsidiaries as of the end of the following fiscal year and the related consolidated statements of projected cash flow and projected income (collectively, the “Budget”), which Budget shall in each case be accompanied by the statement of a Financial Officer of the Issuer to the effect that the Budget is based on assumptions believed by the Issuer to be reasonable as of the date of delivery thereof; and
(f) in the event that any Parent Entity reports on a consolidated basis, such consolidated reporting at such Parent Entity’s level in a manner consistent with that described in clauses (a) and (b) of this Section 5.04 for the Issuer will satisfy the requirements of such paragraphs.
The Issuer shall also, if requested by the Purchaser or any Holder with respect to the completion of any fiscal quarter, be available on a one-time basis with respect to each such fiscal quarter to the Holders to answer questions of management and to discuss quarterly or annual financial results by telephone, as applicable, not later than ten Business Days following the date upon which the financial statements required pursuant to Section 5.04(a) or (b), as applicable, were furnished to (or deemed to have been furnished to) the Holders, at a time reasonably requested by the Purchaser or such Holder at least three Business Days in advance of such proposed call.
Section 5.05 Litigation and Other Notices . Furnish to the Holders written notice of the following promptly after any Responsible Officer of the Issuer obtains actual knowledge thereof:
(a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto;
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(b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority or in arbitration, against the Issuer or any of the Subsidiaries as to which an adverse determination is reasonably probable and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect;
(c) any other development specific to the Issuer or any of the Subsidiaries that is not a matter of general public knowledge and that has had, or would reasonably be expected to have, a Material Adverse Effect; and
(d) the occurrence of any ERISA Event that, together with all other ERISA Events that have occurred, would reasonably be expected to have a Material Adverse Effect.
Section 5.06 Compliance with Laws . Comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; provided , that this Section 5.06 shall not apply to Environmental Laws, which are the subject of Section 5.09, or to laws related to Taxes, which are the subject of Section 5.03.
Section 5.07 Maintaining Records; Access to Properties and Inspections . Maintain all financial records in accordance with GAAP and, upon the occurrence and during the continuance of an Event of Default, (i) permit a representative of any Holder to visit and inspect the financial records and the properties of the Issuer or any of the Subsidiaries at reasonable times, upon reasonable prior notice to the Issuer, and as often as reasonably requested and to make extracts from and copies of such financial records and (ii) permit any persons designated by any Holder upon reasonable prior notice to the Issuer to discuss the affairs, finances and condition of the Issuer or any of the Subsidiaries with the officers thereof and independent accountants therefor (so long as the Issuer has the opportunity to participate in any such discussions with such accountants), in each case, subject to reasonable requirements of confidentiality, including requirements imposed by law or by contract.
Section 5.08 Use of Proceeds . Use the proceeds of the Notes issued on the Closing Date in the manner contemplated by Section 3.12.
Section 5.09 Compliance with Environmental Laws . Comply, and make reasonable efforts to cause all lessees and other persons occupying its properties to comply, with all Environmental Laws applicable to its operations and properties; and obtain and renew all material authorizations and permits required pursuant to Environmental Law for its operations and properties, in each case in accordance with Environmental Laws, except, in each case with respect to this Section 5.09, to the extent the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
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Section 5.10 Further Assurances . Execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements and other documents) as are necessary or advisable, or that the Collateral Agent may reasonably request (including, without limitation, those required by applicable law), to cause the Pledge Agreement to be and remain effective to create in favor of the Collateral Agent a legal, valid and enforceable security interest in the Pledged Collateral, all at the expense of the Issuer; and provide to the Collateral Agent, from time to time upon reasonable request, evidence reasonably satisfactory to the Collateral Agent as to the perfection and priority of the Liens created or intended to be created by the Pledge Agreement. The Collateral Agent shall not be responsible for and makes no representation as to the existence, genuineness, value or protection of any Pledged Collateral, for the legality, effectiveness or sufficiency of the Pledge Agreement, the Subsidiary Guarantee or any other security document, or for the creation, perfection, priority, sufficiency or protection of any liens securing the Notes.
For the avoidance of doubt, nothing herein shall require the Collateral Agent to file financing statements or continuation statements, or be responsible for maintaining the security interests purported to be created as described herein (except for the safe custody of any collateral in its possession and the accounting for moneys actually received by it hereunder or under any other Note Document) and such responsibility shall be solely that of the Issuer.
ARTICLE VI
Negative Covenants
The Issuer covenants and agrees with each Holder that, until the Termination Date, unless the Required Holders shall otherwise consent in writing, the Issuer will not, and will not permit any of the Subsidiaries to:
Section 6.01 Indebtedness . Incur, create, assume or permit to exist any Indebtedness, except:
(a) (i) Indebtedness of the Issuer, AP Gaming, Inc. and the Subsidiary Guarantor existing on the Closing Date ( provided , that any such Indebtedness that is (x) not intercompany Indebtedness and (y) in excess of $1,000,000 shall be set forth on Schedule 6.01(a) of the Existing Note Purchase Agreement) and any Permitted Refinancing Indebtedness incurred by the Issuer, AP Gaming, Inc. or the Subsidiary Guarantor to Refinance such Indebtedness, and (ii) Indebtedness of Opco and Opco Subsidiaries existing on the Closing Date ( provided , that any such Indebtedness that is (x) not intercompany Indebtedness and (y) in excess of $2,400,000 shall be set forth on Schedule 6.01(b) of the Existing Note Purchase Agreement) and any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary to Refinance such Indebtedness (other than intercompany Indebtedness Refinanced with Indebtedness owed to a person not affiliated with Opco or any Opco Subsidiary), provided that Indebtedness incurred under the Existing Credit Agreement, the Term Loan Incremental Assumption Agreement and the Revolving Facility Incremental Assumption Agreement shall not be included in this Section 6.01(a);
(b) (i) Indebtedness of Opco or any Opco Subsidiary, including Indebtedness incurred by Opco or any Opco Subsidiary under the Existing Credit Agreement (including pursuant to Section 2.21 of the Existing Credit Agreement) and under the other Opco Loan Documents, the Term Loan Incremental Assumption Agreement and the Revolving Facility
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Incremental Assumption Agreement, in an aggregate principal amount outstanding at the time of incurrence not to exceed $560,000,000 and any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary to Refinance such Indebtedness and (ii) Indebtedness represented by the Notes (including any PIK Notes and PIK Interest) and the Subsidiary Guarantee and Indebtedness created under the other Note Documents and any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness;
(c) Indebtedness of the Issuer or any Subsidiary pursuant to Hedging Agreements entered into for non-speculative purposes;
(d) Indebtedness owed to (including obligations in respect of letters of credit or bank guarantees or similar instruments for the benefit of) any person providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance to the Issuer or any Subsidiary, pursuant to reimbursement or indemnification obligations to such person, in each case in the ordinary course of business or consistent with past practice or industry practices;
(e) Indebtedness of the Issuer to any Subsidiary and of any Subsidiary to the Issuer or any other Subsidiary; provided , that Indebtedness owed by any Obligor to any Subsidiary that is not an Obligor shall be subordinated to the Obligations on subordination terms consistent with the terms set forth on Exhibit C of the Existing Note Purchase Agreement or on terms otherwise reasonably satisfactory to the (i) the Purchaser, if the Purchaser is a Holder at such time or (ii) the Required Holders, if the Purchaser is not a Holder at such time;
(f) Indebtedness of Opco or any Opco Subsidary in respect of performance bonds, bid bonds, appeal bonds, surety bonds and completion guarantees and similar obligations, in each case provided in the ordinary course of business or consistent with past practice or industry practices, including those incurred to secure health, safety and environmental obligations in the ordinary course of business or consistent with past practice or industry practices;
(g) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business or other cash management services, in each case incurred the ordinary course of business;
(h) (i) Indebtedness of a Subsidiary acquired by Opco or any Opco Subsidiary after the Closing Date or a person merged or consolidated with Opco or any Opco Subsidiary after the Closing Date and Indebtedness otherwise incurred or assumed by Opco or any Opco Subsidiary in connection with the acquisition of assets or Equity Interests, where such acquisition, merger or consolidation is not prohibited by this Agreement (including a Permitted Business Acquisition); provided , that, (x) (I) the Net First Lien Leverage Ratio on a Pro Forma Basis immediately after giving effect to such acquisition, merger or consolidation, the incurrence of such Indebtedness and the use of proceeds thereof, and any related transactions is no greater than the Net First Lien Leverage Ratio in effect immediately prior thereto, and (II) the Total Net Leverage Ratio on a Pro Forma Basis immediately after giving effect to such acquisition, merger or consolidation, the incurrence of such Indebtedness by Opco or any Opco Subsidiary and the
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use of proceeds thereof (but without netting any of the net cash proceeds of such Indebtedness incurred on such date against the applicable amount of Consolidated Debt for purposes of such calculation), and any related transactions is not greater than 5.50 to 1.00 or (y) the Total Net Leverage Ratio on a Pro Forma Basis immediately after giving effect to such acquisition, merger or consolidation, the incurrence of such Indebtedness by Opco or any Opco Subsidiary and the use of proceeds thereof and any related transactions is no greater than the Total Net Leverage Ratio in effect immediately prior thereto and (ii) any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary to Refinance any such Indebtedness;
(i) (x) Capitalized Lease Obligations, mortgage financings and other Indebtedness incurred by Opco or any Opco Subsidiary prior to or within 270 days after the acquisition, lease, construction, repair, replacement or improvement of the respective property (real or personal, and whether through the direct purchase of property or the Equity Interest of any person owning such property) permitted under this Agreement in order to finance such acquisition, lease, construction, repair, replacement or improvement, in an aggregate principal amount that immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(i)(x), would not exceed (A) the greater of $36,000,000 and 5.10% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (B) any additional amounts, so long as immediately after giving effect to the incurrence of such additional amounts under this clause (B) and the use of proceeds thereof, the Total Net Leverage Ratio on a Pro Forma Basis is not greater than 5.50 to 1.00, and (y) any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary in respect thereof;
(j) Capitalized Lease Obligations incurred by Opco or any Opco Subsidiary in respect of any Sale and Lease-Back Transaction that is permitted under Section 6.03 and any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary in respect thereof;
(k) other Indebtedness of Opco or any Opco Subsidiary, in an aggregate principal amount that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(k), would not exceed the greater of $36,000,000 and 5.10% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness in respect thereof;
(l) [Reserved];
(m) Guarantees by the Subsidiary Guarantor, Opco or any Opco Subsidiary of any Indebtedness of Opco or any Opco Subsidiary permitted to be incurred under this Agreement;
(n) Indebtedness arising from agreements of the Issuer or any Subsidiary providing for indemnification, adjustment of purchase or acquisition price or similar obligations (including earn-outs), in each case, incurred or assumed in connection with the 2015 Transactions, the 2013 Transactions, any Permitted Business Acquisition, other Investments or the disposition of any business, assets or a Subsidiary not prohibited by this Agreement;
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(o) Indebtedness of Opco or any Opco Subsidiary in respect of letters of credit, bank guarantees, warehouse receipts or similar instruments issued to support performance obligations and trade letters of credit (other than obligations in respect of other Indebtedness) in the ordinary course of business or consistent with past practice or industry practices;
(p) other Indebtedness or Disqualified Stock of the Issuer or any Subsidiaries in an aggregate outstanding principal amount or liquidation preference not greater than 100.0% of the net cash proceeds received by the Issuer from (x) the issuance or sale of its Qualified Equity Interests after the date hereof or (y) a contribution after the date hereof to its common equity with the net cash proceeds from the issuance and sale by any Parent Entity of its Qualified Equity Interests or a contribution to its common equity (in each case of (x) and (y), other than proceeds from the sale of Equity Interests to, or contributions from, the Issuer or any of its Subsidiaries), to the extent that such net cash proceeds do not increase the Cumulative Credit and do not constitute Excluded Contributions;
(q) Indebtedness consisting of (i) the financing of insurance premiums or (ii) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business;
(r) (i) Indebtedness of Opco or any Opco Subsidiary secured by Liens on the Opco Collateral ranking pari passu with the Liens on the Opco Collateral securing the Term B Loans so long as (x) at the time of incurrence thereof, no Default or Event of Default shall have occurred and be continuing and (y) immediately after giving effect to the incurrence of such Indebtedness and the use of proceeds thereof, the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to 1.00; provided that, the net cash proceeds of Indebtedness incurred under this clause (r) at such time shall not be netted against the applicable amount of Consolidated Debt for purposes of such calculation of the Net First Lien Leverage Ratio and (ii) any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary in respect thereof;
(s) (i) other Indebtedness of Opco or any Opco Subsidiary so long as (x) at the time of incurrence thereof, no Default or Event of Default shall have occurred and be continuing and (y) immediately after giving effect to the incurrence of such Indebtedness and the use of proceeds thereof, the Total Net Leverage Ratio on a Pro Forma Basis is not greater than 5.50 to 1.00; provided that, the net cash proceeds of Indebtedness incurred under this clause (s) at such time shall not be netted against the applicable amount of Consolidated Debt for purposes of such calculation of the Total Net Leverage Ratio and (ii) any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary in respect thereof;
(t) Indebtedness of Opco or the Opco Subsidiaries in an aggregate principal amount outstanding that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(t), would not exceed the greater of $36,000,000 and 5.10% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary in respect thereof;
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(u) Indebtedness incurred in the ordinary course of business in respect of obligations of the Issuer or any Subsidiary to pay the deferred purchase price of goods or services or progress payments in connection with such goods and services; provided , that such obligations are incurred in connection with open accounts extended by suppliers on customary trade terms in the ordinary course of business and not in connection with the borrowing of money or any Hedging Agreements.
(v) Indebtedness representing deferred compensation to employees, consultants or independent contractors of the Issuer (or, to the extent such work is done for the Issuer or its Subsidiaries, any direct or indirect parent thereof) or any Subsidiary incurred in the ordinary course of business;
(w) Indebtedness incurred by Opco or any Opco Subsidiary in connection with Permitted Receivables Financings;
(x) obligations in respect of Cash Management Agreements;
(y) Refinancing Notes (as such term is defined under the Existing Credit Agreement) of Opco or any Opco Subsidiary and any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary in respect thereof;
(z) [Reserved];
(aa) Guarantees by Opco or any Opco Subsidiary of Indebtedness under ordinary course customer financing lines or credit;
(bb) Indebtedness incurred by Opco or any Opco Subsidiary on behalf of, or representing Guarantees of Indebtedness of, joint ventures in an aggregate principal amount that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(bb), would not exceed the greater of $36,000,000 and 5.10% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness incurred by Opco or any Opco Subsidiary in respect thereof;
(cc) Indebtedness issued by the Issuer or any Subsidiary to current or former officers, directors and employees, their respective estates, spouses or former spouses to finance the purchase or redemption of Equity Interests of the Issuer permitted by Section 6.06;
(dd) Indebtedness consisting of obligations of the Issuer or any Subsidiary under deferred compensation or other similar arrangements incurred by such person in connection with the 2013 Transactions, 2015 Transactions and Permitted Business Acquisitions or any other Investment permitted hereunder;
(ee) Indebtedness of Opco or any Opco Subsidiary to or on behalf of any joint venture (regardless of the form of legal entity) that is not an Opco Subsidiary arising in the ordinary course of business in connection with the cash management operations (including with respect to intercompany self-insurance arrangements) of Opco and the Opco Subsidiaries;
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(ff) Indebtedness of Opco or any Opco Subsidiary supported by a letter of credit issued under the Existing Credit Agreement (or any Permitted Refinancing Indebtedness in respect thereof), in a principal amount not in excess of the stated amount of such letter of credit issued under the Existing Credit Agreement (or any Permitted Refinancing Indebtedness in respect thereof); and
(gg) With respect to (i) Issuer, AP Gaming, Inc. or the Subsidiary Guarantor, all premium (if any, including tender premiums) expenses, defeasance costs, interest (including post-petition interest), fees, expenses, charges and additional or contingent interest on obligations described in clauses (a) through (ff) above that are permitted to be incurred by the Issuer, AP Gaming, Inc. or the Subsidiary Guarantor thereunder or refinancings thereof and (ii) Opco or any Opco Subsidiary, all premium (if any, including tender premiums) expenses, defeasance costs, interest (including post-petition interest), fees, expenses, charges and additional or contingent interest on obligations described in clauses (a) through (ff) above that are permitted to be incurred by Opco or any Opco Subsidiary, or refinancings thereof.
For purposes of determining compliance with this Section 6.01, the amount of any Indebtedness denominated in any currency other than Dollars shall be calculated based on customary currency exchange rates in effect, in the case of such Indebtedness incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness) on or prior to the Closing Date, on the Closing Date and, in the case of such Indebtedness incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness) after the Closing Date, on the date on which such Indebtedness was incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness); provided , that if such Indebtedness is incurred to refinance other Indebtedness denominated in a currency other than Dollars (or in a different currency from the Indebtedness being refinanced), and such refinancing would cause the applicable Dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such Dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (i) the outstanding or committed principal amount, as applicable, of such Indebtedness being refinanced plus (ii) the aggregate amount of fees, underwriting discounts, premiums (including tender premiums), defeasance costs and other costs and expenses incurred in connection with such refinancing.
Further, for purposes of determining compliance with this Section 6.01, (A) Indebtedness need not be permitted solely by reference to one category of permitted Indebtedness described in Sections 6.01(a) through (gg) but may be permitted in part under any combination thereof and (B) in the event that an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Indebtedness described in Sections 6.01(a) through (gg), the Issuer shall, in its sole discretion, classify or reclassify, or later divide, classify or reclassify, such item of Indebtedness (or any portion thereof) in any manner that complies with this Section 6.01 and will only be required to include the amount and type of such item of Indebtedness (or any portion thereof) in one of the above applicable clauses and such item of Indebtedness (or any portion thereof) shall be treated as having been incurred or existing pursuant to only one of such applicable clauses; provided , that all Indebtedness outstanding on the Closing Date in respect of the Notes shall at all times be deemed to have been
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incurred pursuant to clause (b)(ii) of this Section 6.01. In addition, with respect to any Indebtedness that was permitted to be incurred hereunder on the date of such incurrence, any Increased Amount of such Indebtedness shall also be permitted hereunder after the date of such incurrence.
Section 6.02 Liens . Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person) of the Issuer or any Subsidiary at the time owned by it or on any income or revenues or rights in respect of any thereof, except the following (collectively, “ Permitted Liens ”):
(a) Liens on property or assets of Opco and the Opco Subsidiaries existing on the Closing Date (or created following the Closing Date pursuant to agreements in existence on the Closing Date requiring the creation of such Liens) and, to the extent securing Indebtedness in an aggregate principal amount in excess of $2,400,000, set forth on Schedule 6.02(a) of the Existing Note Purchase Agreement and any modifications, replacements, renewals or extensions thereof; provided , that such Liens pursuant to this Section 6.02(a) shall secure only those obligations that they secure on the Closing Date (and any Permitted Refinancing Indebtedness in respect of such obligations permitted by Section 6.01(a)) and shall not subsequently apply to any other property or assets of Opco or any Opco Subsidiary other than (A) after-acquired property that is affixed or incorporated into the property covered by such Lien, and (B) proceeds and products thereof;
(b) (i) any Lien on any property or asset of Opco or any Opco Subsidiary securing Indebtedness permitted by Section 6.01(b)(i), including any Lien created under the Opco Loan Documents (including Liens created under the Opco Loan Documents securing obligations in respect of Hedging Agreements and Cash Management Agreements) or permitted in respect of any Mortgaged Property by the terms of the applicable Mortgage (as such term is defined under the Existing Credit Agreement), and (ii) any Lien securing the Notes and the other Obligations;
(c) any Lien on any property or asset of Opco or any Opco Subsidiary securing Indebtedness or Permitted Refinancing Indebtedness permitted by Section 6.01(h);
(d) Liens for Taxes, assessments or other governmental charges or levies not yet delinquent by more than 30 days or that are being contested in compliance with Section 5.03;
(e) Liens imposed by law, such as landlord’s, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, supplier’s, construction or other like Liens, securing obligations that are not overdue by more than 30 days or that are being contested in good faith by appropriate proceedings and in respect of which, if applicable, the Issuer or any Subsidiary shall have set aside on its books reserves in accordance with GAAP;
(f) (i) pledges and deposits and other Liens made in the ordinary course of business in compliance with the Federal Employers Liability Act or any other workers’ compensation, unemployment insurance and other social security laws or regulations and deposits securing liability to insurance carriers under insurance or self-insurance arrangements in
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respect of such obligations and (ii) pledges and deposits and other Liens securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to the Issuer or any Subsidiary;
(g) deposits and other Liens incurred by Opco or any Opco Subsidiary in the ordinary course of business to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capitalized Lease Obligations), statutory obligations, surety and appeal bonds, performance and return of money bonds, bids, leases, government contracts, trade contracts, agreements with utilities, and other obligations of a like nature (including letters of credit in lieu of any such bonds or to support the issuance thereof), in each case, incurred in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business;
(h) zoning restrictions, easements, survey exceptions, trackage rights, leases (other than Capitalized Lease Obligations), licenses, special assessments, rights-of-way, covenants, conditions, restrictions and declarations on or with respect to the use of Real Property, servicing agreements, development agreements, site plan agreements and other similar encumbrances incurred in the ordinary course of business and title defects or irregularities that are of a minor nature and that, in the aggregate, do not interfere in any material respect with the ordinary conduct of the business of the Issuer or any Subsidiary;
(i) Liens on any property or asset of Opco or any Opco Subsidiary securing Indebtedness permitted by Section 6.01(i); provided , that such Liens do not apply to any property or assets of Opco or any Opco Subsidiary other than the property or assets acquired, leased, constructed, replaced, repaired or improved with such Indebtedness (or the Indebtedness Refinanced thereby), and accessions and additions thereto, proceeds and products thereof and customary security deposits; provided , further , that individual financings provided by one lender may be cross-collateralized to other financings provided by such lender (and its Affiliates);
(j) Liens on any property or asset of Opco or any Opco Subsidiary arising out of capitalized lease transactions permitted under Section 6.03, so long as such Liens attach only to the property sold and being leased in such transaction and any accessions and additions thereto or proceeds and products thereof and related property;
(k) Liens securing judgments that do not constitute an Event of Default under Section 7.01(j);
(l) Liens on any property or asset of Opco or any Opco Subsidiary disclosed by the title insurance policies delivered under the Existing Credit Agreement and any replacement, extension or renewal of any such Lien; provided , that such replacement, extension or renewal Lien shall not cover any property other than the property that was subject to such Lien prior to such replacement, extension or renewal; provided , further , that the Indebtedness and other obligations secured by such replacement, extension or renewal Lien are permitted by this Agreement;
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(m) any interest or title of a lessor or sublessor under any leases or subleases entered into by the Issuer or any Subsidiary in the ordinary course of business;
(n) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks and other financial institutions not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposits, sweep accounts, reserve accounts or similar accounts of the Issuer or any Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Issuer or any Subsidiary, including with respect to credit card charge-backs and similar obligations, or (iii) relating to purchase orders and other agreements entered into with customers, suppliers or service providers of the Issuer or any Subsidiary in the ordinary course of business;
(o) Liens (i) arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business, (iii) encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to brokerage accounts incurred in the ordinary course of business and not for speculative purposes or (iv) of Opco or any Opco Subsidiary in respect of Third Party Funds;
(p) Liens on any property or asset of Opco or any Opco Subsidiary securing obligations in respect of trade-related letters of credit, bankers’ acceptances or similar obligations permitted under Section 6.01(f), (k) or (o) and covering the property (or the documents of title in respect of such property) financed by such letters of credit, bankers’ acceptances or similar obligations and the proceeds and products thereof;
(q) leases or subleases, licenses or sublicenses (including with respect to Intellectual Property) granted to others in the ordinary course of business not interfering in any material respect with the business of the Issuer and its Subsidiaries, taken as a whole;
(r) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
(s) Liens solely on any cash earnest money deposits made by the Issuer or any of the Subsidiaries in connection with any letter of intent or purchase agreement in respect of any Investment permitted hereunder;
(t) (i) Liens with respect to property or assets of Opco or any Opco Subsidiary securing obligations of Opco or any Opco Subsidiary permitted under Section 6.01 and (ii) Liens with respect to property or assets of Opco or any Opco Subsidiary securing Indebtedness permitted under Section 6.01(bb);
(u) Liens on any amounts held by a trustee under any indenture or other debt agreement issued in escrow pursuant to customary escrow arrangements pending the release thereof, or under any indenture or other debt agreement pursuant to customary discharge, redemption or defeasance provisions;
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(v) the prior rights of consignees and their lenders under consignment arrangements entered into in the ordinary course of business;
(w) agreements to subordinate any interest of the Issuer or any Subsidiary in any accounts receivable or other proceeds arising from inventory consigned by the Issuer or any of its Subsidiaries pursuant to an agreement entered into in the ordinary course of business;
(x) Liens arising from precautionary Uniform Commercial Code financing statements regarding operating leases or other obligations not constituting Indebtedness;
(y) Liens on Equity Interests in joint ventures (i) securing obligations of such joint venture or (ii) pursuant to the relevant joint venture agreement or arrangement;
(z) Liens on securities that are the subject of repurchase agreements constituting Permitted Investments under clause (c) of the definition thereof;
(aa) Liens in respect of Permitted Receivables Financings of Opco or any Opco Subsidiary that extend only to the Receivables Assets subject thereto;
(bb) Liens securing insurance premiums financing arrangements; provided , that such Liens are limited to the applicable unearned insurance premiums;
(cc) in the case of Real Property that constitutes a leasehold interest, any Lien to which the fee simple interest (or any superior leasehold interest) is subject;
(dd) Liens of Opco or any Opco Subsidiary securing Indebtedness or other obligations of Opco or any Opco Subsidiary in favor of Opco or any Opco Subsidiary;
(ee) Liens on not more than $6,000,000 of deposits securing Hedging Agreements entered into for non-speculative purposes;
(ff) Liens on goods or inventory of Opco or any Opco Subsidiary the purchase, shipment or storage price of which is financed by a documentary letter of credit, bank guarantee or bankers’ acceptance issued or created for the account of Opco or any Opco Subsidiary in the ordinary course of business; provided , that such Lien secures only the obligations of Opco or such Opco Subsidiaries in respect of such letter of credit, bank guarantee or banker’s acceptance to the extent permitted under Section 6.01;
(gg) Liens on Opco Collateral that are junior to the Liens securing the Term B Loans;
(hh) Liens on Opco Collateral that are pari passu with the Liens securing the Term B Loans, so long as immediately after giving effect to the incurrence of the Indebtedness secured by such pari passu Liens and the use of proceeds thereof (but without netting any of the net cash proceeds of such Indebtedness incurred on such date against the applicable amount of Consolidated Debt for purposes of such calculation), the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to 1.00;
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(ii) Liens on Opco Collateral that are pari passu with the Liens securing the Term B Loans, so long as such pari passu Liens secure Indebtedness permitted by Section 6.01(b), 6.01(h), 6.01(r) or 6.01(y);
(jj) [Reserved];
(kk) Liens to secure any Indebtedness issued or incurred to Refinance (or successive Indebtedness issued or incurred for subsequent Refinancings) as a whole, or in part, any Indebtedness secured by any Lien permitted by this Section 6.02; provided , however , that (x) other than Liens on the Opco Collateral, such new Lien shall be limited to all or part of the same type of property that secured the original Lien ( plus improvements on and accessions to such property, proceeds and products thereof, customary security deposits and any other assets pursuant to after-acquired property clauses to the extent such assets secured (or would have secured) the Indebtedness being Refinanced), (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount (or accreted value, if applicable) or, if greater, committed amount of the applicable Indebtedness at the time the original Lien became a Lien permitted hereunder, (B) unpaid accrued interest and premium (including tender premiums) and (C) an amount necessary to pay any associated underwriting discounts, defeasance costs, fees, commissions and expenses, and (z) on the date of the incurrence of the Indebtedness secured by such Liens, the grantors of any such Liens shall not include the Obligors if the Obligors were not grantors of the Liens securing the Indebtedness being Refinanced or would not have been obligated to grant Liens to secure such Indebtedness, provided further that, where Refinanced Indebtedness was secured by a Lien on property or assets of Opco or any Opco Subsidiary, then any Lien pursuant to this clause (kk) with respect to Indebtedness issued or incurred in connection with the Refinancing thereof may only be on property or assets of Opco or any Opco Subsidiary; and
(ll) other Liens with respect to property or assets of Opco or any Opco Subsidiary securing obligations in an aggregate principal amount that at the time of, and after giving effect to, the incurrence of such Liens, would not exceed the greater of $36,000,000 and 5.10% of the Consolidated Total Assets as at the end of the then most recently ended Test Period.
Notwithstanding the foregoing or anything herein to the contrary, (i) no Liens will be permitted by this Section 6.02 on Pledged Collateral other than Specified Permitted Liens and (ii) with respect to any Lien otherwise permitted on property or assets of Opco or the Opco Subsidiaries pursuant to this Section 6.02, such Liens shall also be permitted on the Equity Interests of Opco to the same extent.
For purposes of determining compliance with this Section 6.02, (A) a Lien securing an item of Indebtedness need not be permitted solely by reference to one category of permitted Liens described in Sections 6.02(a) through (ll) but may be permitted in part under any combination thereof and (B) in the event that a Lien securing an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Liens described
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in Sections 6.02(a) through (ll), the Issuer shall, in its sole discretion, classify or reclassify, or later divide, classify or reclassify, such Lien securing such item of Indebtedness (or any portion thereof) in any manner that complies with this covenant and will only be required to include the amount and type of such Lien or such item of Indebtedness (or any portion thereof) secured by such Lien in one of the above clauses and such Lien securing such item of Indebtedness (or any portion thereof) will be treated as being incurred or existing pursuant to only one of such clauses. In addition, with respect to any Lien securing Indebtedness that was permitted to secure such Indebtedness at the time of the incurrence of such Indebtedness, such Lien shall also be permitted to secure any Increased Amount of such Indebtedness.
Section 6.03 Sale and Lease-Back Transactions . Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter, as part of such transaction, rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred (a “ Sale and Lease-Back Transaction ”); provided , that a Sale and Lease-Back Transaction shall be permissible under this Section 6.03 (a) with respect to (i) property that is not Pledged Collateral, (ii) property owned by the Issuer, the Subsidiary Guarantor or AP Gaming, Inc. that is acquired after the Closing Date so long as such Sale and Lease-Back Transaction is consummated within 180 days of the acquisition of such property or (iii) property owned by any Subsidiary (other than AP Gaming, Inc. or the Subsidiary Guarantor) regardless of when such property was acquired, and (b) with respect to any other property owned by the Issuer or the Subsidiary Guarantor, (x) if at the time the lease in connection therewith is entered into, no Default or Event of Default shall have occurred and be continuing or would result therefrom, and (y) with respect to any such Sale and Lease-Back Transaction pursuant to this clause (b) with aggregate net cash proceeds in excess of $6,000,000, the Issuer or the Subsidiary Guarantor shall receive at least fair market value (as determined in good faith by the Issuer) or, if not for fair market value, the shortfall is permitted as an Investment under Section 6.04.
Section 6.04 Investments, Loans and Advances . (i) Purchase or acquire (including pursuant to any merger with a person that is not a Wholly Owned Subsidiary immediately prior to such merger) any Equity Interests, evidences of Indebtedness or other securities of any other person, (ii) make any loans or advances to or Guarantees of the Indebtedness of any other person (other than loans or advances in respect of (A) intercompany current liabilities incurred in connection with the cash management operations of the Issuer and the Subsidiaries and (B) intercompany loans, advances or Indebtedness having a term not exceeding 364 days (inclusive of any roll-overs or extensions of terms) and made in the ordinary course of business or consistent with industry practices), or (iii) purchase or otherwise acquire, in one transaction or a series of related transactions, (x) all or substantially all of the property and assets or business of another person or (y) assets constituting a business unit, line of business or division of such person (each of the foregoing, an “ Investment ”), except:
(a) (i) the 2013 Transactions, (ii) the 2015 Transactions and (iii) the 2017 Transactions;
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(b) (i) Investments by the Issuer or any Subsidiary in the Equity Interests of any Subsidiary; (ii) intercompany loans from the Issuer or any Subsidiary to the Issuer or any Subsidiary; and (iii) Guarantees by the Issuer or any Subsidiary of Indebtedness otherwise permitted hereunder of the Issuer or any Subsidiary; provided that as at any date of determination, the aggregate outstanding amount of Investments (valued at the time of the making thereof and without giving effect to any write downs or write offs thereof) made after the Closing Date in Subsidiaries that are not Wholly Owned Subsidiaries shall not exceed the sum of (X) the greater of (1) $36,000,000 and (2) 5.10% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment;
(c) Permitted Investments and Investments that were Permitted Investments when made;
(d) Investments arising out of the receipt by the Issuer or any Subsidiary of non-cash consideration for the Disposition of assets permitted under Section 6.05;
(e) loans and advances to officers, directors, employees or consultants of the Issuer or any Subsidiary (i) in the ordinary course of business not to exceed the greater of $6,000,000 and 1.50% of the Consolidated Total Assets as at the end of the then most recently ended Test Period in the aggregate at any time outstanding (calculated without regard to write-downs or write-offs thereof), (ii) in respect of payroll payments and expenses in the ordinary course of business and (iii) in connection with such person’s purchase of Equity Interests of the Issuer or any Parent Entity solely to the extent that the amount of such loans and advances shall be used to purchase common Equity Interests of the Issuer or contributed to the Issuer in cash as common equity;
(f) Investments of Opco or any Opco Subsidiary consisting of (i) accounts receivable, security deposits and prepayments arising, trade credit granted and Customer Development Agreements (and Customer Notes issued thereunder) (x) entered into in the ordinary course of business or (y) limited to an amount not to exceed $6,000,000 outstanding at any one time and (ii) any assets or securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss and any prepayments and other credits to suppliers made in the ordinary course of business;
(g) Hedging Agreements entered into for non-speculative purposes;
(h) Investments existing on, or contractually committed as of, the Closing Date consisting of intercompany loans or as set forth on Schedule 6.04 of the Existing Note Purchase Agreement and any extensions, renewals or reinvestments thereof, so long as the aggregate amount of all Investments pursuant to this clause (h) is not increased at any time above the amount of such Investment existing or committed on the Closing Date (other than pursuant to an increase as required by the terms of any such Investment as in existence on the Closing Date);
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(i) Investments resulting from pledges and deposits under Sections 6.02(f), (g), (o), (r), (s), (ee) and (ll);
(j) other Investments by the Issuer or any Subsidiary in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write-downs or write-offs thereof) not to exceed the sum of (X) the greater of $36,000,000 and 5.10% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, plus (Y) so long as no Event of Default shall have occurred and be continuing, any portion of the Cumulative Credit on the date of such election that the Issuer elects to apply to this Section 6.04(j)(Y) in a written certificate of a Responsible Officer thereof which certificate shall be available pursuant to Section 9.21 and shall set forth calculations in reasonable detail of the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied, and plus (Z) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment pursuant to clause (X); provided , that if any Investment pursuant to this Section 6.04(j) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Issuer, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) (to the extent permitted by the proviso thereto in the case of any Subsidiary that is not a Wholly Owned Subsidiary) and not in reliance on this Section 6.04(j);
(k) Investments constituting Permitted Business Acquisitions;
(l) intercompany loans between Opco or any Opco Subsidiaries and Guarantees by Opco or any Opco Subsidiary that are permitted by Section 6.01(m);
(m) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with or judgments against, customers and suppliers, in each case in the ordinary course of business or Investments acquired by the Issuer or a Subsidiary as a result of a foreclosure by the Issuer or any of the Subsidiaries with respect to any secured Investments or other transfer of title with respect to any secured Investment in default;
(n) Investments of a Subsidiary acquired after the Closing Date or of a person merged into the Issuer or merged into or consolidated with a Subsidiary after the Closing Date, in each case, (i) to the extent such acquisition, merger or consolidation is permitted under this Section 6.04, (ii) in the case of any acquisition, merger or consolidation, in accordance with Section 6.05 and (iii) to the extent that such Investments were not made in contemplation of or in connection with such acquisition, merger or consolidation and were in existence on the date of such acquisition, merger or consolidation;
(o) acquisitions by the Issuer of obligations of one or more officers or other employees of any Parent Entity, the Issuer or its Subsidiaries in connection with such officer’s or employee’s acquisition of Equity Interests of the Issuer or any Parent Entity, so long as no cash is actually advanced by the Issuer or any of the Subsidiaries to such officers or employees in connection with the acquisition of any such obligations;
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(p) Guarantees by Opco or any Opco Subsidiary of operating leases (other than Capitalized Lease Obligations) or of other obligations that do not constitute Indebtedness, in each case entered into by Opco or any Opco Subsidiary in the ordinary course of business;
(q) Investments to the extent that payment for such Investments is made with Equity Interests of the Issuer or any Parent Entity; provided , that the issuance of such Equity Interests are not included in any determination of the Cumulative Credit;
(r) [Reserved];
(s) Investments consisting of Restricted Payments permitted under Section 6.06;
(t) Investments in the ordinary course of business consisting of Uniform Commercial Code Article 3 endorsements for collection or deposit and Uniform Commercial Code Article 4 customary trade arrangements with customers;
(u) [Reserved]
(v) Guarantees permitted under Section 6.01 (except to the extent such Guarantee is expressly subject to this Section 6.04);
(w) advances in the form of a prepayment of expenses, so long as such expenses are being paid in accordance with customary trade terms of the Issuer or such Subsidiary;
(x) Investments by the Issuer and its Subsidiaries, including loans to any direct or indirect parent of the Issuer, if the Issuer or any other Subsidiary would otherwise be permitted to make a Restricted Payment in such amount ( provided , that the amount of any such Investment shall also be deemed to be a Restricted Payment under the appropriate clause of Section 6.06 for all purposes of this Agreement);
(y) Investments by Opco or any Opco Subsidiary consisting of Receivable Assets or arising as a result of Permitted Receivables Financings;
(z) Investments consisting of the licensing or contribution of Intellectual Property pursuant to joint marketing or other arrangements with other persons;
(aa) to the extent constituting Investments, purchases and acquisitions of inventory, supplies, materials and equipment or purchases of contract rights or licenses or leases of Intellectual Property in each case in the ordinary course of business;
(bb) Investments received substantially contemporaneously in exchange for Equity Interests of the Issuer or any Parent Entity; provided , that the issuance of such Equity Interests are not included in any determination of the Cumulative Credit;
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(cc) Guarantees by Opco or any Opco Subsidiary of Indebtedness in respect of ordinary course customer financing lines of credit;
(dd) Investments in joint ventures in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write downs or write offs thereof) not to exceed the sum of (X) the greater of $36,000,000 and 5.10% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment; provided , that if any Investment pursuant to this clause (dd) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Issuer, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) and not in reliance on this Section 6.04(dd); and
(ee) Investments in Similar Businesses in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write downs or write offs thereof) not to exceed the sum of (X) the greater of $36,000,000 and 6% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment; provided , that if any Investment pursuant to this clause (ee) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Issuer, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) (to the extent permitted by the proviso thereto in the case of any Subsidiary that is not a Wholly Owned Subsidiary) and not in reliance on this Section 6.04(ee).
The amount of Investments that may be made at any time pursuant to Section 6.04(b), 6.04(j) or 6.04(ee) (such Sections, the “ Related Sections ”) may, at the election of the Issuer, be increased by the amount of Investments that could be made at such time under the other Related Section; provided , that the amount of each such increase in respect of one Related Section shall be treated as having been used under the other Related Section.
The amount of any Investment made other than in the form of cash or cash equivalents shall be the fair market value thereof (as determined by the Issuer in good faith) valued at the time of the making thereof, and without giving effect to any subsequent write-downs or write-offs thereof.
Section 6.05 Mergers, Consolidations, Sales of Assets and Acquisitions . Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or Dispose of (in one transaction or in a series of related transactions) all or any part of its assets (whether now owned or hereafter acquired), or Dispose of any Equity Interests of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of related transactions) all of the assets of any other person or division or line of business of a person, except that this Section 6.05 shall not prohibit:
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(a) (i) the purchase and Disposition of inventory, or the sale of receivables pursuant to non-recourse factoring arrangements, or the Disposition of any Customer Notes, in each case in the ordinary course of business by the Issuer or any Subsidiary, (ii) the acquisition or lease (pursuant to an operating lease) of any other asset in the ordinary course of business by the Issuer or any Subsidiary or, with respect to operating leases, otherwise for fair market value on market terms (as determined in good faith by the Issuer), (iii) the Disposition of surplus, obsolete, damaged or worn out equipment or other property in the ordinary course of business by the Issuer or any Subsidiary, (iv) assignments by the Issuer and any Subsidiary in connection with insurance arrangements of their rights and remedies under, and with respect to, the 2013 Purchase Agreement or the 2015 Acquisition Agreement in respect of any breach by any Seller of its representations and warranties set forth therein or (v) the Disposition of Permitted Investments in the ordinary course of business;
(b) if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing or would result therefrom, (i) the merger or consolidation of any Subsidiary (other than the Subsidiary Guarantor) with or into the Issuer in a transaction in which the Issuer is the survivor, (ii) the merger or consolidation of any Subsidiary (other than the Subsidiary Guarantor) with or into any other Subsidiary, (iii) the liquidation or dissolution or change in form of entity of any Subsidiary (other than the Subsidiary Guarantor) if the Issuer determines in good faith that such liquidation, dissolution or change in form is in the best interests of the Issuer and is not materially disadvantageous to the Holders or (iv) any Subsidiary (other than the Subsidiary Guarantor) may merge or consolidate with any other person in order to effect an Investment permitted pursuant to Section 6.04 so long as the continuing or surviving person shall be a Subsidiary (unless otherwise permitted by Section 6.04);
(c) Dispositions to the Issuer or a Subsidiary (upon voluntary liquidation or otherwise), provided that any Disposition to a Subsidiary that is not a Wholly Owned Subsidiary in reliance on this clause (c) shall be made in compliance with Section 6.07;
(d) Sale and Lease-Back Transactions permitted by Section 6.03;
(e) Investments permitted by Section 6.04, Permitted Liens, and Restricted Payments permitted by Section 6.06;
(f) Dispositions of defaulted receivables in the ordinary course of business and not as part of an accounts receivables financing transaction;
(g) other Dispositions of assets by Opco or any Opco Subsidiary; provided , that the Net Proceeds (as defined in the Existing Credit Agreement) thereof, if any, are applied in accordance with Section 2.11(b) of the Existing Credit Agreement, to the extent required thereby;
(h) Permitted Business Acquisitions (including any merger, consolidation or amalgamation in order to effect a Permitted Business Acquisition); provided , that following any such merger, consolidation or amalgamation involving the Issuer, the Issuer is the surviving corporation;
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(i) leases, licenses or subleases or sublicenses of any real or personal property in the ordinary course of business;
(j) Dispositions of inventory or Dispositions or abandonment of Intellectual Property of the Issuer and its Subsidiaries determined in good faith business judgment of the management of the Issuer to be no longer useful or necessary in the operation of the business of the Issuer or any of the Subsidiaries;
(k) acquisitions and purchases made with the proceeds of any Asset Sale;
(l) the purchase and Disposition (including by capital contribution) of Receivables Assets including pursuant to Permitted Receivables Financings; and
(m) any exchange of assets for services and/or other assets of comparable or greater value; provided , that (i) at least 90% of the consideration received by the transferor consists of assets that will be used in a business or business activity permitted hereunder and (ii) in the event of a swap with a fair market value (as determined in good faith by the Issuer) in excess of $6,000,000, a Responsible Officer of the Issuer shall have certified such fair market value; provided , further, that (A) the aggregate gross consideration (including exchange assets, other non-cash consideration and cash proceeds) of any or all assets exchanged in reliance upon this clause (m) shall not exceed, in any fiscal year of the Issuer, the greater of $24,000,000 and 3.6% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, (B) no Default or Event of Default exists or would result therefrom and (C) the Net Proceeds (as defined in the Existing Credit Agreement), if any, thereof are applied in accordance with Section 2.11(b) of the Existing Credit Agreement to the extent required thereby.
Notwithstanding anything to the contrary contained in Section 6.05 above, (i) no Disposition of assets under Section 6.05(d) (to the extent required under Section 6.03(b)) or Section 6.05(g) shall be permitted unless such Disposition is for fair market value (as determined in good faith by the Issuer), or if not for fair market value, the shortfall is permitted as an Investment under Section 6.04, (ii) no Disposition of assets under Section 6.05(g) or Section 6.05(d) (to the extent permitted pursuant to Section 6.03(b)) shall be permitted unless such Disposition (except to Wholly Owned Subsidiaries) is for at least 75% cash consideration; provided , that the provisions of this clause (ii) shall not apply to any individual transaction or series of related transactions involving assets with a fair market value (as determined in good faith by the Issuer) of less than $6,000,000; provided , further , that for purposes of this clause (ii), each of the following shall be deemed to be cash: (a) the amount of any liabilities (as shown on the Issuer’s or such Subsidiary’s most recent balance sheet or in the notes thereto) that are assumed by the transferee of any such assets or are otherwise cancelled in connection with such transaction, (b) any notes or other obligations or other securities or assets received by the Issuer or such Subsidiary from the transferee that are converted by the Issuer or such Subsidiary into cash within 180 days after receipt thereof (to the extent of the cash received) and (c) any Designated Non-Cash Consideration received by the Issuer or any of its Subsidiaries in such Disposition having an aggregate fair market value (as determined in good faith by the Issuer), taken together with all other Designated Non-Cash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed the greater of $36,000,000 and 5.10% of Consolidated Total Assets as
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at the end of the Test Period ended immediately prior to the receipt of such Designated Non-Cash Consideration (with the fair market value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value) and (iii) no Pledged Collateral may be Disposed of under this Section 6.05.
Section 6.06 Dividends and Distributions . Declare or pay any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any of its Equity Interests (other than dividends and distributions on Equity Interests payable solely by the issuance of additional Equity Interests (other than Disqualified Stock) of the person paying such dividends or distributions) or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or otherwise acquire) any of the Issuer’s Equity Interests or set aside any amount for any such purpose (other than through the issuance of additional Equity Interests (other than Disqualified Stock) of the person redeeming, purchasing, retiring or acquiring such shares) (all of the foregoing, “ Restricted Payments ”); provided , however , that:
(a) Restricted Payments may be made to the Issuer or any Wholly Owned Subsidiary of the Issuer (or, in the case of non-Wholly Owned Subsidiaries, to the Issuer or any Subsidiary that is a direct or indirect parent of such Subsidiary and to each other owner of Equity Interests of such Subsidiary on a pro rata basis (or more favorable basis from the perspective of the Issuer or such Subsidiary) based on their relative ownership interests);
(b) Restricted Payments may be made in respect of (i) overhead, legal, accounting and other professional fees and expenses of any Parent Entity, (ii) fees and expenses related to any public offering or private placement of Equity Interests or debt securities of any Parent Entity whether or not consummated, (iii) franchise and similar taxes and other fees and expenses in connection with the maintenance of its (and any Parent Entity’s) existence and its (or any Parent Entity’s indirect) ownership of the Issuer, (iv) payments permitted by Section 6.07(b) (other than Section 6.07(b)(vii)), (v) in respect of any taxable period for which the Issuer and/or any of its Subsidiaries are members of a consolidated, combined, affiliated, unitary or similar tax group for U.S. federal and/or applicable state, local or foreign tax purposes of which a direct or indirect parent of the Issuer is the common parent, or for which the Issuer is a disregarded entity for U.S. federal income tax purposes that is wholly owned (directly or indirectly) by a C corporation for U.S. federal and/or applicable state or local income tax purposes, distributions to any direct or indirect parent of the Issuer in an amount not to exceed the amount of any U.S. federal, state, local or foreign taxes that the Issuer and/or its Subsidiaries, as applicable, would have paid for such taxable period had the Issuer and/or its Subsidiaries, as applicable, been a stand-alone corporate taxpayer or a stand-alone corporate group, and (vi) customary salary, bonus and other benefits payable to, and indemnities provided on behalf of, officers, directors and employees of any Parent Entity, in each case in order to permit any Parent Entity to make such payments; provided , that in the case of sub-clauses (i) and (iii), the amount of such Restricted Payments shall not exceed the portion of any amounts referred to in such sub-clauses (i) and (iii) that are allocable to the Issuer and its Subsidiaries (which shall be 100% at any time that, as the case may be, any Parent Entity owns directly or indirectly no material assets other than Equity Interests in the Issuer and any Parent Entity and assets incidental to such equity ownership);
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(c) Restricted Payments may be made to or by the Issuer or any Subsidiary, the proceeds of which are used to purchase or redeem the Equity Interests of the Issuer or any Parent Entity (including related stock appreciation rights or similar securities) held by then present or former directors, consultants, officers or employees of any Parent Entity, the Issuer or any of the Subsidiaries or by any Plan or any shareholders’ agreement then in effect upon such person’s death, disability, retirement or termination of employment or under the terms of any such Plan or any other agreement under which such shares of stock or related rights were issued; provided , that the aggregate amount of such purchases or redemptions under this clause (c) shall not exceed in any fiscal year $5,000,000 (which shall increase to $10,000,000 subsequent to a Qualified IPO) ( plus (x) the amount of net proceeds received by or contributed to the Issuer that were (x) received by the Issuer or any Parent Entity during such calendar year from sales of Equity Interests of the Issuer or any Parent Entity to directors, consultants, officers or employees of any Parent Entity, the Issuer or any Subsidiary in connection with permitted employee compensation and incentive arrangements; provided , that such proceeds are not included in any determination of the Cumulative Credit, (y) the amount of net proceeds of any key-man life insurance policies received during such calendar year, and (z) the amount of any cash bonuses otherwise payable to members of management, directors or consultants of any Parent Entity, the Issuer or the Subsidiaries in connection with the 2013 Transactions and/or the 2015 Transactions that are foregone in return for the receipt of Equity Interests), which, if not used in any year, may be carried forward to any subsequent calendar year; and provided , further , that cancellation of Indebtedness owing to the Issuer or any Subsidiary from members of management of any Parent Entity, the Issuer or its Subsidiaries in connection with a repurchase of Equity Interests of the Issuer or any Parent Entity will not be deemed to constitute a Restricted Payment for purposes of this Section 6.06;
(d) any person may make non-cash repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options;
(e) Restricted Payments may be made by the Issuer or any Subsidiary in an aggregate amount equal to a portion of the Cumulative Credit on the date of such election that the Issuer elects to apply to this Section 6.06(e), which such election shall (unless such Restricted Payment is made in reliance on clause (a) of the definition of Cumulative Credit in the Existing Credit Agreement) be set forth in a written certificate of a Responsible Officer thereof, which certificate shall be available pursuant to Section 9.21 and shall set forth calculations in reasonable detail the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied; provided , that no Event of Default shall have occurred and be continuing or would result therefrom and, immediately after giving effect thereto, the Net First Lien Leverage Ratio on a Pro Forma Basis shall not be greater than 4.75 to 1.00;
(f) Restricted Payments in connection with the consummation of the Transactions and the 2015 Transactions, as set forth in Schedule 6.06(f) of the Existing Note Purchase Agreement;
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(g) Restricted Payments may be made to pay, or to allow any Parent Entity to make payments, in cash, in lieu of the issuance of fractional shares, upon the exercise of warrants or upon the conversion or exchange of Equity Interests of any such person;
(h) after a Qualified IPO, Restricted Payments may be made to pay, or to allow any Parent Entity to pay, dividends and make distributions to, or repurchase or redeem shares from, its equity holders in an amount equal to 7.2% per annum of the net proceeds received by the Issuer from any public offering of Equity Interests of the Issuer or any direct or indirect parent of the Issuer;
(i) Restricted Payments may be made to finance any Investment that if made by the Issuer or any Subsidiary directly would be permitted to be made pursuant to Section 6.04; provided , that (A) such Restricted Payments shall be made substantially concurrently with the closing of such Investment and (B) immediately following the closing thereof, (1) all property acquired (whether assets or Equity Interests) shall be contributed to the Issuer or a Subsidiary or (2) the person formed or acquired shall be merged, consolidated or amalgamated (to the extent permitted in Section 6.05) into the Issuer or a Subsidiary in order to consummate such Permitted Business Acquisition or Investment;
(j) other Restricted Payments, when taken together with any payments or distributions made pursuant to Section 6.09(b)(i)(F), may be made in an aggregate amount not to exceed $36,000,000;
(k) [Reserved]; or
(l) Restricted Payments made with Excluded Contributions.
Notwithstanding anything to the contrary contained in this Section 6.06,
(i) the Issuer will not, and will not permit any of its Subsidiaries to, make any Restricted Payment to Apollo Global Management, LLC, the Fund or any Fund Affiliate, other than the following:
(A) dividends or other distributions on Equity Interests payable solely by the issuance of additional Equity Interests other than Disqualified Stock;
(B) those made pursuant to Section 6.06(b), but with respect to Section 6.06(b)(iv), only those made pursuant to subclauses (iv), (vi), (ix), (xiv) and (xvii) of Section 6.07(b); and
(C) those made pursuant to Sections 6.06(c), (g) or (i); and
(ii) any Restricted Payment comprising Net Distribution Proceeds shall be applied in accordance with Section 2.07 hereof.
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Section 6.07 Transactions with Affiliates . (a) Sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transaction with, any of its Affiliates (other than the Issuer and the Subsidiaries or any person that becomes a Subsidiary as a result of such transaction) in a transaction (or series of related transactions) involving aggregate consideration in excess of $3,600,000, unless such transaction is (i) otherwise permitted (or required) under this Agreement or (ii) upon terms that are substantially no less favorable to the Issuer or such Subsidiary, as applicable, than would be obtained in a comparable arm’s-length transaction with a person that is not an Affiliate, as determined by the Board of Directors of the Issuer or such Subsidiary in good faith.
(b) The foregoing clause (a) shall not prohibit, to the extent otherwise permitted under this Agreement,
(i) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, equity purchase agreements, stock options and stock ownership plans approved by the board of directors of the Issuer,
(ii) loans or advances to employees or consultants of any Parent Entity, the Issuer or any of the Subsidiaries in accordance with Section 6.04(e),
(iii) transactions among the Issuer or any Subsidiary or any entity that becomes a Subsidiary as a result of such transaction (including via merger, consolidation or amalgamation in which the Issuer or a Subsidiary is the surviving entity),
(iv) the payment of fees, reasonable out-of-pocket costs and indemnities to directors, officers, consultants and employees of any Parent Entity, the Issuer and the Subsidiaries in the ordinary course of business (limited, in the case of any Parent Entity, to the portion of such fees and expenses that are allocable to the Issuer and its Subsidiaries (which shall be 100% for so long as such Parent Entity, as the case may be, owns no assets other than the Equity Interests in the Issuer or any Parent Entity and assets incidental to the ownership of the Issuer and its Subsidiaries)),
(v) subject to the limitations set forth in Section 6.07(b)(xiv), if applicable, the 2013 Transactions and any transactions pursuant to the 2013 Transaction Documents, the 2015 Transactions and any transactions pursuant to the 2015 Transaction Documents, the 2017 Transactions and any transactions pursuant to the 2017 Transaction Documents, and any permitted transactions, agreements and arrangements in existence on the Closing Date and, to the extent involving aggregate consideration in excess of $2,400,000, set forth on Schedule 6.07 of the Existing Note Purchase Agreement or any amendment thereto or replacement thereof or similar arrangement to the extent such amendment, replacement or arrangement is not adverse to the Holders when taken as a whole in any material respect (as determined by the Issuer in good faith),
(vi) (A) any employment agreements entered into by the Issuer or any of the Subsidiaries in the ordinary course of business, (B) any subscription agreement or similar agreement pertaining to the repurchase of Equity Interests pursuant to put/call rights or similar rights with employees, officers or directors, and (C) any employee compensation, benefit plan or arrangement, any health, disability or similar insurance plan which covers employees, and any reasonable employment contract and transactions pursuant thereto,
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(vii) Restricted Payments permitted under Section 6.06, including payments to any Parent Entity, and Investments permitted under Section 6.04,
(viii) any purchase by any Parent Entity of the Equity Interests of the Issuer,
(ix) payments by the Issuer or any of the Subsidiaries to the Fund or any Fund Affiliate made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by the majority of the Board of Directors of the Issuer, or a majority of the Disinterested Directors of the Issuer, in good faith,
(x) transactions for the purchase or sale of goods, equipment, products, parts and services entered into in the ordinary course of business,
(xi) any transaction in respect of which the Issuer obtains a letter addressed to the Board of Directors of the Issuer from an accounting, appraisal or investment banking firm, in each case of nationally recognized standing that is in the good faith determination of the Issuer qualified to render such letter, which letter states that (i) such transaction is on terms that are no less favorable to the Issuer or such Subsidiary, as applicable, than would be obtained in a comparable arm’s-length transaction with a person that is not an Affiliate or (ii) such transaction is fair to the Issuer or such Subsidiary, as applicable, from a financial point of view,
(xii) subject to subclause (xiv) below, if applicable, the payment of all fees, expenses, bonuses and awards related to the 2013 Transactions, the 2015 Transactions or the 2017 Transactions, including fees to the Fund or any Fund Affiliate,
(xiii) transactions with joint ventures for the purchase or sale of goods, equipment, products, parts and services entered into in the ordinary course of business,
(xiv) any agreement to pay, and the payment of, monitoring, consulting, management, transaction, advisory or similar fees payable to the Fund or any Fund Affiliate (A) in an aggregate amount in any fiscal year not to exceed the sum of (1) the greater of $1,200,000 and 3.6% of EBITDA for such fiscal year, plus reasonable out of pocket costs and expenses in connection therewith and unpaid amounts accrued for prior periods; plus (2) any deferred fees (to the extent such fees were within such amount in clause (A)(1) above originally), plus (B) 1.2% of the value of transactions with respect to which the Fund or any Fund Affiliate provides any transaction, advisory or other services, plus (C) a transaction fee of not more than $2,500,000 to be paid to the Fund or a Fund Affiliate in connection with the 2013 Transactions, plus (D) so long as no Event of Default has occurred and is continuing, in the event of a Qualified IPO, the present value of all future amounts payable pursuant to any agreement referred to in clause (A)(1)
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above in connection with the termination of such agreement with the Fund and its Fund Affiliates; provided , that if any such payment pursuant to clause (D) is not permitted to be paid as a result of an Event of Default, such payment shall accrue and may be payable when no Events of Default are continuing to the extent that no further Event of Default would result therefrom,
(xv) the issuance, sale or transfer of Equity Interests of the Issuer, including in connection with capital contributions by any Parent Entity to the Issuer,
(xvi) the issuance of Equity Interests to the management of any Parent Entity, the Issuer or any Subsidiary in connection with the 2013 Transactions or the 2015 Transactions,
(xvii) payments by any Parent Entity, the Issuer and the Subsidiaries pursuant to a tax sharing agreement or arrangement (whether written or as a matter of practice) that complies with clause (v) of Section 6.06(b),
(xviii) transactions pursuant to any Permitted Receivables Financing,
(xix) payments, loans (or cancellation of loans) or advances to employees or consultants that are (i) approved by a majority of the Disinterested Directors of the Issuer in good faith, (ii) made in compliance with applicable law and (iii) otherwise permitted under this Agreement,
(xx) transactions with customers, clients or suppliers, purchasers or sellers of goods or services, in each case in the ordinary course of business or otherwise in compliance with the terms of this Agreement that are fair to the Issuer or the Subsidiaries,
(xxi) transactions between the Issuer or any of the Subsidiaries and any person, a director of which is also a director of the Issuer or any direct or indirect parent company of the Issuer; provided , however , that (A) such director abstains from voting as a director of the Issuer or such direct or indirect parent company, as the case may be, on any matter involving such other person and (B) such person is not an Affiliate of the Issuer for any reason other than such director’s acting in such capacity,
(xxii) transactions permitted by, and complying with, the provisions of Section 6.05,
(xxiii) intercompany transactions undertaken in good faith (as certified by a Responsible Officer of the Issuer) for the purpose of improving the consolidated tax efficiency of the Issuer and the Subsidiaries and not for the purpose of circumventing any covenant set forth herein, and
(xxiv) Investments by the Fund or a Fund Affiliate in securities of the Issuer or any of the Subsidiaries so long as (A) the Investment is being offered generally to other investors on the same or more favorable terms and (B) the Investment constitutes less than 6.0% of the outstanding issue amount of such class of securities.
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Notwithstanding the foregoing, any portfolio company that is an Affiliate of the Fund or a Fund Affiliate shall not be considered an Affiliate of the Issuer or its Subsidiaries with respect to any transaction, so long as such transaction is in the ordinary course of business.
Section 6.08 Business of the Issuer and the Subsidiaries .
Notwithstanding any other provisions hereof, engage at any time to any material respect in any business or business activity substantially different from any business or business activity conducted by any of them on the Closing Date or any Similar Business, and in the case of a Special Purpose Receivables Subsidiary, Permitted Receivables Financings.
Section 6.09 Limitation on Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc . (a) Amend or modify in any manner materially adverse to the Holders when taken as a whole (as determined in good faith by the Issuer), or grant any waiver or release under or terminate in any manner (if such granting or termination shall be materially adverse to the Holders when taken as a whole (as determined in good faith by the Issuer)), the articles or certificate of incorporation, by-laws, limited liability company operating agreement, partnership agreement or other organizational documents of the Issuer or the Subsidiary Guarantor.
(b) (i) Make, directly or indirectly, any payment, prepayment or other distribution (whether in cash, securities or other property) of, or in respect of, principal of or interest on any Indebtedness that is subordinated in right of payment to the Notes (“ Junior Financing ”), or any payment or other distribution (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 in respect of any Junior Financing, subject to Section 2.07, except for:
(A) Refinancings with any Indebtedness permitted to be incurred under Section 6.01;
(B) payments of regularly-scheduled interest and fees due thereunder, other non-principal mandatory payments thereunder; any mandatory prepayments of principal, interest and fees thereunder; scheduled payments thereon necessary to avoid the Junior Financing from constituting “applicable high yield discount obligations” within the meaning of Section 163(i)(l) of the Code; and, to the extent this Agreement is then in effect, principal on the scheduled maturity date of any Junior Financing (or, in the case of any Junior Financing, within one year thereof);
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(C) payments, prepayments or distributions in respect of all or any portion of the Junior Financing with the proceeds received by the Issuer or contributed to the Issuer by any Parent Entity from the issuance, sale or exchange by the Issuer or any Parent Entity of Equity Interests that are not Disqualified Stock made within eighteen months prior thereto; provided , that such proceeds are not included in any determination of the Cumulative Credit;
(D) the conversion of any Junior Financing to Equity Interests of the Issuer or any Parent Entity; and
(E) so long as (1) no Event of Default has occurred and is continuing or would result therefrom and (2) after giving effect to such payments, prepayments or distributions, the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to 1.00, payments, prepayments or distributions by Opco or any Opco Subsidiary in respect of Junior Financings prior to any scheduled maturity made in an aggregate amount not to exceed a portion of the Cumulative Credit on the date of such election that the Issuer elects to apply to this Section 6.09(b)(i)(E) in a written certificate of a Responsible Officer thereof, which certificate shall be available pursuant to Section 9.21 and shall set forth calculations in reasonable detail of the amount of the Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied;
(F) (x) other payments, prepayments or distributions in respect of Junior Financing that are made at a price less than par, when taken together with any payments, prepayments or distributions made pursuant to Section 6.06(j), in an aggregate amount not to exceed $36,000,000; or
(ii) Amend or modify, or permit the amendment or modification of, any provision of any Junior Financing that constitutes Material Indebtedness, or any agreement, document or instrument evidencing or relating thereto, other than amendments or modifications that (A) are not individually or in the aggregate materially adverse to Holders (as determined in good faith by the Issuer) and that do not individually or in the aggregate affect the subordination or payment provisions thereof (if any) in a manner adverse to the Holders (as determined in good faith by the Issuer) or (B) otherwise comply with the definition of “Permitted Refinancing Indebtedness”.
(c) Permit any Material Subsidiary to enter into any agreement or instrument that by its terms restricts the payment of dividends or distributions or the making of cash advances to the Issuer or any Subsidiary that is a direct or indirect parent of such Subsidiary other than those arising under any Note Document or Opco Loan Document, except, in each case, restrictions existing by reason of:
(A) restrictions imposed by applicable law;
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(B) contractual encumbrances or restrictions in effect on the Closing Date under Indebtedness existing on the Closing Date, any Refinancing Notes or any agreements related to any Permitted Refinancing Indebtedness in respect of any such Indebtedness that does not materially expand the scope of any such encumbrance or restriction (as determined in good faith by the Issuer);
(C) any restriction on a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of the Equity Interests or assets of a Subsidiary pending the closing of such sale or disposition;
(D) customary provisions in joint venture agreements and other similar agreements applicable to joint ventures entered into in the ordinary course of business;
(E) any restrictions imposed by any agreement relating to secured Indebtedness permitted by this Agreement to the extent that such restrictions apply only to the specific property or assets securing such Indebtedness;
(F) any restrictions imposed by any agreement relating to Indebtedness incurred pursuant to Section 6.01 or Permitted Refinancing Indebtedness in respect thereof, to the extent such restrictions are not materially more restrictive, taken as a whole, than the restrictions contained in the Opco Loan Documents or this Agreement (as determined in good faith by the Issuer);
(G) customary provisions contained in leases or licenses of Intellectual Property and other similar agreements entered into in the ordinary course of business;
(H) customary provisions restricting subletting or assignment of any lease governing a leasehold interest;
(I) customary provisions restricting assignment of any agreement entered into in the ordinary course of business;
(J) customary restrictions and conditions contained in any agreement relating to the sale, transfer, lease or other disposition of any asset permitted under Section 6.05 pending the consummation of such sale, transfer, lease or other disposition;
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(K) customary restrictions and conditions contained in the document relating to any Lien, so long as (1) such Lien is a Permitted Lien and such restrictions or conditions relate only to the specific asset subject to such Lien, and (2) such restrictions and conditions are not created for the purpose of avoiding the restrictions imposed by this Section 6.09;
(L) customary net worth provisions contained in Real Property leases entered into by Subsidiaries, so long as the Issuer has determined in good faith that such net worth provisions would not reasonably be expected to impair the ability of the Issuer and its Subsidiaries to meet their ongoing obligations;
(M) any agreement in effect at the time such subsidiary becomes a Subsidiary, so long as such agreement was not entered into in contemplation of such person becoming a Subsidiary;
(N) restrictions in agreements representing Indebtedness permitted under Section 6.01 of a Subsidiary of the Issuer that is not the Subsidiary Guarantor;
(O) customary restrictions contained in leases, subleases, licenses or Equity Interests or asset sale agreements otherwise permitted hereby as long as such restrictions relate to the Equity Interests and assets subject thereto;
(P) restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business;
(Q) restrictions contained in any Permitted Receivables Document with respect to any Special Purpose Receivables Subsidiary; or
(R) any encumbrances or restrictions of the type referred to in Section 6.09(c) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of or similar arrangements to the contracts, instruments or obligations referred to in clauses (A) through (Q) above; provided , that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or similar arrangements are, in the good faith judgment of the Issuer, no more restrictive with respect to such dividend, other payment and Lien restrictions than those contained in the dividend, other payment or Lien restrictions as contemplated by such provisions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement, refinancing or similar arrangement.
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ARTICLE VII
Events of Default
Section 7.01 Events of Default . In case of the happening of any of the following events (each, an “ Event of Default ”):
(a) any representation or warranty made or deemed made by the Issuer or the Subsidiary Guarantor herein or in any other Note Document or any certificate or document delivered pursuant hereto or thereto shall prove to have been false or misleading in any material respect when so made or deemed made; provided , that the failure of any representation or warranty made or deemed made by any Obligor (other than the representations and warranties referred to in clause (e) of Section 4.01) to be true and correct in any material respect on the Closing Date will not constitute an Event of Default hereunder;
(b) default shall be made in the payment of any principal or premium, if any, of any Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for redemption thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any cash interest, if any, on any Note, when and to the extent as the same shall become due and payable hereunder, whether at the due date thereof or at a date fixed for redemption thereof or by acceleration thereof or otherwise, and such default shall continue unremedied for a period of 15 Business Days;
(d) [Reserved];
(e) default shall be made in the due observance or performance by the Issuer or any Subsidiary of any obligation, covenant, condition or agreement contained in any Note Document (other than those specified in clauses (b) and (c) above) and such default shall continue unremedied for a period of 45 days after notice thereof from the Holders to the Issuer;
(f) (i) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity; or (ii) the Issuer or any of the Subsidiaries shall fail to pay the principal of any Material Indebtedness at the stated final maturity thereof; provided , that this clause (f) shall not apply to any secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness;
(g) there shall have occurred a Change in Control;
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(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer or any of the Material Subsidiaries, or of a substantial part of the property or assets of the Issuer or any Material Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Issuer or any of the Material Subsidiaries or for a substantial part of the property or assets of the Issuer or any of the Material Subsidiaries or (iii) the winding-up or liquidation of the Issuer or any Material Subsidiary (except in a transaction permitted hereunder); and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(i) the Issuer or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (h) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Issuer or any of the Material Subsidiaries or for a substantial part of the property or assets of the Issuer or any Material Subsidiary, (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) become unable or admit in writing its inability or fail generally to pay its debts as they become due;
(j) the failure by the Issuer or any Material Subsidiary to pay one or more final judgments aggregating in excess of $18,000,000 (to the extent not covered by insurance), which judgments are not discharged or effectively waived or stayed for a period of 45 consecutive days, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Issuer or any Material Subsidiary to enforce any such judgment;
(k) (i) an ERISA Event or ERISA Events shall have occurred, (ii) the PBGC shall institute proceedings (including giving notice of intent thereof) to terminate any Plan or Plans, (iii) the Issuer or any Subsidiary or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, or (iv) the Issuer or any Subsidiary shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan; and in each case in clauses (i) through (iv) above, such event or condition, together with all other such events or conditions, if any, would reasonably be expected to have a Material Adverse Effect; or
(l) (i) any Note Document shall for any reason be asserted in writing by the Issuer or the Subsidiary Guarantor not to be a legal, valid and binding obligation of any party thereto (other than in accordance with the terms thereof), (ii) any security interest purported to be created by the Pledge Agreement and to extend to assets that constitute a material portion of the Pledged Collateral shall cease to be, or shall be asserted in writing by the Issuer not to be, a valid and perfected security interest (perfected as or having the priority required by this Agreement or the Pledge Agreement and subject to such limitations and restrictions as are set forth herein and therein) in the Pledged Collateral covered thereby (other than in accordance
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with the terms thereof), except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Pledge Agreement or to file Uniform Commercial Code continuation statements, or (iii) a material portion of the Guarantee by the Subsidiary Guarantor guaranteeing the Obligations shall cease to be in full force and effect (other than in accordance with the terms thereof), or shall be asserted in writing by the Subsidiary Guarantor not to be in effect or not to be legal, valid and binding obligations (other than in accordance with the terms thereof); provided , that no Event of Default shall occur under this Section 7.01(l) if the Obligors take such necessary or advisable steps to replace or perfect such security interest and Lien, such security interest and Lien is replaced and the rights, powers and privileges of the Secured Parties are not materially adversely affected by such replacement;
then, and in every such event (other than an event with respect to the Issuer described in clause (h) or (i) above), and at any time thereafter during the continuance of such event, the Required Holders may, by notice to the Issuer, declare the Notes then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Notes so declared to be due and payable, together with accrued interest thereon and any unpaid accrued fees and liabilities of the Issuer accrued hereunder and under any other Note Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Issuer, anything contained herein or in any other Note Document to the contrary notwithstanding and in any event with respect to the Issuer described in clause (h) or (i) above, the principal of the Notes then outstanding, together with accrued interest thereon and any unpaid accrued fees and liabilities of the Issuer accrued hereunder and under any other Note Document, shall automatically become due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Issuer, anything contained herein or in any other Note Document to the contrary notwithstanding.
For purposes of clauses (h) and (i) of this Section 7.01, “Material Subsidiary” shall mean any Subsidiary that would not be an Immaterial Subsidiary under clause (a) of the definition thereof.
Section 7.02 Treatment of Certain Payments . Any amount received by the Collateral Agent from any Obligor (or from proceeds of any Pledged Collateral) following any acceleration of the Obligations under this Agreement or any Event of Default with respect to the Issuer under Section 7.01(h) or (i), in each case that is continuing, shall be applied: (i) first, to the payment of all reasonable and documented costs and expenses and indemnification amounts then due to the Collateral Agent from the Issuer and all fees owed to it in connection with the collection or sale or otherwise in connection with this Agreement or any other Note Document, including all court costs and reasonable and documented fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent under this Agreement or any other Note Document on behalf of any Obligor and any other reasonable and documented costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Note Document in its capacity as such, (ii) second, towards payment in full of interest then due from the Issuer hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest then due to such parties, (iii) third, towards payment in full of other Obligations then due from the Issuer hereunder, ratably among the parties entitled thereto in accordance with the amounts of such Obligations then due to such parties and (iv) last, the balance, if any, after all of the Obligations have been paid in full, to the Issuer or as otherwise required by Requirement of Law.
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ARTICLE VIII
The Collateral Agent
Section 8.01 Appointment . (a) Each Holder hereby irrevocably designates and appoints Deutsche Bank Trust Company Americas as the Collateral Agent for such Holder and the other Secured Parties under the Pledge Agreement, and each such Holder irrevocably directs the Collateral Agent, in such capacity, to execute and deliver the Pledge Agreement and the Subsidiary Guarantee and authorizes the Collateral Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Note Documents, including the authority to execute and deliver the Note Documents to which the Collateral Agent is a party and to exercise such powers and perform such duties as are expressly delegated to the Collateral Agent by the terms of this Agreement and the other Note Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Collateral Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Holder, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Note Document or otherwise exist against the Collateral Agent.
(b) In furtherance of the foregoing, each Holder hereby appoints and authorizes the Collateral Agent to act as the agent of such Holder for purposes of acquiring, holding and enforcing any and all Liens on the Pledged Collateral granted by the Issuer to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Collateral Agent (and any Subagents appointed by the Collateral Agent pursuant to Section 8.02 for purposes of holding or enforcing any Lien on the Pledged Collateral (or any portion thereof) granted under the Pledge Agreement, or for exercising any rights or remedies thereunder at the direction of the Collateral Agent) shall be entitled to the benefits of this Article VIII (including, without limitation, Section 8.07) as though the Collateral Agent (and any such Subagents) were an “Agent” under the Note Documents, as if set forth in full herein with respect thereto.
Section 8.02 Delegation of Duties . The Collateral Agent may execute any of its duties under this Agreement and the other Note Documents (including for purposes of holding or enforcing any Lien on the Pledged Collateral (or any portion thereof) by or through agents, employees or attorneys-in-fact. The Collateral Agent shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Collateral Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with due care. The Collateral Agent may also from time to time appoint one or more trustees, co-trustees, collateral co-agents, collateral subagents or attorneys-in-fact (each, a “ Subagent ”) with respect to all or any part of the Pledged Collateral; provided , that no such Subagent shall be authorized to take any action with respect to any Pledged Collateral unless and except to the extent expressly authorized in writing by the Collateral Agent. Should any
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instrument in writing from the Issuer or any other Obligor be required by any Subagent so appointed by the Collateral Agent to more fully or certainly vest in and confirm to such Subagent such rights, powers, privileges and duties, the Issuer shall, or shall cause such Obligor to, execute, acknowledge and deliver any and all such instruments promptly upon request by the Collateral Agent or such Subagent. If any Subagent, or successor thereto, shall become incapable of acting, resign or be removed, all rights, powers, privileges and duties of such Subagent, to the extent permitted by law, shall automatically vest in and be exercised by the Collateral Agent until the appointment of a new Subagent. The Collateral Agent shall not be responsible for the negligence or misconduct of any agent, attorney-in-fact or Subagent that it selects with due care. For the avoidance of doubt, Sierra Corporate Services, as the initial Subagent in the State of Nevada, shall be deemed to have been selected by the Collateral Agent with due care.
Section 8.03 Exculpatory Provisions . None of the Collateral Agent, or its Affiliates or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any action taken or omitted to be taken by it or such person under or in connection with this Agreement or any other Note Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such person’s own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Holders for any recitals, statements, representations or warranties made by any Obligor or any officer thereof contained in this Agreement or any other Note Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Collateral Agent under or in connection with, this Agreement or any other Note Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Note Document or for any failure of any Obligor a party thereto to perform its obligations hereunder or thereunder. The Collateral Agent shall not be under any obligation to any Holder to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Note Document, or to inspect the properties, books or records of any Obligor. The Collateral Agent shall not have any duties or obligations except those expressly set forth herein and in the other Note Documents. Without limiting the generality of the foregoing, (a) the Collateral Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing, and (b) the Collateral Agent shall not, except as expressly set forth herein and in the other Note Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Issuer or any of its Affiliates that is communicated to or obtained by the Collateral Agent or any of its Affiliates in any capacity. The Collateral Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Note Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other applicable Note Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Pledge Agreement, or (v) the value or the sufficiency of any Pledged Collateral. The Collateral Agent shall not be required to expend or risk any of its
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own funds or otherwise incur any liability, financial or otherwise, in the performance of any of its duties hereunder or under any other Note Document, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not assured to it. The Collateral Agent shall not incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of such Collateral Agent (including but not limited to any act or provision of any present or future law or regulation or governmental authority, any act of God or war, civil unrest, local or national disturbance or disaster, any act of terrorism, or the unavailability of the Federal Reserve Bank wire or facsimile or other wire or communication facility). The permissive rights of the Collateral Agent to do things enumerated in this Agreement or any other Note Document shall not be construed as a duty. In the event that the Collateral Agent is required to acquire title to any property for any reason, or take any managerial action of any kind in regard thereto, in order to carry out any obligation for the benefit of another, which in the Collateral Agent’s sole discretion may cause the Collateral Agent to be considered an “owner or operator” under the provisions of CERCLA, or otherwise cause the Collateral Agent to incur liability (including environmental liability) under CERCLA or any other federal, state or local law, the Collateral Agent reserves the right, instead of taking such action, to either resign as Collateral Agent or arrange for the transfer of the title or control of the asset to a court-appointed receiver. The Collateral Agent shall not be liable to the Secured Parties or any other person for any environmental actions under any federal, state or local law, rule or regulation by reason of such Collateral Agent’s actions and conduct as authorized, empowered and directed hereunder or relating to the discharge, release or threatened release of hazardous materials into the environment. If at any time it is necessary or advisable for any part of any Issuer’s property to be possessed, owned, operated or managed by any person (including the Collateral Agent) other than the Issuer prior to the Termination Date, the Required Holders shall direct the Collateral Agent to appoint an appropriately qualified person (excluding the Collateral Agent) who they shall designate to possess, own, operate or manage, as the case may be, such part of the Issuer’s property. In the absence of bad faith on the part of the Collateral Agent, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Collateral Agent which conform to the requirements of this Agreement. The Collateral Agent shall not be liable for any error of judgment made in good faith by an officer or officers of the Collateral Agent, unless it shall be conclusively determined by a court of competent jurisdiction that the Collateral Agent was grossly negligent in ascertaining the pertinent facts. The Collateral Agent shall not have any duty or responsibility in respect of (i) any recording, filing, or depositing of this Agreement, any Note Document or any other agreement or instrument, monitoring or filing any financing statement or continuation statement evidencing a security interest, the maintenance of any such recording, filing or depositing or to any re-recording, re-filing or re-depositing of any thereof, or otherwise monitoring the perfection, continuation of perfection or the sufficiency or validity of any security interest in or related to the Pledged Collateral, (ii) the acquisition or maintenance of any insurance or (iii) the payment or discharge of any tax, assessment, or other governmental charge or any lien or encumbrance of any kind owing with respect to, assessed or levied against, any part of the Pledged Collateral.
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Section 8.04 Reliance by the Collateral Agent . The Collateral Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) or conversation believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper person. The Collateral Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper person, and shall not incur any liability for relying thereon. The Collateral Agent may consult with legal counsel (including counsel to the Issuer), 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 Collateral Agent may deem and treat each Holder specified in the Register with respect to any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Collateral Agent. The Collateral Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Note Document unless it shall first receive such advice or concurrence of the Required Holders (or, if so specified by this Agreement, all or other Holders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Holders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Note Documents in accordance with a direction of the Required Holders (or, if so specified by this Agreement, all or other Holders), and such direction and any action taken or failure to act pursuant thereto shall be binding upon all the Holders and all future holders of the Notes. Notwithstanding anything else to the contrary herein, whenever reference is made in this Agreement or any Note Document to any discretionary action by, consent, designation, specification, requirement or approval of, notice, request or other communication from, or other direction given or action to be undertaken or to be (or not to be) suffered or omitted by the Collateral Agent or to any election, decision, opinion, acceptance, use of judgment, expression of satisfaction, reasonable satisfaction or other exercise of discretion, rights or remedies to be made (or not to be made) by the Collateral Agent, it is understood that in all cases the Collateral Agent shall be fully justified in failing or refusing to take any such action under this Agreement or any Note Document if it shall not have received such written instruction, advice or concurrence of the Required Holders, as it deems appropriate. This provision is intended solely for the benefit of the Collateral Agent and its successors and permitted assigns and is not intended to and will not entitle the other parties hereto to any defense, claim or counterclaim, or confer any rights or benefits on any party hereto.
Section 8.05 Notice of Default . The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless a Responsible Officer of the Collateral Agent has received written notice from the Issuer or the Required Holders referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.” In the event that a Responsible Officer of the Collateral Agent receives such a notice, the Collateral Agent shall give notice thereof to the Issuer and all Holders. The Collateral Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Holders (or, if so specified by this Agreement, all or other Holders); provided , that unless and until the Collateral Agent shall have received such directions, the Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Holders.
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Section 8.06 Non-Reliance on the Collateral Agent and Other Holders . Each Holder expressly acknowledges that neither the Collateral Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Collateral Agent hereafter taken, including any review of the affairs of an Obligor or any affiliate of an Obligor, shall be deemed to constitute any representation or warranty by the Collateral Agent to any Holder. Each Holder represents to the Collateral Agent that it has, independently and without reliance upon the Collateral Agent or any other Holder, and based on such documents and information as it has deemed appropriate, made its own appraisal of, and investigation into the business, operations, property, financial and other condition and creditworthiness of, the Obligors and their affiliates and made its own decision to purchase its Notes hereunder and enter into this Agreement. Each Holder also represents that it will, independently and without reliance upon the Collateral Agent or any other Holder, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Note Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Obligors and their affiliates.
Section 8.07 Indemnification . The Holders agree to indemnify the Collateral Agent in its capacity as such (to the extent not reimbursed by the Issuer and without limiting the obligation of the Issuer to do so), in the amount of its pro rata share of the aggregate outstanding principal amount of the Notes (determined at the time such indemnity is sought), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorney’s fees and expenses) or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Notes) be imposed on, incurred by or asserted against the Collateral Agent in any way, directly or indirectly, relating to or arising out of this Agreement, any of the other Note Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Collateral Agent under or in connection with any of the foregoing; provided , that no Holder shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the Collateral Agent’s gross negligence or willful misconduct. The failure of any Holder to reimburse the Collateral Agent promptly upon demand for its ratable share of any amount required to be paid by the Holders to the Collateral Agent as provided herein shall not relieve any other Holder of its obligation hereunder to reimburse the Collateral Agent for its ratable share of such amount, but no Holder shall be responsible for the failure of any other Holder to reimburse the Collateral Agent for such other Holder’s ratable share of such amount. The agreements in this Section shall survive the payment of the Notes and all other amounts payable hereunder and the resignation or removal of the Collateral Agent.
Section 8.08 Collateral Agent in Its Individual Capacity . The Collateral Agent and its affiliates may purchase Notes, make loans to, accept deposits from, and generally engage in any kind of business with any Obligor as though the Collateral Agent were not the Collateral Agent. With respect to Notes owned by it, the Collateral Agent shall have the same rights and powers under this Agreement and the other Note Documents as any Holder and may exercise the same as though it were not the Collateral Agent, and the terms “Holder” and “Holders” shall include the Collateral Agent in its individual capacity.
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Section 8.09 Successor Collateral Agent . (a) The Collateral Agent may resign as Collateral Agent upon 10 days’ notice to the Holders and the Issuer. If the Collateral Agent shall resign as Collateral Agent under this Agreement and the other Note Documents, then the Required Holders shall have the right, subject to the reasonable consent of the Issuer (so long as no Event of Default under Section 7.01(b), (c), (h) or (i) shall have occurred and be continuing), to appoint a successor which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States or any other financial institution reasonably acceptable to the Required Holders and the Issuer, whereupon such successor agent shall succeed to the rights, powers and duties of the Collateral Agent, and the term “Collateral Agent” shall mean such successor agent effective upon such appointment and approval, and the former Collateral Agent’s rights, powers and duties as Collateral Agent shall be terminated, without any other or further act or deed on the part of such former Collateral Agent or any of the parties to this Agreement or any Holder. If no successor agent has accepted appointment as Collateral Agent by the date that is 10 days following a retiring Collateral Agent’s notice of resignation, the retiring Collateral Agent’s resignation shall nevertheless thereupon become effective (except the retiring Collateral Agent shall continue to hold such collateral security as nominee until such time as a successor Collateral Agent is appointed), and the Holders shall assume and perform all of the duties of the Collateral Agent hereunder until such time, if any, as the Required Holders appoint a successor agent as provided for above. After any retiring Collateral Agent’s resignation as Collateral Agent, the provisions of this Section 8.09 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent under this Agreement and the other Note Documents.
(b) Any corporation into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation succeeding to the business of the Collateral Agent shall be the successor of the Collateral Agent hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding.
Section 8.10 [Reserved] .
Section 8.11 Pledge Agreement and Collateral Agent . The Holders authorize the Collateral Agent to release any Pledged Collateral or the Subsidiary Guarantor in accordance with Section 9.18 or if approved, authorized or ratified in accordance with Section 9.08.
Section 8.12 Right to Realize on Collateral and Enforce Guarantee . Anything contained in any of the Note Documents to the contrary notwithstanding, the Issuer, the Collateral Agent and each Secured Party hereby agree that (a) no Secured Party shall have any right individually to realize upon any of the Pledged Collateral or to enforce the Guarantee, it being understood and agreed that all powers, rights and remedies under the Note Documents may be exercised solely by the Collateral Agent, and (b) in the event of a foreclosure by the Collateral Agent on any of the Pledged Collateral pursuant to a public or private sale or other disposition,
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the Collateral Agent or any Holder may be the purchaser or licensor of any or all of such Pledged Collateral at any such sale or other disposition and the Collateral Agent, as agent for and representative of the Secured Parties (but not any Holder or Holders in its or their respective individual capacities unless the Required Holders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by the Collateral Agent at such sale or other Disposition.
ARTICLE IX
Miscellaneous
Section 9.01 Notices; Communications . (a) All notices, requests and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission, a PDF attachment to an e-mail, electronic submissions or similar writing, but in no event by text message) and shall be given to such party at its address, facsimile number or e-mail address set forth on the signature pages hereof or on Schedule 9.01 of the Existing Note Purchase Agreement (or, in the case of any such Holder who becomes a Holder after the date hereof, in a notice delivered to the Issuer by the transferee Holder forthwith upon such transfer) or by electronic submissions, as provided below, or at such other address, facsimile number or e-mail address as such party may hereafter specify for the purpose by notice to Purchaser and the Issuer; provided , that notices, requests or other communications shall be permitted by e-mail or other electronic submissions (but in no event by text message) only in accordance with the provisions of Section 9.01(b). Each such notice, request or other communication shall be effective (i) if given by facsimile, when such notice is transmitted to the facsimile number specified by this Section and the sender receives a confirmation of transmission from the sending facsimile machine, (ii) if given by e-mail or other electronic submissions, as set forth in Section 9.01(b) or (iii) if given by mail, prepaid overnight courier or any other means, when received at the applicable address specified by this Section.
(b) Notices and other communications to the parties hereto may be delivered or furnished by electronic communication (including a PDF attachment to an e-mail and Internet or intranet websites) provided , that the foregoing shall not apply to notices sent directly to any party hereto if such party has notified Holders in writing that it has elected not to receive notices by electronic communication (which election may be limited to particular notices).
(c) [Reserved].
(d) [Reserved].
(e) Documents required to be delivered pursuant to Section 5.04 (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Issuer files such documents with the SEC or posts such documents, or provides a link thereto, on the Issuer’s or one of its Subsidiary’s website on the Internet at the website address listed on Schedule 9.01 of the Existing Note Purchase Agreement, or (ii) on which such documents are posted on the Issuer’s behalf on an Internet or intranet website, if any, to which each Holder has access (whether a commercial, third-party website or otherwise).
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Section 9.02 Survival of Agreement . All covenants, agreements, representations and warranties made by the Obligors herein, in the other Note Documents and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Note Document shall be considered to have been relied upon by the Holders and shall survive the execution and delivery of the Note Documents, regardless of any investigation made by such persons or on their behalf, and shall continue in full force and effect until the Termination Date. Without prejudice to the survival of any other agreements contained herein, indemnification and reimbursement obligations contained herein (including pursuant to Section 9.05) shall survive the Termination Date.
Section 9.03 Binding Effect . This Agreement shall become effective when it shall have been executed by the Issuer, the Subsidiary Guarantor, the Collateral Agent and the Purchaser. Thereafter, it shall be binding upon and inure to the benefit of, but only to the benefit of, the Issuer, the Subsidiary Guarantor, the Collateral Agent and the Holders (including the Purchaser for so long as it is a Holder) receiving the benefits of this Agreement and, in each case, their respective successors and permitted assigns.
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, except that (i) the Issuer may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Holder (and any attempted assignment or transfer by the Issuer without such consent shall be null and void) and (ii) no Holder may assign or otherwise transfer its rights or obligations hereunder except in accordance with Section 2.04. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any person (other than the parties hereto, their respective successors and assigns permitted hereby), and, to the extent expressly contemplated hereby, the Related Parties of the Collateral Agent and the Holders, any legal or equitable right, remedy or claim under or by reason of this Agreement or the other Note Documents.
Section 9.05 Expenses; Indemnity . (a) The Issuer agrees to pay (i) all reasonable and documented fees and expenses (including Other Taxes) incurred by the Purchaser or the Collateral Agent in connection with the preparation of this Agreement and the other Note Documents, or by the Collateral Agent in connection with the administration of this Agreement, including, without limitation, the fees and expenses of Sierra Corporate Services, as custodial agent for the State of Nevada, and any amendments, modifications or waivers of the provisions hereof or thereof, including the reasonable fees, charges and disbursements of Jones Day, counsel for the Purchaser, and Seward & Kissel LLP, counsel for the Collateral Agent, and, if applicable, the reasonable fees, charges and disbursements of one local counsel per jurisdiction, and (ii) all expenses (including Other Taxes) incurred by the Collateral Agent or the Purchaser in connection with the enforcement of this Agreement and the other Note Documents and the Notes issued hereunder, including the fees, charges and disbursements of a single counsel for all such persons, taken as a whole, and, if necessary, a single local counsel in each appropriate
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jurisdiction for all such persons, taken as a whole (and, in the case of an actual or perceived conflict of interest where such person affected by such conflict informs the Issuer of such conflict and thereafter retains its own counsel with consultation with the Issuer in good faith, of another firm of such for such affected person). Counsel for the Holders under this Section 9.05 shall be selected by the Purchaser for so long as it remains a Holder of any Notes and by the Required Holders in the event that Purchaser does not beneficially own any Notes.
(b) The Issuer agrees to indemnify the Purchaser and the Collateral Agent, each of their respective Affiliates, successors and assigns, and each of their respective directors, trustees, officers, employees, agents, trustees and advisors, (each such person being called an “ Indemnitee ”) against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements (excluding the allocated costs of in house counsel and limited to not more than one counsel for all such Indemnitees, taken as a whole, and, if necessary, a single local counsel in each appropriate jurisdiction for all such Indemnitees, taken as a whole (and, in the case of an actual or perceived conflict of interest where the Indemnitee affected by such conflict informs the Issuer of such conflict and thereafter retains its own counsel with the Issuer’s prior written consent (not to be unreasonably withheld), of another firm of counsel for such affected Indemnitee)), incurred by or asserted against any Indemnitee directly or indirectly arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Note Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto and thereto of their respective obligations thereunder or the consummation of the 2015 Transactions and the other transactions contemplated hereby, (ii) the use of the proceeds of the Notes, (iii) any violation of or liability under Environmental Laws by the Issuer or any Subsidiary, (iv) any actual or alleged presence, Release or threatened Release of or exposure to Hazardous Materials at, under, on, from or to any property owned, leased or operated by the Issuer or any Subsidiary, (v) any inaccuracy in the representations and warranties of the Issuer and the Subsidiary Guarantor contained herein, or (vi) any claim, litigation, investigation or proceeding relating to any of the foregoing (any such claim, litigation, investigation or proceeding, a “ Proceeding ”), whether or not any Indemnitee is a party thereto and regardless of whether such matter is initiated by a third party or by the Issuer or any of its subsidiaries or Affiliates; provided , that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee or any of its Related Parties or (y) arose from a material breach of such Indemnitee’s or any of its Related Parties’ obligations under any Note Document (as determined by a court of competent jurisdiction in a final, non-appealable judgment). None of the Indemnitees (or any of their respective affiliates) shall be responsible or liable to any other person or entity for any special, indirect, consequential or punitive damages. An indemnifying party will not, without the prior written consent of the Indemnitee, settle or compromise or consent to the entry of any judgement with respect to any pending or threatened Proceeding in respect of which indemnification may be sought hereunder (whether or not the Indemnitees are actual or potential parties to such Proceeding) unless such settlement, compromise or consent (i) includes an unconditional release of each Indemnitee from all liability arising out of such Proceeding and (ii) does not include a statement as to, or an admission of fault, culpability or a failure to act, by or on behalf of, any Indemnitee. The
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provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the termination of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Note Document, or any investigation made by or on behalf of the Collateral Agent or any Holder. All amounts due under this Section 9.05 shall be payable within fifteen (15) days of written demand therefor accompanied by reasonable documentation with respect to any reimbursement, indemnification or other amount requested.
(c) [Reserved].
(d) To the fullest extent permitted by applicable law, the Issuer shall not assert, and hereby waive, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Note Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Note Documents or the transactions contemplated hereby or thereby.
(e) The agreements in this Section 9.05 shall survive the resignation or removal of the Collateral Agent and the repayment, satisfaction or discharge of all the other Obligations and the termination of this Agreement.
Section 9.06 [Reserved] .
Section 9.07 Applicable Law . THIS AGREEMENT AND THE OTHER NOTE DOCUMENTS AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSES OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER NOTE DOCUMENT (OTHER THAN AS EXPRESSLY SET FORTH IN OTHER NOTE DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 9.08 Waivers; Amendment . (a) No failure or delay of the Collateral Agent or any Holder in exercising any right or power hereunder or under any Note 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 Collateral Agent and the Holders hereunder and under the other Note Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Note Document or consent to any departure by the Issuer or any other Obligor therefrom shall in any event be effective unless the same shall be permitted by clause (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Issuer or any other Obligor in any case shall entitle such person to any other or further notice or demand in similar or other circumstances.
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(b) Neither this Agreement nor any other Note Document nor any provision hereof or thereof may be waived, amended or modified except (x) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Issuer, the Collateral Agent and the Required Holders and (y) in the case of any other Note Document, pursuant to an agreement or agreements in writing entered into by each Obligor party thereto and the Collateral Agent and consented to by the Required Holders; provided , however , that no such agreement shall, unless consented to by each Holder of an outstanding Note directly affected thereby, do any of the following:
(i) reduce the amount of Notes whose Holders must consent to an amendment,
(ii) reduce the rate of or extend the time for payment of interest on any Note,
(iii) reduce the principal of or change the Maturity Date of any Note,
(iv) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed in accordance with Article II,
(v) make any Note payable in money other than that stated in such Note,
(vi) expressly subordinate the Notes or the Subsidiary Guarantee to any other Indebtedness of the Issuer or the Subsidiary Guarantor,
(vii) impair the right of any Holder to receive payment of principal of, premium, if any, and interest on such Holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder’s Notes,
(viii) make any change in the amendment provisions which require each Holder’s consent or in the waiver provisions, or
(ix) except as expressly permitted by this Note Purchase Agreement and the Subsidiary Guarantee, modify or release the Subsidiary Guarantee of the Subsidiary Guarantor.
In addition, without the consent of the Holders of at least 66 2 / 3 % in aggregate principal amount of the Notes then outstanding, no amendment or waiver may release the Pledged Collateral from the Lien of this Note Purchase Agreement and the Pledge Agreement with respect to the Notes.
It shall not be necessary for the consent of the Holders under this Section 9.08(b) to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof.
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Each Holder shall be bound by any waiver, amendment or modification authorized by this Section 9.08 and any consent by any Holder pursuant to this Section 9.08 shall bind any transferee of such Holder.
(c) Without notice to or the consent of any Holder, the Obligors and the Collateral Agent may (in their respective sole discretion, or shall, to the extent required by any Note Document) enter into any amendment, modification or waiver of any Note Document, or enter into any new agreement or instrument, (i) to effect the granting, perfection, protection, expansion or enhancement of any security interest in any Pledged Collateral or additional property to become Pledged Collateral for the benefit of the Secured Parties, or as required by local law to give effect to, or protect any security interest for the benefit of the Secured Parties, in any property or so that the security interests therein comply with applicable law or this Agreement or in each case to otherwise enhance the rights or benefits of any Holder under any Note Document, (ii) to cure any ambiguity, omission, mistake, defect or inconsistency, (iii) to provide for the assumption by a successor Subsidiary Guarantor of the obligations of the Subsidiary Guarantor under this Agreement and its Subsidiary Guarantee, (iv) to release Pledged Collateral or the Subsidiary Guarantor as permitted by this Agreement, (v) to make any change that does not adversely affect the rights of any Holder, (vi) to comply with the Requirement of Law or (vii) to make changes to provide for the issuance of PIK Notes to reflect the increase of PIK Interest which shall have terms substantially identical in all material respects to the Notes on the Closing Date, and which shall be treated, together with any outstanding Notes, as a single issue of securities.
The Collateral Agent may conclusively rely on a certificate of an officer of the Issuer as to whether any amendment, waiver or modification contemplated by this Section 9.08 is permitted.
Section 9.09 [Reserved] .
Section 9.10 Entire Agreement . This Agreement and the other Note Documents constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among or representations from the parties or their Affiliates with respect to the subject matter hereof is superseded by this Agreement and the other Note Documents. Nothing in this Agreement or in the other Note Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Note Documents.
Section 9.11 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER NOTE DOCUMENTS (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 AND THE OTHER NOTE DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
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Section 9.12 Severability . In the event any one or more of the provisions contained in this Agreement or in any other Note Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 9.13 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute but one contract, and shall become effective as provided in Section 9.03. Delivery of an executed counterpart to this Agreement by facsimile transmission (or other electronic transmission pursuant to procedures approved by the Purchaser) shall be as effective as delivery of a manually signed original.
Section 9.14 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 are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.
Section 9.15 Jurisdiction; Consent to Service of Process . (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Note Documents, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Note Document shall affect any right that the Purchaser or any Holder may otherwise have to bring any action or proceeding relating to this Agreement or any other Note Document against the Issuer or any Subsidiary or its properties in the courts of the State of Nevada.
(b) Each of the parties hereto 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 the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Note Documents in any New York State or federal court. 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.
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(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement or any other Note Document to serve process in any other manner permitted by law.
Section 9.16 Non-Public Information; Confidentiality . Unless a written notice to the contrary has been delivered by any Holder pursuant to Section 9.17, each such Holder acknowledges and agrees that it may receive material non-public information hereunder concerning the Issuer and its subsidiaries and agrees to use such information in compliance with all relevant policies, procedures and applicable Requirement of Law (including United States federal and state securities laws and regulations). Each of the Holders and the Collateral Agent agrees that it shall maintain in confidence any information relating to any Parent Entity, the Issuer and any Subsidiary furnished to it by or on behalf of any Parent Entity, the Issuer or any Subsidiary (other than information that (a) has become generally available to the public other than as a result of a disclosure by such party, (b) has been independently developed by such Holder or the Collateral Agent without violating this Section 9.16 or (c) was available to such Holder or the Collateral Agent from a third party having, to such person’s knowledge, no obligations of confidentiality to any Parent Entity, the Issuer or any Subsidiary) and shall not reveal the same other than to its directors, trustees, officers, employees and advisors with a need to know and any numbering, administration or settlement service providers or to any person that approves or administers the Notes on behalf of such Holder (so long as each such person shall have been instructed to keep the same confidential in accordance with this Section 9.16), except: (A) to the extent necessary to comply with law or any legal process or the requirements of any Governmental Authority, the National Association of Insurance Commissioners or of any securities exchange on which securities of the disclosing party or any Affiliate of the disclosing party are listed or traded, (B) as part of normal reporting or review procedures to, or examinations by, or upon the request or demand of, Governmental Authorities regulatory, self-regulatory or supervising authorities, including the National Association of Insurance Commissioners or the National Association of Securities Dealers, Inc., (C) to its parent companies or Affiliates (so long as each such person shall have been instructed to keep the same confidential in accordance with this Section 9.16), (D) in order to enforce its rights under any Note Document in a legal proceeding, (E) to any transferee or prospective transferee (or hedging counterparty or prospective hedging counterparty) of any Notes or of any rights under this Agreement (so long as such person shall have been instructed to keep the same confidential in accordance with this Section 9.16) and (F) to its legal counsel, independent auditors, professionals and other experts or agents (so long as each such person shall have been instructed to keep the same confidential in accordance with this Section 9.16).
Section 9.17 Public Information . The Issuer acknowledges that from time-to-time certain Holders may not wish to receive material non-public information concerning the Issuer and its subsidiaries. The Issuer agrees that following written notice from a Holder to the Issuer that such Holder does not wish to receive material non-public information, the Issuer shall provide to such Holder only information that is either (A) publicly available information or (B) not material (although it may be sensitive and proprietary) with respect to the Issuer or its subsidiaries or any of their respective securities for purposes of United States Federal and state securities laws (provided, however, that information provided pursuant to this Section 9.17 shall
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be treated as set forth in Section 9.16, to the extent such information is otherwise subject to the terms thereof) until such time as such Holder notifies the Issuer in writing that it wishes to receive all information to be provided hereunder, whether or not such information includes material non-public information. Any obligation to deliver information to any Holder pursuant to the terms of any Note Document shall be qualified and so limited by any such notice to the Issuer to not receive material non-public information.
Section 9.18 Release of Liens and Guarantee .
(a) The Secured Parties hereby irrevocably agree that the Liens granted to the Collateral Agent by the Issuer on any Pledged Collateral shall be automatically released: (i) in full upon the occurrence of the Termination Date as set forth in (and subject to the terms of) Section 9.18(d) below; (ii) if the release of such Lien is approved, authorized or ratified in writing by the Required Holders; (iii) as provided in Section 8.11 (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Obligor upon its reasonable request without further inquiry) and (iv) as required by the Collateral Agent to effect any Disposition of Pledged Collateral in connection with any exercise of remedies of the Collateral Agent pursuant to the Pledge Agreement. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those being released) upon (or obligations (other than those being released) of the Issuer in respect of) all interests retained by the Issuer, including the proceeds of any Disposition, all of which shall continue to constitute part of the Pledged Collateral except to the extent otherwise released in accordance with the provisions of the Note Documents.
(b) [Reserved]
(c) The Secured Parties hereby authorize the Collateral Agent to execute and deliver any instruments, documents, and agreements necessary or desirable to evidence and confirm the release of the Subsidiary Guarantor or Pledged Collateral pursuant to the foregoing provisions of this Section 9.18, all without the further consent or joinder of any Holder. Upon release pursuant to this Section 9.18, any representation, warranty or covenant contained in any Note Document relating to any such Pledged Collateral or Subsidiary Guarantor shall no longer be deemed to be made. In connection with any release hereunder, the Collateral Agent shall promptly (and the Secured Parties hereby authorize the Collateral Agent to) take such action and execute any such documents as may be reasonably requested by the Issuer and at the Issuer’s expense in connection with the release of any Liens created by any Note Document or of the Subsidiary Guarantor; provided , that the Collateral Agent shall have received a certificate of a Responsible Officer of the Issuer containing such certifications as the Collateral Agent shall reasonably request, including that such release is authorized or permitted by this Agreement or other Note Documents.
(d) Notwithstanding anything to the contrary contained herein or any other Note Document, on the Termination Date, upon request of the Issuer, the Collateral Agent shall (without notice to, or vote or consent of, any Secured Party) take such actions as shall be required to release its security interest in all Pledged Collateral, and to release all obligations under any Note Document, whether or not on the date of such release there may be any contingent indemnification obligations or expense reimburse claims not then due; provided , that
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the Collateral Agent shall have received a certificate of a Responsible Officer of the Issuer containing such certifications as the Collateral Agent shall reasonably request, including that such release is authorized or permitted by this Agreement or other Note Documents. Any such release of obligations shall be deemed subject to the provision that such obligations shall be reinstated if after such release any portion of any payment in respect of the obligations guaranteed thereby shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Issuer or the Subsidiary Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Issuer or the Subsidiary Guarantor or any substantial part of its property, or otherwise, all as though such payment had not been made. The Issuer agrees to pay all reasonable and documented expenses incurred by the Collateral Agent (and its representatives) in connection with taking such actions to release security interest in all Pledged Collateral and all obligations under the Note Documents as contemplated by this Section 9.18(d).
Section 9.19 [Reserved] .
Section 9.20 Compliance with Applicable Anti-Terrorism and Money Laundering Regulations . In order to comply with the laws, rules, regulations and executive orders in effect from time to time applicable to banking institutions, including, without limitation, those relating to the funding of terrorist activities and money laundering, including Section 326 of the USA PATRIOT Act of the United States (“Applicable Law”), the Collateral Agent and the Purchaser are each required to obtain, verify, record and update certain information relating to individuals and entities which maintain a business relationship with the Collateral Agent or the Purchaser, respectively. Accordingly, each of the parties agree to provide to the Collateral Agent and the Purchaser, upon their request from time to time such identifying information and documentation as may be available for such party in order to enable Collateral Agent or the Purchaser, as applicable, to comply with Applicable Law.
Section 9.21 Availability of Certificates . Any certificate of an officer of the Issuer or a Subsidiary thereof required to be prepared by this Agreement shall upon the request of any Holder be promptly provided or otherwise made available for inspection by such Holder.
Section 9.22 Agency of the Issuer for the Subsidiary Guarantor .
The Subsidiary Guarantor hereby appoints the Issuer as its agent for all purposes relevant to this Agreement and the other Note Documents, including the giving and receipt of notices and the execution and delivery of all documents, instruments and certificates contemplated herein and therein and all modifications hereto and thereto.
Section 9.23 [Reserved] .
Section 9.24 Application of Gaming Laws .
(a) This Agreement and the other Note Documents are subject to all applicable Gaming Laws. Without limiting the foregoing and notwithstanding anything herein or in any other Note Document to the contrary, the Purchaser, Holders and the Collateral Agent acknowledge that (i) they are subject to the jurisdiction of the Gaming Authorities, in their
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discretion, for licensing, qualification or findings of suitability or to file or provide other information, and (ii) all rights, remedies and powers in or under this Agreement and the other Note Documents, including with respect to the Pledged Collateral (including pledge and delivery thereof) are, in each case, subject to the jurisdiction of the Gaming Authorities, and may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of the Gaming Laws and only to the extent that required approvals (including prior approvals) are obtained from the relevant Gaming Authorities.
(b) The Purchaser, Holders and the Collateral Agent agree to cooperate with all Gaming Authorities in connection with the provision in a timely manner of such documents or other information as may be requested by such Gaming Authorities relating to the Notes or Note Documents.
(c) The Holders acknowledge and agree that if the Issuer receives a notice from any applicable Gaming Authority that any Holder is a Disqualified Holder (and such Holder is notified by the Issuer in writing of such Disqualification), the Issuer shall, following any available appeal of such determination by such Gaming Authority (unless the rules of the applicable Gaming Authority do not permit such Holder to retain its Notes pending appeal of such determination), have the right to (i) cause such Disqualified Holder to transfer and assign, without recourse, all of its interests, rights and obligations in its Notes or (ii) in the event that (A) the Issuer is unable to assign such Note after using its best efforts to cause such an Transfer and (B) no Default or Event of Default has occurred and is continuing, redeem such Disqualified Holder’s Note without any prepayment premium or penalty. Notice to such Disqualified Holder shall be given ten days prior to the required date of Transfer or redemption, as the case may be, and shall be accompanied by evidence demonstrating that such transfer or redemption is required pursuant to Gaming Laws. If reasonably requested by any Disqualified Holder, the Issuer will use commercially reasonable efforts to cooperate with any such holder that is seeking to appeal such determination and to afford such Holder an opportunity to participate in any proceedings relating thereto. Notwithstanding anything herein to the contrary, any redemption of a Note shall be at a price that, unless otherwise directed by a Gaming Authority, shall be equal to the sum of the accreted amount of such Note and interest to the date on which such Holder became a Disqualified Holder.
(d) If during the existence of an Event of Default hereunder or any of the other Note Documents, it shall become necessary or, in the opinion of the Required Holders, advisable for an agent, supervisor, receiver or other representative of the Holders to become licensed or found qualified under any Gaming Law as a condition to receiving the benefit of any Pledged Collateral encumbered by the Note Documents or to otherwise enforce the rights of the Collateral Agent and the Holders under the Note Documents, the Issuer hereby agrees to consent to the application for such license or qualification and to execute such further documents as may be required in connection with the evidencing of such consent.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first written above.
AP GAMING HOLDCO, INC., as the Issuer | ||
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AP GAMING HOLDINGS, LLC, as the Subsidiary Guarantor | ||
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[Signature Page to Note Purchase Agreement]
DEUTSCHE BANK AG, LONDON BRANCH as Purchaser | ||
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Notice:
Deutsche Bank AG, London Branch
60 Wall Street
New York, New York 10005
Attn: Alexander Gorokhovskiy
[Signature Page to Note Purchase Agreement]
DEUTSCHE BANK TRUST COMPANYAMERICAS, not in its individual capacity but solely as Collateral Agent |
By: |
Name: |
Title: |
By: |
Name: |
Title: |
Notice:
Deutsche Bank Trust Company Americas
Trust and Agency Services
60 Wall Street, 16th Floor
Mail Stop: NYC60-1630
New York, New York 10005
USA
Attn: Corporates Team, AP Gaming Holdco Inc.
Facsimile: (732) 578-4635
With a copy to:
Deutsche Bank Trust Company Americas
c/o Deutsche Bank National Trust Company
Trust and Agency Services
100 Plaza One – 6th Floor
Mail Stop: JCY03-0699
Jersey City, NJ 07311-3901
USA
Attn: Corporates Team, AP Gaming Holdco Inc.
Facsimile: (732) 578-4635
[Signature Page to Note Purchase Agreement]
Exhibit 4.2
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
PIK PROMISSORY NOTE
US$12,000,000 | Date: May 29, 2015 |
FOR VALUE RECEIVED, AP Gaming Holdco, Inc., a Delaware corporation (the “Maker” ), hereby promises to pay to the order of Amaya Inc., a corporation organized under the laws of Quebec (“ Seller ” and, together with its successors and permitted assigns, the “Holder” ), in lawful money of the United States of America and in immediately available funds, the principal amount of twelve million and 00/100 dollars ($12,000,000) (subject to increase pursuant to Section 7 below and subject to decrease as provided in the following paragraph), together with all accrued but unpaid interest on such principal amount, at the rates and times provided in this pay-in-kind promissory note (this “Seller Note”) and at such locations as the Holder may specify from time to time.
This Seller Note is issued pursuant to, and subject to the terms and conditions of, that certain Stock Purchase Agreement, dated as of March 30, 2015 (as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “ Purchase Agreement”), by and among AGS, LLC, a Delaware limited liability company (“ Purchaser ”), Seller and Cadillac Jack, Inc., a Georgia corporation. Capitalized terms used herein and not defined herein shall have the respective meanings given them in the Purchase Agreement. The principal amount of this Seller Note may be decreased, as and to the extent set forth, from time to time pursuant to the terms and conditions set forth in Section 2.8(b) and Section 7.3(e) of the Purchase Agreement. Upon the written request of the Maker following the date on which the Finally Determined Deactivated Machine Credit is determined (the “ Finally Determined Deactivated Machine Credit Determination Date”) , the Holder shall, if the Finally Determined Deactivated Machine Credit is greater than zero, as promptly as reasonably practicable, remit this Seller Note to the Maker, and the Maker shall promptly issue a new Seller Note to the Holder reflecting the updated principal amount of this Seller Note as of such date in accordance with Section 2.8 of the Purchase Agreement; provided , that any change in the principal amount of this Seller Note pursuant to the terms of the Purchase Agreement shall be effective immediately without the need for the remittance and reissuance of a new Seller Note to reflect the updated principal amount. Upon the written request of the Maker following final determination that the Purchaser Indemnified Parties are entitled to payment from Seller in respect of Losses that are indemnifiable pursuant to and in accordance with Article VII of the Purchase Agreement, the Holder shall, as promptly as reasonably practicable, remit this Seller Note to the Maker, and the Maker shall promptly issue a new Seller Note to the Holder reflecting the updated principal amount of this Seller Note following deduction of such Losses from the then-principal amount thereof.
1. Payment of Interest . Subject to Section 7 , from and including the date hereof to, but excluding, the Maturity Date (as defined below), interest on this Seller Note shall accrue on the unpaid principal amount (including as increased by all accrued and unpaid PIK Interest (as defined below)) of this Seller Note outstanding from time to time at a rate per annum equal to 5.00% and shall be payable in United States dollars semi-annually in arrears on June 30 and December 31 of each year (and on the Maturity Date), commencing on June 30, 2015, or if any such day is not a Business Day, on the immediately prior Business Day (each, an “ Interest Payment Date ”). All interest accrued and payable on any Interest Payment Date will be paid by capitalizing such interest (the “ PIK Interest ”) and adding it to (and thereby increasing) the outstanding principal amount of this Seller Note (as increased by any prior payments of PIK Interest). All interest on this Seller Note so capitalized shall be paid on or prior to the Maturity Date in accordance with the terms and conditions of this Seller Note. Interest shall be calculated on the basis of a 360-day year and actual days elapsed.
2. Payment of Principal and Interest . All principal under this Seller Note (including all accrued and unpaid PIK Interest), together with all accrued and unpaid interest thereon and all other sums evidenced by this Seller Note, shall be immediately due and payable on the earlier to occur of (a) May 29, 2023 (the “ Maturity Date ”), (b) the acceleration of the maturity of this Seller Note in accordance with Section 8 and (c) the Mandatory Repayment Date. The Maker may prepay from time to time all or any portion of the outstanding principal balance due under this Seller Note. Upon payment in full of the outstanding principal balance of this Seller Note and all accrued and unpaid interest thereon, this Seller Note will be automatically cancelled, whether or not this Seller Note has been surrendered.
3. Mandatory Prepayment . If, prior to the Maturity Date, the Maker consummates, or causes to be consummated (or any of the parties to the Existing Credit Agreement, as defined below, consummate, or cause to be consummated), (i) any offer and sale of the Equity Interests of the Maker or any of its Subsidiaries (including the Equity Interests of any Person which is then operating, directly or indirectly, the Business) in an offering registered under the Securities Act (other than a registration of Equity Interests on Form S-8 or Form S-4) that results in cash proceeds in an aggregate amount of at least $10,000,000 or (ii) any refinancing of all or any portion of (x) from and after the date that is 18 months after the date hereof, the Senior Secured PIK Notes due 2021 contemplated by the Debt Financing or (y) the term loans outstanding under that certain First Lien Credit Agreement, dated as of December 20, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the “ Existing Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company, the lenders party thereto from time to time, and Citicorp North America, Inc., as Administrative Agent, including the incremental term loans to be incurred thereunder contemplated by the Debt Financing, with the proceeds of new indebtedness (consummation of any of the transactions described in the immediately preceding clauses (i) and (ii), a “ Qualified Refinancing ”), then the Maker shall, within three days after the consummation of such Qualified Refinancing (the “ Qualified Refinancing Date ”), repay 100% of the principal amount outstanding under this Seller Note, together with all accrued and unpaid interest thereon, in cash in immediately available funds by wire transfer to one or more accounts specified in writing by the Holder; provided , that , if there is a Qualified Refinancing during the period commencing on the date hereof and ending on the Finally Determined Deactivated Machine Credit Determination Date, then the Maker shall not be required to repay this Seller Note until
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the third Business Day immediately following the Finally Determined Deactivated Machine Credit Determination Date (the later of Qualified Refinancing Date and the third Business Day immediately following the Finally Determined Deactivated Machine Credit Determination Date, the “ Mandatory Repayment Date”) . For purposes of this Seller Note, “ Equity Interests” means the Maker’s currently or hereafter authorized equity securities and all warrants, options or other convertible securities or rights to acquire any of the Maker’s equity securities.
4. Representations and Warranties. The Maker hereby represents and warrants to the Holder that on and as of the date hereof:
(a) the Maker is duly organized, validly existing and in good standing under the laws of the State of Delaware;
(b) the Maker is duly authorized to execute and deliver this Seller Note and to perform its obligations under this Seller Note. The execution and delivery of this Seller Note, and the performance by the Maker of its obligations hereunder, (i) have been duly authorized by all necessary corporate action on the part of the Maker, (ii) do not conflict with or violate any provisions of the Maker’s Charter Documents, (iii) do not violate or cause a default under any applicable Law; and (iv) do not result in a violation of, or a default under, or give rise to a right for any third-party to terminate any material Contract to which the Maker is party or by which it or its assets are bound, except in the case of clauses (iii) and (iv) as would not reasonably be expected to have a material adverse effect on the business, property, operations or financial condition of the Maker and its Subsidiaries, taken as a whole, or the validity or enforceability of this Seller Note or the rights and remedies of the Holder hereunder (a “ Material Adverse Effect”);
(c) this Seller Note is a legal, valid and binding obligation of the Maker, enforceable against the Maker in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws relating to or affecting creditors’ rights generally and general principles of equity (whether considered in a proceeding in equity or law);
(d) except for such filings or other actions that have been made or taken on or prior to the date hereof and such filings or other actions the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect, no consent, approval, authorization or other action by, or filing with or notification to, any Person or any Governmental Authority on the part of the Maker is required in connection with the execution, delivery and performance by the Maker of this Seller Note;
(e) there is no Proceeding pending or, to the knowledge of the Maker, threatened in writing against the Maker, which, if determined adversely, would reasonably be expected to have a Material Adverse Effect; and
(f) there is no Order outstanding against the Maker that would reasonably be expected to have a Material Adverse Effect.
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5. Additional Covenants. Until all principal and interest due hereunder has been repaid in full in cash, unless the Holder shall otherwise consent, in its sole discretion, in advance in writing, the Maker hereby covenants and agrees to:
(a) furnish to the Holder copies of the audited annual and unaudited quarterly financial statements either (X) on or prior to the third Business Day following the date on which the Maker files any such financial statements with the U.S. Securities and Exchange Commission (the “ SEC ”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (with such filing of such financial statements with the SEC being deemed delivery to the Holder for purposes hereof), or (Y) if the Maker is not required to, or otherwise does not, file such financial statements with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act, then Maker shall deliver such financial statements to the Holder promptly following the required delivery thereof by the Maker to the Financing Sources under the Debt Financing;
(b) comply with all laws, rules, regulations and orders of any governmental authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect;
(c) provide to the Holder, promptly after the Maker obtains actual knowledge thereof, notice of all Proceedings or Orders against either the Maker or any of its Subsidiaries that, if determined adversely to the Maker or any of its Subsidiaries, would reasonably be expected to have a Material Adverse Effect;
(d) provide to the Holder promptly (and in any event within three (3) Business Days) after the occurrence of each event which is an Event of Default (as defined below), a written notice of such Event of Default, setting forth the details of such event and the action (if any) that the Maker proposes to take with respect thereto;
(e) maintain its corporate existence; provided, that Maker shall be permitted to (i) convert to a limited liability company or limited partnership; provided that any such conversion shall for the avoidance of doubt be subject to clause (f) below and (ii) merge or consolidate with another Person so long as such Person assumes the obligations of the Maker hereunder;
(f) not amend, or modify in any manner adverse to the Holder any provision of the Maker’s Charter Documents;
(g) not declare or pay any dividend or make any other payment or distribution (X) on account of any Equity Interests of the Maker, including with respect to any redemption of any Equity Interests or (Y) to the direct or indirect holders of any Equity Interests of the Maker in their capacity as such, in each case other than payments, dividends and distributions on Equity Interests payable solely by the issuance of additional Equity Interests and those that are otherwise permitted under Sections 6.06(b), (c), (g), (i) or (k) of the Existing Credit Agreement; and
(h) not repay any indebtedness of any kind of the Maker that is subordinate in right of payment to the obligations of the Maker under this Seller Note.
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6. Events of Default. The Maker shall be in default under this Seller Note upon the occurrence of any one or more of the following events of default (each, an “ Event of Default”):
(a) the failure by the Maker to pay any principal, interest or other amount owing under this Seller Note when due and the continuance of such failure for three (3) Business Days;
(b) the Maker voluntarily or involuntarily dissolves or is dissolved; or a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed against the Maker and any such proceeding is not dismissed within sixty (60) days of the date of its filing, or a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by the Maker, or the Maker makes an assignment for the benefit of creditors, or the Maker takes any action to authorize any of the foregoing;
(c) the Maker fails to comply with or perform any other term, obligation, covenant or condition contained in this Seller Note and which failure shall continue for thirty (30) consecutive days following written notice of such default by the Holder to the Maker;
(d) any representation or warranty made by the Maker in this Seller Note shall prove to have been incorrect in any material respect when made and which would reasonably be expected to impair the enforceability of this Seller Note by the Holder against the Maker;
(e) the incurrence or issuance by the Maker of any indebtedness of any kind that is senior in right of payment to the obligations of the Maker under this Seller Note;
(f) there is any event or condition that shall occur which results in the acceleration of the maturity of any indebtedness incurred, issued or guaranteed by the Maker or any of its direct or indirect Subsidiaries (including indebtedness under the Existing Credit Agreement), aggregating in excess of $15,000,000; (g) there is a Change in Control (as defined in the Existing Credit Agreement on the date hereof under clauses (a) or (b) of such definition, except that the term “Borrower” in such definition shall instead refer to the Maker); or
(h) the Maker or any of its Subsidiaries shall have failed to pay final Orders in excess of $15,000,000 (to the extent not covered by insurance), which final Orders remain unpaid, undischarged and unstayed for a period of more than 45 days after such judgment becomes final.
7. Default Rate. Upon the occurrence and during the continuation of an Event of Default, all amounts outstanding under this Seller Note shall accrue interest until such default is cured by the Maker, at the rate per annum (the “ Default Rate”) equal to the lesser of (a) 2.0% per annum above the interest rate otherwise in effect in accordance with Section 1 and (b) the maximum interest rate permitted under applicable Law; provided , that , such rate shall not exceed the maximum rate per annum that would not result in this Seller Note to be considered an “applicable high yield discount obligation” within the meaning of Section 163(i) of the Internal Revenue Code of 1986, as amended (except that, notwithstanding the foregoing, in no event shall the interest rate applicable to this Seller Note be less than 5.0%). Interest accrued at the Default Rate shall be payable on each Interest Payment Date in accordance with the provisions of Section 1 .
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8. Acceleration. Upon the occurrence of any Event of Default other than an Event of Default defined in Section 6(b) , and at any time thereafter as long as any such Event of Default shall be continuing, the Holder may declare all liabilities and obligations of the Maker under this Seller Note immediately due and payable and the same shall thereupon become immediately due and payable without any further action on the part of the Holder. Upon the occurrence of any Event of Default defined in Section 6(b) , all liabilities and obligations of the Maker under this Seller Note shall automatically become due and payable without any action upon the part of the Holder. Upon the occurrence of any Event of Default, the Holder may additionally exercise any of its other rights and remedies granted hereunder or under applicable Law. Such remedies shall be cumulative and concurrent and may be pursued singly, successively or together, at the Holder’s option, and as often as the occasion therefore arises.
Any amount received by the Holder from the Maker following any acceleration of the obligations hereunder shall be applied: (i) first, to the payment of all documented costs and expenses incurred by the Holder in connection with the collection in respect of this Seller Note, including, without limitation, all court costs and fees and expenses of its agents and legal counsel and any costs or expenses incurred in connection with the exercise of any right or remedy hereunder, (ii) second, towards payment in full of interest then due from the Maker hereunder and (iii) last, towards payment in full of the principal amount then outstanding hereunder.
9. Transferability. During the period commencing on the date hereof and ending on the Finally Determined Deactivated Machine Credit Determination Date, the Holder may not sell, assign, mortgage, transfer, pledge, hypothecate or otherwise dispose of or encumber, in whole or in part (a “ Transfer ”), this Seller Note or any of its rights or obligations under this Seller Note to any Person without the prior written consent of the Maker. Any purported transfer of this Seller Note or a portion hereof that does not comply with the provisions of this Section 9 shall be null and void and of no effect. Following the Finally Determined Deactivated Machine Credit Determination Date, the Holder may Transfer this Seller Note; provided , that the Holder agrees for the benefit of the Maker that (a) this Seller Note may be offered, resold, pledged or otherwise transferred only (i) to the Maker or any affiliate thereof, (ii) pursuant to an exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel selected by the Holder if the Maker so requests in writing), or (iii) pursuant to an effective registration statement under the Securities Act, in each case, in accordance with any applicable securities laws of any state of the United States, (b)(i) the Holder will not Transfer this Seller Note to any Person if, at the time of such Transfer, the Holder has actual knowledge that such Person has been found unsuitable by any commercial gaming authority in any jurisdiction in which the Maker or any of its Subsidiaries then holds a gaming license or permit and (ii) the rights of the Holder to make Transfers of this Seller Note shall be subject to the approval of any Gaming Authority (as defined in the Existing Credit Agreement), to the extent required by any applicable Gaming Laws (as defined in the Existing Credit Agreement) and (c) the Holder will, and each subsequent holder is required to, notify any subsequent holder of this Seller Note of the resale restrictions referred to in the immediately preceding clauses (a) and (b). Notwithstanding anything to the contrary contained in this Section 9, it is understood and agreed that the Holder may grant a security interest in this Seller Note as collateral in accordance with the terms of any current or future debt financing of the Holder or any of the Holder’s Affiliates, and such grant of a security interest will not constitute a Transfer for purposes of this Seller Note.
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10. Successors and Assigns; Amendments and Waivers. This Seller Note shall bind the Maker and its successors and permitted assigns, and the benefits of this Seller Note shall inure to the benefit of the Holder and its successors and permitted assigns. No amendment, waiver or other modification of any provision of this Seller Note shall be effective without the Maker’s and the Holder’s prior written consent. The Holder shall not by any act of omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by the Holder (and then only to the extent specifically set forth therein). A waiver of any one event shall not be construed as continuing or as a bar to or waiver of such right or remedy on a subsequent event.
11. Interest Rate Limitation. Nothing contained in this Seller Note shall be construed or so operate as to require the Maker to pay interest at a greater rate than is now lawful or in such case to contract for, or to make any payment, or to do any act contrary to applicable Law. Should any interest or other charges paid by the Maker, or parties liable for the payment of this Seller Note, in connection with the indebtedness evidenced by this Seller Note result in the computation or earning of interest in excess of the maximum legal rate of interest that is legally permitted under applicable Law, then any and all such excess shall be, and the same hereby is, waived by the Holder, and any and all such excess shall be automatically credited against and in reduction of the balance due under this Seller Note, and the portion of said excess that exceeds the balance due under this Seller Note shall be paid by the Holder to the Maker.
12. Replacement Seller Note. If a mutilated Seller Note is surrendered to the Maker or if the Holder claims that its Seller Note has been lost, destroyed or wrongfully taken, and the Maker receives reasonable evidence of the ownership and loss, mutilation or destruction of such Seller Note, the Maker will issue a replacement Seller Note of the same Maturity Date and principal amount then outstanding. In such an event, the Holder agrees to indemnify and hold the Maker harmless in respect of any such lost, mutilated or destroyed Seller Note, including charging the Holder for the expenses thereof in replacing the Seller Note (including reasonable and documented attorneys’ fees and expenses incurred by the Maker). In case that the mutilated, lost, destroyed or wrongfully-taken Seller Note has become or is about to become due and payable, the Maker in its sole discretion may pay the Seller Note in full in cash instead of issuing a replacement Seller Note.
13. Governing Law; Submission to Jurisdiction; Venue; Service of Process.
(a) This Seller Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflict of law rules or provisions that would cause the application of the laws of any other jurisdiction.
(b) The Maker and the Holder hereby (a) irrevocably submit to the exclusive jurisdiction of the state and federal courts located in New York County in the State of New York for the purpose of any Proceeding between the parties arising in whole or in part under or in
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connection with this Seller Note, (b) waive to the extent not prohibited by applicable Law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such Proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such Proceeding brought in one of the above-named courts should be dismissed on grounds of forum non conveniens, should be transferred or removed to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other Proceeding in any other court other than one of the above-named courts, or that this Seller Note or the subject matter hereof may not be enforced in or by such court and (c) agree not to commence any such Proceeding other than before one of the above-named courts. Notwithstanding the previous sentence a party may commence any Proceeding in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts.
(c) The Maker and the Holder hereby (a) irrevocably consent to the service of process of any of the aforementioned courts in any Proceeding between the parties arising in whole or in part under or in connection with this Seller Note in any manner permitted by New York law, (b) agree that service of process made in accordance with clause (a) or made by registered or certified mail, return receipt requested, at the addresses specified in Section 10.1 of the Purchase Agreement (with notices to the Maker to be sent as if being sent to the Purchaser pursuant thereto), will constitute good and valid service of process in any such Proceeding and (c) waive and agree not to assert (by way of motion, as a defense, or otherwise) in any such Proceeding any claim that service of process made in accordance with clause (a) or (b) does not constitute good and valid service of process.
14. | Costs of Collection; Recovery Claim. |
(a) The Maker unconditionally and irrevocably agrees to pay upon demand any and all costs and expenses (including, without limitation, reasonable and documented attorneys’ fees and expenses) paid or incurred by the Holder in endeavoring to collect the Liabilities when due and owing, in enforcing the terms of this Seller Note, or otherwise in connection with any Recovery Claim.
(b) Should a claim (a “ Recovery Claim”) be made upon the Holder at any time for recovery of any amount received by the Holder in payment of any or all of the Liabilities and should such amount be rescinded or returned by the Holder for any reason whatsoever (including, without limitation, the insolvency, bankruptcy, liquidation or reorganization of any Person), or the Holder shall otherwise repay all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over the Holder or any of its property, or (b) any reasonable settlement or compromise of any such Recovery Claim effected by the Holder with the claimant (including the Maker), the Maker shall remain liable to the Holder for the amount so repaid to the same extent as if such amount had never originally been received by the Holder, notwithstanding any termination or cancellation hereof or the return of this instrument to the Maker (and such amounts shall, for the purposes of this Seller Note, be deemed to have continued in existence to the extent of such payment, notwithstanding such application by the Holder and this Seller Note shall continue to be effective or be reinstated, as the case may be, as to such amounts due hereunder).
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15. Waiver of Presentment, etc.; Severability
(a) The Maker hereby waives presentment for payment, demand, notice of nonpayment, diligence, notice of acceptance, notice of dishonor, demand for payment, protest of any dishonor, notice of protest, and protest of this Seller Note and all other notices of any kind in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Seller Note, and agrees that the Maker’s liability shall be unconditional without regard to the liability of any other person or entity and shall not in any manner be affected by any indulgence, extension of time, renewal, waiver or modification granted or consented to by the Holder hereof.
(b) In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the Maker and the Holder shall negotiate in good faith with a view to the substitution therefor of a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision, provided, that the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by Law.
16. Setoff. All payments to be made hereunder by the Maker to the Holder shall be made without offset, setoff or deduction of any kind.
17. ENTIRE AGREEMENT. THIS SELLER NOTE, TOGETHER WITH THE PURCHASE AGREEMENT AND THE OTHER DOCUMENTS AND AGREEMENTS DELIVERED AT THE CLOSING PURSUANT TO THE EXPRESS PROVISIONS OF THE PURCHASE AGREEMENT, CONSTITUTE THE FULL AND ENTIRE UNDERSTANDING AND AGREEMENT OF THE MAKER AND THE HOLDER HERETO IN RESPECT OF ITS SUBJECT MATTER, AND SUPERSEDES ALL PRIOR AGREEMENTS, UNDERSTANDINGS (ORAL AND WRITTEN) AND NEGOTIATIONS BETWEEN OR AMONG THE MAKER OR THE HOLDER WITH REGARD TO SUCH SUBJECT MATTER.
18. JURY TRIAL WAIVER. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE MAKER AND THE HOLDER HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS SELLER NOTE, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY IN ANY ACTION WHATSOEVER BETWEEN OR AMONG THEM RELATING TO THIS SELLER NOTE, WHICH ACTION WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
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[Signature Page Follows]
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IN WITNESS WHERE OF , the Maker has duly executed this Seller Note as of the date first written above.
AP GAMING HOLDCO, INC. | ||
By: | /s/ David Lopez | |
Name: David Lopez Title: Chief Executive Officer, President and Secretary |
Acknowledged and agreed by the Holder as of the date first set forth above:
AMAYA INC. | ||
By: | /s/ Daniel Sebag | |
Name: Daniel Sebag Title: Chief Financial Officer |
Signature Page - PIK Promissory Note
Exhibit 10.1
2014 Management Incentive Plan (MIP)
It is the intent of American Gaming Systems to provide managerial compensation programs that create an environment that motivates the management team to achieve both short term financial objectives, as well as longer term objectives.
The primary measurement element at all levels in the 2014 bonus plans will be Ebitda. Ebitda in some cases may not be the classic definition, but will be Ebitda as defined in the respective portion of your business plan and as outlined in the bonus grid provided to you as part of this plan.
Some important notes associated with this plan:
• | Incentive payments will be calculated following the close of the 2014 fiscal year end and will be communicated after the audit is complete and financial performance finalized. |
• | Minimum company performance is necessary before any incentive is made available to participants. |
• | Participants in the Plan are discretionary at the nomination of the CEO. Title and position alone do not make an employee automatically eligible. Consideration is given as to responsibility level and span of control. The CEO shall determine and be the final say as to eligibility and level of participation. |
• | If, in this calendar year, you are hired, transferred, or promoted into a position which carries a different incentive plan, you will have incentive payments calculated on a pro rata basis as of the date of change, or date of hire. |
• | The details of your participation are to be kept confidential. |
• | Bonus payments and other forms of incentive compensation are not guaranteed and are provided at the sole discretion of management. Based on changing business and economic conditions, the company may elect to modify, amend, or eliminate the plan as it deems necessary. Participation in the Plan in any given year does not ensure that an employee will participate in any future incentive plans. |
• | Individual employment agreements that exist will and can modify certain terms of this plan accordingly. |
The four basic levels of target bonus compensation will be calculated using the following base salary multiples:
BONUS LEVEL |
MINIMUM | TARGET | MAXIMUM | |||||||||
1 |
12.5 | % | 50 | % | 100 | % | ||||||
2 |
5 | % | 20 | % | 40 | % | ||||||
3 |
3.75 | % | 15 | % | 30 | % | ||||||
4 |
1.875 | % | 7.5 | % | 15 | % |
The basic metric of measurement in the 2014 plan will be Ebitda.
Target | ||
Minimum |
85% of Plan | |
Target |
100% of Plan | |
Maximum |
120% of Plan |
Bonuses begin to be earned once annual Ebitda reaches 85% of Plan and bonus amounts shall be determined based on an interpolation of Ebitda Target and Plan Attainment and corresponding Base Salary Multiples.
For the plan year 2014, your bonus will be based 2/3 on Ebitda for Q1-Q4 and 1/3 on the exit run rate for Q4. We look forward to working together with you to exceed all goals.
EXHIBIT 10.2
FIRST LIEN CREDIT AGREEMENT
Dated as of June 6, 2017,
among
AP GAMING HOLDINGS, LLC,
as Holdings,
AP GAMING I, LLC,
as Borrower,
THE LENDERS PARTY HERETO,
JEFFERIES FINANCE LLC,
as Administrative Agent,
JEFFERIES FINANCE LLC,
and
MACQUARIE CAPITAL (USA) INC.,
as Joint Lead Arrangers and Joint Bookrunners,
APOLLO GLOBAL SECURITIES, LLC,
as Co-Manager
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | ||||||
Definitions | ||||||
Section 1.01 |
Defined Terms | 1 | ||||
Section 1.02 |
Terms Generally | 49 | ||||
Section 1.03 |
Effectuation of Transactions | 49 | ||||
Section 1.04 |
Exchange Rates; Currency Equivalents | 49 | ||||
Section 1.05 |
Timing of Payment or Performance | 49 | ||||
Section 1.06 |
Times of Day | 49 | ||||
ARTICLE II | ||||||
The Credits | ||||||
Section 2.01 |
Commitments | 50 | ||||
Section 2.02 |
Loans and Borrowings | 50 | ||||
Section 2.03 |
Requests for Borrowings | 51 | ||||
Section 2.04 |
Swingline Loans | 51 | ||||
Section 2.05 |
Letters of Credit | 52 | ||||
Section 2.06 |
Funding of Borrowings | 57 | ||||
Section 2.07 |
Interest Elections | 58 | ||||
Section 2.08 |
Termination and Reduction of Commitments | 59 | ||||
Section 2.09 |
Repayment of Loans; Evidence of Debt | 59 | ||||
Section 2.10 |
Repayment of Term Loans and Revolving Facility Loans | 60 | ||||
Section 2.11 |
Prepayment of Loans | 61 | ||||
Section 2.12 |
Fees | 63 | ||||
Section 2.13 |
Interest | 64 | ||||
Section 2.14 |
Alternate Rate of Interest | 64 | ||||
Section 2.15 |
Increased Costs | 65 | ||||
Section 2.16 |
Break Funding Payments | 66 | ||||
Section 2.17 |
Taxes | 66 | ||||
Section 2.18 |
Payments Generally; Pro Rata Treatment; Sharing of Set-offs | 69 | ||||
Section 2.19 |
Mitigation Obligations; Replacement of Lenders | 70 | ||||
Section 2.20 |
Illegality | 71 | ||||
Section 2.21 |
Incremental Commitments | 71 | ||||
Section 2.22 |
Defaulting Lender | 78 | ||||
ARTICLE III | ||||||
Representations and Warranties | ||||||
Section 3.01 |
Organization; Powers | 80 | ||||
Section 3.02 |
Authorization | 80 | ||||
Section 3.03 |
Enforceability | 81 | ||||
Section 3.04 |
Governmental Approvals | 81 | ||||
Section 3.05 |
Financial Statements | 81 | ||||
Section 3.06 |
No Material Adverse Effect | 81 | ||||
Section 3.07 |
Title to Properties; Possession Under Leases | 81 | ||||
Section 3.08 |
Subsidiaries | 82 | ||||
Section 3.09 |
Litigation; Compliance with Laws | 82 | ||||
Section 3.10 |
Federal Reserve Regulations | 82 |
-i-
Page | ||||||
Section 3.11 |
Investment Company Act | 83 | ||||
Section 3.12 |
Use of Proceeds | 83 | ||||
Section 3.13 |
Tax Returns | 83 | ||||
Section 3.14 |
No Material Misstatements | 83 | ||||
Section 3.15 |
Employee Benefit Plans | 84 | ||||
Section 3.16 |
Environmental Matters | 84 | ||||
Section 3.17 |
Security Documents | 84 | ||||
Section 3.18 |
Location of Real Property and Leased Premises | 85 | ||||
Section 3.19 |
Solvency | 85 | ||||
Section 3.20 |
Labor Matters | 86 | ||||
Section 3.21 |
Insurance | 86 | ||||
Section 3.22 |
No Default | 86 | ||||
Section 3.23 |
Intellectual Property; Licenses, Etc. | 86 | ||||
Section 3.24 |
Senior Debt | 86 | ||||
Section 3.25 |
USA PATRIOT Act; OFAC | 86 | ||||
Section 3.26 |
Foreign Corrupt Practices Act | 86 | ||||
ARTICLE IV | ||||||
Conditions of Lending | ||||||
Section 4.01 |
All Credit Events | 87 | ||||
Section 4.02 |
First Credit Event | 87 | ||||
ARTICLE V | ||||||
Affirmative Covenants | ||||||
Section 5.01 |
Existence; Business and Properties | 89 | ||||
Section 5.02 |
Insurance | 89 | ||||
Section 5.03 |
Taxes | 90 | ||||
Section 5.04 |
Financial Statements, Reports, etc. | 90 | ||||
Section 5.05 |
Litigation and Other Notices | 92 | ||||
Section 5.06 |
Compliance with Laws |
93 | ||||
Section 5.07 |
Maintaining Records; Access to Properties and Inspections |
93 | ||||
Section 5.08 |
Use of Proceeds |
93 | ||||
Section 5.09 |
Compliance with Environmental Laws |
93 | ||||
Section 5.10 |
Further Assurances; Additional Security |
93 | ||||
Section 5.11 |
Rating |
95 | ||||
Section 5.12 |
Compliance with the USA Patriot Act, Anti-Corruption Laws and Sanctions Laws |
95 | ||||
ARTICLE VI | ||||||
Negative Covenants | ||||||
Section 6.01 |
Indebtedness |
96 | ||||
Section 6.02 |
Liens |
100 | ||||
Section 6.03 |
Sale and Lease-Back Transactions |
105 | ||||
Section 6.04 |
Investments, Loans and Advances |
105 | ||||
Section 6.05 |
Mergers, Consolidations, Sales of Assets and Acquisitions |
109 | ||||
Section 6.06 |
Dividends and Distributions |
111 | ||||
Section 6.07 |
Transactions with Affiliates |
113 | ||||
Section 6.08 |
Business of the Borrower and the Subsidiaries |
115 | ||||
Section 6.09 |
Limitation on Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. | 115 |
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Page | ||||||
Section 6.10 |
Fiscal Year | 118 | ||||
Section 6.11 | Net First Lien Leverage Ratio | 118 | ||||
ARTICLE VIA | ||||||
Holdings Negative Covenants | ||||||
ARTICLE VII | ||||||
Events of Default | ||||||
Section 7.01 |
Events of Default | 118 | ||||
Section 7.02 |
Treatment of Certain Payments | 120 | ||||
Section 7.03 |
Right to Cure | 121 | ||||
ARTICLE VIII | ||||||
The Agents | ||||||
Section 8.01 |
Appointment | 121 | ||||
Section 8.02 |
Delegation of Duties | 122 | ||||
Section 8.03 |
Exculpatory Provisions | 122 | ||||
Section 8.04 |
Reliance by Agents | 123 | ||||
Section 8.05 |
Notice of Default | 123 | ||||
Section 8.06 |
Non-Reliance on Agents and Other Lenders | 123 | ||||
Section 8.07 |
Indemnification | 124 | ||||
Section 8.08 |
Agent in Its Individual Capacity | 124 | ||||
Section 8.09 |
Successor Administrative Agent | 124 | ||||
Section 8.10 |
Arrangers and Co-Manager | 125 | ||||
Section 8.11 |
Security Documents, Collateral Agent and Collateral Agent | 125 | ||||
Section 8.12 |
Right to Realize on Collateral and Enforce Guarantees | 125 | ||||
Section 8.13 |
Withholding Tax | 126 | ||||
ARTICLE IX | ||||||
Miscellaneous | ||||||
Section 9.01 |
Notices; Communications | 126 | ||||
Section 9.02 |
Survival of Agreement | 127 | ||||
Section 9.03 |
Binding Effect | 127 | ||||
Section 9.04 |
Successors and Assigns | 128 | ||||
Section 9.05 |
Expenses; Indemnity | 132 | ||||
Section 9.06 |
Right of Set-off | 133 | ||||
Section 9.07 |
Applicable Law | 134 | ||||
Section 9.08 |
Waivers; Amendment | 134 | ||||
Section 9.09 |
Interest Rate Limitation | 136 | ||||
Section 9.10 |
Entire Agreement | 136 | ||||
Section 9.11 |
WAIVER OF JURY TRIAL | 137 | ||||
Section 9.12 |
Severability | 137 | ||||
Section 9.13 |
Counterparts | 137 | ||||
Section 9.14 |
Headings | 137 | ||||
Section 9.15 |
Jurisdiction; Consent to Service of Process | 137 | ||||
Section 9.16 |
Confidentiality | 138 | ||||
Section 9.17 |
Platform; Borrower Materials | 138 | ||||
Section 9.18 |
Release of Liens and Guarantees | 138 |
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Page | ||||||
Section 9.19 |
Judgment Currency |
140 | ||||
Section 9.20 |
USA PATRIOT Act Notice |
140 | ||||
Section 9.21 |
Affiliate Lenders |
140 | ||||
Section 9.22 |
Agency of the Borrower for the Loan Parties |
141 | ||||
Section 9.23 |
No Liability of the Issuing Banks |
141 | ||||
Section 9.24 |
Application of Gaming Laws |
142 | ||||
Section 9.25 |
Acknowledgment and Consent to Bail-In of EEA Financial Institutions |
142 |
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Exhibits, Schedules and Annex |
||
Exhibit A |
Form of Assignment and Acceptance |
|
Exhibit B |
[Reserved] |
|
Exhibit C |
Form of Solvency Certificate |
|
Exhibit D-1 |
Form of Borrowing Request |
|
Exhibit D-2 |
Form of Swingline Borrowing Request |
|
Exhibit E |
Form of Interest Election Request |
|
Exhibit F |
[Reserved] |
|
Exhibit G |
Form of Permitted Loan Purchase Assignment and Acceptance |
|
Exhibit H |
[Reserved] |
|
Exhibit I |
Form of Non-Bank Tax Certificate |
|
Exhibit J |
Form of Global Intercompany Note |
|
Schedule 1.01(A) |
Certain Excluded Equity Interests |
|
Schedule 1.01(B) |
Mortgaged Properties |
|
Schedule 1.01(C) |
Closing Date Unrestricted Subsidiaries |
|
Schedule 1.01(D) |
Specified L/C Sublimit |
|
Schedule 2.01 |
Commitments |
|
Schedule 3.01 |
Organization and Good Standing |
|
Schedule 3.04 |
Governmental Approvals |
|
Schedule 3.05 |
Financial Statements |
|
Schedule 3.08(a) |
Subsidiaries |
|
Schedule 3.08(b) |
Subscriptions |
|
Schedule 3.13 |
Taxes |
|
Schedule 3.21 |
Insurance |
|
Schedule 3.23 |
Intellectual Property |
|
Schedule 5.10 |
Post-Closing Items |
|
Schedule 6.01 |
Indebtedness |
|
Schedule 6.02(a) |
Liens |
|
Schedule 6.04 |
Investments |
|
Schedule 6.07 |
Transactions with Affiliates |
|
Schedule 9.01 |
Notice Information |
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FIRST LIEN CREDIT AGREEMENT, dated as of June 6, 2017 (this “ Agreement ”), among AP GAMING HOLDINGS, LLC, a Delaware limited liability company (“ Holdings ”), AP GAMING I, LLC, a Delaware limited liability company (the “ Borrower ”), the LENDERS party hereto from time to time, and JEFFERIES FINANCE LLC, as Administrative Agent (in such capacity, the “ Administrative Agent ”) for the Lenders and Collateral Agent for the Secured Parties.
WHEREAS, the Borrower has requested the Lenders to extend credit in the form of (a) Term B Loans on the Closing Date in an aggregate principal amount of $450,000,000 and (b) Revolving Facility Loans and Letters of Credit at any time and from time to time prior to the Revolving Facility Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $30,000,000;
WHEREAS, the proceeds of the Facilities will be used by the Borrower (i) to repay all amounts outstanding under (A) the Borrower’s existing First Lien Credit Agreement, dated as of December 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Existing Credit Agreement ”), among the Borrower, Holdings, the lenders party thereto and Citicorp North America, Inc., as administrative agent and collateral agent for such lenders, and (B) the PIK Seller Notes, (ii) to pay Transaction Expenses and (iii) for general corporate purposes (including, without limitation, for Permitted Business Acquisitions).
NOW, THEREFORE, the Lenders and the Issuing Banks are willing to extend such credit to the Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01 Defined Terms . As used in this Agreement, the following terms shall have the meanings specified below:
“ ABR ” shall mean, for any day, a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate in effect for such day plus 0.50%, (b) the Prime Rate in effect on such day and (c) the Adjusted LIBO Rate for a one-month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.00%; provided , that for the avoidance of doubt, the LIBO Rate for any day shall be based on the rate determined on such day at approximately 11:00 a.m. (London time) by reference to the ICE Benchmark Administration Interest Settlement Rates (or the successor thereto if the ICE Benchmark Administration is no longer making a LIBO Rate available) for deposits in Dollars (as set forth by any service selected by the Administrative Agent that has been nominated by the ICE Benchmark Administration (or the successor thereto if the ICE Benchmark Administration is no longer making a LIBO Rate available) as an authorized vendor for the purpose of displaying such rates). Any change in such 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, as the case may be.
“ ABR Borrowing ” shall mean a Borrowing comprised of ABR Loans.
“ ABR Loan ” shall mean any ABR Term Loan, ABR Revolving Loan or Swingline Loan.
“ ABR Revolving Facility Borrowing ” shall mean a Borrowing comprised of ABR Revolving Loans.
“ ABR Revolving Loan ” shall mean any Revolving Facility Loan bearing interest at a rate determined by reference to the ABR in accordance with the provisions of Article II.
“ ABR Term Loan ” shall mean any Term Loan bearing interest at a rate determined by reference to the ABR in accordance with the provisions of Article II.
“ Additional Mortgage ” shall have the meaning assigned to such term in Section 5.10(c).
“ Adjusted LIBO Rate ” shall mean, with respect to any Eurocurrency Borrowing for any Interest Period, an interest rate per annum equal to the greater of (x) (a) the LIBO Rate in effect for such Interest Period divided by (b) one minus the Statutory Reserves applicable to such Eurocurrency Borrowing, if any; provided that if the Adjusted LIBO Rate shall be less than zero pursuant to this clause (x), such interest rate shall be deemed to be zero and (y) in the case of Eurocurrency Borrowings composed of Eurocurrency Term Loans, 1.00%.
“ Administrative Agent ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement, together with its successors and assigns.
“ Administrative Agent Fee Letter ” shall mean that certain Fee Letter, dated as of the hereof by and among the Borrower and Jefferies Finance LLC.
“ Administrative Agent Fees ” shall have the meaning assigned to such term in Section 2.12(c).
“ Administrative Questionnaire ” shall mean an Administrative Questionnaire in the form supplied by the Administrative Agent.
“ Affiliate ” shall mean, when used 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. For purposes of this Agreement and the other Loan Documents, Jefferies LLC and its Affiliates shall be deemed to be Affiliates of Jefferies Finance LLC and its Affiliates.
“ Affiliate Lender ” shall have the meaning assigned to such term in Section 9.21(a).
“ Agents ” shall mean the Administrative Agent and the Collateral Agent.
“ Agreement ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement, as amended, restated, supplemented or otherwise modified from time to time.
“ Agreement Currency ” shall have the meaning assigned to such term in Section 9.19.
“ All-in Yield ” shall mean, as to any Loans (or Pari Term Loans, if applicable), the yield thereon payable to all Lenders (or other lenders, as applicable) providing such Loans (or Pari Term Loans, if applicable) in the primary syndication thereof, as reasonably determined by the Administrative Agent, whether in the form of interest rate, margin, original issue discount, up-front fees, rate floors or otherwise; provided , that original issue discount and up-front fees shall be equated to interest rate assuming a 4-year life to maturity (or, if less, the life of such Loans (or Pari Term Loans, if applicable)); and provided , further , that “All-in Yield” shall not include arrangement, commitment, underwriting, structuring or similar fees and customary consent fees for an amendment paid generally to consenting lenders.
“ Alternate Currency ” shall mean, with respect to any Letter of Credit, Canadian dollars and any other currency other than Dollars as may be acceptable to the Administrative Agent and the applicable Issuing Bank with respect thereto in their sole discretion.
“ Alternate Currency Letter of Credit ” shall mean any Letter of Credit denominated in an Alternate Currency.
“ Applicable Commitment Fee ” shall mean for any day (i) 0.50% per annum or (ii) with respect to any Other Revolving Facility Commitments, the “Applicable Commitment Fee” set forth in the applicable Incremental Assumption Agreement.
“ Applicable Date ” shall have the meaning assigned to such term in Section 9.08(f).
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“ Applicable Margin ” shall mean for any day (i) with respect to any Term B Loan, 5.50% per annum in the case of any Eurocurrency Loan and 4.50% per annum in the case of any ABR Loan, (ii) with respect to any Initial Revolving Loan, 5.50% per annum in the case of any Eurocurrency Loan and 4.50% per annum in the case of any ABR Loan and (iii) with respect to any Other Term Loan or Other Revolving Loan, the “Applicable Margin” set forth in the Incremental Assumption Agreement relating thereto.
“ Applicable Period ” shall mean an Excess Cash Flow Period or an Excess Cash Flow Interim Period, as the case may be.
“ Approved Fund ” shall have the meaning assigned to such term in Section 9.04(b)(ii).
“ Arrangers ” shall mean Jefferies Finance LLC and Macquarie Capital (USA) Inc.
“ Asset Sale ” shall mean any loss, damage, destruction or condemnation of, or any Disposition (including any sale and leaseback of assets and any mortgage or lease of Real Property) to any person of, any asset or assets of the Borrower or any Subsidiary.
“ Assignee ” shall have the meaning assigned to such term in Section 9.04(b)(i).
“ Assignment and Acceptance ” shall mean an assignment and acceptance entered into by a Lender and an Assignee, and accepted by the Administrative Agent and the Borrower (if required by Section 9.04), in the form of Exhibit A or such other form as shall be approved by the Administrative Agent and reasonably satisfactory to the Borrower.
“ Assignor ” shall have the meaning assigned to such term in Section 9.04(i).
“ Availability Period ” shall mean, with respect to any Class of Revolving Facility Commitments, the period from and including the Closing Date (or, if later, the effective date for such Class of Revolving Facility Commitments) to but excluding the earlier of the Revolving Facility Maturity Date for such Class and, in the case of each of the Revolving Facility Loans, Revolving Facility Borrowings, Swingline Loans, Swingline Borrowings and Letters of Credit, the date of termination of the Revolving Facility Commitments of such Class.
“ Available Unused Commitment ” shall mean, with respect to a Revolving Facility Lender under any Class of Revolving Facility Commitments at any time, an amount equal to the amount by which (a) the applicable Revolving Facility Commitment of such Revolving Facility Lender at such time exceeds (b) the applicable Revolving Facility Credit Exposure of such Revolving Facility Lender at such time.
“ Bail-In Action ” shall mean the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” shall mean, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“ Below Threshold Asset Sale Proceeds ” shall have the meaning assigned to such term in the definition of the term “Cumulative Credit”.
“ Board ” shall mean the Board of Governors of the Federal Reserve System of the United States of America.
“ Board of Directors ” shall mean, as to any person, the board of directors or other governing body of such person, or if such person is owned or managed by a single entity, the board of directors or other governing body of such entity.
“ Borrower ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Borrower Materials ” shall have the meaning assigned to such term in Section 9.17.
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“ Borrowing ” shall mean a group of Loans of a single Type under a single Facility, and made on a single date and, in the case of Eurocurrency Loans, as to which a single Interest Period is in effect.
“ Borrowing Minimum ” shall mean (a) in the case of Eurocurrency Loans, $1,000,000, (b) in the case of ABR Loans, $1,000,000 and (c) in the case of Swingline Loans, $500,000.
“ Borrowing Multiple ” shall mean (a) in the case of Eurocurrency Loans, $500,000, (b) in the case of ABR Loans, $250,000 and (c) in the case of Swingline Loans, $250,000.
“ Borrowing Request ” shall mean a request by the Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit D-1 or another form approved by the Administrative Agent.
“ Budget ” shall have the meaning assigned to such term in Section 5.04(e).
“ Business Day ” shall mean 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; provided , that when used in connection with a Eurocurrency Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in deposits in Dollars in the London interbank market.
“ Capital Expenditures ” shall mean, for any person in respect of any period, the aggregate of all expenditures incurred by such person during such period that, in accordance with GAAP, are or should be included in “additions to property, plant or equipment” or similar items reflected in the statement of cash flows of such person.
“ Capitalized Lease Obligations ” shall mean, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP; provided that obligations of the Borrower or its Subsidiaries, or of a special purpose or other entity not consolidated with the Borrower and its Subsidiaries, either existing on the Closing Date or created thereafter that (a) initially were not included on the consolidated balance sheet of the Borrower as capital lease obligations and were subsequently recharacterized as capital lease obligations or, in the case of such a special purpose or other entity becoming consolidated with the Borrower and its Subsidiaries were required to be characterized as capital lease obligations upon such consolidation, in either case, due to a change in accounting treatment or otherwise, or (b) did not exist on the Closing Date and were required to be characterized as capital lease obligations but would not have been required to be treated as capital lease obligations on the Closing Date had they existed at that time, shall for all purposes not be treated as Capitalized Lease Obligations or Indebtedness.
“ Capitalized Software Expenditures ” shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) by a person during such period in respect of licensed or purchased software or internally developed software and software enhancements that, in accordance with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of such person and its subsidiaries.
“ Cash Collateralize ” shall mean to pledge and deposit with or deliver to the Collateral Agent, for the benefit of one or more of the Issuing Banks or Lenders, as collateral for Revolving L/C Exposure or obligations of the Lenders to fund participations in respect of Revolving L/C Exposure, cash or deposit account balances under the sole dominion and control of the Collateral Agent or, if the Administrative Agent and each Issuing Bank shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and each applicable Issuing Bank. “Cash Collateral” and “Cash Collateralization” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“ Cash Interest Expense ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis for any period, Interest Expense for such period, less the sum of, without duplication, (a) pay-in-kind Interest Expense or other non-cash Interest Expense (including as a result of the effects of purchase accounting), (b) to the extent included in Interest Expense, the amortization of any financing fees paid by, or on behalf of, the Borrower or
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any Subsidiary, including such fees paid in connection with the Transactions or upon entering into a Permitted Receivables Financing, and (c) the amortization of debt discounts, if any, or fees in respect of Hedging Agreements; provided , that Cash Interest Expense shall exclude any one time financing fees, including those paid in connection with the Transactions, or upon entering into a Permitted Receivables Financing or any amendment of this Agreement.
“ Cash Management Agreement ” shall mean any agreement to provide to Holdings, the Borrower or any Subsidiary cash management services for collections, treasury management services (including controlled disbursement, overdraft, automated clearing house fund transfer services, return items and interstate depository network services), any demand deposit, payroll, trust or operating account relationships, commercial credit cards, merchant card, purchase or debit cards, non-card e-payables services, and other cash management services, including electronic funds transfer services, lockbox services, stop payment services and wire transfer services.
“ Cash Management Bank ” shall mean any person that, at the time it enters into a Cash Management Agreement (or on the Closing Date), is an Agent, an Arranger, a Lender or an Affiliate of any such person, in each case, in its capacity as a party to such Cash Management Agreement.
“ CFC ” shall mean a “controlled foreign corporation” within the meaning of section 957(a) of the Code.
A “ Change in Control ” shall be deemed to occur if:
(a) (i) at any time prior to a Qualified IPO, (x) the Permitted Holders shall at any time cease to have, directly or indirectly, the power to vote or direct the voting of at least 35% of the Voting Stock of the Borrower or (y) any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such person, entity or “group” and its subsidiaries and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders, shall at any time have acquired direct or indirect beneficial ownership (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of a percentage of the voting power of the outstanding Voting Stock of the Borrower that is greater than the percentage of such voting power of such Voting Stock in the aggregate, directly or indirectly, beneficially owned by the Permitted Holders or (ii) at any time on and after a Qualified IPO, any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such person, entity or “group” and its subsidiaries and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders (or any holding company parent of the Borrower owned directly or indirectly by the Permitted Holders), shall at any time have acquired direct or indirect beneficial ownership (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of voting power of the outstanding Voting Stock of the Borrower having more than the greater of (A) 35% of the ordinary voting power for the election of directors of the Borrower and (B) the percentage of the ordinary voting power for the election of directors of the Borrower owned in the aggregate, directly or indirectly, beneficially, by the Permitted Holders, unless in the case of either clause (i) or (ii) of this clause (a), the Permitted Holders have, at such time, the right or the ability by voting power, contract or otherwise to elect or designate for election at least a majority of the members of the Board of Directors of the Borrower;
(b) at any time on or after a Qualified IPO, during any period of twelve (12) consecutive months, a majority of the seats (other than vacant seats) on the Board of Directors of the Borrower shall be occupied by individuals who were neither (1) nominated by the Board of Directors of the Borrower or a Permitted Holder, (2) appointed, approved or ratified by directors so nominated nor (3) appointed by a Permitted Holder; or
(c) Holdings shall fail to beneficially own, directly or indirectly, 100% of the issued and outstanding Equity Interests of the Borrower (other than in connection with a Qualified IPO of the Borrower).
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“ Change in Law ” shall mean (a) the adoption of any law, rule or regulation after the Closing Date, (b) any change in law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Closing Date or (c) compliance by any Lender (or, for purposes of Section 2.15(b), by any Lending Office of such Lender or by such Lender’s holding company, if any) with any written request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Closing Date; provided , however , that notwithstanding anything herein to the contrary, (x) all requests, rules, guidelines or directives under or issued in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act, all interpretations and applications thereof and any compliance by a Lender with any request or directive relating thereto and (y) all requests, rules, guidelines or directives promulgated under or in connection with, all interpretations and applications of, or any compliance by a Lender with any request or directive relating to International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States of America or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case under this clauses (x) and (y) be deemed to be a “Change in Law” but only to the extent a Lender is imposing applicable increased costs or costs in connection with capital adequacy requirements similar to those described in clauses (a) and (b) of Section 2.15 generally on other borrowers of loans under U.S. cash flow senior secured credit facilities.
“ Charges ” shall have the meaning assigned to such term in Section 9.09.
“ Class ” shall mean, (a) when used in respect of any Loan or Borrowing, whether such Loan or the Loans comprising such Borrowing are Term B Loans, Other Term Loans, Initial Revolving Loans, Extended Revolving Loans or Other Revolving Loans; and (b) when used in respect of any Commitment, whether such Commitment is in respect of a commitment to make Term B Loans, Other Term Loans, Initial Revolving Loans, Extended Revolving Loans or Other Revolving Loans. Other Term Loans, Extended Revolving Loans or Other Revolving Loans that have different terms and conditions (together with the Commitments in respect thereof) from the Term B Loans or the Initial Revolving Loans, respectively, or from other Other Term Loans or other Extended Revolving Loans or Other Revolving Loans, as applicable, shall each be construed to be in separate and distinct Classes.
“ Class Loans ” shall have the meaning assigned to such term in Section 9.08(f).
“ Closing Date ” shall mean June 6, 2017.
“ Co-Manager ” shall mean Apollo Global Securities, LLC.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended.
“ Co-Investors ” shall mean each of (a) the Fund and the Fund Affiliates (excluding any of their portfolio companies) and (b) the Management Group.
“ Collateral ” shall mean all the “Collateral” (or equivalent term) as defined in any Security Document and shall also include the Mortgaged Properties and all other property that is subject to any Lien in favor of the Administrative Agent, the Collateral Agent or any Subagent for the benefit of the Secured Parties pursuant to any Security Document.
“ Collateral Agent ” shall mean Jefferies Finance LLC acting as collateral agent for the Secured Parties, together with its successors and permitted assigns in such capacity.
“ Collateral Agreement ” shall mean the Collateral Agreement dated as of the date hereof as amended, restated, supplemented or otherwise modified from time to time, among the Borrower, each Subsidiary Loan Party and the Collateral Agent.
“ Collateral and Guarantee Requirement ” shall mean the requirement that (in each case subject to Sections 5.10(d), (e) and (g) and Schedule 5.10):
(a) on the Closing Date, the Collateral Agent shall have received (i) from the Borrower and each Subsidiary Loan Party, a counterpart of the Collateral Agreement, (ii) from each Subsidiary Loan Party, a counterpart of the Subsidiary Guarantee Agreement, (iii) from Holdings, a counterpart of the Holdings Guarantee and Pledge Agreement and (iv) from the Custodian, AP Gaming II, Inc., AGS LLC, AGS Capital, LLC and the Borrower, a counterpart of the Custodian Agreement, in each case duly executed and delivered on behalf of such person;
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(b) on the Closing Date, (i)(x) all outstanding Equity Interests of the Borrower and all other outstanding Equity Interests, in each case, directly owned by the Loan Parties, other than Excluded Securities, and (y) all Indebtedness owing to any Loan Party (other than Holdings), other than Excluded Securities, shall have been pledged pursuant to the Collateral Agreement or the Holdings Guarantee and Pledge Agreement, as applicable, and (ii) subject to the terms of the Custodian Agreement, the Collateral Agent shall have received certificates or other instruments (if any) representing such Equity Interests (other than certificates or instruments included on Schedule 5.10, which shall be delivered to the Collateral Agent after the Closing Date pursuant to Section 5.10) and any notes or other instruments required to be delivered pursuant to the applicable Security Documents, together with stock powers, note powers or other instruments of transfer with respect thereto endorsed in blank;
(c) in the case of any person that becomes a Subsidiary Loan Party after the Closing Date, the Collateral Agent shall have received (i) a supplement to the Collateral Agreement and the Subsidiary Guarantee Agreement, (ii) supplements to the other Security Documents, if applicable, in the form specified therefor or otherwise reasonably acceptable to the Administrative Agent, in each case, duly executed and delivered on behalf of such Subsidiary Loan Party, and (iii) certificates or other instruments (if any) representing all Equity Interests (other than Excluded Securities) directly owned by such Subsidiary Loan Party and any notes or other instruments required to be delivered pursuant to the applicable Security Documents, together with stock powers, note powers or other instruments of transfer with respect thereto endorsed in blank;
(d) after the Closing Date, (x) all outstanding Equity Interests of any person that becomes a Subsidiary Loan Party after the Closing Date and (y) subject to Section 5.10(g) and, without duplication of clause (c)(iii) above, all Equity Interests, all notes and other instruments directly acquired by a Loan Party (other than Holdings) after the Closing Date (including the Equity Interests of any Special Purpose Receivables Subsidiary established after the Closing Date), other than Excluded Securities, shall have been pledged and, to the extent certificated, delivered to the Collateral Agent pursuant to the Collateral Agreement, together with stock powers or other instruments of transfer with respect thereto endorsed in blank;
(e) on the Closing Date and at all times thereafter, except as otherwise contemplated by this Agreement or any Security Document, all documents and instruments, including Uniform Commercial Code financing statements, and filings with the United States Copyright Office and the United States Patent and Trademark Office, and all other actions required by the applicable Requirement of Law or reasonably requested by the Collateral Agent to be delivered, filed, registered or recorded to create the Liens intended to be created by the Security Documents (in each case, including any supplements thereto) and perfect such Liens to the extent required by, and with the priority required by, the Security Documents, shall have been delivered, filed, registered or recorded or delivered to the Collateral Agent for filing, registration or the recording concurrently with, or promptly following, the execution and delivery of each such Security Document;
(f) within (x) 90 days after the Closing Date with respect to the Mortgaged Property set forth on Schedule 1.01(B) (or such later date as the Collateral Agent may agree) and (y) within the time periods set forth in Section 5.10 with respect to Mortgaged Properties encumbered pursuant to said Section 5.10, the Collateral Agent shall have received (i) counterparts of each Mortgage to be entered into with respect to each such Mortgaged Property duly executed and delivered by the record owner of such Mortgaged Property and suitable for recording or filing in all filing or recording offices that the Collateral Agent may reasonably deem necessary or desirable in order to create a valid and enforceable Lien subject to no other Liens except Permitted Liens at the time of recordation thereof, (ii) with respect to the Mortgage encumbering each such Mortgaged Property, opinions of counsel regarding the enforceability, due authorization, execution and delivery of the Mortgages and such other matters customarily covered in real estate counsel opinions as the Collateral Agent may reasonably request, in form and substance reasonably acceptable to the Collateral Agent, (iii) with respect to each such Mortgaged Property, the Flood Documentation and (iv) such other documents as the Collateral Agent may reasonably request with respect to any such Mortgage or Mortgaged Property;
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(g) within (x) 90 days after the Closing Date with respect to the Mortgaged Property set forth on Schedule 1.01(B) (or such later date as the Collateral Agent may agree) and (y) within the time periods set forth in Section 5.10 with respect to Mortgaged Properties encumbered pursuant to said Section 5.10, the Collateral Agent shall have received (i) a policy or policies or marked up unconditional binder of title insurance with respect to each such Mortgaged Property located in the United States of America, or a date down and modification endorsement, if available, paid for by the Borrower, issued by a nationally recognized title insurance company insuring the Lien of each Mortgage as a valid Lien on the Mortgaged Property described therein, free of any other Liens except Permitted Liens, together with such customary endorsements (including zoning endorsements where reasonably appropriate and available), coinsurance and reinsurance as the Collateral Agent may reasonably request and which are available at commercially reasonable rates in the jurisdiction where the applicable Mortgaged Property is located, and, with respect to any such property located in a state in which a zoning endorsement is not available at commercially reasonable rates, a zoning report from a recognized vendor or zoning compliance letter from the applicable municipality in a form reasonably acceptable to the Collateral Agent, as the Collateral Agent may reasonably request with respect to properties located in the United States of America and (ii) a survey of each Mortgaged Property (including all improvements, easements and other customary matters thereon reasonably required by the Collateral Agent), as applicable, for which all necessary fees (where applicable) have been paid with respect to properties located in the United States of America, which is (A) complying in all material respects with the minimum detail requirements of the American Land Title Association and American Congress of Surveying and Mapping as such requirements are in effect on the date of preparation of such survey and (B) sufficient for such title insurance company to remove all standard survey exceptions from the title insurance policy relating to such Mortgaged Property or otherwise reasonably acceptable to the Collateral Agent;
(h) the Collateral Agent shall have received on the Closing Date, evidence of the insurance and related endorsements required by the terms of Section 5.02 hereof; and
(i) after the Closing Date, the Collateral Agent shall have received (i) such other Security Documents as may be required to be delivered pursuant to Section 5.10 or the Collateral Agreement, and (ii) upon reasonable request by the Collateral Agent, evidence of compliance with any other requirements of Section 5.10.
“ Commitment Fee ” shall have the meaning assigned to such term in Section 2.12(a).
“ Commitments ” shall mean (a) with respect to any Lender, such Lender’s Revolving Facility Commitment and Term Facility Commitment and (b) with respect to any Swingline Lender, its Swingline Commitment (it being understood that a Swingline Commitment does not increase the applicable Swingline Lender’s Revolving Facility Commitment).
“ Commodity Exchange Act ” shall mean the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“ Conduit Lender ” shall mean any special purpose corporation organized and administered by any Lender for the purpose of making Loans otherwise required to be made by such Lender and designated by such Lender in a written instrument; provided , that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all consents and waivers required or requested under this Agreement with respect to its Conduit Lender; provided , further , that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Sections 2.15, 2.16, 2.17 or 9.05 than the designating Lender would have been entitled to receive in respect of the extensions of credit made by such Conduit Lender unless the designation of such Conduit Lender is made with the prior written consent of the Borrower (not to be unreasonably withheld or delayed), which consent shall specify that it is being made pursuant to the proviso in the definition of Conduit Lender and provided , that the designating Lender provides such information as the Borrower reasonably requests in order for the Borrower to determine whether to provide its consent or (b) be deemed to have any Commitment.
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“ Consolidated Debt ” at any date shall mean the sum of (without duplication) all Indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of Capitalized Lease Obligations, Indebtedness for borrowed money and Disqualified Stock of the Borrower and the Subsidiaries determined on a consolidated basis on such date in accordance with GAAP.
“ Consolidated Net Income ” shall mean, with respect to any person for any period, the aggregate of the Net Income of such person and its subsidiaries for such period, on a consolidated basis; provided , however , that, without duplication,
(i) any net after-tax extraordinary, nonrecurring or unusual gains or losses or income or expense or charge (less all fees and expenses relating thereto), including any severance, relocation or other restructuring expenses, any expenses related to any New Project or any reconstruction, decommissioning, recommissioning or reconfiguration of fixed assets for alternative uses, fees, expenses or charges relating to facilities closing costs, curtailments or modifications to pension and post-retirement employee benefit plans, excess pension charges, acquisition integration costs, facilities opening costs, signing, retention or completion bonuses, and expenses or charges related to any offering of Equity Interests or debt securities of the Borrower, Holdings or any Parent Entity, any Investment, acquisition, Disposition, recapitalization or issuance, repayment, refinancing, amendment or modification of Indebtedness (in each case, whether or not successful), and any fees, expenses, charges or change in control payments related to the Transactions (including any costs relating to auditing prior periods, any transition-related expenses, and Transaction Expenses incurred before, on or after the Closing Date), in each case, shall be excluded,
(ii) any net after-tax income or loss from Disposed of, abandoned, closed or discontinued operations or fixed assets and any net after-tax gain or loss on the Dispositions of Disposed of, abandoned, closed or discontinued operations or fixed assets shall be excluded,
(iii) any net after-tax gain or loss (less all fees and expenses or charges relating thereto) attributable to business Dispositions or asset Dispositions other than in the ordinary course of business (as determined in good faith by the management of the Borrower) shall be excluded,
(iv) any net after-tax income or loss (less all fees and expenses or charges relating thereto) attributable to the early extinguishment of indebtedness, Hedging Agreements or other derivative instruments shall be excluded,
(v) (A) the Net Income for such period of any person that is not a subsidiary of such person, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent person or a subsidiary thereof (other than an Unrestricted Subsidiary of such referent person) in respect of such period and (B) the Net Income for such period shall include any dividend, distribution or other payment in cash (or to the extent converted into cash) received by the referent person or a subsidiary thereof (other than an Unrestricted Subsidiary of such referent person) from any person in excess of, but without duplication of, the amounts included in subclause (A),
(vi) the cumulative effect of a change in accounting principles during such period shall be excluded,
(vii) effects of purchase accounting adjustments (including the effects of such adjustments pushed down to such person and its subsidiaries) in component amounts required or permitted by GAAP, resulting from the application of purchase accounting or the amortization or write-off of any amounts thereof, net of taxes, shall be excluded,
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(viii) any impairment charges or asset write-offs, in each case pursuant to GAAP, and the amortization of intangibles and other fair value adjustments arising pursuant to GAAP, shall be excluded,
(ix) any non-cash compensation charge or expenses realized or resulting from stock option plans, employee benefit plans or post-employment benefit plans, or grants or sales of stock, stock appreciation or similar rights, stock options, restricted stock, preferred stock or other rights shall be excluded,
(x) accruals and reserves that are established or adjusted within twelve months after the Closing Date and that are so required to be established or adjusted in accordance with GAAP or as a result of adoption or modification of accounting policies shall be excluded,
(xi) non-cash gains, losses, income and expenses resulting from fair value accounting required by the applicable standard under GAAP and related interpretation shall be excluded,
(xii) [Reserved],
(xiii) any non-cash charges for deferred tax asset valuation allowances shall be excluded,
(xiv) any currency translation gains and losses related to currency remeasurements of Indebtedness, and any net loss or gain resulting from Hedging Agreements for currency exchange risk, shall be excluded,
(xv) any deductions attributable to minority interests shall be excluded,
(xvi) (A) the non-cash portion of “straight-line” rent expense shall be excluded and (B) the cash portion of “straight-line” rent expense which exceeds the amount expensed in respect of such rent expense shall be included,
(xvii) (A) to the extent covered by insurance and actually reimbursed, or, so long as such person has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is (x) not denied by the applicable carrier in writing within 180 days and (y) in fact reimbursed within 365 days following the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within such 365 days), expenses with respect to liability or casualty events or business interruption shall be excluded; and (B) amounts estimated in good faith to be received from insurance in respect of lost revenues or earnings in respect of liability or casualty events or business interruption shall be included (with a deduction for amounts actually received up to such estimated amount to the extent included in Net Income in a future period), and
(xviii) without duplication, an amount equal to the amount of distributions actually made to any parent or equity holder of such person in respect of such period in accordance with Section 6.06(b)(v) shall be included as though such amounts had been paid as income taxes directly by such person for such period.
“ Consolidated Total Assets ” shall mean, as of any date of determination, the total assets of the Borrower and the consolidated Subsidiaries without giving effect to any amortization of the amount of intangible assets since December 31, 2013, determined on a consolidated basis in accordance with GAAP, as set forth on the consolidated balance sheet of the Borrower as of the last day of the fiscal quarter most recently ended for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b), as applicable, calculated on a Pro Forma Basis after giving effect to any acquisition or Disposition of a person or assets that may have occurred on or after the last day of such fiscal quarter. For purposes of testing whether any Lien, Investment, Immaterial Subsidiary, Disposition, Indebtedness or other item that is incurred (or made) based on a basket or threshold related to Consolidated Total Assets, such item shall be permitted if such basket or threshold was available on the date of such incurrence (or making) even if Consolidated Total Assets subsequently decreases.
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“ Continuing Letter of Credit ” shall have the meaning assigned to such term in Section 2.05(k).
“ Control ” shall mean 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 ownership of voting securities, by contract or otherwise, and “ Controlling ” and “ Controlled ” shall have meanings correlative thereto.
“ Credit Event ” shall have the meaning assigned to such term in Article IV.
“ Cumulative Credit ” shall mean, at any date, an amount, not less than zero in the aggregate, determined on a cumulative basis equal to, without duplication:
(a) $30,000,000, plus
(b) the Cumulative Retained Excess Cash Flow Amount at such time, plus
(c) the aggregate amount of proceeds received after the Closing Date and prior to such time that would have constituted Net Proceeds pursuant to clause (a) of the definition thereof, except for the operation of clause (x), (y) or (z) of the second proviso thereof (the “ Below Threshold Asset Sale Proceeds ”), plus
(d) (i) the cumulative amount of proceeds (including cash and the fair market value (as determined in good faith by the Borrower) of property other than cash) from the sale of Equity Interests of the Borrower, Holdings or any Parent Entity after the Closing Date and on or prior to such time (including upon exercise of warrants or options), which proceeds have been contributed as common equity to the capital of the Borrower, and (ii) common Equity Interests of the Borrower, Holdings or any Parent Entity issued upon conversion of Indebtedness after the Closing Date (other than Indebtedness that is contractually subordinated to the Loan Obligations in right of payment) of the Borrower or any Subsidiary owed to a person other than the Borrower or a Subsidiary not previously applied for a purpose other than use in the Cumulative Credit; provided , that this clause (d) shall exclude Permitted Cure Securities, proceeds of Equity Interests referred to in Section 6.01(p), proceeds of Excluded Contributions, sales of Equity Interests financed as contemplated by Section 6.04(e) or used as described in clause (ix) of the definition of EBITDA and any amounts used to finance the payments or distributions in respect of any Junior Financing pursuant to Section 6.09(b), plus
(e) 100% of the aggregate amount of contributions as common equity to the capital of the Borrower received in cash (and the fair market value (as determined in good faith by the Borrower) of property other than cash) after the Closing Date (subject to the same exclusions as are applicable to clause (d) above); plus
(f) 100% of the aggregate principal amount of any Indebtedness (including the liquidation preference or maximum fixed repurchase price, as the case may be, of any Disqualified Stock) of the Borrower or any Subsidiary thereof issued after the Closing Date (other than Indebtedness issued to a Subsidiary), which has been converted into or exchanged for Equity Interests (other than Disqualified Stock) in the Borrower, Holdings or any Parent Entity, plus
(g) 100% of the aggregate amount received by the Borrower or any Subsidiary in cash (and the fair market value (as determined in good faith by the Borrower) of property other than cash received by the Borrower or any Subsidiary) after the Closing Date from:
(A) the sale (other than to the Borrower or any Subsidiary) of the Equity Interests of an Unrestricted Subsidiary that was originally designated as such by use of the Cumulative Credit, or
(B) any dividend or other distribution by an Unrestricted Subsidiary that was originally designated as such by use of the Cumulative Credit, plus
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(h) in the event any Unrestricted Subsidiary that was originally designated as such by use of the Cumulative Credit has been redesignated as a Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, Holdings, the Borrower or any Subsidiary, the fair market value (as determined in good faith by the Borrower) of the Investments of Holdings, the Borrower or any Subsidiary in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable), plus
(i) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received by the Borrower or any Subsidiary after the Closing Date in respect of any Investments made pursuant to Section 6.04(j)(Y), minus
(j) any amounts thereof used to make Investments pursuant to Section 6.04(j)(Y) after the Closing Date prior to such time, minus
(k) any amount thereof used to make Restricted Payments pursuant to Section 6.06(e) after the Closing Date prior to such time, minus
(l) any amount thereof used to make payments or distributions in respect of Junior Financings pursuant to Section 6.09(b)(i)(E) after the Closing Date prior to such time (other than payments made with proceeds from the issuance of Equity Interests that were excluded from the calculation of the Cumulative Credit pursuant to clause (d) above);
provided , however , (A) for purposes of Section 6.06(e), the calculation of the Cumulative Credit shall not include any Below Threshold Asset Sale Proceeds except to the extent they are used as contemplated in clause (k) above and (B) the Cumulative Credit shall only be increased pursuant to clause (b) above with respect to any Excess Cash Flow Period if Excess Cash Flow for such Excess Cash Flow Period exceeds the ECF Threshold Amount) (or, with respect to any Excess Cash Flow Interim Period, a pro rata portion of such amount).
“ Cumulative Retained Excess Cash Flow Amount ” shall mean, at any date, an amount (which shall not be less than zero in the aggregate) determined on a cumulative basis equal to:
(a) the aggregate cumulative sum of the Retained Percentage of Excess Cash Flow for all Excess Cash Flow Periods ending after the Closing Date and prior to such date, plus
(b) for each Excess Cash Flow Interim Period ended prior to such date but as to which the corresponding Excess Cash Flow Period has not ended, an amount equal to the Retained Percentage of Excess Cash Flow for such Excess Cash Flow Interim Period, minus
(c) the cumulative amount of all Retained Excess Cash Flow Overfundings as of such date.
“ Cure Amount ” shall have the meaning assigned to such term in Section 7.03.
“ Cure Right ” shall have the meaning assigned to such term in Section 7.03.
“ Current Assets ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis at any date of determination, the sum of (a) all assets (other than cash and Permitted Investments or other cash equivalents) that would, in accordance with GAAP, be classified on a consolidated balance sheet of the Borrower and the Subsidiaries as current assets at such date of determination, other than amounts related to current or deferred Taxes based on income or profits, and (b) in the event that a Permitted Receivables Financing is accounted for off balance sheet, (x) gross accounts receivable comprising part of the Receivables Assets subject to such Permitted Receivables Financing less (y) collections against the amounts sold pursuant to clause (x).
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“ Current Liabilities ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis at any date of determination, all liabilities that would, in accordance with GAAP, be classified on a consolidated balance sheet of the Borrower and the Subsidiaries as current liabilities at such date of determination, other than (a) the current portion of any Indebtedness, (b) accruals of Interest Expense (excluding Interest Expense that is due and unpaid), (c) accruals for current or deferred Taxes based on income or profits, (d) accruals, if any, of transaction costs resulting from the Transactions, (e) accruals of any costs or expenses related to (i) severance or termination of employees prior to the Closing Date or (ii) bonuses, pension and other post-retirement benefit obligations, and (f) accruals for add-backs to EBITDA included in clauses (a)(iv), (a)(v), and (a)(vii) of the definition of such term.
“ Custodian ” shall mean Wilmington Trust, National Association acting as custodian pursuant to the Custodian Agreement, together with its successors and assigns in such capacity.
“ Custodian Agreement ” shall mean the Custodian Agreement dated as of the date hereof as amended, restated, supplemented or otherwise modified from time to time, among the Custodian, the Collateral Agent, AP Gaming II, Inc., AGS LLC, the Borrower and AGS Capital, LLC.
“ Customer Development Agreement ” shall mean any loan agreement or other financing instrument entered into in the ordinary course of business pursuant to which the Borrower or one of its Subsidiaries extends credit from time to time or makes payments to a customer party on one or more equipment and/or supplies lease or sale agreements with the Borrower or its Subsidiaries to finance such customer’s operation of the leased or purchased equipment and/or supplies (including rental or purchase payments owed to the Borrower or any of its Subsidiaries) and/or the development or acquisition of video gaming routes.
“ Customer Note ” shall mean any promissory note issued pursuant to a Customer Development Agreement by the customer borrower thereunder and made payable to the Borrower or a Subsidiary to evidence all obligations owed by such customer under such Customer Development Agreement.
“ Debt Fund Affiliate Lender ” shall mean entities managed by the Fund or funds advised by its affiliated management companies that are primarily engaged in, or advises funds or other investment vehicles that are engaged in, making, purchasing, holding or otherwise investing in commercial loans, bonds and similar extensions of credit or securities in the ordinary course and for which no personnel making investment decisions in respect of any equity fund which has a direct or indirect equity investment in Holdings, the Borrower or its Subsidiaries has the right to make any investment decisions.
“ Debt Service ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis for any period, Cash Interest Expense for such period plus scheduled principal amortization of Consolidated Debt for such period.
“ Debtor Relief Laws ” shall mean the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States of America or other applicable jurisdictions from time to time in effect.
“ Default ” shall mean any event or condition that upon notice, lapse of time or both would constitute an Event of Default.
“ Defaulting Lender ” shall mean, subject to Section 2.22, any Lender that (a) has failed to (i) fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder or (ii) pay to the Administrative Agent, any Issuing Bank, the Swingline Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline Loans) within two Business Days of the date when due, (b) has notified the Borrower, the Swingline Lender, Administrative Agent or any Issuing Bank in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder ( provided , that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower) or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a
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proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action ( provided , that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States of America or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender). Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.22) upon delivery of written notice of such determination to the Borrower, each Issuing Bank, the Swingline Lender and each Lender.
“ Designated Non-Cash Consideration ” shall mean the fair market value (as determined in good faith by the Borrower) of non-cash consideration received by the Borrower or one of its Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-Cash Consideration pursuant to a certificate of a Responsible Officer of the Borrower, setting forth such valuation, less the amount of cash or cash equivalents received in connection with a subsequent disposition of such Designated Non-Cash Consideration.
“ Disinterested Director ” shall mean, with respect to any person and transaction, a member of the Board of Directors of such person who does not have any material direct or indirect financial interest in or with respect to such transaction.
“ Dispose ” or “ Disposed of ” shall mean to convey, sell, lease, sell and leaseback, assign, farm-out, transfer or otherwise dispose of any property, business or asset. The term “Disposition” shall have a correlative meaning to the foregoing.
“ Disqualification ” shall mean, with respect to any Lender:
(a) the failure of that person timely to file pursuant to applicable Gaming Laws:
(i) any application requested of that person by any Gaming Authority in connection with any licensing required of that person as a lender to the Borrower; or
(ii) any required application or other papers in connection with determination of the suitability of that person as a lender to the Borrower;
(b) the withdrawal by that person (except where requested or permitted by the Gaming Authority) of any such application or other required papers;
(c) any finding by a Gaming Authority that there is reasonable cause to believe that such person may be found unqualified or unsuitable; or
(d) any final determination by a Gaming Authority pursuant to applicable Gaming Laws:
(i) that such person is “unsuitable” as a lender to the Borrower;
(ii) that such person shall be “disqualified” as a lender to the Borrower; or
(iii) denying the issuance to that person of any license or other approval required under applicable Gaming Laws to be held by all lenders to the Borrower.
The word “ Disqualified ” as used herein shall have a meaning correlative thereto.
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“ Disqualified Stock ” shall mean, with respect to any person, any Equity Interests of such person that, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Loan Obligations that are accrued and payable and the termination of the Commitments), (b) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part, (c) provides for the scheduled payments of dividends in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Stock, in each case, prior to the date that is ninety-one (91) days after the Latest Maturity Date in effect at the time of issuance thereof ( provided , that only the portion of the Equity Interests that so mature or are mandatorily redeemable, are so convertible or exchangeable or are so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock). Notwithstanding the foregoing: (i) any Equity Interests issued to any employee or to any plan for the benefit of employees of the Borrower or the Subsidiaries or by any such plan to such employees shall not constitute Disqualified Stock solely because they may be required to be repurchased by the Borrower in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability and (ii) any class of Equity Interests of such person that by its terms authorizes such person to satisfy its obligations thereunder by delivery of Equity Interests that are not Disqualified Stock shall not be deemed to be Disqualified Stock.
“ Dollar Equivalent ” shall mean, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any currency other than Dollars, the equivalent amount thereof in Dollars as determined by the Administrative Agent at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date or other applicable date of determination) for the purchase of Dollars with such currency.
“ Dollars ” or “ $ ” shall mean lawful money of the United States of America.
“ Domestic Subsidiary ” shall mean any Subsidiary that is not a Foreign Subsidiary.
“ EBITDA ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis for any period, the Consolidated Net Income of the Borrower and the Subsidiaries for such period plus (a) the sum of (in each case without duplication and to the extent the respective amounts described in subclauses (i) through (xiv) of this clause (a) reduced such Consolidated Net Income (and were not excluded therefrom) for the respective period for which EBITDA is being determined):
(i) provision for Taxes based on income, profits or capital of the Borrower and the Subsidiaries for such period, including, without limitation, state, franchise and similar taxes and foreign withholding taxes (including penalties and interest related to taxes or arising from tax examinations),
(ii) Interest Expense (and to the extent not included in Interest Expense, (x) all cash dividend payments (excluding items eliminated in consolidation) on any series of preferred stock or Disqualified Stock and (y) costs of surety bonds in connection with financing activities) of the Borrower and the Subsidiaries for such period,
(iii) depreciation and amortization expenses of the Borrower and the Subsidiaries for such period including the amortization of intangible assets, deferred financing fees, customer placement fees and Capitalized Software Expenditures and amortization of unrecognized prior service costs and actuarial gains and losses related to pensions and other post-employment benefits,
(iv) business optimization expenses and other restructuring charges or reserves (which, for the avoidance of doubt, shall include the effect of inventory optimization programs, facility closure, facility consolidations, retention, severance, systems establishment costs, contract termination costs, future lease commitments and excess pension charges); provided , that with respect to each business optimization expense or other restructuring charge, a Responsible Officer of the Borrower shall have delivered to the Administrative Agent an officer’s certificate specifying and quantifying such expense or charge,
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(v) any other non-cash charges; provided , that for purposes of this subclause (v) of this clause (a), any non-cash charges or losses shall be treated as cash charges or losses in any subsequent period during which cash disbursements attributable thereto are made (but excluding, for the avoidance of doubt, amortization of a prepaid cash item that was paid in a prior period),
(vi) the amount of management, consulting, monitoring, transaction and advisory fees and related expenses paid to the Fund or any Fund Affiliate (or any accruals related to such fees and related expenses) during such period not in contravention of this Agreement,
(vii) any expenses or charges (other than depreciation or amortization expense as described in the preceding clause (iii)) related to any issuance of Equity Interests, Investment, acquisition, New Project, Disposition, recapitalization or the incurrence, modification or repayment of Indebtedness permitted to be incurred by this Agreement (including a refinancing thereof) (whether or not successful), including (x) such fees, expenses or charges related to this Agreement, (y) any amendment or other modification of the Obligations or other Indebtedness and (z) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Permitted Receivables Financing,
(viii) the amount of loss on sale of receivables and related assets to a Special Purpose Receivables Subsidiary in connection with a Permitted Receivables Financing,
(ix) any costs or expense incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed to the capital of the Borrower or a Subsidiary Loan Party (other than contributions received from the Borrower or another Subsidiary Loan Party) or net cash proceeds of an issuance of Equity Interests of the Borrower (other than Disqualified Stock),
(x) non-operating expenses,
(xi) the amount of any loss attributable to a New Project, until the date that is 12 months after the date of completing the construction, acquisition, assembling or creation of such New Project, as the case may be; provided , that (A) such losses are reasonably identifiable and factually supportable and certified by a Responsible Officer of the Borrower and (B) losses attributable to such New Project after 12 months from the date of completing such construction, acquisition, assembling or creation, as the case may be, shall not be included in this clause (xi),
(xii) with respect to any joint venture that is not a Subsidiary and solely to the extent relating to any net income referred to in clause (v) of the definition of “Consolidated Net Income”, an amount equal to the proportion of those items described in clauses (i) and (ii) above relating to such joint venture corresponding to the Borrower’s and the Subsidiaries’ proportionate share of such joint venture’s Consolidated Net Income (determined as if such joint venture were a Subsidiary), and
(xiii) one-time costs associated with commencing Public Company Compliance;
minus (b) the sum of (without duplication and to the extent the amounts described in this clause (b) increased such Consolidated Net Income for the respective period for which EBITDA is being determined) non-cash items increasing Consolidated Net Income of the Borrower and the Subsidiaries for such period (but excluding any such items (A) in respect of which cash was received in a prior period or will be received in a future period or (B) which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges that reduced EBITDA in any prior period).
“ ECF Threshold Amount ” shall have the meaning assigned to such term in Section 2.11(c).
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“ EEA Financial Institution ” shall mean (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“ EEA Member Country ” shall mean any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” shall mean any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ EMU Legislation ” shall mean the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.
“ Environment ” shall mean ambient and indoor air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources such as flora and fauna, the workplace or as otherwise defined in any Environmental Law.
“ Environmental Laws ” shall mean all applicable laws (including common law), rules, regulations, codes, ordinances, orders, binding agreements, decrees or judgments, promulgated or entered into by or with any Governmental Authority, relating in any way to the Environment, preservation or reclamation of natural resources, the generation, management, Release or threatened Release of, or exposure to, any Hazardous Material or to occupational health and safety matters (to the extent relating to the Environment or Hazardous Materials).
“ Environmental Permits ” shall have the meaning assigned to such term in Section 3.16.
“ Equity Interests ” of any person shall mean any and all shares, interests, rights to purchase or otherwise acquire, warrants, options, participations or other equivalents of or interests in (however designated) equity or ownership of such person, including any preferred stock, any limited or general partnership interest and any limited liability company membership interest, and any securities or other rights or interests convertible into or exchangeable for any of the foregoing.
“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time and any final regulations promulgated and the rulings issued thereunder.
“ ERISA Affiliate ” shall mean any trade or business (whether or not incorporated) that, together with Holdings, the Borrower or a Subsidiary, is treated as a single employer under Section 414(b) or (c) of the Code, or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“ ERISA Event ” shall mean (a) any Reportable Event or the requirements of Section 4043(b) of ERISA apply with respect to a Plan; (b) with respect to any Plan, the failure to satisfy the minimum funding standard under Section 412 of the Code or Section 302 of ERISA, whether or not waived; (c) a determination that any Plan is, or is expected to be, in “at-risk” status (as defined in Section 303(i)(4) of ERISA or Section 430(i)(4) of the Code); (d) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan, the failure to make by its due date a required installment under Section 430(j) of the Code with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan; (e) the incurrence by Holdings, the Borrower, a Subsidiary or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan or Multiemployer Plan; (f) the receipt by Holdings, the Borrower, a Subsidiary or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or to appoint a trustee to administer any Plan under Section 4042 of ERISA; (g) the incurrence by Holdings, the Borrower, a Subsidiary or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; (h) the receipt by Holdings, the Borrower, a Subsidiary or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from Holdings, the Borrower, a Subsidiary or any ERISA Affiliate of any notice, concerning the impending imposition of
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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, or in “endangered” or “critical” status, within the meaning of Section 432 of the Code or Section 305 of ERISA; (i) the conditions for imposition of a lien under Section 303(k) of ERISA shall have been met with respect to any Plan; or (j) the withdrawal of any of Holdings, the Borrower, a Subsidiary or any ERISA Affiliate from a Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA.
“ EU Bail-In Legislation Schedule ” shall mean the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“ Euro ” shall mean the lawful currency of the Participating Member States introduced in accordance with the EMU Legislation.
“ Eurocurrency Borrowing ” shall mean a Borrowing comprised of Eurocurrency Loans.
“ Eurocurrency Loan ” shall mean any Eurocurrency Term Loan or Eurocurrency Revolving Loan.
“ Eurocurrency Revolving Facility Borrowing ” shall mean a Borrowing comprised of Eurocurrency Revolving Loans.
“ Eurocurrency Revolving Loan ” shall mean any Revolving Facility Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II.
“ Eurocurrency Term Loan ” shall mean any Term Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II.
“ Event of Default ” shall have the meaning assigned to such term in Section 7.01.
“ Excess Cash Flow ” shall mean, with respect to the Borrower and its Subsidiaries on a consolidated basis for any Applicable Period, EBITDA of the Borrower and its Subsidiaries on a consolidated basis for such Applicable Period, minus , without duplication, (A):
(a) Debt Service for such Applicable Period,
(b) the amount of any voluntary prepayment permitted hereunder of term Indebtedness during such Applicable Period (other than any voluntary prepayment of the Term Loans, which shall be the subject of Section 2.11(c)) and the amount of any voluntary prepayments of revolving Indebtedness to the extent accompanied by permanent reductions of any revolving facility commitments (other than any voluntary prepayments of the Revolving Facility Commitment, which shall be the subject of Section 2.11(c)) during such Applicable Period to the extent an equal amount of loans thereunder was simultaneously repaid, so long as the amount of such prepayment is not already reflected in Debt Service,
(c) (i) Capital Expenditures and Capitalized Software Expenditures by the Borrower and the Subsidiaries on a consolidated basis during such Applicable Period that are paid in cash and (ii) the aggregate consideration paid in cash during the Applicable Period in respect of Permitted Business Acquisitions, New Project expenditures and other Investments permitted hereunder (excluding Permitted Investments and intercompany Investments in Subsidiaries),
(d) Capital Expenditures, Capitalized Software Expenditures, Permitted Business Acquisitions, New Project expenditures or other Investments permitted hereunder (excluding Permitted Investments and intercompany Investments in Subsidiaries) that the Borrower or any Subsidiary shall, during such Applicable Period, become obligated to make or otherwise anticipated to make payments with respect thereto but that are not made during such Applicable Period; provided , that (i) the Borrower shall deliver a certificate to the Administrative Agent not later than 90 days after the end of such Applicable
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Period, signed by a Responsible Officer of the Borrower and certifying that payments in respect of such Capital Expenditures, Capitalized Software Expenditures, Permitted Business Acquisitions, New Project expenditures or other Investments permitted hereunder (excluding Permitted Investments and intercompany Investments in Subsidiaries) are expected to be made in the following Excess Cash Flow Period, and (ii) any amount so deducted shall not be deducted again in a subsequent Applicable Period,
(e) Taxes paid in cash by Holdings and its Subsidiaries on a consolidated basis during such Applicable Period or that will be paid within six months after the close of such Applicable Period; provided , that with respect to any such amounts to be paid after the close of such Applicable Period, (i) any amount so deducted shall not be deducted again in a subsequent Applicable Period, and (ii) appropriate reserves shall have been established in accordance with GAAP,
(f) (i) an amount equal to any increase in Working Capital of the Borrower and its Subsidiaries for such Applicable Period and any anticipated increase, estimated by the Borrower in good faith, for the following Excess Cash Flow Period and (ii) an amount equal to any increase in non-current Canadian tax receivables of the Borrower and its Subsidiaries for such Applicable Period and any anticipated increase, estimated by the Borrower in good faith, for the following Excess Cash Flow Period,
(g) cash expenditures made in respect of Hedging Agreements during such Applicable Period, to the extent not reflected in the computation of EBITDA or Interest Expense,
(h) permitted Restricted Payments paid in cash by the Borrower during such Applicable Period and permitted Restricted Payments paid by any Subsidiary to any person other than Holdings, the Borrower or any of the Subsidiaries during such Applicable Period, in each case in accordance with Section 6.06 (other than Section 6.06(e), except to the extent such Restricted Payments were financed with internally-generated cash flow of the Borrower or any Subsidiary),
(i) amounts paid in cash during such Applicable Period on account of (A) items that were accounted for as non-cash reductions of Net Income in determining Consolidated Net Income or as non-cash reductions of Consolidated Net Income in determining EBITDA of the Borrower and its Subsidiaries in a prior Applicable Period and (B) reserves or accruals established in purchase accounting,
(j) to the extent not deducted in the computation of Net Proceeds in respect of any asset disposition or condemnation giving rise thereto, the amount of any mandatory prepayment of Indebtedness (other than Indebtedness created hereunder or under any other Loan Document), together with any interest, premium or penalties required to be paid (and actually paid) in connection therewith, and
(k) the amount related to items that were added to or not deducted from Net Income in calculating Consolidated Net Income or were added to or not deducted from Consolidated Net Income in calculating EBITDA to the extent such items represented a cash payment (which had not reduced Excess Cash Flow upon the accrual thereof in a prior Applicable Period), or an accrual for a cash payment, by the Borrower and its Subsidiaries or did not represent cash received by the Borrower and its Subsidiaries, in each case on a consolidated basis during such Applicable Period,
plus , without duplication, (B):
(a) (i) an amount equal to any decrease in Working Capital of the Borrower and its Subsidiaries for such Applicable Period and (ii) an amount equal to any decrease in non-current Canadian tax receivables of the Borrower and its Subsidiaries for such Applicable Period,
(b) all amounts referred to in clauses (A)(b), (A)(c) and (A)(d) above to the extent funded with the proceeds of the issuance or the incurrence of Indebtedness (including Capitalized Lease Obligations and purchase money Indebtedness, but excluding proceeds of extensions of credit under any revolving credit facility), the sale or issuance of any Equity Interests (including any capital contributions) and any loss, damage, destruction or condemnation of, or any sale, transfer or other disposition (including any sale and leaseback of assets and any mortgage or lease of Real Property) to any person of any asset or assets, in each case to the extent there is a corresponding deduction from Excess Cash Flow above,
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(c) to the extent any permitted Capital Expenditures, Permitted Business Acquisitions, New Project Expenditures or permitted Investments referred to in clause (A)(d) above do not occur in the following Applicable Period of the Borrower specified in the certificate of the Borrower provided pursuant to clause (A)(d) above, the amount of such Capital Expenditures, Permitted Business Acquisitions, New Project Expenditures or permitted Investments that were not so made in such following Applicable Period,
(d) cash payments received in respect of Hedging Agreements during such Applicable Period to the extent (i) not included in the computation of EBITDA or (ii) such payments do not reduce Cash Interest Expense,
(e) any extraordinary or nonrecurring gain realized in cash during such Applicable Period (except to the extent such gain consists of Net Proceeds subject to Section 2.11(b)), and
(f) the amount related to items that were deducted from or not added to Net Income in connection with calculating Consolidated Net Income or were deducted from or not added to Consolidated Net Income in calculating EBITDA to the extent either (i) such items represented cash received by the Borrower or any Subsidiary or (ii) such items do not represent cash paid by the Borrower or any Subsidiary, in each case on a consolidated basis during such Applicable Period.
“ Excess Cash Flow Interim Period ” shall mean, (x) during any Excess Cash Flow Period, any one, two, or three-quarter period (a) commencing on the later of (i) the end of the immediately preceding Excess Cash Flow Period and (ii) if applicable, the end of any prior Excess Cash Flow Interim Period occurring during the same Excess Cash Flow Period and (b) ending on the last day of the most recently ended fiscal quarter (other than the last day of the fiscal year) during such Excess Cash Flow Period for which financial statements are available and (y) during the period from the Closing Date until the beginning of the first Excess Cash Flow Period, any period commencing on the Closing Date and ending on the last day of the most recently ended fiscal quarter for which financial statements are available.
“ Excess Cash Flow Period ” shall mean each fiscal year of the Borrower, commencing with the fiscal year of the Borrower ending on December 31, 2018.
“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
“ Excluded Contributions ” shall mean the amount received in cash (and the fair market value (as determined by the Borrower in good faith) of property other than cash) by the Borrower after the Closing Date from:
(a) contributions to its common Equity Interests, and
(b) the sale (other than to a Subsidiary of the Borrower or to any Subsidiary management equity plan or stock option plan or any other management or employee benefit plan or agreement) of Equity Interests (other than Disqualified Stock) of the Borrower,
in each case designated as Excluded Contributions pursuant to an officer’s certificate from a Responsible Officer of the Borrower on or promptly after the date on which such capital contributions are made or the date on which such Equity Interests is sold, as the case may be.
“ Excluded Indebtedness ” shall mean all Indebtedness not incurred in violation of Section 6.01.
“ Excluded Property ” shall have the meaning assigned to such term in Section 5.10(g).
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“ Excluded Securities ” shall mean any of the following:
(a) any Equity Interests or Indebtedness with respect to which the Collateral Agent and the Borrower reasonably agree, in writing, that the cost or other consequences of pledging such Equity Interests or Indebtedness in favor of the Secured Parties under the Security Documents are likely to be excessive in relation to the value to be afforded thereby;
(b) in the case of any pledge of voting Equity Interests of any Foreign Subsidiary (in each case, that is owned directly by the Borrower or a Subsidiary Loan Party) to secure the Obligations, any voting Equity Interest of such Foreign Subsidiary in excess of 65% of the outstanding Equity Interests of such class;
(c) in the case of any pledge of voting Equity Interests of any FSHCO (in each case, that is owned directly by the Borrower or a Subsidiary Loan Party) to secure the Obligations, any voting Equity Interest of such FSHCO in excess of 65% of the outstanding Equity Interests of such class;
(d) any Equity Interests or Indebtedness to the extent and for so long as the pledge thereof would be prohibited by any Requirement of Law (including Gaming Laws);
(e) any Equity Interests of any person that is not a Wholly Owned Subsidiary to the extent (A) that a pledge thereof to secure the Obligations is prohibited by (i) any applicable organizational documents, joint venture agreement or shareholder agreement or (ii) any other enforceable contractual obligation with an unaffiliated third party not in violation of Section 6.09(c) binding on such Equity Interests that existed at the time of the acquisition thereof and was not created or made binding on such Equity Interests in contemplation of or in connection with the acquisition of such Equity Interests (except in the case of Equity Interests (A) owned on the Closing Date or (B) acquired after the Closing Date with Indebtedness of the type permitted under clause (i) or (j) of Section 6.01) (other than, in the case of subclause (A)(i) and this subclause (A)(ii), customary non-assignment provisions which are ineffective under Article 9 of the Uniform Commercial Code or other applicable Requirements of Law), (B) any organizational documents, joint venture agreement or shareholder agreement (or other contractual obligation referred to in subclause (A)(ii) above) prohibits such a pledge without the consent of any other party; provided , that this clause (B) shall not apply if (1) such other party is a Loan Party or a Wholly Owned Subsidiary or (2) consent has been obtained to consummate such pledge (it being understood that the foregoing shall not be deemed to obligate the Borrower or any Subsidiary to obtain any such consent) and for so long as such organizational documents, joint venture agreement or shareholder agreement or replacement or renewal thereof is in effect, or (C) a pledge thereof to secure the Obligations would give any other party (other than a Loan Party or a Wholly Owned Subsidiary) to any organizational documents, joint venture agreement or shareholder agreement governing such Equity Interests (or other contractual obligation referred to in subclause (A)(ii) above) the right to terminate its obligations thereunder (other than, in the case of other contractual obligations referred to in subclause (A)(ii), customary non-assignment provisions which are ineffective under Article 9 of the Uniform Commercial Code or other applicable Requirement of Law);
(f) any Equity Interests of any Immaterial Subsidiary and any Unrestricted Subsidiary;
(g) any Equity Interests of any Subsidiary of, or other Equity Interests owned by, a Foreign Subsidiary;
(h) any Equity Interests of any Subsidiary to the extent that the pledge of such Equity Interests could reasonably be expected to result in material adverse tax consequences to the Borrower or any Subsidiary as reasonably determined in good faith by the Borrower;
(i) any Equity Interests set forth on Schedule 1.01(A) to this Agreement which have been identified on or prior to the Closing Date in writing to the Agent by a Responsible Officer of the Borrower and agreed to by the Administrative Agent;
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(j) (x) any Equity Interests owned by Holdings, other than Equity Interests in the Borrower and (y) any Indebtedness owned by Holdings; and
(k) any Margin Stock.
“ Excluded Subsidiary ” shall mean any of the following (except as otherwise provided in clause (b) of the definition of Subsidiary Loan Party):
(a) each Immaterial Subsidiary,
(b) each Domestic Subsidiary that is not a Wholly Owned Subsidiary (for so long as such Subsidiary remains a non-Wholly Owned Subsidiary),
(c) each Domestic Subsidiary that is prohibited from guaranteeing or granting Liens to secure the Obligations by any Requirement of Law (including Gaming Laws) or that would require consent, approval, license or authorization of a Governmental Authority to guarantee or grant Liens to secure the Obligations (unless such consent, approval, license or authorization has been received),
(d) each Domestic Subsidiary that is prohibited by any applicable contractual requirement from guaranteeing or granting Liens to secure the Obligations on the Closing Date or at the time such Subsidiary becomes a Subsidiary not in violation of Section 6.09(c) (and for so long as such restriction or any replacement or renewal thereof is in effect),
(e) any Special Purpose Receivables Subsidiary,
(f) any Foreign Subsidiary,
(g) any Domestic Subsidiary (i) that is an FSHCO or (ii) that is a Subsidiary of a Foreign Subsidiary,
(h) any other Domestic Subsidiary with respect to which, (x) the Administrative Agent and the Borrower reasonably agree that the cost or other consequences of providing a Guarantee of or granting Liens to secure the Obligations are likely to be excessive in relation to the value to be afforded thereby or (y) providing such a Guarantee or granting such Liens could reasonably be expected to result in material adverse tax consequences as determined in good faith by the Borrower, and
(i) each Unrestricted Subsidiary.
“ Excluded Swap Obligation ” shall mean, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such 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) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation, unless otherwise agreed between the Administrative Agent and the Borrower. 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.
“ Excluded Taxes ” shall mean, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder or under any other Loan Document, (i) Taxes imposed on or measured by its overall net income or branch profits (however denominated, and including (for the avoidance of doubt) any backup withholding in respect thereof under Section 3406 of the Code or any similar provision of state, local or foreign law), and franchise (and similar) Taxes imposed on it (in lieu of net
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income Taxes), in each case by a jurisdiction (including any political subdivision thereof) as a result of such recipient being organized in, having its principal office in, or in the case of any Lender, having its applicable lending office in, such jurisdiction, or as a result of any other present or former connection with such jurisdiction (other than any such connection arising solely from this Agreement or any other Loan Documents or any transactions contemplated thereunder), (ii) U.S. federal withholding Tax imposed on any payment by or on account of any obligation of any Loan Party hereunder or under any other Loan Document that is required to be imposed on amounts payable to a Lender (other than to the extent such Lender is an assignee pursuant to a request by the Borrower under Section 2.19(b) or 2.19(c)) pursuant to laws in force at the time such Lender becomes a party hereto (or designates a new lending office), except to the extent that such Lender (or its assignor, if any) was entitled, immediately prior to the designation of a new lending office (or assignment), to receive additional amounts or indemnification payments from any Loan Party with respect to such withholding Tax pursuant to Section 2.17, (iii) any withholding Tax imposed on any payment by or on account of any obligation of any Loan Party hereunder or under any other Loan Document that is attributable to the Administrative Agent’s, any Lender’s or any other recipient’s failure to comply with Section 2.17(d) or (e) or (iv) any Tax imposed under FATCA.
“ Existing Class Loans ” shall have the meaning assigned to such term in Section 9.08(f).
“ Existing Credit Agreement ” shall have the meaning assigned to such term in the second recital hereto.
“ Extended Revolving Facility Commitment ” shall have the meaning assigned to such term in Section 2.21(e).
“ Extended Revolving Loan ” shall have the meaning assigned to such term in Section 2.21(e).
“ Extended Term Loan ” shall have the meaning assigned to such term in Section 2.21(e).
“ Extending Lender ” shall have the meaning assigned to such term in Section 2.21(e).
“ Extension ” shall have the meaning assigned to such term in Section 2.21(e).
“ Facility ” shall mean the respective facility and commitments utilized in making Loans and credit extensions hereunder, it being understood that, as of the Closing Date there are two Facilities (i.e., the Term B Facility and the Revolving Facility Commitments established on the Closing Date and the extensions of credit thereunder) and thereafter, the term “Facility” may include any other Class of Commitments and the extensions of credit thereunder.
“ FATCA ” shall mean 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), or any Treasury regulations promulgated thereunder or official administrative interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code.
“ Federal Funds Effective Rate ” shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it; provided that if the Federal Funds Effective Rate shall be less than zero, such rate shall be deemed zero.
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“ Fees ” shall mean the Commitment Fees, the L/C Participation Fees, the Issuing Bank Fees and the Administrative Agent Fees.
“ Financial Covenant ” shall mean the covenant of the Borrower set forth in Section 6.11.
“ Financial Officer ” of any person shall mean the Chief Financial Officer, principal accounting officer, Treasurer, Assistant Treasurer or Controller of such person, or a duly authorized employee of such person who is a Financial Officer of a subsidiary of such person.
“ First Lien/First Lien Intercreditor Agreement ” shall mean an intercreditor agreement in a customary form reasonably acceptable to the Administrative Agent and the Borrower, in each case, as such document may be amended, restated, supplemented or otherwise modified from time to time.
“ First Lien/Second Lien Intercreditor Agreement ” shall mean an intercreditor agreement in a customary form reasonably acceptable to the Administrative Agent and the Borrower, in each case, as such document may be amended, restated, supplemented or otherwise modified from time to time.
“ Flood Documentation ” shall mean, with respect to each Mortgaged Property located in the United States of America or any territory thereof, (i) a completed “life-of-loan” Federal Emergency Management Agency standard flood hazard determination, and, to the extent a Mortgaged Property is located in a Special Flood Hazard Area, a notice about Special Flood Hazard Area status and flood disaster assistance duly executed by the Borrower and the applicable Loan Party relating thereto and (ii) a copy of, or a certificate as to coverage under, and a declaration page relating to, the insurance policies required by Section 5.02(c) hereof and the applicable provisions of the Security Documents, each of which shall (A) be endorsed or otherwise amended to include a “standard” or “New York” lender’s loss payable or mortgagee endorsement (as applicable), (B) name the Collateral Agent, on behalf of the Secured Parties, as additional insured and loss payee/mortgagee, (C) identify the address of each property located in a Special Flood Hazard Area, the applicable flood zone designation and the flood insurance coverage and deductible relating thereto and (D) be otherwise in form and substance reasonably satisfactory to the Collateral Agent.
“ Flood Insurance Laws ” shall mean, collectively, (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statute thereto, (iii) the National Flood Insurance Reform Act of 1994 as now or hereafter in effect or any successor statute thereto, (iv) the Flood Insurance Reform Act of 2004 as now or hereafter in effect or any successor statute thereto and (v) the Biggert-Waters Flood Insurance Reform Act of 2012 as now or hereafter in effect or any successor statute thereto.
“ Foreign Lender ” shall mean any Lender (a) that is not disregarded as separate from its owner for U.S. federal income tax purposes and that is not a “United States person” as defined by Section 7701(a)(30) of the Code or (b) that is disregarded as separate from its owner for U.S. federal income tax purposes and whose regarded owner is not a “United States person” as defined in Section 7701(a)(30) of the Code.
“ Foreign Subsidiary ” shall mean any Subsidiary that is incorporated or organized under the laws of any jurisdiction other than the United States of America, any state thereof or the District of Columbia.
“ Fronting Exposure ” shall mean, at any time there is a Defaulting Lender, (a) with respect to any Issuing Bank, such Defaulting Lender’s Revolving Facility Percentage of Revolving L/C Exposure with respect to Letters of Credit issued by such Issuing Bank other than such Revolving L/C Exposure as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof and (b) with respect to the Swingline Lender, such Defaulting Lender’s Swingline Exposure other than Swingline Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders.
“ FSHCO ” shall mean any Subsidiary that owns no material assets other than the Equity Interests of one or more Foreign Subsidiaries that are CFCs and/or of one or more FSHCOs.
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“ Fund ” shall mean, collectively, investment funds managed by Affiliates of Apollo Global Management, LLC.
“ Fund Affiliate ” shall mean (i) each Affiliate of the Fund that is neither a “portfolio company” (which means a company actively engaged in providing goods or services to unaffiliated customers), whether or not controlled, nor a company controlled by a “portfolio company” and (ii) any individual who is a partner or employee of Apollo Management, L.P., Apollo Management VIII, L.P. or Apollo Commodities Management, L.P.
“ GAAP ” shall mean generally accepted accounting principles in effect from time to time in the United States of America, applied on a consistent basis, subject to the provisions of Section 1.02; provided , that any reference to the application of GAAP in Sections 3.13(b), 3.20, 5.03, 5.07 and 6.02(e) to a Foreign Subsidiary (and not as a consolidated Subsidiary of the Borrower) shall mean generally accepted accounting principles in effect from time to time in the jurisdiction of organization of such Foreign Subsidiary.
“ Gaming Authority ” shall mean any commission, panel, board or similar body or organization of any Governmental Authority or of any Indian Tribe, in each case, with authority to regulate gaming or other games of chance or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations in a jurisdiction.
“ Gaming Laws ” shall mean all laws, rules, regulations, judgments, injunctions, orders, decrees or other restrictions of any Gaming Authority, applicable to the business or activities of the Borrower or any of its Subsidiaries, including to the extent applicable, the gaming industry or Indian Tribes or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations.
“ Governmental Authority ” shall mean any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory or legislative body, including any Gaming Authority.
“ Guarantee ” of or by any person (the “ guarantor ”) shall mean (a) any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation payable or performable by another person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) 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, (iii) 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 (iv) entered into for the purpose of assuring in any other manner the holders of such Indebtedness or other obligation of the payment thereof or to protect such holders against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of the guarantor securing any Indebtedness or other obligation (or any existing right, contingent or otherwise, of the holder of Indebtedness or other obligation to be secured by such a Lien) of any other person, whether or not such Indebtedness or other obligation is assumed by the guarantor; provided , however , that the term “Guarantee” shall not include endorsements of instruments for deposit or collection in the ordinary course of business or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition or Disposition of assets permitted by this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such person in good faith.
“ guarantor ” shall have the meaning assigned to such term in the definition of the term “Guarantee.”
“ Guarantors ” shall mean the Loan Parties other than the Borrower.
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“ Hazardous Materials ” shall mean all pollutants, contaminants, wastes, chemicals, materials, substances and constituents, including, without limitation, explosive or radioactive substances or petroleum by products or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas or pesticides, fungicides, fertilizers or other agricultural chemicals, of any nature subject to regulation or which can give rise to liability under any Environmental Law.
“ Hedge Bank ” shall mean any person that is (or an Affiliate thereof is) an Agent, an Arranger or a Lender on the Closing Date (or any person that becomes an Agent, Arranger or Lender or Affiliate thereof after the Closing Date) and that enters into a Hedging Agreement, in each case, in its capacity as a party to such Hedging Agreement.
“ Hedging Agreement ” shall mean 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 credit spread transaction, repurchase transaction, reserve repurchase transaction, securities lending transaction, weather index transaction, spot contracts, fixed price physical delivery contracts, or any similar transaction or any combination of these transactions, in each case of the foregoing, whether or not exchange traded; 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 Holdings, the Borrower or any of the Subsidiaries shall be a Hedging Agreement.
“ High Yield-Style Loans ” shall mean, at any time of determination, term loans governed by documentation containing a set of negative covenants substantially similar to those customary in the high-yield bond market at such time (as determined by the Borrower in good faith).
“ Holdco PIK Notes ” shall mean the 11.25% Senior Secured PIK Notes issued by AP Gaming Holdco, Inc. on May 29, 2015.
“ Holdings ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Holdings Guarantee and Pledge Agreement ” shall mean the Holdings Guarantee and Pledge Agreement dated as of the date hereof, as amended, restated, supplemented or otherwise modified from time to time, between Holdings and the Collateral Agent.
“ Immaterial Subsidiary ” shall mean any Subsidiary that (a) did not, as of the last day of the fiscal quarter of the Borrower most recently ended for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b), have assets with a value in excess of 5.0% of the Consolidated Total Assets or revenues representing in excess of 5.0% of total revenues of the Borrower and the Subsidiaries on a consolidated basis as of such date, and (b) taken together with all Immaterial Subsidiaries as of such date, did not have assets with a value in excess of 10% of Consolidated Total Assets or revenues representing in excess of 10% of total revenues of the Borrower and the Subsidiaries on a consolidated basis as of such date; provided , that the Borrower may elect in its sole discretion to exclude as an Immaterial Subsidiary any Subsidiary that would otherwise meet the definition thereof.
“ Increased Amount ” of any Indebtedness shall mean any increase in the amount of such Indebtedness in connection with any accrual of interest, the accretion of accreted value, the amortization of original issue discount, the payment of interest in the form of additional Indebtedness or in the form of common stock of the Borrower, the accretion of original issue discount or liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies.
“ Incremental Amount ” shall mean, at any time, the sum of:
(i) the excess (if any) of (a) $75,000,000 over (b) the sum of (x) the aggregate outstanding principal amount of all Incremental Term Loans and Incremental Revolving Facility Commitments, in each case, incurred or established after the Closing Date and outstanding at such time pursuant to Section 2.21 utilizing this clause (i) (other than Incremental Term Loans and Incremental Revolving Facility
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Commitments in respect of Refinancing Term Loans, Extended Term Loans, Extended Revolving Facility Commitments or Replacement Revolving Facility Commitments, respectively) and (y) the aggregate principal amount of Indebtedness outstanding under Section 6.01(z) at such time that was incurred utilizing this clause (i); plus
(ii) any amounts so long as immediately after giving effect to the establishment of the commitments in respect thereof utilizing this clause (ii) (and assuming any Incremental Revolving Facility Commitments established at such time utilizing this clause (ii) are fully drawn unless such commitments have been drawn or have otherwise been terminated) (or, at the option of the Borrower, immediately after giving effect to the incurrence of the Incremental Loans thereunder) and the use of proceeds of the loans thereunder, (a) in the case of Indebtedness secured by Liens on the Collateral that rank pari passu with the Liens on the Collateral securing the Term B Loans, the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.25 to 1.00 and (b) in the case of any other Indebtedness, the Total Net Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to1.00; provided that, for purposes of this clause (ii), the net cash proceeds of Incremental Loans incurred at such time shall not be netted against the applicable amount of Consolidated Debt for purposes of such calculation of the Net First Lien Leverage Ratio or the Total Net Leverage Ratio on such date of incurrence; plus
(iii) the aggregate amount of all voluntary prepayments of Term B Loans outstanding on the Closing Date and Revolving Facility Loans pursuant to Section 2.11(a) (and accompanied by a reduction of Revolving Facility Commitments pursuant to Section 2.08(b) in the case of a prepayment of Revolving Facility Loans) made prior to such time except to the extent funded with the proceeds of long-term Indebtedness (other than revolving Indebtedness);
provided , that, for the avoidance of doubt, (A) amounts may be established or incurred utilizing clause (ii) above prior to utilizing clause (i) or (iii) above and (B) any calculation of the Net First Lien Leverage Ratio or the Total Net Leverage Ratio on a Pro Forma Basis pursuant to clause (ii) above may be determined, at the option of the Borrower, without giving effect to any simultaneous establishment or incurrence of any amounts utilizing clause (i) or (iii) above.
“ Incremental Assumption Agreement ” shall mean an Incremental Assumption Agreement in form and substance reasonably satisfactory to the Administrative Agent, among the Borrower, the Administrative Agent and, if applicable, one or more Incremental Term Lenders and/or Incremental Revolving Facility Lenders.
“ Incremental Commitment ” shall mean an Incremental Term Loan Commitment or an Incremental Revolving Facility Commitment.
“ Incremental Loan ” shall mean an Incremental Term Loan or an Incremental Revolving Loan.
“ Incremental Revolving Facility Commitment ” shall mean the commitment of any Lender, established pursuant to Section 2.21, to make Incremental Revolving Loans to the Borrower.
“ Incremental Revolving Facility Lender ” shall mean a Lender with an Incremental Revolving Facility Commitment or an outstanding Incremental Revolving Loan.
“ Incremental Revolving Loan ” shall mean (i) Revolving Facility Loans made by one or more Revolving Facility Lenders to the Borrower pursuant to an Incremental Revolving Facility Commitment to make additional Initial Revolving Loans and (ii) to the extent permitted by Section 2.21 and provided for in the relevant Incremental Assumption Agreement, Other Revolving Loans (including in the form of Extended Revolving Loans or Replacement Revolving Loans, as applicable), or (iii) any of the foregoing.
“ Incremental Term Borrowing ” shall mean a Borrowing comprised of Incremental Term Loans.
“ Incremental Term Facility ” shall mean any Class of Incremental Term Loan Commitments and the Incremental Term Loans made thereunder.
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“ Incremental Term Lender ” shall mean a Lender with an Incremental Term Loan Commitment or an outstanding Incremental Term Loan.
“ Incremental Term Loan Commitment ” shall mean the commitment of any Lender, established pursuant to Section 2.21, to make Incremental Term Loans to the Borrower.
“ Incremental Term Loan Installment Date ” shall have, with respect to any Class of Incremental Term Loans established pursuant to an Incremental Assumption Agreement, the meaning assigned to such term in Section 2.10(a)(ii).
“I ncremental Term Loans ” shall mean (i) Term Loans made by one or more Lenders to the Borrower pursuant to Section 2.01(c) consisting of additional Term B Loans and (ii) to the extent permitted by Section 2.21 and provided for in the relevant Incremental Assumption Agreement, Other Term Loans (including in the form of Extended Term Loans or Refinancing Term Loans, as applicable), or (iii) any of the foregoing.
“ Indebtedness ” of any person shall mean, if and to the extent (other than with respect to clause (i)) the same would constitute indebtedness or a liability in accordance with GAAP, 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 under conditional sale or other title retention agreements relating to property or assets purchased by such person, to the extent that the same would be required to be shown as a long term liability on a balance sheet prepared in accordance with GAAP, (d) all obligations of such person issued or assumed as the deferred purchase price of property or services (other than such obligations accrued in the ordinary course), to the extent that the same would be required to be shown as a long term liability on a balance sheet prepared in accordance with GAAP, (e) all Capitalized Lease Obligations of such person, (f) all net payments that such person would have to make in the event of an early termination, on the date Indebtedness of such person is being determined, in respect of outstanding Hedging Agreements, (g) the principal component of all obligations, contingent or otherwise, of such person as an account party in respect of letters of credit, (h) the principal component of all obligations of such person in respect of bankers’ acceptances, (i) all Guarantees by such person of Indebtedness described in clauses (a) to (h) above and (j) the amount of all obligations of such person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (excluding accrued dividends that have not increased the liquidation preference of such Disqualified Stock); provided , that Indebtedness shall not include (A) trade and other ordinary-course payables, accrued expenses, and intercompany liabilities arising in the ordinary course of business, (B) prepaid or deferred revenue, (C) purchase price holdbacks arising in the ordinary course of business in respect of a portion of the purchase prices of an asset to satisfy unperformed obligations of the seller of such asset, (D) earn-out obligations until such obligations become a liability on the balance sheet of such person in accordance with GAAP, (E) obligations in respect of Third Party Funds or (F) in the case of the Borrower and its Subsidiaries, (I) all intercompany Indebtedness having a term not exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary course of business and (II) intercompany liabilities in connection with the cash management, tax and accounting operations of the Borrower and the Subsidiaries. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner, other than to the extent that the instrument or agreement evidencing such Indebtedness limits the liability of such person in respect thereof. To the extent not otherwise included, Indebtedness shall include the amount of any Receivables Net Investment.
“ Indemnified Taxes ” shall mean all Taxes imposed on or with respect to or measured by any payment by or on account of any obligation of any Loan Party hereunder or under any other Loan Document other than (a) Excluded Taxes and (b) Other Taxes.
“ Indemnitee ” shall have the meaning assigned to such term in Section 9.05(b).
“ Indian Tribe ” shall mean any United States Native American Indian tribe, band, nation or other organized group or community recognized by the Secretary of the Interior of the United States of America as being eligible for special status as Indians and recognized as possessing powers of self-government.
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“ Ineligible Institution ” shall mean the persons identified in writing to the Administrative Agent by the Borrower on or prior to the Closing Date, and as may be identified in writing to the Administrative Agent by the Borrower from time to time thereafter in respect of bona fide business competitors of the Borrower (in the good faith determination of the Borrower) by delivery of a notice thereof to the Administrative Agent setting forth such person or persons (or the person or persons previously identified to the Administrative Agent that are to be no longer considered “Ineligible Institutions”); provided , that no such updates pursuant to this clause (ii) shall be deemed to retroactively disqualify any parties that have previously acquired an assignment or participation interest in respect of the Loans from continuing to hold or vote such previously acquired assignments and participations on the terms set forth herein for Lenders that are not Ineligible Institutions.
“ Information ” shall have the meaning assigned to such term in Section 3.14(a).
“ Information Memorandum ” shall mean the Confidential Information Memorandum, dated May 2017, as modified or supplemented prior to the Closing Date.
“ Initial Revolving Loan ” shall mean a Revolving Facility Loan made (i) pursuant to the Revolving Facility Commitments in effect on the Closing Date (as the same may be amended from time to time in accordance with this Agreement) or (ii) pursuant to any Incremental Revolving Facility Commitment on the same terms as the Revolving Facility Loans referred to in clause (i) of this definition.
“ Intellectual Property ” shall have the meaning assigned to such term in the Collateral Agreement.
“ Intercreditor Agreement ” shall have the meaning assigned to such term in Section 8.11.
“ Interest Election Request ” shall mean a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.07 and substantially in the form of Exhibit E or another form approved by the Administrative Agent.
“ Interest Expense ” shall mean, with respect to any person for any period, the sum of (a) gross interest expense of such person for such period on a consolidated basis, including (i) the amortization of debt discounts, (ii) the amortization of all fees (including fees with respect to Hedging Agreements) payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of any payments or accruals with respect to Capitalized Lease Obligations allocable to interest expense, (b) capitalized interest of such person, and (c) commissions, discounts, yield and other fees and charges incurred in connection with any Permitted Receivables Financing which are payable to any person other than the Borrower or a Subsidiary Loan Party. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received and costs incurred by the Borrower and the Subsidiaries with respect to Hedging Agreements, and interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Borrower to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
“ Interest Payment Date ” shall mean, (a) with respect to any Eurocurrency Loan, (i) the last day of the Interest Period applicable to the Borrowing of which such Loan is a part, (ii) in the case of a Eurocurrency Borrowing with an Interest Period of more than three months’ duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months’ duration been applicable to such Borrowing and (iii) in addition, the date of any refinancing or conversion of such Borrowing with or to a Borrowing of a different Type or the date of repayment or prepayment in accordance with Section 2.10 or 2.11, (b) with respect to any ABR Loan, the last Business Day of each calendar quarter and (c) with respect to any Swingline Loan, the day that such Swingline Loan is required to be repaid pursuant to Section 2.09(a).
“ Interest Period ” shall mean, as to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as applicable, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter (or 12 months, if at the time of the relevant Borrowing, all relevant Lenders make interest periods of such length available or, if agreed to by the Administrative Agent, any shorter period), as the Borrower may elect; provided , however , that 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 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. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.
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“ Investment ” shall have the meaning assigned to such term in Section 6.04.
“ IRS ” shall mean the U.S. Internal Revenue Service.
“ ISP ” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).
“ Issuing Bank ” shall mean each of (i) Jefferies Finance LLC, (ii) Macquarie Capital Funding LLC and (iii) each other Issuing Bank designated pursuant to Section 2.05(l), in each case in its capacity as an issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.05(i). An Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates or designees of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate or designee with respect to Letters of Credit issued by such Affiliate or designee. Jefferies Finance LLC will cause Letters of Credit to be issued by unaffiliated financial institutions and such Letters of Credit shall be treated as issued by Jefferies Finance LLC for all purposes under the Loan Documents.
“ Issuing Bank Fees ” shall have the meaning assigned to such term in Section 2.12(b).
“ Joint Bookrunners ” shall mean Jefferies Finance LLC and Macquarie Capital (USA) Inc.
“Judgment Currency ” shall have the meaning assigned to such term in Section 9.19.
“ L/C Disbursement ” shall mean a payment or disbursement made by an Issuing Bank pursuant to a Letter of Credit.
“ L/C Participation Fee ” shall have the meaning assigned to such term in Section 2.12(b).
“ Latest Maturity Date ” shall mean, at any date of determination, the latest of the latest Revolving Facility Maturity Date and the latest Term Facility Maturity Date, in each case then in effect on such date of determination.
“ Lender ” shall mean each financial institution listed on Schedule 2.01 (other than any such person that has ceased to be a party hereto pursuant to an Assignment and Acceptance in accordance with Section 9.04), as well as any person that becomes a “Lender” hereunder pursuant to Section 9.04 or Section 2.21. Unless the context clearly indicates otherwise, the term “Lenders” shall include any Swingline Lender.
“ Lending Office ” shall mean, as to any Lender, the applicable branch, office or Affiliate of such Lender designated by such Lender to make Loans.
“ Letter of Credit ” shall mean any letter of credit or bank guarantee issued pursuant to Section 2.05, including any Alternate Currency Letter of Credit.
“ Letter of Credit Commitment ” shall mean, with respect to each Issuing Bank, the commitment of such Issuing Bank to issue Letters of Credit pursuant to Section 2.05.
“ Letter of Credit Sublimit ” shall mean the aggregate Letter of Credit Commitments of the Issuing Banks, in an amount not to exceed $7,500,000 (or the equivalent thereof in an Alternate Currency) or such larger amount not to exceed the Revolving Facility Commitment as the Administrative Agent and the applicable Issuing Bank may agree.
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“ LIBO Rate ” shall mean for any Interest Period as to any Eurocurrency Loan, (i) the rate per annum determined by the Administrative Agent to be the offered rate which appears on the page of the Reuters Screen which displays the London interbank offered rate administered by ICE Benchmark Administration Limited (such page currently being the LIBOR01 page) for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 a.m. (London, England time), two Business Days prior to the commencement of such Interest Period, or (ii) in the event the rate referenced in the preceding clause (i) does not appear on such page or service or if such page or service shall cease to be available, the rate determined by the Administrative Agent to be the offered rate on such other page or other service which displays the LIBO Rate for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 a.m. (London, England time) two Business Days prior to the commencement of such Interest Period; provided that if LIBO Rates are quoted under either of the preceding clauses (i) or (ii), but there is no such quotation for the Interest Period elected, the LIBO Rate shall be equal to the Interpolated Rate; and provided , further , that if any such rate determined pursuant to the preceding clauses (i) or (ii) is below zero, the LIBO Rate will be deemed to be zero.
“ Lien ” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, hypothecation, pledge, charge, security interest or similar monetary encumbrance in or on such asset and (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; provided , that in no event shall an operating lease or an agreement to sell be deemed to constitute a Lien.
“ Loan Documents ” shall mean (i) this Agreement, (ii) the Subsidiary Guarantee Agreement, (iii) the Security Documents, (iv) each Incremental Assumption Agreement, (v) any Note issued under Section 2.09(e), (vi) the Letters of Credit and (vii) solely for the purposes of Sections 4.02 and 7.01 hereof, the Administrative Agent Fee Letter; provided that, for purposes of the expense reimbursement and indemnity provisions in Section 8.07 and Section 9.05 only, the First Lien/First Lien Intercreditor Agreement (if entered into) and the First Lien/Second Lien Intercreditor Agreement (if entered into) shall be deemed to be “Loan Documents”.
“ Loan Obligations ” shall mean (a) the due and punctual payment by the Borrower of (i) the unpaid principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans made to the Borrower under this Agreement, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under this Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) and obligations to provide Cash Collateral and (iii) all other monetary obligations of the Borrower owed under or pursuant to this Agreement and each other Loan Document, including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), and (b) the due and punctual payment of all obligations of each other Loan Party under or pursuant to each of the Loan Documents.
“ Loan Parties ” shall mean Holdings (prior to a Qualified IPO of the Borrower), the Borrower and the Subsidiary Loan Parties.
“ Loans ” shall mean the Term Loans, the Revolving Facility Loans and the Swingline Loans.
“ Local Time ” shall mean New York City time (daylight or standard, as applicable).
“ Majority Lenders ” of any Facility shall mean, at any time, Lenders under such Facility having Loans and unused Commitments representing more than 50% of the sum of all Loans outstanding under such Facility and unused Commitments under such Facility at such time. The Loans and unused Commitments of any Defaulting Lenders shall be disregarded in determining Majority Lenders at any time.
“ Management Group ” shall mean the group consisting of the directors, executive officers and other management personnel of the Borrower, Holdings or any Parent Entity, as the case may be, on the Closing Date together with (a) any new directors whose election by such boards of directors or whose nomination for election by
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the shareholders of the Borrower, Holdings or any Parent Entity, as the case may be, was approved by a vote of a majority of the directors of the Borrower, Holdings or any Parent Entity, as the case may be, then still in office who were either directors on the Closing Date or whose election or nomination was previously so approved and (b) executive officers and other management personnel of the Borrower, Holdings or any Parent Entity, as the case may be, hired at a time when the directors on the Closing Date together with the directors so approved constituted a majority of the directors of the Borrower or Holdings, as the case may be.
“ Margin Stock ” shall have the meaning assigned to such term in Regulation U.
“ Material Adverse Effect ” shall mean a material adverse effect on the business, property, operations or financial condition of the Borrower and its Subsidiaries, taken as a whole, or the validity or enforceability of any of the Loan Documents or the rights and remedies of the Administrative Agent and the Lenders thereunder.
“ Material Indebtedness ” shall mean Indebtedness (other than Loans and Letters of Credit) of any one or more of the Borrower or any Subsidiary in an aggregate principal amount exceeding $15,000,000.
“ Material Real Property ” shall mean any parcel or parcels of Real Property located in the United States now or hereafter owned in fee by the Borrower or any Subsidiary Loan Party and having a fair market value (on a per-property basis) of at least $5,000,000 as of (x) the Closing Date, for Real Property now owned or (y) the date of acquisition, for Real Property acquired after the Closing Date, in each case as determined by the Borrower in good faith.
“ Material Subsidiary ” shall mean any Subsidiary other than an Immaterial Subsidiary.
“ Maximum Rate ” shall have the meaning assigned to such term in Section 9.09.
“ Minimum L/C Collateral Amount ” shall mean, at any time, in connection with any Letter of Credit, (i) with respect to Cash Collateral consisting of cash or deposit account balances, an amount equal to 103% of the Revolving L/C Exposure with respect to such Letter of Credit at such time and (ii) otherwise, an amount sufficient to provide credit support with respect to such Revolving L/C Exposure as determined by the Administrative Agent and the Issuing Banks in their sole discretion.
“ Moody’s ” shall mean Moody’s Investors Service, Inc.
“ Mortgaged Properties ” shall mean the Material Real Properties owned in fee by the Borrower or any Subsidiary Loan Party that are set forth on Schedule 1.01(B) and each additional Material Real Property encumbered by a Mortgage pursuant to Section 5.10.
“ Mortgages ” shall mean, collectively, the mortgages, trust deeds, deeds of trust, deeds to secure debt, assignments of leases and rents, and other security documents (including amendments to any of the foregoing) delivered with respect to Mortgaged Properties, each in a form reasonably acceptable to the Administrative Agent as amended, supplemented or otherwise modified from time to time.
“ Multiemployer Plan ” shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Borrower, Holdings or any Subsidiary or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414) is making or accruing an obligation to make contributions, or has within any of the preceding six plan years made or accrued an obligation to make contributions.
“ Net First Lien Leverage Ratio ” shall mean, on any date, the ratio of (A) (i) the sum of, without duplication, (a) the aggregate principal amount of any Term B Loans and Revolving Facility Loans outstanding as of the last day of the Test Period most recently ended as of such date and (b) the aggregate principal amount of any other Consolidated Debt (including Capitalized Lease Obligations) of the Borrower and its Subsidiaries as of the last day of such Test Period that is then secured by Liens that are senior to or pari passu with the Liens securing the Term B Loans less (ii) without duplication, up to $50,000,000 of Unrestricted Cash and unrestricted Permitted Investments of the Borrower and its Subsidiaries as of the last day of such Test Period, to (B) EBITDA for such Test Period, all determined on a consolidated basis in accordance with GAAP; provided , that the Net First Lien Leverage Ratio shall be determined for the relevant Test Period on a Pro Forma Basis.
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“ Net Income ” shall mean, with respect to any person, the net income (loss) of such person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends.
“ Net Proceeds ” shall mean:
(a) 100% of the cash proceeds actually received by the Borrower or any Subsidiary Loan Party (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise and including casualty insurance settlements and condemnation awards, but only as and when received) from any Asset Sale (other than any Asset Sales pursuant to Section 6.05(a), (b), (c), (d), (e), (f), (h), (i), (j), (k) and (l)), net of (i) attorneys’ fees, accountants’ fees, investment banking fees, survey costs, title insurance premiums, and related search and recording charges, transfer taxes, deed or mortgage recording taxes, required debt payments and required payments of other obligations relating to the applicable asset to the extent such debt or obligations are secured by a Lien permitted hereunder (other than pursuant to the Loan Documents) on such asset, other customary expenses and brokerage, consultant and other customary fees actually incurred in connection therewith, (ii) Taxes paid or payable (in the good faith determination of the Borrower) as a result thereof, and (iii) the amount of any reasonable reserve established in accordance with GAAP against any adjustment to the sale price or any liabilities (other than any taxes deducted pursuant to clause (i) or (ii) above) (x) related to any of the applicable assets and (y) retained by the Borrower or any of the Subsidiaries including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations (however, the amount of any subsequent reduction of such reserve (other than in connection with a payment in respect of any such liability) shall be deemed to be cash proceeds of such Asset Sale occurring on the date of such reduction); provided , that, if Holdings or the Borrower shall deliver a certificate of a Responsible Officer of Holdings or the Borrower to the Administrative Agent promptly following receipt of any such proceeds setting forth Holdings’ or the Borrower’s intention to use any portion of such proceeds, to acquire, maintain, develop, construct, improve, upgrade or repair assets useful in the business of the Borrower and the Subsidiaries or to make Permitted Business Acquisitions and other Investments permitted hereunder (excluding Permitted Investments and intercompany Investments in Subsidiaries) in each case within 12 months of such receipt, such portion of such proceeds shall not constitute Net Proceeds except to the extent not, within 12 months of such receipt, so used or contractually committed to be so used (it being understood that if any portion of such proceeds are not so used within such 12 month period but within such 12 month period are contractually committed to be used, then such remaining portion if not so used within six months following the end of such 12 month period shall constitute Net Proceeds as of such date without giving effect to this proviso); provided , further , that (x) no net cash proceeds calculated in accordance with the foregoing realized in a single transaction or series of related transactions shall constitute Net Proceeds unless such net cash proceeds shall exceed $6,000,000 (and thereafter only net cash proceeds in excess of such amount shall constitute Net Proceeds), (y) no net cash proceeds calculated in accordance with the foregoing shall constitute Net Proceeds in any fiscal year until the aggregate amount of all such net cash proceeds in such fiscal year shall exceed $12,000,000 (and thereafter only net cash proceeds in excess of such amount shall constitute Net Proceeds) and (z) if at the time of receipt of such net cash proceeds or at any time during the 12-month (or 18-month, as applicable) reinvestment period contemplated by the immediately preceding proviso, if Holdings or the Borrower shall deliver a certificate of a Responsible Officer of Holdings or the Borrower to the Administrative Agent certifying that on a Pro Forma Basis after giving effect to the Asset Sale and the application of the proceeds thereof, the Total Net Leverage Ratio is less than or equal to 3.00 to 1.00, up to $20,000,000 of such proceeds shall not constitute Net Proceeds; and
(b) 100% of the cash proceeds from the incurrence, issuance or sale by the Borrower or any Subsidiary Loan Party of any Indebtedness (other than Excluded Indebtedness), net of all taxes and fees (including investment banking fees), commissions, costs and other expenses, in each case incurred in connection with such issuance or sale.
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“ New Class Loans ” shall have the meaning assigned to such term in Section 9.08(f).
“ New Project ” shall mean (x) each plant, facility or branch which is either a new plant, facility or branch or an expansion of an existing plant, facility or branch owned by the Borrower or the Subsidiaries which in fact commences operations and (y) each creation (in one or a series of related transactions) of a business unit to the extent such business unit commences operations or each expansion (in one or a series of related transactions, and including the process of obtaining regulatory approvals for entering into any new geographical jurisdiction) of business into a new market.
“ Non-Consenting Lender ” shall have the meaning assigned to such term in Section 2.19(c).
“ Non-Defaulting Lender ” shall mean, at any time, each Lender that is not a Defaulting Lender at such time.
“ Note ” shall have the meaning assigned to such term in Section 2.09(e).
“ Obligations ” shall mean, collectively, (a) the Loan Obligations, (b) obligations in respect of any Secured Cash Management Agreement and (c) obligations in respect of any Secured Hedge Agreement.
“ OFAC ” shall have the meaning provided in Section 3.25(b).
“ Other Revolving Facility Commitments ” shall mean Incremental Revolving Facility Commitments to make Other Revolving Loans.
“ Other Revolving Loans ” shall have the meaning assigned to such term in Section 2.21.
“ Other Taxes ” shall mean any and all present or future stamp or documentary Taxes or any other excise, transfer, sales, property, intangible, mortgage recording or similar Taxes arising from any payment made hereunder or under any other Loan Document or from the execution, registration, delivery or enforcement of, consummation or administration of, from the receipt or perfection of security interest under, or otherwise with respect to, the Loan Documents (but excluding any Excluded Taxes).
“ Other Term Loans ” shall have the meaning assigned to such term in Section 2.21 (including in the form of Extended Term Loans or Refinancing Term Loans, as applicable).
“ Parent Entity ” shall mean any direct or indirect parent of the Borrower other than Holdings.
“ Pari Term Loans ” shall have the meaning assigned to such term in Section 6.02.
“ Pari Yield Differential ” shall have the meaning assigned to such term in Section 6.02.
“ Participant ” shall have the meaning assigned to such term in Section 9.04(d)(i).
“ Participant Register ” shall have the meaning assigned to such term in Section 9.04(d)(ii).
“ PBGC ” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
“ Perfection Certificate ” shall mean the Perfection Certificate with respect to the Borrower and the other Loan Parties in a form reasonably satisfactory to the Administrative Agent, as the same may be supplemented from time to time to the extent required by Section 5.04(f).
“ Permitted Business Acquisition ” shall mean any acquisition of all or substantially all the assets of, or all or substantially all the Equity Interests (other than directors’ qualifying shares) not previously held by the Borrower and its Subsidiaries in, or merger, consolidation or amalgamation with, a person or division or line of business of a person (or any subsequent investment made in a person, division or line of business previously acquired in a Permitted Business Acquisition), if immediately after giving effect thereto: (i) no Default or Event of Default shall
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have occurred and be continuing or would result therefrom; (ii) all transactions related thereto shall be consummated in accordance with applicable laws; (iii) with respect to any such acquisition or investment with cash consideration in excess of $10,000,000, the Borrower shall be in Pro Forma Compliance immediately after giving effect to such acquisition or investment and any related transaction; (iv) any acquired or newly formed Subsidiary shall not be liable for any Indebtedness except for Indebtedness permitted by Section 6.01; (v) to the extent required by Section 5.10, any person acquired in such acquisition, if acquired by the Borrower or a Domestic Subsidiary, shall be merged into the Borrower or a Subsidiary Loan Party or become upon consummation of such acquisition a Subsidiary Loan Party; and (vi) the aggregate cash consideration in respect of such acquisitions and investments in assets that are not owned by the Borrower or Subsidiary Loan Parties or in Equity Interests in persons that are not Subsidiary Loan Parties or do not become Subsidiary Loan Parties upon consummation of such acquisition shall not exceed the greater of (x) $30,000,000 and (y) 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period.
“ Permitted Cure Securities ” shall mean any equity securities of the Borrower, Holdings or any Parent Entity issued pursuant to the Cure Right other than Disqualified Stock.
“ Permitted Holder Group ” shall have the meaning assigned to such term in the definition of “Permitted Holders.”
“ Permitted Holders ” shall mean (i) the Co-Investors, (ii) any person that has no material assets other than the capital stock of the Borrower, Holdings or any Parent Entity and that, directly or indirectly, holds or acquires beneficial ownership of 100% on a fully diluted basis of the voting Equity Interests of the Borrower, and of which no other person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Closing Date), other than any of the other Permitted Holders, beneficially owns more than 50% on a fully diluted basis of the voting Equity Interests thereof and (iii) any “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Closing Date) the members of which include any of the other Permitted Holders specified in clause (i) or (ii) and that, directly or indirectly, hold or acquire beneficial ownership of the voting Equity Interests of the Borrower (a “ Permitted Holder Group ”), so long as (1) each member of the Permitted Holder Group has voting rights proportional to the percentage of ownership interests held or acquired by such member and (2) no person or other “group” (other than the other Permitted Holders) beneficially owns more than 50% on a fully diluted basis of the voting Equity Interests held by the Permitted Holder Group.
“ Permitted Investments ” shall mean:
(a) direct obligations of the United States of America or any member of the European Union or any agency thereof or obligations guaranteed by the United States of America or any member of the European Union or any agency thereof, in each case with maturities not exceeding two years;
(b) time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company that is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits in excess of $250,000,000 and whose long-term debt, or whose parent holding company’s long-term debt, is rated A (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act));
(c) repurchase obligations with a term of not more than 180 days for underlying securities of the types described in clause (a) above entered into with a bank meeting the qualifications described in clause (b) above;
(d) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of the Borrower) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of P-1 (or higher) according to Moody’s, or A-1 (or higher) according to S&P (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act));
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(e) securities with maturities of two years or less from the date of acquisition, issued or fully guaranteed by any State, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least A by S&P or A by Moody’s (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act));
(f) shares of mutual funds whose investment guidelines restrict 95% of such funds’ investments to those satisfying the provisions of clauses (a) through (e) above;
(g) money market funds that (i) comply with the criteria set forth in Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000;
(h) time deposit accounts, certificates of deposit and money market deposits in an aggregate face amount not in excess of 0.5% of the total assets of the Borrower and the Subsidiaries, on a consolidated basis, as of the end of the Borrower’s most recently completed fiscal year; and
(i) instruments equivalent to those referred to in clauses (a) through (h) above denominated in any foreign currency comparable in credit quality and tenor to those referred to above and commonly used by corporations for cash management purposes in any jurisdiction outside the United States of America to the extent reasonably required in connection with any business conducted by any Subsidiary organized in such jurisdiction.
“ Permitted Junior Intercreditor Agreement ” shall mean, with respect to any Liens on Collateral that are intended to be junior to any Liens securing the Term B Loans, either (as the Borrower shall elect) (x) any First Lien/Second Lien Intercreditor Agreement if such Liens secure “Second Lien Obligations” (as defined therein), (y) another intercreditor agreement not materially less favorable to the Lenders vis-à-vis such junior Liens than such First Lien/Second Lien Intercreditor Agreement (as determined by the Borrower in good faith) or (z) another intercreditor agreement the terms of which are consistent with market terms governing security arrangements for the sharing of liens on a junior basis at the time such intercreditor agreement is proposed to be established, as determined by the Administrative Agent and the Borrower in the exercise of reasonable judgment.
“ Permitted Liens ” shall have the meaning assigned to such term in Section 6.02.
“ Permitted Loan Purchase ” shall have the meaning assigned to such term in Section 9.04(i).
“ Permitted Loan Purchase Amount ” shall mean 25% of the sum of (x) the aggregate principal amount of the Term B Facility on the Closing Date plus (y) the aggregate principal amount of any Incremental Term Loans incurred since the Closing Date.
“ Permitted Loan Purchase Assignment and Acceptance ” shall mean an assignment and acceptance entered into by a Lender as an Assignor and the Borrower as an Assignee, as accepted by the Administrative Agent (if required by Section 9.04) in the form of Exhibit G or such other form as shall be approved by the Administrative Agent and the Borrower (such approval not to be unreasonably withheld or delayed).
“ Permitted Pari Passu Intercreditor Agreement ” shall mean, with respect to any Liens on Collateral that are intended to be secured on a pari passu basis with the Liens securing the Term B Loans, either (as the Borrower shall elect) (x) the First Lien/First Lien Intercreditor Agreement, (y) another intercreditor agreement not materially less favorable to the Lenders vis-à-vis such pari passu Liens than the First Lien/First Lien Intercreditor Agreement (as determined by the Borrower in good faith) or (z) another intercreditor agreement the terms of which are consistent with market terms governing security arrangements for the sharing of liens on a pari passu basis at the time such intercreditor agreement is proposed to be established, as determined by the Administrative Agent and the Borrower in the exercise of reasonable judgment.
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“ Permitted Receivables Documents ” shall mean all documents and agreements evidencing, relating to or otherwise governing a Permitted Receivables Financing.
“ Permitted Receivables Financing ” shall mean one or more transactions pursuant to which (i) Receivables Assets or interests therein are sold to or financed by one or more Special Purpose Receivables Subsidiaries, and (ii) such Special Purpose Receivables Subsidiaries finance their acquisition of such Receivables Assets or interests therein, or the financing thereof, by selling or borrowing against Receivables Assets; provided , that recourse to the Borrower or any Subsidiary (other than the Special Purpose Receivables Subsidiaries) in connection with such transactions shall be limited to the extent customary for similar transactions in the applicable jurisdictions (including, to the extent applicable, in a manner consistent with the delivery of a “true sale”/“absolute transfer” opinion with respect to any transfer by the Borrower or any Subsidiary (other than a Special Purpose Receivables Subsidiary)).
“ Permitted Refinancing Indebtedness ” shall mean any Indebtedness issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund (collectively, to “ Refinance ”), the Indebtedness being Refinanced (or previous refinancings thereof constituting Permitted Refinancing Indebtedness); provided , that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so Refinanced (plus unpaid accrued interest and premium (including tender premiums) thereon and underwriting discounts, defeasance costs, fees, commissions, expenses, plus an amount equal to letters of credit undrawn thereunder), (b) except with respect to Section 6.01(i), (i) the final maturity date of such Permitted Refinancing Indebtedness is on or after the earlier of (x) the final maturity date of the Indebtedness being Refinanced and (y) the Latest Maturity Date in effect at the time of incurrence thereof and (ii) the Weighted Average Life to Maturity of such Permitted Refinancing Indebtedness is greater than or equal to the lesser of (i) the Weighted Average Life to Maturity of the Indebtedness being Refinanced and (ii) the Weighted Average Life to Maturity of the Class of Term Loans then outstanding with the greatest remaining Weighted Average Life to Maturity, (c) if the Indebtedness being Refinanced is subordinated in right of payment to the Loan Obligations under this Agreement, such Permitted Refinancing Indebtedness shall be subordinated in right of payment to such Loan Obligations on terms in the aggregate not materially less favorable to the Lenders as those contained in the documentation governing the Indebtedness being Refinanced, (d) no Permitted Refinancing Indebtedness shall have obligors that are not (or would not have been) obligated with respect to the Indebtedness being so Refinanced (except that a Loan Party may be added as an additional obligor) and (e) if the Indebtedness being Refinanced is secured by Liens on any Collateral (whether senior to, equally and ratably with, or junior to the Liens on such Collateral securing the Loan Obligations or otherwise), such Permitted Refinancing Indebtedness may be secured by such Collateral (including any Collateral pursuant to after-acquired property clauses to the extent any such Collateral secured (or would have secured) the Indebtedness being Refinanced) on terms, taken as a whole, no less favorable to the Secured Parties than the Indebtedness being refinanced or on terms otherwise permitted by Section 6.02.
“ person ” shall mean any natural person, corporation, business trust, joint venture, association, company, partnership, limited liability company or government, individual or family trusts, or any agency or political subdivision thereof.
“ PIK Seller Notes ” shall mean (i) the 5.00% PIK Promissory Note, dated as of March 9, 2017, by AP Gaming Holdco, Inc. in favor of Amaya Inc., (ii) the 8.50% PIK Seller Note, dated as of January 15, 2014, by AP Gaming Inc. in favor of AGS Holdings, LLC, and (iii) the 8.50% PIK Seller Note, dated as of December 20, 2013, by AP Gaming, Inc. in favor of AGS Holdings, LLC.
“ Plan ” shall mean any employee pension benefit plan (other than a Multiemployer Plan) that is (i) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, (ii) sponsored or maintained (at the time of determination or at any time within the five years prior thereto) by Holdings, the Borrower, any Subsidiary or any ERISA Affiliate, and (iii) in respect of which Holdings, the Borrower, any Subsidiary or any ERISA Affiliate 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.
“ Platform ” shall have the meaning assigned to such term in Section 9.17.
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“ Pledged Collateral ” shall have the meaning assigned to such term in the Collateral Agreement or the Holdings Guarantee and Pledge Agreement, as applicable.
“ primary obligor ” shall have the meaning assigned to such term in the definition of the term “Guarantee.”
“ Prime Rate ” shall mean the rate of interest per annum last quoted by The Wall Street Journal (or another national publication selected by the Administrative Agent) as the U.S. “Prime Rate”.
“ Pro Forma Basis ” shall mean, as to any person, for any events as described below that occur subsequent to the commencement of a period for which the financial effect of such events is being calculated, and giving effect to the events for which such calculation is being made, such calculation as will give pro forma effect to such events as if such events occurred on the first day of the four consecutive fiscal quarter period ended on or before the occurrence of such event (the “ Reference Period ”): (i) pro forma effect shall be given to any Disposition, any acquisition, Investment, capital expenditure, construction, repair, replacement, improvement, development, disposition, merger, amalgamation, consolidation (including the Transactions) (or any similar transaction or transactions not otherwise permitted under Section 6.04 or 6.05 that require a waiver or consent of the Required Lenders and such waiver or consent has been obtained), any dividend, distribution or other similar payment, any designation of any Subsidiary as an Unrestricted Subsidiary and any Subsidiary Redesignation, New Project, and any restructurings of the business of the Borrower or any of its Subsidiaries that the Borrower or any of the Subsidiaries has determined to make and/or made and are expected to have a continuing impact and are factually supportable, which would include cost savings resulting from head count reduction, closure of facilities and similar operational and other cost savings, which adjustments the Borrower determines are reasonable as set forth in a certificate of a Financial Officer of the Borrower (the foregoing, together with any transactions related thereto or in connection therewith, the “ relevant transactions ”), in each case that occurred during the Reference Period (or, in the case of determinations made pursuant to Section 2.21 or Article VI (other than Section 6.11), occurring during the Reference Period or thereafter and through and including the date upon which the relevant transaction is consummated), (ii) in making any determination on a Pro Forma Basis, (x) all Indebtedness (including Indebtedness issued, incurred or assumed as a result of, or to finance, any relevant transactions and for which the financial effect is being calculated, whether incurred under this Agreement or otherwise, but excluding normal fluctuations in revolving Indebtedness incurred for working capital purposes and amounts outstanding under any Permitted Receivables Financing, in each case not to finance any acquisition) issued, incurred, assumed or permanently repaid during the Reference Period (or, in the case of determinations made pursuant to Section 2.21 or Article VI (other than Section 6.11), occurring during the Reference Period or thereafter and through and including the date upon which the relevant transaction is consummated) shall be deemed to have been issued, incurred, assumed or permanently repaid at the beginning of such period, (y) Interest Expense of such person attributable to interest on any Indebtedness, for which pro forma effect is being given as provided in the preceding clause (x), bearing floating interest rates shall be computed on a pro forma basis as if the rates that would have been in effect during the period for which pro forma effect is being given had been actually in effect during such periods, and (z) in giving effect to clause (i) above with respect to each New Project which commences operations and records not less than one full fiscal quarter’s operations during the Reference Period, the operating results of such New Project shall be annualized on a straight line basis during such period, taking into account any seasonality adjustments determined by the Borrower in good faith, and (iii) (A) any Subsidiary Redesignation then being designated, effect shall be given to such Subsidiary Redesignation and all other Subsidiary Redesignations after the first day of the relevant Reference Period and on or prior to the date of the respective Subsidiary Redesignation then being designated, collectively, and (B) any designation of a Subsidiary as an Unrestricted Subsidiary, effect shall be given to such designation and all other designations of Subsidiaries as Unrestricted Subsidiaries after the first day of the relevant Reference Period and on or prior to the date of the then applicable designation of a Subsidiary as an Unrestricted Subsidiary, collectively.
Pro forma calculations made pursuant to the definition of the term “Pro Forma Basis” shall be determined in good faith by a Responsible Officer of the Borrower and may include adjustments to reflect (1) operating expense reductions and other operating improvements, synergies or cost savings, in each case, related to mergers and other business combinations, acquisitions and divestitures projected by the Borrower in good faith to result from actions taken or expected to be taken (in the good faith determination of the Borrower) after the date any such transaction is consummated (including, to the extent applicable, the Transactions), (2) all adjustments of the type used in connection with the calculation of “Pro-Forma EBITDA” as set forth in the Information Memorandum to the extent
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such adjustments, without duplication, continue to be applicable to such Reference Period, provided that any adjustment relating to new machines placed or to be placed on casino floors or other gaming establishments will be permitted to be given pro forma effect to the extent (i) such machines are under contract and expected to be placed in such locations within 6 months of the Reference Period in the good faith determination of the Borrower or (ii) the Borrower has incurred the capital or inventory cost of producing the machines, whether the machines are placed in inventory or delivered to customers, and (3) other operating expense reductions and other operating improvements, synergies or cost savings, in each case, projected by the Borrower in good faith to result from actions either taken or commenced or expected to be taken or commenced (in the good faith determination of the Borrower) within 12 months after the date any such transaction is consummated and, in the case of this clause (3), the amount of any adjustments pursuant to this clause (3) shall not exceed 20% of EBITDA for the Reference Period (calculated prior to giving effect to such cap); provided that the cap set forth in this clause (3) shall not apply to any calculations made with respect to the Financial Covenant. The Borrower shall deliver to the Administrative Agent a certificate of a Financial Officer of the Borrower setting forth such demonstrable or additional operating expense reductions, other operating improvements or synergies and adjustments pursuant to clause (2) above, and information and calculations supporting them in reasonable detail.
For purposes of this definition, any amount in a currency other than Dollars will be converted to Dollars based on the average exchange rate for such currency for the most recent twelve month period immediately prior to the date of determination in a manner consistent with that used in calculating EBITDA for the applicable period.
“ Pro Forma Compliance ” shall mean, at any date of determination, that the Borrower and its Subsidiaries shall be in compliance, on a Pro Forma Basis after giving effect on a Pro Forma Basis to the relevant transactions (including the assumption, the issuance, incurrence and permanent repayment of Indebtedness), with the Financial Covenant recomputed as at the last day of the most recently ended fiscal quarter of the Borrower and its Subsidiaries for which the financial statements and certificates required pursuant to Section 5.04 have been delivered.
“ Pro Forma EBITDA ” shall have the meaning assigned to such term in Section 3.05.
“ Pro Rata Extension Offers ” shall have the meaning assigned to such term in Section 2.21(e).
“ Pro Rata Share ” shall have the meaning assigned to such term in Section 9.08(f).
“ Projections ” shall mean the projections of the Borrower and the Subsidiaries included in the Information Memorandum and any other projections and any forward-looking statements (including statements with respect to booked business) of such entities furnished to the Lenders or the Administrative Agent by or on behalf of the Borrower or any of the Subsidiaries prior to the Closing Date.
“ Public Company Compliance ” shall mean compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, the provisions of the Securities Act and the Exchange Act, and the rules of national securities exchange listed companies (in each case, as applicable to companies with equity or debt securities held by the public), including procuring directors’ and officers’ insurance, legal and other professional fees, and listing fees.
“ Public Lender ” shall have the meaning assigned to such term in Section 9.17.
“ Qualified Equity Interests ” shall mean any Equity Interest other than Disqualified Stock.
“ Qualified IPO ” shall mean an underwritten public offering of the Equity Interests of the Borrower, Holdings or any Parent Entity which generates cash proceeds of at least $25,000,000.
“ Rate ” shall have the meaning assigned to such term in the definition of the term “Type”.
“ Real Property ” shall mean, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned in fee or leased by any Loan Party, whether by lease, license, or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, incidental to the ownership, lease or operation thereof.
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“ Receivables Assets ” shall mean accounts receivable (including any bills of exchange) and related assets and property from time to time originated, acquired or otherwise owned by the Borrower or any Subsidiary.
“ Receivables Net Investment ” shall mean the aggregate cash amount paid by the lenders or purchasers under any Permitted Receivables Financing in connection with their purchase of, or the making of loans secured by, Receivables Assets or interests therein, as the same may be reduced from time to time by collections with respect to such Receivables Assets or otherwise in accordance with the terms of the Permitted Receivables Documents (but excluding any such collections used to make payments of items included in clause (c) of the definition of Interest Expense); provided , however , that if all or any part of such Receivables Net Investment shall have been reduced by application of any distribution and thereafter such distribution is rescinded or must otherwise be returned for any reason, such Receivables Net Investment shall be increased by the amount of such distribution, all as though such distribution had not been made.
“ Reference Period ” shall have the meaning assigned to such term in the definition of the term “Pro Forma Basis.”
“ Refinance ” shall have the meaning assigned to such term in the definition of the term “ Permitted Refinancing Indebtedness ,” and “Refinanced” shall have a meaning correlative thereto.
“ Refinancing Effective Date ” shall have the meaning assigned to such term in Section 2.21(j).
“ Refinancing Notes ” shall mean any secured or unsecured notes or loans issued by the Borrower or any Subsidiary Loan Party (whether under an indenture, a credit agreement or otherwise) and the Indebtedness represented thereby; provided , that (a)(i) 100% of the Net Proceeds of such Refinancing Notes that are secured on a pari passu basis with the Term B Loans are used to permanently reduce Loans and/or replace Commitments substantially simultaneously with the issuance thereof or (ii) 90% of the Net Proceeds of any other Refinancing Notes are used to permanently reduce Loans and/or replace Commitments substantially simultaneously with the issuance thereof; (b) the principal amount (or accreted value, if applicable) of such Refinancing Notes does not exceed the principal amount (or accreted value, if applicable) of the aggregate portion of the Loans so reduced and/or Commitments so replaced (plus unpaid accrued interest and premium (including tender premiums) thereon and underwriting discounts, defeasance costs, fees, commissions and expenses); (c) the final maturity date of such Refinancing Notes is on or after the Term Facility Maturity Date or the Revolving Facility Maturity Date, as applicable, of the Term Loans so reduced or the Revolving Facility Commitments so replaced; (d) the Weighted Average Life to Maturity of such Refinancing Notes is greater than or equal to the Weighted Average Life to Maturity of the Term Loans so reduced or the Revolving Facility Commitments so replaced, as applicable; (e) in the case of Refinancing Notes in the form of notes issued under an indenture, the terms thereof do not provide for any scheduled repayment, mandatory redemption or sinking fund obligations prior to the Term Facility Maturity Date of the Term Loans so reduced or the Revolving Facility Maturity Date of the Revolving Facility Commitments so replaced, as applicable (other than customary offers to repurchase or mandatory prepayment provisions upon a change of control, asset sale or event of loss and customary acceleration rights after an event of default); (f) the other terms of such Refinancing Notes (other than pricing, fees, floors, funding discounts and redemption or prepayment premiums), taken as a whole, are substantially similar to, or not materially less favorable to the Borrower and its Subsidiaries than the terms, taken as a whole, applicable to the Term B Loans (except for covenants or other provisions applicable only to periods after the Latest Maturity Date in effect at the time such Refinancing Notes are issued), as determined by the Borrower in good faith; (g) there shall be no obligor in respect of such Refinancing Notes that is not a Loan Party; and (h) such Refinancing Notes shall not be secured by assets other than the Collateral and Refinancing Notes that are secured by Collateral shall be subject to the provisions of a Permitted Pari Passu Intercreditor Agreement or a Permitted Junior Intercreditor Agreement, as applicable.
“ Refinancing Term Loans ” shall have the meaning assigned to such term in Section 2.21(j).
“ Register ” shall have the meaning assigned to such term in Section 9.04(b)(iv).
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“ Regulation T ” shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation U ” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation X ” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Related Fund ” shall mean, with respect to any Lender that is a fund that invests in bank or commercial loans and similar extensions of credit, any other fund that invests in bank or commercial loans and similar extensions of credit and is advised or managed by (a) such Lender, (b) an Affiliate of such Lender or (c) an entity (or an Affiliate of such entity) that administers, advises or manages such Lender.
“ Related Parties ” shall mean, with respect to any specified person, such person’s Affiliates and the respective directors, trustees, officers, employees, agents and advisors of such person and such person’s Affiliates.
“ Related Sections ” shall have the meaning assigned to such term in Section 6.04.
“ Release ” shall mean any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, emanating or migrating in, into, onto or through the Environment.
“ Replacement Revolving Facility Commitments ” shall have the meaning assigned to such term in Section 2.21(l).
“ Replacement Revolving Facility Effective Date ” shall have the meaning assigned to such term in Section 2.21(l).
“ Replacement Revolving Loans ” shall have the meaning assigned to such term in Section 2.21(l).
“ Reportable Event ” shall mean any reportable event as defined in Section 4043(c) of ERISA or the regulations issued thereunder, other than those events as to which the 30-day notice period referred to in Section 4043(c) of ERISA has been waived, with respect to a Plan (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code).
“ Required Lenders ” shall mean, at any time, Lenders having (a) Loans (other than Swingline Loans) outstanding, (b) Revolving L/C Exposures, (c) Swingline Exposures and (d) Available Unused Commitments that, taken together, represent more than 50% of the sum of (w) all Loans (other than Swingline Loans) outstanding, (x) all Revolving L/C Exposures, (y) all Swingline Exposures and (z) the total Available Unused Commitments at such time; provided , that (i) the Loans, Revolving L/C Exposures, Swingline Exposures and Available Unused Commitment of any Defaulting Lender shall be disregarded in determining Required Lenders at any time and (ii) the portion of any Loans held by Debt Fund Affiliate Lenders in the aggregate in excess of 49.9% of the Required Amount of Loans shall be disregarded in determining Required Lenders at any time. For purposes of the foregoing, “Required Amount of Loans” means, at any time, the amount of Loans required to be held by Lenders in order for such Lenders to constitute “Required Lenders” (without giving effect to the foregoing clause (ii)).
“ Required Percentage ” shall mean, with respect to an Applicable Period, 50%; provided , that (a) if the Net First Lien Leverage Ratio as at the end of the Applicable Period is greater than 2.50:1.00 but less than or equal to 3.25:1.00, such percentage shall be 25%, and (b) if the Net First Lien Leverage Ratio as at the end of the Applicable Period is less than or equal to 2.50:1.00, such percentage shall be 0%.
“ Required Revolving Facility Lenders ” shall mean, at any time, Revolving Facility Lenders having (a) Loans (other than Swingline Loans) outstanding, (b) Revolving L/C Exposures, (c) Swingline Exposures and (d) Available Unused Commitments that, taken together, represent more than 50% of the sum of (w) all Revolving
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Facility Loans (other than Swingline Loans) outstanding, (x) all Revolving L/C Exposures, (y) all Swingline Exposures and (z) the total Available Unused Commitments at such time; provided , that the Revolving Facility Loans, Revolving L/C Exposures, Swingline Exposures and Available Unused Commitment of any Defaulting Lender shall be disregarded in determining Required Revolving Facility Lenders at any time.
“ Requirement of Law ” shall mean, as to any person, any law, treaty, rule, regulation, statute, order, ordinance, decree, judgment, consent decree, writ, injunction, settlement agreement or governmental requirement enacted, promulgated or imposed or entered into or agreed by any Governmental Authority, including Gaming Laws, in each case applicable to or binding upon such person or any of its property or assets or to which such person or any of its property or assets is subject.
“ Responsible Officer ” of any person shall mean any executive officer or Financial Officer of such person, any other officer or similar official thereof responsible for the administration of the obligations of such person in respect of this Agreement, or any other duly authorized employee or signatory of such person.
“ Restricted Payments ” shall have the meaning assigned to such term in Section 6.06. The amount of any Restricted Payment made other than in the form of cash or cash equivalents shall be the fair market value thereof (as determined by the Borrower in good faith).
“ Retained Excess Cash Flow Overfunding ” shall mean, at any time, in respect of any Excess Cash Flow Period, the amount, if any, by which the portion of the Cumulative Credit attributable to the Retained Percentage of Excess Cash Flow for all Excess Cash Flow Interim Periods used in such Excess Cash Flow Period exceeds the actual Retained Percentage of Excess Cash Flow for such Excess Cash Flow Period.
“ Retained Percentage ” shall mean, with respect to any Excess Cash Flow Period (or Excess Cash Flow Interim Period), (a) 100% minus (b) the Required Percentage with respect to such Excess Cash Flow Period (or Excess Cash Flow Interim Period).
“ Revaluation Date ” shall mean, with respect to any Alternate Currency Letter of Credit, each of the following: (i) each date of issuance, extension or renewal of an Alternate Currency Letter of Credit, (ii) each date of an amendment of any Alternate Currency Letter of Credit having the effect of increasing the amount thereof, (iii) each date of any payment by the applicable Issuing Bank under any Alternate Currency Letter of Credit, and (iv) such additional dates as the Administrative Agent or the applicable Issuing Bank shall determine or the Required Lenders shall require.
“ Revolving Facility ” shall mean the Revolving Facility Commitments of any Class and the extensions of credit made hereunder by the Revolving Facility Lenders of such Class and, for purposes of Section 9.08(b), shall refer to all such Revolving Facility Commitments as a single Class.
“ Revolving Facility Borrowing ” shall mean a Borrowing comprised of Revolving Facility Loans of the same Class.
“ Revolving Facility Commitment ” shall mean, with respect to each Revolving Facility Lender, the commitment of such Revolving Facility Lender to make Revolving Facility Loans pursuant to Section 2.01(b), as such commitment may be (a) reduced from time to time pursuant to Section 2.08, (b) reduced or increased from time to time pursuant to assignments by or to such Lender under Section 9.04, and (c) increased (or replaced) as provided under Section 2.21 . The initial amount of each Lender’s Revolving Facility Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance or Incremental Assumption Agreement pursuant to which such Lender shall have assumed its Revolving Facility Commitment (or Incremental Revolving Facility Commitment), as applicable. The aggregate amount of the Lenders’ Revolving Facility Commitments on the Closing Date is $30,000,000. On the Closing Date, there is only one Class of Revolving Facility Commitments. After the Closing Date, additional Classes of Revolving Facility Commitments may be added or created pursuant to Incremental Assumption Agreements.
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“ Revolving Facility Credit Exposure ” shall mean, at any time with respect to any Class of Revolving Facility Commitments, the sum of (a) the aggregate principal amount of the Revolving Facility Loans of such Class outstanding at such time, (b) the Swingline Exposure applicable to such Class at such time and (c) the Revolving L/C Exposure applicable to such Class at such time minus, for the purpose of Section 4.01(d), the amount of Letters of Credit that have been Cash Collateralized in an amount equal to the Minimum L/C Collateral Amount at such time. The Revolving Facility Credit Exposure of any Revolving Facility Lender at any time shall be the product of (x) such Revolving Facility Lender’s Revolving Facility Percentage of the applicable Class and (y) the aggregate Revolving Facility Credit Exposure of such Class of all Revolving Facility Lenders, collectively, at such time.
“ Revolving Facility Lender ” shall mean a Lender (including an Incremental Revolving Facility Lender) with a Revolving Facility Commitment or with outstanding Revolving Facility Loans.
“ Revolving Facility Loan ” shall mean a Loan made by a Revolving Facility Lender pursuant to Section 2.01(b). Unless the context otherwise requires, the term “Revolving Facility Loans” shall include the Other Revolving Loans.
“ Revolving Facility Maturity Date ” shall mean (a) with respect to the Revolving Facility Commitments in effect on the Closing Date, June 6, 2022, and (b) with respect to any other Classes of Revolving Facility Commitments, the maturity dates specified therefor in the applicable Incremental Assumption Agreement.
“ Revolving Facility Percentage ” shall mean, with respect to any Revolving Facility Lender of any Class, the percentage of the total Revolving Facility Commitments of such Class represented by such Lender’s Revolving Facility Commitment of such Class. If the Revolving Facility Commitments of such Class have terminated or expired, the Revolving Facility Percentages of such Class shall be determined based upon the Revolving Facility Commitments of such Class most recently in effect, giving effect to any assignments pursuant to Section 9.04.
“ Revolving Facility Termination Event ” shall have the meaning ascribed thereto in Section 2.05(k).
“ Revolving L/C Exposure ” of any Class shall mean at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit applicable to such Class outstanding at such time (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof) and (b) the aggregate principal amount of all L/C Disbursements applicable to such Class that have not yet been reimbursed at such time (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof). The Revolving L/C Exposure of any Class of any Revolving Facility Lender at any time shall mean its applicable Revolving Facility Percentage of the aggregate Revolving L/C Exposure applicable to such Class at such time. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the International Standby Practices, International Chamber of Commerce No. 590, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided , that with respect to any Letter of Credit that, by its terms or the terms of any document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
“ Revolving Yield Differential ” shall have the meaning assigned to such term in Section 2.21(b)(viii).
“ S&P ” shall mean Standard & Poor’s Ratings Group, Inc.
“ Sale and Lease-Back Transaction ” shall have the meaning assigned to such term in Section 6.03.
“ SEC ” shall mean the Securities and Exchange Commission or any successor thereto.
“ Secured Cash Management Agreement ” shall mean any Cash Management Agreement that is entered into by and between any Loan Party and any Cash Management Bank to the extent that such Cash Management Agreement is not otherwise designated in writing by the Borrower and such Cash Management Bank to the Administrative Agent to not be included as a Secured Cash Management Agreement.
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“ Secured Hedge Agreement ” shall mean any Hedging Agreement that is entered into by and between any Loan Party and any Hedge Bank to the extent that such Hedging Agreement is not otherwise designated in writing by the Borrower and such Hedge Bank to the Administrative Agent to not be included as a Secured Hedge Agreement. Notwithstanding the foregoing, for all purposes of the Loan Documents, any Guarantee of, or grant of any Lien to secure, any obligations in respect of a Secured Hedge Agreement by a Guarantor shall not include any Excluded Swap Obligations.
“ Secured Parties ” shall mean, collectively, the Administrative Agent, the Collateral Agent, each Lender, each Issuing Bank, each Hedge Bank that is party to any Secured Hedge Agreement, each Cash Management Bank that is party to any Secured Cash Management Agreement and each sub-agent appointed pursuant to Section 8.02 by the Administrative Agent with respect to matters relating to the Loan Documents or by the Collateral Agent with respect to matters relating to any Security Document.
“ Securities Act ” shall mean the Securities Act of 1933, as amended.
“ Security Documents ” shall mean the Mortgages, the Collateral Agreement, the Holdings Guarantee and Pledge Agreement, the IP Security Agreements (as defined in the Collateral Agreement), the Custodian Agreement and each of the security agreements, pledge agreements and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 4.02 or 5.10.
“ Similar Business ” shall mean any business, the majority of whose revenues are derived from (i) business or activities conducted by the Borrower and its Subsidiaries on the Closing Date, (ii) any business that is a natural outgrowth or reasonable extension, development or expansion of any such business or any business similar, reasonably related, incidental, complementary or ancillary to any of the foregoing or (iii) any business that in the Borrower’s good faith business judgment constitutes a reasonable diversification of businesses conducted by the Borrower and its Subsidiaries.
“ Special Flood Hazard Area ” shall have the meaning assigned to such term in Section 5.02(c).
“ Special Purpose Receivables Subsidiary ” shall mean (i) a direct or indirect Subsidiary of the Borrower established in connection with a Permitted Receivables Financing for the acquisition of Receivables Assets or interests therein, and which is organized in a manner intended to reduce the likelihood that it would be substantively consolidated with Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries (other than Special Purpose Receivables Subsidiaries) in the event Holdings (prior to a Qualified IPO), the Borrower or any such Subsidiary becomes subject to a proceeding under the U.S. Bankruptcy Code (or other insolvency law) and (ii) any Subsidiary of a Special Purposes Receivable Subsidiary.
“ Specified L/C Sublimit ” shall mean, with respect to any Issuing Bank, the amount set forth beside such Issuing Bank’s name on Schedule 1.01(D) hereto or, in each case, such other amount as specified in the agreement pursuant to which such person becomes an Issuing Bank hereunder or, in each case, such larger amount not to exceed the Revolving Facility Commitment as the Administrative Agent and the applicable Issuing Bank may agree.
“ Spot Rate ” shall mean, with respect to any currency, the rate determined by the Administrative Agent or the applicable Issuing Bank, as applicable, to be the rate quoted by the person acting in such capacity as the spot rate for the purchase by such person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m., Local Time on the date three Business Days prior to the date as of which the foreign exchange computation is made or if such rate cannot be computed as of such date such other date as the Administrative Agent or such Issuing Bank shall reasonably determine is appropriate under the circumstances; provided , that the Administrative Agent or such Issuing Bank may obtain such spot rate from another financial institution designated by the Administrative Agent or such Issuing Bank if the person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency.
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“ Standby Letters of Credit ” shall have the meaning assigned to such term in Section 2.05(a).
“ Statutory Reserves ” shall mean the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority, domestic or foreign, to which the Administrative Agent or any Lender (including any branch, Affiliate or other fronting office making or holding a Loan) is subject for Eurocurrency Liabilities (as defined in Regulation D of the Board). Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities (as defined in Regulation D of the Board) and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“ Subagent ” shall have the meaning assigned to such term in Section 8.02.
“ subsidiary ” shall mean, with respect to any person (herein referred to as the “ parent ”), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, directly or indirectly, owned, Controlled or held, or (b) that is, at the time any determination is made, 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 ” shall mean, unless the context otherwise requires, a subsidiary of the Borrower. Notwithstanding the foregoing, except for purposes of Sections 3.08, 3.09, 3.13, 3.15, 3.16, 3.25(b), 3.26, 5.03, 5.09 and 7.01(k), and the definition of Unrestricted Subsidiary contained herein, an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of the Borrower or any of its Subsidiaries for purposes of this Agreement.
“ Subsidiary Guarantee Agreement ” shall mean the Subsidiary Guarantee Agreement dated as of the date hereof, as amended, restated, supplemented or otherwise modified from time to time, between each Subsidiary Loan Party and the Collateral Agent.
“ Subsidiary Loan Party ” shall mean (a) each Wholly Owned Domestic Subsidiary of the Borrower that is not an Excluded Subsidiary and (b) any other Domestic Subsidiary of the Borrower that may be designated by the Borrower (by way of delivering to the Collateral Agent a supplement to the Collateral Agreement and a supplement to the Subsidiary Guarantee Agreement, in each case, duly executed by such Subsidiary) in its sole discretion from time to time to be a guarantor in respect of the Obligations and the obligations in respect of the Loan Documents, whereupon such Subsidiary shall be obligated to comply with the other requirements of Section 5.10(d) as if it were newly acquired.
“ Subsidiary Redesignation ” shall have the meaning provided in the definition of “Unrestricted Subsidiary” contained in this Section 1.01.
“ Swap Obligation ” shall mean, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“ Swingline Borrowing ” shall mean a Borrowing comprised of Swingline Loans.
“ Swingline Borrowing Request ” shall mean a request by the Borrower substantially in the form of Exhibit D-2.
“ Swingline Commitment ” shall mean, with respect to each Swingline Lender, the commitment of such Swingline Lender to make Swingline Loans pursuant to Section 2.04. The aggregate amount of the Swingline Commitments on the Closing Date is $5,000,000. The Swingline Commitment is part of, and not in addition to, the Revolving Facility Commitments.
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“ Swingline Exposure ” shall mean at any time the aggregate principal amount of all outstanding Swingline Borrowings at such time. The Swingline Exposure of any Revolving Facility Lender at any time shall mean its applicable Revolving Facility Percentage of the aggregate Swingline Exposure at such time.
“ Swingline Lender ” shall mean (a) Jefferies Finance LLC, in its capacity as a lender of Swingline Loans, and (b) each Revolving Facility Lender that shall have become a Swingline Lender hereunder as provided in Section 2.04(d), each in its capacity as a lender of Swingline Loans hereunder.
“ Swingline Loans ” shall mean the swingline loans made to the Borrower pursuant to Section 2.04.
“ Taxes ” shall mean any and all present or future taxes, duties, levies, imposts, assessments, deductions, withholdings or other similar charges imposed by any Governmental Authority, whether computed on a separate, consolidated, unitary, combined or other basis and any interest, fines, penalties or additions to tax with respect to the foregoing.
“ Term B Borrowing ” shall mean any Borrowing comprised of Term B Loans.
“ Term B Facility ” shall mean the Term B Loan Commitments and the Term B Loans made hereunder.
“ Term B Facility Maturity Date ” shall mean February 15, 2024.
“ Term B Loan Commitment ” shall mean, with respect to each Lender, the commitment of such Lender to make Term B Loans hereunder. The amount of each Lender’s Term B Loan Commitment as of the Closing Date is set forth on Schedule 2.01 . The aggregate amount of the Term B Loan Commitments as of the Closing Date is $450,000,000.
“ Term B Loan Installment Date ” shall have the meaning assigned to such term in Section 2.10(a)(i).
“ Term B Loans ” shall mean (a) the term loans made by the Lenders to the Borrower pursuant to Section 2.01(a), and (b) any Incremental Term Loans in the form of Term B Loans made by the Incremental Term Lenders to the Borrower pursuant to Section 2.01(c).
“ Term Borrowing ” shall mean any Term B Borrowing or any Incremental Term Borrowing.
“ Term Facility ” shall mean the Term B Facility and/or any or all of the Incremental Term Facilities.
“ Term Facility Commitment ” shall mean the commitment of a Lender to make Term Loans, including Term B Loans and/or Other Term Loans.
“ Term Facility Maturity Date ” shall mean, as the context may require, (a) with respect to the Term B Facility in effect on the Closing Date, the Term B Facility Maturity Date and (b) with respect to any other Class of Term Loans, the maturity dates specified therefor in the applicable Incremental Assumption Agreement.
“ Term Loan Installment Date ” shall mean any Term B Loan Installment Date or any Incremental Term Loan Installment Date.
“ Term Loans ” shall mean the Term B Loans and/or the Incremental Term Loans.
“ Term Yield Differential ” shall have the meaning assigned to such term in Section 2.21(b)(vii).
“ Termination Date ” shall mean the date on which (a) all Commitments shall have been terminated, (b) the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document shall have been paid in full (other than in respect of contingent indemnification and expense reimbursement claims not then due) and (c) all Letters of Credit (other than those that have been Cash Collateralized) have been cancelled or have expired and all amounts drawn or paid thereunder have been reimbursed in full.
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“ Test Period ” shall mean, on any date of determination, the period of four consecutive fiscal quarters of the Borrower then most recently ended (taken as one accounting period) for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b) and, initially, the four fiscal quarter period ended March 31, 2017.
“ Third Party Funds ” shall mean any accounts or funds, or any portion thereof, received by Borrower or any of its Subsidiaries as agent on behalf of third parties in accordance with a written agreement that imposes a duty upon Borrower or one or more of its Subsidiaries to collect and remit those funds to such third parties.
“ Total Net Leverage Ratio ” shall mean, on any date, the ratio of (a) (i) the aggregate principal amount of Consolidated Debt of the Borrower and its Subsidiaries outstanding as of the last day of the Test Period most recently ended as of such date less (ii) without duplication, up to $50,000,000 of Unrestricted Cash and Permitted Investments of the Borrower and its Subsidiaries as of the last day of such Test Period, to (b) EBITDA for such Test Period, all determined on a consolidated basis in accordance with GAAP; provided , that the Total Net Leverage Ratio shall be determined for the relevant Test Period on a Pro Forma Basis.
“ Trade Letters of Credit ” shall have the meaning assigned to such term in Section 2.05(a).
“ Transaction Expenses ” shall mean any fees or expenses incurred or paid by the Borrower or any of its Subsidiaries or any of their Affiliates in connection with the Transactions, this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby.
“ Transactions ” shall mean, collectively, the transactions to occur pursuant to the Loan Documents, including (a) the execution, delivery and performance of the Loan Documents, the creation of the Liens pursuant to the Security Documents and the initial borrowings hereunder; (b) the repayment in full of, and the termination of all commitments under the Existing Credit Agreement and the PIK Seller Notes; (c) the amendment of the Holdco PIK Notes to, among other things, extend the maturity thereof and (d) the payment of all fees and expenses in connection with the foregoing.
“ UCP ” shall mean, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (“ ICC ”) Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).
“ Type ” shall mean, when used in respect of any Loan or Borrowing, the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term “ Rate ” shall include the Adjusted LIBO Rate and the ABR.
“ Uniform Commercial Code ” shall mean the Uniform Commercial Code as the same may from time to time be in effect in the State of New York or the Uniform Commercial Code (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to any item or items of Collateral.
“ Unrestricted Cash ” shall mean cash or cash equivalents of the Borrower or any of its Subsidiaries that would not appear as “restricted” on a consolidated balance sheet of the Borrower or any of its Subsidiaries.
“ Unrestricted Subsidiary ” shall mean (1) any Subsidiary of the Borrower identified on Schedule 1.01(C) , (2) any other Subsidiary of the Borrower, whether now owned or acquired or created after the Closing Date, that is designated by the Borrower as an Unrestricted Subsidiary hereunder by written notice to the Administrative Agent; provided , that the Borrower shall only be permitted to so designate a new Unrestricted Subsidiary after the Closing Date so long as (a) no Default or Event of Default has occurred and is continuing or would result therefrom, (b) immediately after giving effect to such designation, the Borrower shall be in Pro Forma Compliance with the Financial Covenant as of the last day of the then most recently ended Test Period, (c) such Unrestricted Subsidiary shall be capitalized (to the extent capitalized by the Borrower or any of its Subsidiaries) through Investments as
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permitted by, and in compliance with, Section 6.04, and any prior or concurrent Investments in such Subsidiary by the Borrower or any of its Subsidiaries shall be deemed to have been made under Section 6.04 and (d) without duplication of clause (c), any assets owned by such Unrestricted Subsidiary at the time of the initial designation thereof shall be treated as Investments pursuant to Section 6.04; and (3) any subsidiary of an Unrestricted Subsidiary. The Borrower may designate any Unrestricted Subsidiary to be a Subsidiary for purposes of this Agreement (each, a “ Subsidiary Redesignation ”); provided , that (i) no Default or Event of Default has occurred and is continuing or would result therefrom, and (ii) the Borrower shall have delivered to the Administrative Agent an officer’s certificate executed by a Responsible Officer of the Borrower, certifying to the best of such officer’s knowledge, compliance with the requirements of preceding clause (i).
“ U.S. Bankruptcy Code ” shall mean Title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors.
“ U.S. Dollars ”, “ Dollars ” or “ $ ” shall mean lawful money of the United States of America.
“ U.S. Lender ” shall mean any Lender other than a Foreign Lender.
“ USA PATRIOT Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. No. 107 56 (signed into law October 26, 2001)).
“ Voting Stock ” shall mean, with respect to any person, such person’s Equity Interests having the right to vote for the election of directors of such person under ordinary circumstances.
“ Weighted Average Life to Maturity ” shall mean, when applied to any Indebtedness at any date, the number of years obtained by dividing : (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then outstanding principal amount of such Indebtedness.
“ Wholly Owned Domestic Subsidiary ” shall mean a Wholly Owned Subsidiary that is also a Domestic Subsidiary.
“ Wholly Owned Subsidiary ” of any person shall mean a subsidiary of such person, all of the Equity Interests of which (other than directors’ qualifying shares or nominee or other similar shares required pursuant to applicable law) are owned by such person or another Wholly Owned Subsidiary of such person. Unless the context otherwise requires, “Wholly Owned Subsidiary” shall mean a Subsidiary of the Borrower that is a Wholly Owned Subsidiary of the Borrower.
“ Withdrawal Liability ” shall mean 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.
“ Working Capital ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis at any date of determination, Current Assets at such date of determination minus Current Liabilities at such date of determination; provided , that, for purposes of calculating Excess Cash Flow, increases or decreases in Working Capital shall be calculated without regard to any changes in Current Assets or Current Liabilities as a result of (a) any reclassification in accordance with GAAP of assets or liabilities, as applicable, between current and noncurrent or (b) the effects of purchase accounting.
“ Write-Down and Conversion Powers ” shall mean, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
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Section 1.02 Terms Generally . The definitions set forth or referred to in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time. 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 Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Closing Date in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any changes in GAAP after the Closing Date, any lease of the Borrower or the Subsidiaries, or of a special purpose or other entity not consolidated with the Borrower and its Subsidiaries at the time of its incurrence of such lease, that would be characterized as an operating lease under GAAP in effect on the Closing Date (whether such lease is entered into before or after the Closing Date) shall not constitute Indebtedness or a Capitalized Lease Obligation of the Borrower or any Subsidiary under this Agreement or any other Loan Document as a result of such changes in GAAP.
Section 1.03 Effectuation of Transactions . Each of the representations and warranties of the Borrower contained in this Agreement (and all corresponding definitions) are made after giving effect to the Transactions as shall have taken place on or prior to the date of determination, unless the context otherwise require.
Section 1.04 Exchange Rates; Currency Equivalents .
(a) The Administrative Agent shall determine the Spot Rate as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of Alternate Currency Letters of Credit. Such Spot Rate shall become effective as of such Revaluation Date and shall be the Spot Rate employed in converting any amounts between the Dollars and each Alternate Currency until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial ratios hereunder or except as otherwise provided herein, the applicable amount of any currency (other than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as determined by the Administrative Agent in accordance with this Agreement. No Default or Event of Default shall arise as a result of any limitation or threshold set forth in Dollars in Article VI or clause (f) or (j) of Section 7.01 being exceeded solely as a result of changes in currency exchange rates from those rates applicable on the first day of the fiscal quarter in which such determination occurs or in respect of which such determination is being made.
(b) Wherever in this Agreement in connection with an Alternate Currency Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, such amount shall be the Dollar Equivalent of such Dollar amount (rounded to the nearest unit of such Alternate Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the applicable Issuing Bank, as applicable.
Section 1.05 Timing of Payment or Performance . Except as otherwise expressly provided herein, when the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day which is not a Business Day, the date of such payment or performance shall extend to the immediately succeeding Business Day.
Section 1.06 Times of Day . Unless otherwise specified herein, all references herein to times of day shall be references to New York City time (daylight or standard, as applicable).
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ARTICLE II
The Credits
Section 2.01 Commitments . Subject to the terms and conditions set forth herein:
(a) each Lender agrees to make Term B Loans in Dollars to the Borrower on the Closing Date in an aggregate principal amount not to exceed its Term B Loan Commitment,
(b) each Lender agrees to make Revolving Facility Loans of a Class in Dollars to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Lender’s Revolving Facility Credit Exposure of such Class exceeding such Lender’s Revolving Facility Commitment of such Class or (ii) the Revolving Facility Credit Exposure of such Class exceeding the total Revolving Facility Commitments of such Class. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Facility Loans,
(c) each Lender having an Incremental Term Loan Commitment agrees, subject to the terms and conditions set forth in the applicable Incremental Assumption Agreement, to make Incremental Term Loans to the Borrower in an aggregate principal amount not to exceed its Incremental Term Loan Commitment, and
(d) amounts of Term B Loans borrowed under Section 2.01(a) or Section 2.01(c) that are repaid or prepaid may not be reborrowed.
Section 2.02 Loans and Borrowings .
(a) Each Loan shall be made as part of a Borrowing consisting of Loans under the same Facility and of the same Type made by the Lenders ratably in accordance with their respective Commitments under the applicable Facility (or, in the case of Swingline Loans, in accordance with their respective Swingline Commitments); provided , however , that Revolving Facility Loans of any Class shall be made by the Revolving Facility Lenders of such Class ratably in accordance with their respective Revolving Facility Percentages on the date such Loans are made hereunder. 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 Lender’s failure to make Loans as required.
(b) Subject to Section 2.14, each Borrowing (other than a Swingline Borrowing) shall be comprised entirely of ABR Loans or Eurocurrency Loans as the Borrower may request in accordance herewith. Each Swingline Borrowing shall be an ABR Borrowing. Each Lender at its option may make any ABR Loan or Eurocurrency 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 Borrower to repay such Loan in accordance with the terms of this Agreement and such Lender shall not be entitled to any amounts payable under Section 2.15 or 2.17 solely in respect of increased costs resulting from such exercise and existing at the time of such exercise.
(c) At the commencement of each Interest Period for any Eurocurrency Revolving Facility Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum. At the time that each ABR Revolving Facility Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum; provided , that an ABR Revolving Facility Borrowing may be in an aggregate amount that is equal to the entire unused available balance of the Revolving Facility Commitments or that is required to finance the reimbursement of an L/C Disbursement as contemplated by Section 2.05(e). Each Swingline Borrowing shall be in an amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum. Borrowings of more than one Type may be outstanding at the same time; provided , however , that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than 10 Eurocurrency Borrowings outstanding under all Facilities at any time. Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings.
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(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing of any Class if the Interest Period requested with respect thereto would end after the Revolving Facility Maturity Date or the Term Facility Maturity Date for such Class, as applicable.
Section 2.03 Requests for Borrowings . To request a Revolving Facility Borrowing and/or a Term Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurocurrency Borrowing, not later than 12:00 noon, Local Time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 10:00 a.m. Local Time, on the Business Day of the proposed Borrowing; provided , that, (i) to request a Borrowing on the Closing Date, the Borrower shall notify the Administrative Agent of such request by telephone not later than 5:00 p.m., Local Time, one Business Day prior to the Closing Date and (ii) any such notice of an ABR Revolving Facility Borrowing to finance the reimbursement of an L/C Disbursement as contemplated by Section 2.05(e) may be given not later than 10:00 a.m., Local Time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or electronic means to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
(i) whether such Borrowing is to be a Borrowing of Term B Loans, Revolving Facility Loans, Refinancing Term Loans, Other Term Loans, Other Revolving Loans or Replacement Revolving Loans as applicable;
(ii) the aggregate amount of the requested Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing;
(v) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(vi) the location and number of the Borrower’s account to which funds are to be disbursed.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.
Section 2.04 Swingline Loans .
(a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower 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 the Swingline Commitment or (ii) the Revolving Facility Credit Exposure of the applicable Class exceeding the total Revolving Facility Commitments of such Class; provided , that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Borrowing. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans.
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(b) To request a Swingline Borrowing, the Borrower shall notify the Administrative Agent and the Swingline Lender of such request by telephone (confirmed by a Swingline Borrowing Request by electronic means), not later than 1:00 p.m., Local Time, on the day of a proposed Swingline Borrowing. Each such notice and Swingline Borrowing Request shall be irrevocable and shall specify (i) the requested date of such Swingline Borrowing (which shall be a Business Day) and (ii) the amount of the requested Swingline Borrowing. The Swingline Lender shall consult with the Administrative Agent as to whether the making of the Swingline Loan is in accordance with the terms of this Agreement prior to the Swingline Lender funding such Swingline Loan. The Swingline Lender shall make each Swingline Loan on the proposed date thereof by wire transfer of immediately available funds by 3:00 p.m., Local Time, to the account of the Borrower (or, in the case of a Swingline Borrowing made to finance the reimbursement of an L/C Disbursement as provided in Section 2.05(e), by remittance to the applicable Issuing Bank).
(c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., Local Time, on any Business Day require the Revolving Facility Lenders of the applicable Class to acquire participations on such Business Day in all or a portion of the outstanding Swingline Loans made by it. Such notice shall specify the aggregate amount of such Swingline Loans in which the Revolving Facility Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each such Lender, specifying in such notice such Revolving Facility Lender’s applicable Revolving Facility Percentage of such Swingline Loan or Loans. Each Revolving Facility 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 Facility Lender’s applicable Revolving Facility Percentage of such Swingline Loan or Loans. Each Revolving Facility Lender acknowledges and agrees that its respective 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 Event of 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 Facility Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06 with respect to Loans made by such Revolving Facility Lender (and Section 2.06 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 Facility Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph (c), and thereafter 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 Borrower (or other party on behalf of the Borrower) 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 Facility 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 Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof.
(d) The Borrower may, at any time and from time to time, designate as additional Swingline Lenders one or more Revolving Facility Lenders that agree to serve in such capacity as provided below. The acceptance by a Revolving Facility Lender of an appointment as a Swingline Lender hereunder shall be evidenced by an agreement, which shall be in form and substance reasonably satisfactory to the Administrative Agent and the Borrower, executed by the Borrower, the Administrative Agent and such designated Swingline Lender, and, from and after the effective date of such agreement, (i) such Revolving Facility Lender shall have all the rights and obligations of a Swingline Lender under this Agreement and (ii) references herein to the term “Swingline Lender” shall be deemed to include such Revolving Facility Lender in its capacity as a lender of Swingline Loans hereunder.
Section 2.05 Letters of Credit .
(a) General . Subject to the terms and conditions set forth herein, the Borrower may request the issuance of one or more letters of credit or bank guarantees in Dollars or any Alternate Currency in the form of (x) if agreed to by the applicable Issuing Bank in its sole discretion, trade letters of credit in support of trade obligations of the Borrower and its Subsidiaries incurred in the ordinary course of business (such letters of credit issued for such purposes, “ Trade Letters of Credit ”) and (y) standby letters of credit or, if agreed to by the applicable Issuing Bank
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in its sole discretion, bank guarantees issued for any other lawful purposes of the Borrower and its Subsidiaries (such letters of credit or bank guarantees issued for such purposes, “ Standby Letters of Credit ”; each such letter of credit or bank guarantee, issued hereunder, a “ Letter of Credit ” and collectively, the “ Letters of Credit ”) for its own account or for the account of any Subsidiary in a form reasonably acceptable to the applicable Issuing Bank, at any time and from time to time during the applicable Availability Period and prior to the date that is five Business Days prior to the applicable Revolving Facility Maturity Date. 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 Borrower to, or entered into by the Borrower with, an 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 (other than an automatic extension in accordance with paragraph (c) of this Section) or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank) to the applicable Issuing Bank and the Administrative Agent (at least three Business Days in advance of the requested date of issuance, amendment or extension or such shorter period as the Administrative Agent and the applicable Issuing Bank in their sole discretion may agree) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended or extended, and specifying the date of issuance, amendment 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 and currency (which may be Dollars or any Alternate Currency) of such Letter of Credit, the name and address of the beneficiary thereof, whether such Letter of Credit constitutes a Standby Letter of Credit or a Trade Letter of Credit and such other information as shall be necessary to issue, amend or extend such Letter of Credit. If requested by the applicable Issuing Bank, the Borrower also shall submit a letter of credit application on such Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended or extended only if (and upon issuance, amendment or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment or extension (i) the Revolving L/C Exposure shall not exceed the Letter of Credit Sublimit, (ii) the Revolving Facility Credit Exposure shall not exceed the applicable Revolving Facility Commitments (iii) no Alternate Currency Letter of Credit shall be issued if, after giving effect thereto, the aggregate amount of Revolving L/C Exposure with respect to all Alternate Currency Letters of Credit would exceed $3,000,000 (or such larger amount within the Letter of Credit Sublimit as the Administrative Agent and the applicable Issuing Bank may agree) and (iv) with respect to the applicable Issuing Bank, the stated amount of all outstanding Letters of Credit issued by such Issuing Bank shall not exceed the applicable Specified L/C Sublimit of such Issuing Bank then in effect. For the avoidance of doubt, no Issuing Bank shall be obligated to issue an Alternate Currency Letter of Credit if such Issuing Bank does not otherwise issue letters of credit in such Alternate Currency and Jefferies Finance LLC shall not be obligated to issue any Alternate Currency Letter of Credit. In addition, no Issuing Bank shall be under any obligation to issue any Letter of Credit if (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from issuing the Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or (ii) the issuance of the Letter of Credit would violate one or more policies of the Issuing Bank applicable to letters of credit generally.
(c) Expiration Date . Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year (unless otherwise agreed upon by the Borrower and the applicable Issuing Bank in their sole discretion) after the date of the issuance of such Letter of Credit (or, in the case of any extension thereof, one year (unless otherwise agreed upon by the Borrower and the applicable Issuing Bank in their sole discretion) after such renewal or extension) and (ii) the date that is five Business Days prior to the applicable Revolving Facility Maturity Date; provided , that any Letter of Credit with a one year tenor may provide for automatic renewal or extension thereof for additional one year periods (which, in no event, shall extend beyond the date referred to in clause
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(ii) of this paragraph (c)) so long as such Letter of Credit permits the applicable Issuing Bank to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof within a time period during such twelve-month period to be agreed upon at the time such Letter of Credit is issued; provided , further , that if such Issuing Bank consents in its sole discretion, the expiration date on any Letter of Credit may extend beyond the date referred to in clause (ii) above, provided , that if any such Letter of Credit is outstanding or is issued under the Revolving Facility Commitments of any Class after the date that is 30 days prior to the Revolving Facility Maturity Date for such Class the Borrower shall provide Cash Collateral pursuant to documentation reasonably satisfactory to the Administrative Agent and the relevant Issuing Bank in an amount equal to the Minimum L/C Collateral Amount on or prior to the date that is 30 days prior to such Revolving Facility Maturity Date or, if later, such date of issuance.
(d) Participations . By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) under the Revolving Facility Commitments of any Class and without any further action on the part of the applicable Issuing Bank or the Revolving Facility Lenders, such Issuing Bank hereby grants to each Revolving Facility Lender under such Class, and each such Revolving Facility Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Revolving Facility Lender’s applicable Revolving Facility Percentage of the aggregate amount available to be drawn under such Letter of Credit (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof). In consideration and in furtherance of the foregoing, each Revolving Facility Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the applicable Issuing Bank, in Dollars, such Revolving Facility Lender’s applicable Revolving Facility Percentage of each L/C Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason (calculated, in the case of any Alternate Currency Letter of Credit, based on the Dollar Equivalent thereof). Each Revolving Facility 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 Event of Default or reduction or termination of the Commitments or the fact that, as a result of changes in currency exchange rates, such Revolving Facility Lender’s Revolving Facility Credit Exposure at any time might exceed its Revolving Facility Commitment at such time (in which case Section 2.11(f) would apply), and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement . If the applicable Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such L/C Disbursement by paying to the Administrative Agent an amount in Dollars equal to such L/C Disbursement (or, in the case of an Alternate Currency Letter of Credit, the Dollar Equivalent thereof) not later than 2:00 p.m., Local Time, on the first Business Day after the Borrower receives notice under paragraph (g) of this Section of such L/C Disbursement (or the second Business Day, if such notice is received after 12:00 noon, Local Time), together with accrued interest thereon from the date of such L/C Disbursement at the rate applicable to ABR Revolving Facility Loans of the applicable Class; provided , that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.04 that such payment be financed with an ABR Revolving Facility Borrowing or a Swingline Borrowing of the applicable Class, as applicable, in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Facility Borrowing or Swingline Borrowing. If the Borrower fails to reimburse any L/C Disbursement when due, then the Administrative Agent shall promptly notify the applicable Issuing Bank and each other applicable Revolving Facility Lender of the applicable L/C Disbursement, the payment then due from the Borrower in respect thereof and, in the case of a Revolving Facility Lender, such Lender’s Revolving Facility Percentage thereof. Promptly following receipt of such notice, each Revolving Facility Lender with a Revolving Facility Commitment of the applicable Class shall pay to the Administrative Agent in Dollars its Revolving Facility Percentage of the payment then due from the Borrower in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis , to the payment obligations of the Revolving Facility Lenders), and the Administrative Agent shall promptly pay to the applicable Issuing Bank the amounts so received by it from the Revolving Facility Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the applicable Issuing Bank or, to the extent that Revolving Facility Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as their interests may appear. Any payment made by a Revolving Facility Lender pursuant to this paragraph to reimburse an Issuing Bank for any L/C Disbursement (other than the funding of an ABR Revolving Loan or a Swingline Borrowing as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such L/C Disbursement.
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(f) Obligations Absolute . The obligation of the Borrower to reimburse L/C 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 applicable 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 Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders nor any Issuing Bank, 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 such Issuing Bank, or any of the circumstances referred to in clauses (i), (ii) or (iii) of the first sentence; provided , that the foregoing shall not be construed to excuse the applicable Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are determined by final and binding decision of a court of competent jurisdiction to have been caused by such Issuing Bank’s 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 applicable Issuing Bank, such 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 that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the applicable 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 applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by electronic means) of any such demand for payment under a Letter of Credit and whether such Issuing Bank has made or will make an L/C Disbursement thereunder; provided , that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Revolving Facility Lenders with respect to any such L/C Disbursement.
(h) Interim Interest . If an Issuing Bank shall make any L/C Disbursement, then, unless the Borrower shall reimburse such L/C Disbursement in full on the date such L/C Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such L/C Disbursement is made to but excluding the date that the Borrower reimburses such L/C Disbursement, at the rate per annum then applicable to ABR Revolving Loans of the applicable Class; provided , that, if such L/C Disbursement is not reimbursed by the Borrower 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 applicable Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Facility Lender pursuant to paragraph (e) of this Section to reimburse such Issuing Bank shall be for the account of such Revolving Facility Lender to the extent of such payment.
(i) Replacement of an Issuing Bank . An Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of an Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12. From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the replaced 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
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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 such Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization Following Certain Events . If and when the Borrower is required to Cash Collateralize any Revolving L/C Exposure relating to any outstanding Letters of Credit pursuant to any of Section 2.05(c), 2.11(e), 2.11(f), 2.11(g), 2.22(a)(v) or 7.01, the Borrower shall deposit in an account with or at the direction of the Administrative Agent, in the name of the Collateral Agent and for the benefit of the Lenders, an amount in cash in Dollars equal to the Revolving L/C Exposure as of such date (or, in the case of Sections 2.05(c), 2.11(e), 2.11(f), 2.11(g) and 2.22(a)(v), the portion thereof required by such sections). Each deposit of Cash Collateral (x) made pursuant to this paragraph or (y) made by the Administrative Agent pursuant to Section 2.22(a)(ii), in each case, shall be held by the Collateral Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over 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 (i) for so long as an Event of Default shall be continuing, the Collateral Agent and (ii) at any other time, the Borrower, in each case, in Permitted Investments and at the risk and expense of the Borrower, 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 Collateral Agent to reimburse each Issuing Bank for L/C Disbursements for which such Issuing Bank has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the Revolving L/C Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with Revolving L/C Exposure representing greater than 50% of the total Revolving L/C Exposure), be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of Cash Collateral hereunder as a result of the occurrence of an Event of Default or the existence of a Defaulting Lender or the occurrence of a limit under Section 2.11(e), (f) or (g) being exceeded, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived or the termination of the Defaulting Lender status or the limits under Sections 2.11(e), (f) or (g) no longer being exceeded, as applicable.
(k) Cash Collateralization Following Termination of the Revolving Facility . Notwithstanding anything to the contrary herein, in the event of the prepayment in full of all outstanding Revolving Facility Loans and the termination of all Revolving Facility Commitments (a “ Revolving Facility Termination Event ”) in connection with which the Borrower notifies any one or more Issuing Banks that it intends to maintain one or more Letters of Credit initially issued under this Agreement in effect after the date of such Revolving Facility Termination Event (each, a “ Continuing Letter of Credit ”), then the security interest of the Collateral Agent in the Collateral under the Security Documents may be terminated in accordance with Section 9.18 if each such Continuing Letter of Credit is Cash Collateralized in an amount equal to the Minimum L/C Collateral Amount, which shall be deposited with or at the direction of each such Issuing Bank.
(l) Additional Issuing Banks . From time to time, the Borrower may by notice to the Administrative Agent designate any Lender (in addition to the initial Issuing Banks) each of which agrees (in its sole discretion) to act in such capacity and is reasonably satisfactory to the Administrative Agent as an Issuing Bank. Each such additional Issuing Bank shall execute a counterpart of this Agreement upon the approval of the Administrative Agent (which approval shall not be unreasonably withheld) and shall thereafter be an Issuing Bank hereunder for all purposes.
(m) Reporting . Unless otherwise requested by the Administrative Agent, each Issuing Bank shall (i) provide to the Administrative Agent copies of any notice received from the Borrower pursuant to Section 2.05(b) no later than the next Business Day after receipt thereof and (ii) report in writing to the Administrative Agent (A) on or prior to each Business Day on which such Issuing Bank expects to issue, amend or extend any Letter of Credit, the date of such issuance, amendment or extension, and the aggregate face amount of the Letters of Credit to be issued, amended or extended by it and outstanding after giving effect to such issuance, amendment or extension occurred (and whether the amount thereof changed), and such Issuing Bank shall be permitted to issue, amend or extend such Letter of Credit if the Administrative Agent shall not have advised such Issuing Bank that such
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issuance, amendment or extension would not be in conformity with the requirements of this Agreement, (B) on each Business Day on which such Issuing Bank makes any L/C Disbursement, the date of such L/C Disbursement and the amount of such L/C Disbursement and (C) on any other Business Day, such other information with respect to the outstanding Letters of Credit issued by such Issuing Bank as the Administrative Agent shall reasonably request.
(n) Unless otherwise expressly agreed by the applicable Issuing Bank and the Borrower, when a Letter of Credit is issued, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the UCP shall apply to each trade Letter of Credit. Notwithstanding the foregoing, the Issuing Banks shall not be responsible to the Borrower for, and the Issuing Banks’ rights and remedies against the Borrower shall not be impaired by, any action or inaction of the Issuing Banks required or permitted under any law, order, or practice that is required or permitted to be applied to any Letter of Credit or this Agreement, including the Requirement of Law or any order of a jurisdiction where the Issuing Bank or the beneficiary is located, the practice stated in the ISP or UCP, as applicable, or in the decisions, opinions, practice statements, or official commentary of the ICC Banking Commission, the Bankers Association for Finance and Trade – International Financial Services Association (BAFT-IFSA), or the Institute of International Banking Law & Practice, whether or not any Letter of Credit chooses such law or practice.
(o) Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower shall be obligated to reimburse the applicable Issuing Bank hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.
Section 2.06 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 by 12:00 noon, Local Time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; provided , that Swingline Loans shall be made as provided in Section 2.04. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower as specified in the applicable Borrowing Request; provided , that ABR Revolving Loans and Swingline Borrowings made to finance the reimbursement of a L/C Disbursement and reimbursements as provided in Section 2.05(e) shall be remitted by the Administrative Agent to the applicable 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 Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with clause (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand (without duplication) such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of (A) the Federal Funds Effective Rate and (B) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to ABR Loans at such time. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(c) The foregoing notwithstanding, the Administrative Agent, in its sole discretion, may from its own funds make a Revolving Facility Loan on behalf of the Lenders (including by means of Swingline Loans to the Borrower). In such event, the applicable Lenders on behalf of whom the Administrative Agent made the Revolving Facility Loan shall reimburse the Administrative Agent for all or any portion of such Revolving Facility Loan made
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on its behalf upon written notice given to each applicable Lender not later than 2:00 p.m., Local Time, on the Business Day such reimbursement is requested. The entire amount of interest attributable to such Revolving Facility Loan for the period from and including the date on which such Revolving Facility Loan was made on such Lender’s behalf to but excluding the date the Administrative Agent is reimbursed in respect of such Revolving Facility Loan by such Lender shall be paid to the Administrative Agent for its own account.
Section 2.07 Interest Elections .
(a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurocurrency Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower 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 into or continued as Eurocurrency Borrowings.
(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone, by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or electronic means to the Administrative Agent of a written Interest Election Request signed by the Borrower.
(c) Each telephonic and written Interest Election Request 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 Eurocurrency Borrowing; and
(iv) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period.”
If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. If less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall be in an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum and satisfy the limitations specified in Sections 2.02(c) regarding the maximum number of Borrowings of the relevant Type.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender to which such Interest Election Request relates of the details thereof and of such Lender’s portion of each resulting Borrowing.
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(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency 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 such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the written request (including a request through electronic means) of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurocurrency Borrowing and (ii) unless repaid, each Eurocurrency Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
Section 2.08 Termination and Reduction of Commitments .
(a) Unless previously terminated, the Revolving Facility Commitments of each Class shall terminate on the applicable Revolving Facility Maturity Date for such Class. On the Closing Date (after giving effect to the funding of the Term B Loans to be made on such date), the Term B Loan Commitments of each Lender as of the Closing Date will terminate.
(b) The Borrower may at any time terminate, or from time to time reduce, the Revolving Facility Commitments of any Class; provided , that (i) each reduction of the Revolving Facility Commitments of any Class shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000 (or, if less, the remaining amount of the Revolving Facility Commitments of such Class) and (ii) the Borrower shall not terminate or reduce the Revolving Facility Commitments of any Class if, after giving effect to any concurrent prepayment of the Revolving Facility Loans in accordance with Section 2.11 and any Cash Collateralization of Letters of Credit in accordance with Section 2.05(j) or (k), the Revolving Facility Credit Exposure of such Class (excluding any Cash Collateralized Letter of Credit) would exceed the total Revolving Facility Commitments of such Class.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Revolving Facility Commitments of any Class under paragraph (b) of this Section 2.08 at least three Business Days prior to the effective date of such termination or reduction (or such shorter period acceptable to the Administrative Agent), specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the applicable Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section 2.08 shall be irrevocable; provided , that a notice of termination or reduction of the Revolving Facility Commitments of any Class delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, indentures or similar agreements or other transactions, in which case such notice may be revoked by the Borrower (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 of any Class shall be made ratably among the Lenders in accordance with their respective Commitments of such Class.
Section 2.09 Repayment of Loans; Evidence of Debt .
(a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Revolving Facility Lender the then unpaid principal amount of each Revolving Facility Loan to the Borrower on the Revolving Facility Maturity Date applicable to such Revolving Facility Loans, (ii) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Term Loan of such Lender as provided in Section 2.10 and (iii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan applicable to any Class of Revolving Facility Commitments on the earlier of the Revolving Facility Maturity Date for such Class and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least five Business Days after such Swingline Loan is made; provided , that on each date that a Revolving Facility Borrowing is made by the Borrower, the Borrower shall repay all Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
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(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Facility and Type thereof and the Interest Period (if any) applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) any amount received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d) The entries made in the accounts maintained pursuant to clause (b) or (c) 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 the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a promissory note (a “ Note ”). In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent and reasonably acceptable to the Borrower. Thereafter, unless otherwise agreed to by the applicable Lender, 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 payee named therein (or, if requested by such payee, to such payee and its registered assigns).
Section 2.10 Repayment of Term Loans and Revolving Facility Loans .
(a) Subject to the other clauses of this Section,
(i) the Borrower shall repay Term B Loans incurred on the Closing Date on the last day of each March, June, September and December of each year (commencing on the last day of the first full fiscal quarter of the Borrower ending after the Closing Date) and on the applicable Term Facility Maturity Date or, if any such date is not a Business Day, on the next preceding Business Day (each such date being referred to as a “ Term B Loan Installment Date ”), in an aggregate principal amount of such Term B Loans equal to (A) in the case of quarterly payments due prior to the applicable Term Facility Maturity Date, an amount equal to 0.25% of the aggregate principal amount of such Term B Loans outstanding immediately after the Closing Date, and (B) in the case of such payment due on the applicable Term Facility Maturity Date, an amount equal to the then unpaid principal amount of such Term B Loans outstanding;
(ii) in the event that any Incremental Term Loans are made, the Borrower shall repay such Incremental Term Loans on the dates and in the amounts set forth in the related Incremental Assumption Agreement (each such date being referred to as an “ Incremental Term Loan Installment Date ”); and
(iii) to the extent not previously paid, outstanding Term Loans shall be due and payable on the applicable Term Facility Maturity Date.
(b) To the extent not previously paid, outstanding Revolving Facility Loans shall be due and payable on the applicable Revolving Facility Maturity Date.
(c) Prepayment of the Loans from:
(i) all Net Proceeds pursuant to Section 2.11(b) and Excess Cash Flow pursuant to Section 2.11(c) shall be allocated to the Class or Classes of Term Loans determined pursuant to Section 2.10(d), with the application thereof to reduce in direct order amounts due on the succeeding Term Loan Installment Dates under such Classes as provided in the remaining scheduled amortization payments under such Classes; provided , that any Lender, at its option, may elect to decline any such prepayment of any Term Loan held by it if it shall give written notice to the Administrative Agent thereof by 5:00 p.m. Local Time at least three Business Days prior to the date of such prepayment (any such Lender, a “ Declining Lender ”) and on the date of any such prepayment, any amounts that would otherwise have been applied to prepay Term Loans owing to Declining Lenders shall instead be retained by the Borrower for application for any purpose not prohibited by this Agreement, and
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(ii) any optional prepayments of the Term Loans pursuant to Section 2.11(a) shall be applied to the remaining installments of the Term Loans under the applicable Class or Classes as the Borrower may in each case direct.
(d) Any mandatory prepayment of Term Loans pursuant to Section 2.11(b) or (c) shall be applied so that the aggregate amount of such prepayment is allocated among the Term B Loans and the Other Term Loans, if any, pro rata based on the aggregate principal amount of outstanding Term B Loans and Other Term Loans, if any; provided that, subject to the pro rata application to Loans outstanding within any Class of Term Loans, the Borrower may allocate such prepayment in its discretion among the Class or Classes of Term Loans as the Borrower may specify (so long as the Term B Loans incurred on the Closing Date are allocated at least their pro rata share of such prepayment). Prior to any prepayment of any Loan under any Facility hereunder, the Borrower shall select the Borrowing or Borrowings under the applicable Facility to be prepaid and shall notify the Administrative Agent by telephone (confirmed by electronic means) of such selection not later than 2:00 p.m., Local Time, (i) in the case of an ABR Borrowing, at least one Business Day before the scheduled date of such prepayment and (ii) in the case of a Eurocurrency Borrowing, at least three Business Days before the scheduled date of such prepayment (or, in each case such shorter period acceptable to the Administrative Agent); provided , that a notice of prepayment may state that such notice is conditioned upon the effectiveness of other credit facilities, indentures or similar agreements or other transactions, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Each repayment of a Borrowing (x) in the case of the Revolving Facility of any Class, shall be applied to the Revolving Facility Loans included in the repaid Borrowing such that each Revolving Facility Lender receives its ratable share of such repayment (based upon the respective Revolving Facility Credit Exposures of the Revolving Facility Lenders of such Class at the time of such repayment) and (y) in all other cases, shall be applied ratably to the Loans included in the repaid Borrowing. All repayments of Loans shall be accompanied by accrued interest on the amount repaid to the extent required by Section 2.13(d).
Section 2.11 Prepayment of Loans .
(a) The Borrower shall have the right at any time and from time to time to prepay any Loan in whole or in part, without premium or penalty (but subject to Section 2.12(d) and Section 2.16), in an aggregate principal amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum or, if less, the amount outstanding, subject to prior notice in accordance with Section 2.10(d).
(b) The Borrower shall apply all Net Proceeds promptly upon receipt thereof to prepay Term Loans in accordance with clauses (c) and (d) of Section 2.10. Notwithstanding the foregoing, the Borrower may use a portion of such Net Proceeds to prepay or repurchase any Refinancing Notes that are secured by a pari passu Lien on the Collateral or other Indebtedness that is secured by pari passu Liens permitted by Section 6.02, in each case in an amount not to exceed the product of (x) the amount of such Net Proceeds and (y) a fraction, (A) the numerator of which is the outstanding principal amount of such Indebtedness secured by pari passu Liens and (B) the denominator of which is the sum of the outstanding principal amount of such Indebtedness and the outstanding principal amount of all Classes of Term Loans. Not later than five Business Days prior to the date of such prepayment, the Borrower shall provide written notice thereof to the Administrative Agent, including the amount of any required prepayment.
(c) Not later than 5 Business Days after the date on which the annual financial statements are, or are required to be, delivered under Section 5.04(a) with respect to each Excess Cash Flow Period, the Borrower shall calculate Excess Cash Flow for such Excess Cash Flow Period and, if and to the extent the amount of such Excess Cash Flow exceeds $6,000,000 (the “ ECF Threshold Amount ”), the Borrower shall apply an amount equal to (i) the Required Percentage of such excess portion of such Excess Cash Flow minus (ii) to the extent not financed using the proceeds of the incurrence of funded term Indebtedness, the sum of (A) the amount of any voluntary prepayments during such Excess Cash Flow Period ( plus , without duplication of any amounts previously deducted under this clause (A), the amount of any voluntary prepayments after the end of such Excess Cash Flow Period but before the date of prepayment under this clause (c)) of Term Loans (it being understood that the amount of any such prepayment constituting a below-par Permitted Loan Purchase shall be calculated to equal the amount of cash used and not the principal amount deemed prepaid therewith) and (B) the amount of any permanent voluntary reductions during such Excess Cash Flow Period (plus, without duplication of any amounts previously deducted under this clause (B), the amount of any permanent voluntary reductions after the end of such Excess Cash Flow Period but
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before the date of prepayment under this clause (c)) of Revolving Facility Commitments to the extent that an equal amount of Revolving Facility Loans were simultaneously repaid, to prepay Term Loans in accordance with clauses (c) and (d) of Section 2.10. Such calculation will be set forth in a certificate signed by a Financial Officer of the Borrower delivered to the Administrative Agent, setting forth the amount, if any, of Excess Cash Flow for such fiscal year, the amount of any required prepayment in respect thereof and the calculation thereof in reasonable detail.
(d) Notwithstanding any other provisions of this Section 2.11 to the contrary, (i) to the extent that any Net Proceeds of any Asset Sale by a Foreign Subsidiary or Excess Cash Flow attributable to a Foreign Subsidiary would otherwise be required to be applied pursuant to Section 2.11(b) or Section 2.11(c) but is prohibited or delayed by applicable local law from being repatriated to the United States of America, the portion of such Net Proceeds or Excess Cash Flow so affected will not be required to be applied to repay Term Loans at the times provided in Section 2.11(b) or Section 2.11(c) but may be retained by the applicable Foreign Subsidiary so long, but only so long, as the applicable local law will not permit repatriation to the United States of America (the Borrower hereby agreeing to cause the applicable Foreign Subsidiary to promptly use commercially reasonable efforts to take all actions reasonably required by the applicable local law to permit such repatriation), and once such repatriation of any of such affected Net Proceeds or Excess Cash Flow that was otherwise required to be applied pursuant to Section 2.11(b) or Section 2.11(c) is permitted under the applicable local law, such repatriation will be effected and such repatriated Net Proceeds or Excess Cash Flow will be promptly applied (net of additional taxes payable or reserved against as a result thereof) to the repayment of the Term Loans pursuant to Section 2.11(b) or Section 2.11(c), to the extent provided therein and (ii) to the extent that the Borrower has determined in good faith that repatriation of any or all of such Net Proceeds or Excess Cash Flow that would otherwise be required to be applied pursuant to Section 2.11(b) or Section 2.11(c) would have a material adverse tax cost consequence if so repatriated, the Net Proceeds or Excess Cash Flow so affected may be retained by the applicable Foreign Subsidiary (the Borrower hereby agreeing to cause the applicable Subsidiary to promptly use commercially reasonable efforts to take all actions that are reasonably required to eliminate such tax effects); provided , that in the case of this clause (ii), on or before the date on which any Net Proceeds or Excess Cash Flow so retained would otherwise have been required to be applied to prepayments pursuant to Section 2.11(b) or Section 2.11(c), (x) the Borrower applies an amount equal to such Net Proceeds or Excess Cash Flow to such prepayments as if such Net Proceeds or Excess Cash Flow had been received by the Borrower rather than such Foreign Subsidiary, less the amount of additional taxes that would have been payable or reserved against if such Net Proceeds or Excess Cash Flow had been repatriated (or, if less, Net Proceeds or Excess Cash Flow that would be calculated if received by such Foreign Subsidiary) or (y) such Net Proceeds or Excess Cash Flow is applied to the permanent repayment of Indebtedness of a Foreign Subsidiary.
(e) In the event that the aggregate amount of Revolving Facility Credit Exposure of any Class exceeds the total Revolving Facility Commitments of such Class, the Borrower shall prepay Revolving Facility Borrowings or Swingline Borrowings of such Class (or, if no such Borrowings are outstanding, provide Cash Collateral in respect of outstanding Letters of Credit pursuant to Section 2.05(j)) in an aggregate amount equal to such excess.
(f) In the event that the Revolving L/C Exposure exceeds the Letter of Credit Sublimit, at the request of the Administrative Agent, the Borrower shall provide Cash Collateral pursuant to Section 2.05(j) in an amount equal to such excess.
(g) If as a result of changes in currency exchange rates, on any Revaluation Date, (i) the total Revolving Facility Credit Exposure of any Class exceeds the total Revolving Facility Commitments of such Class, (ii) the Revolving L/C Exposure exceeds the Letter of Credit Sublimit or (iii) the Revolving L/C Exposure with respect to all Alternate Currency Letters of Credit exceeds $3,000,000 (or such larger amount within the Letter of Credit Sublimit as the Administrative Agent and the applicable Issuing Bank may agree), the Borrower shall, at the request of the Administrative Agent, within ten (10) days of such Revaluation Date (A) prepay Revolving Facility Borrowings or Swingline Borrowings or (B) provide Cash Collateral pursuant to Section 2.05(j), in an aggregate amount such that the applicable exposure does not exceed the applicable commitment, sublimit or amount set forth above.
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Section 2.12 Fees .
(a) The Borrower agrees to pay to each Lender (other than any Defaulting Lender), through the Administrative Agent, on the last Business Day of March, June, September and December in each year and on the date on which the Revolving Facility Commitments of all the Lenders shall be terminated as provided herein, a commitment fee (a “ Commitment Fee ”) on the daily amount of the applicable Available Unused Commitment of such Lender during the preceding quarter (or other period commencing with the Closing Date or ending with the date on which the last of the Commitments of such Lender shall be terminated) at a rate equal to the Applicable Commitment Fee. All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. For the purpose of calculating any Lender’s Commitment Fee, the outstanding Swingline Loans during the period for which such Lender’s Commitment Fee is calculated shall be deemed to be zero. The Commitment Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the date on which the last of the Commitments of such Lender shall be terminated as provided herein.
(b) The Borrower from time to time agrees to pay (i) to each Revolving Facility Lender of each Class (other than any Defaulting Lender), through the Administrative Agent, on the last Business Day of March, June, September and December of each year and on the date on which the Revolving Facility Commitments of all the Lenders shall be terminated as provided herein, a fee in Dollars (an “ L/C Participation Fee ”) on such Lender’s Revolving Facility Percentage of the daily aggregate Revolving L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) of such Class, during the preceding quarter (or shorter period commencing with the Closing Date or ending with the Revolving Facility Maturity Date or the date on which the Revolving Facility Commitments of such Class shall be terminated) at the rate per annum equal to the Applicable Margin for Eurocurrency Revolving Facility Borrowings of such Class effective for each day in such period, and (ii) to each Issuing Bank, for its own account (x) the last Business Day of March, June, September and December of each year and on the date on which the Revolving Facility Commitments of all the Lenders shall be terminated, a fronting fee in respect of each Letter of Credit issued by such Issuing Bank for the period from and including the date of issuance of such Letter of Credit to and including the termination of such Letter of Credit, computed at a rate equal to 1/8 of 1% per annum of the daily stated amount of such Letter of Credit), plus (y) in connection with the issuance, amendment or transfer of any such Letter of Credit or any L/C Disbursement thereunder, such Issuing Bank’s customary documentary and processing fees and charges (collectively, “ Issuing Bank Fees ”). All L/C Participation Fees and Issuing Bank Fees that are payable on a per annum basis shall be computed on the basis of the actual number of days elapsed in a year of 360 days.
(c) The Borrower agrees to pay to the Administrative Agent, for the account of the Administrative Agent, the “Administration Agent Fee” as set forth in the Administrative Agent Fee Letter, as amended, restated, supplemented or otherwise modified from time to time, at the times specified therein (the “ Administrative Agent Fees ”).
(d) In the event that, on or prior to the date that is six months after the Closing Date, the Borrower shall (x) make a prepayment of the Term B Loans pursuant to Section 2.11(a) (or Section 2.11(b) to the extent such proceeds constitute “Net Proceeds” under clause (b) of the definition thereof) with the proceeds of, or convert the Term B Loans into, any new or replacement tranche of long-term secured term loans that have an All-in Yield that is less than the All-in Yield of such Term B Loans or (y) effect any amendment to this Agreement which reduces the All-in Yield of the Term B Loans (other than, in the case of each of clauses (x) and (y), in connection with a Qualified IPO, a Change in Control or a transformative acquisition referred to in the last sentence of this paragraph), the Borrower shall pay to the Administrative Agent, for the ratable account of each of the applicable Term Loan Lenders, (A) in the case of clause (x), a prepayment premium of 1.00% of the aggregate principal amount of the Term B Loans so prepaid or converted and (B) in the case of clause (y), a fee equal to 1.00% of the aggregate principal amount of the applicable Term B Loans for which the All-in Yield has been reduced pursuant to such amendment (it being understood that if any Non-Consenting Lender is required to assign its Term B Loans in connection with such amendment, such fee shall be paid to such Non-Consenting Lender and not to its assignee). Such amounts shall be due and payable on the date of such prepayment or the effective date of such amendment, as the case may be. For purposes of this Section 2.12(d), a “transformative acquisition” is any acquisition by the Borrower or any Subsidiary that is (i) not permitted by the terms of the Loan Documents immediately prior to the consummation of such acquisition or (ii) if permitted by the terms of the Loan Documents immediately prior to the consummation of such acquisition, would not provide the Borrower and its Subsidiaries with adequate flexibility under the Loan Documents for the continuation and/or expansion of their combined operations following such consummation, as determined by the Borrower in good faith.
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(e) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that Issuing Bank Fees shall be paid directly to the applicable Issuing Banks. Once paid, none of the Fees shall 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 ABR plus the Applicable Margin.
(b) The Loans comprising each Eurocurrency Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any Fees or other amount payable by the Borrower 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, 2% plus the rate otherwise applicable to such Loan as provided in the preceding clauses of this Section 2.13 or (ii) in the case of any other overdue amount, 2% plus the rate applicable to ABR Loans as provided in clause (a) of this Section; provided , that this clause (c) shall not apply to any Event of Default that has been waived by the Lenders pursuant to Section 9.08.
(d) Accrued interest on each Loan shall be payable in arrears (i) on each Interest Payment Date for such Loan, (ii) in the case of Revolving Facility Loans, upon termination of the applicable Revolving Facility Commitments and (iii) in the case of the Term Loans, on the applicable Term Facility Maturity Date; provided , that (A) interest accrued pursuant to clause (c) of this Section 2.13 shall be payable on demand, (B) in the event of any repayment or prepayment of any Loan (other than a prepayment of a Revolving Facility Loan that is an ABR Loan that is not made in conjunction with a permanent commitment reduction), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (C) in the event of any conversion of any Eurocurrency 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.
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the ABR at times when the ABR is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), 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 ABR, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
Section 2.14 Alternate Rate of Interest . If prior to the commencement of any Interest Period for a Eurocurrency 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 for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or electronic means as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower 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 Eurocurrency Borrowing shall be ineffective and such Borrowing shall be converted to or continued as on the last day of the Interest Period applicable thereto an ABR Borrowing, and (ii) if any Borrowing Request requests a Eurocurrency Borrowing, such Borrowing shall be made as an ABR Borrowing.
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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 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 Issuing Bank; or
(ii) subject any Lender to any Tax with respect to any Loan Document (other than (i) Taxes indemnifiable under Section 2.17 or (ii) Excluded Taxes); or
(iii) impose on any Lender or Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or Issuing Bank, as applicable, such additional amount or amounts as will compensate such Lender or Issuing Bank, as applicable, for such additional costs incurred or reduction suffered.
(b) If any Lender or 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 Lender’s or Issuing Bank’s capital or on the capital of such Lender’s or Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit or Swingline Loans held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy), then from time to time the Borrower shall pay to such Lender or such Issuing Bank, as applicable, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.
(c) A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or Issuing Bank or its holding company, as applicable, as specified in clause (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error; provided , that any such certificate claiming amounts described in clause (x) or (y) of the definition of “Change in Law” shall, in addition, state the basis upon which such amount has been calculated and certify that such Lender’s or Issuing Bank’s demand for payment of such costs hereunder, and such method of allocation is not inconsistent with its treatment of other borrowers which, as a credit matter, are similarly situated to the Borrower and which are subject to similar provisions. The Borrower shall pay such Lender or Issuing Bank, as applicable, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Promptly after any Lender or any Issuing Bank has determined that it will make a request for increased compensation pursuant to this Section 2.15, such Lender or Issuing Bank shall notify the Borrower thereof. Failure or delay on the part of any Lender or Issuing Bank to demand compensation pursuant to this Section 2.15 shall not constitute a waiver of such Lender’s or Issuing Bank’s right to demand such compensation; provided , that the Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section 2.15 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or Issuing Bank, as applicable, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or Issuing Bank’s 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 180 day period referred to above shall be extended to include the period of retroactive effect thereof.
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Section 2.16 Break Funding Payments . In the event of (a) the payment of any principal of any Eurocurrency Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurocurrency Loan on the date specified in any notice delivered pursuant hereto or (d) the assignment of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, such loss, cost or expense to any Lender shall be deemed to be the amount determined by such Lender (it being understood that the deemed amount shall not exceed the actual amount) to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the 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 a Eurocurrency Loan, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for deposits in Dollars of a comparable amount and period from other banks in the Eurocurrency market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 2.16 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
Section 2.17 Taxes .
(a) Any and all payments made by or on behalf of a Loan Party under this Agreement or any other Loan Document shall be made free and clear of, and without deduction or withholding for or on account of, any Taxes; provided , that if a Loan Party, the Administrative Agent or any other applicable withholding agent shall be required by applicable Requirement of Law to deduct or withhold any Taxes from such payments, then (i) the applicable withholding agent shall make such deductions or withholdings as are reasonably determined by the applicable withholding agent to be required by any applicable Requirement of Law, (ii) the applicable withholding agent shall timely pay the full amount deducted or withheld to the relevant Governmental Authority within the time allowed and in accordance with applicable Requirement of Law, and (iii) to the extent withholding or deduction is required to be made on account of Indemnified Taxes or Other Taxes, the sum payable by the Loan Party shall be increased as necessary so that after all required deductions and withholdings have been made (including deductions or withholdings applicable to additional sums payable under this Section 2.17) the Administrative Agent or any Lender, as applicable, receives an amount equal to the sum it would have received had no such deductions or withholdings been made. Whenever any Indemnified Taxes or Other Taxes are payable by a Loan Party, as promptly as possible thereafter, such Loan Party shall send to the Administrative Agent for its own account or for the account of a Lender, as the case may be, a certified copy of an official receipt (or other evidence acceptable to the Administrative Agent or such Lender, acting reasonably) received by the Loan Party showing payment thereof. Without duplication, after any payment of Taxes by any Loan Party or the Administrative Agent to a Governmental Authority as provided in this Section 2.17, the Borrower shall deliver to the Administrative Agent or the Administrative Agent shall deliver to the Borrower, as the case may be, a copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by applicable Requirements of Law to report such payment or other evidence of such payment reasonably satisfactory to the Borrower or the Administrative Agent, as the case may be.
(b) The Borrower shall timely pay any Other Taxes.
(c) The Borrower shall indemnify and hold harmless the Administrative Agent and each Lender within 15 Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes imposed on the Administrative Agent or such Lender, as applicable, as the case may be (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.17), and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate setting forth in reasonable detail the basis and calculation of the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent (as applicable) on its own behalf or on behalf of a Lender shall be conclusive absent manifest error.
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(d) Each Lender shall deliver to the Borrower and the Administrative Agent, at such time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law and such other reasonably requested information as will permit the Borrower or the Administrative Agent, as the case may be, to determine (A) whether or not any payments made hereunder or under any other Loan Document are subject to withholding of Taxes, (B) if applicable, the required rate of withholding or deduction, and (C) such Lender’s entitlement to any available exemption from, or reduction of, any such withholding of Taxes in respect of any payments to be made to such Lender by any Loan Party pursuant to any Loan Document or otherwise to establish such Lender’s status for withholding tax purposes in the applicable jurisdiction. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.
(e) Without limiting the generality of Section 2.17(d), each Foreign Lender with respect to any Loan made to the Borrower shall, to the extent it is legally eligible to do so:
(i) deliver to the Borrower and the Administrative Agent, prior to the date on which the first payment to the Foreign Lender is due hereunder, two copies of (A) in the case of a Foreign Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest,” IRS Form W-8BEN or W-8BEN-E, as applicable, (or any applicable successor form) (together with a certificate (substantially in the form of Exhibit I hereto, such certificate, the “ Non-Bank Tax Certificate ”) certifying that such Foreign Lender is not a bank for purposes of Section 881(c) of the Code, is not a “10-percent shareholder” (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a CFC related to the Borrower (within the meaning of Section 864(d)(4) of the Code), and that the interest payments in question are not effectively connected with the conduct by such Lender of a trade or business within the United States of America), (B) IRS Form W-8BEN or W-8BEN-E, as applicable, or Form W-8ECI (or any applicable successor form), in each case properly completed and duly executed by such Foreign Lender claiming complete exemption from, or reduced rate of, U.S. federal withholding tax on payments by the Borrower under this Agreement, (C) IRS Form W-8IMY (or any applicable successor form) and all necessary attachments (including the forms described in clauses (A) and (B) above, provided that if the Foreign Lender is a partnership, and one or more of the partners is claiming portfolio interest treatment, the Non-Bank Tax Certificate may be provided by such Foreign Lender on behalf of such partners) or (D) 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 Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(ii) deliver to the Borrower and the Administrative Agent two further copies of any such form or certification (or any applicable successor form) on or before the date that any such form or certification expires or becomes obsolete or invalid, after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Administrative Agent, and from time to time thereafter if reasonably requested by the Borrower or the Administrative Agent.
Any Foreign Lender that becomes legally ineligible to update any form or certification previously delivered shall promptly notify the Borrower and the Administrative Agent in writing of such Foreign Lender’s inability to do so.
Each person that shall become a Participant pursuant to Section 9.04 or a Lender pursuant to Section 9.04 shall, upon the effectiveness of the related transfer, be required to provide all the forms and statements required pursuant to this Section 2.17(e); provided , that a Participant shall furnish all such required forms and statements to the person from which the related participation shall have been purchased.
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In addition, each Agent shall deliver to the Borrower (x)(I) prior to the date on which the first payment by the Borrower is due hereunder or (II) prior to the first date on or after the date on which such Agent becomes a successor Administrative Agent pursuant to Section 8.09 on which payment by the Borrower is due hereunder, as applicable, two copies of a properly completed and executed IRS Form W-9 certifying its exemption from U.S. federal backup withholding or such other properly completed and executed documentation prescribed by applicable law certifying its entitlement to an available exemption from applicable U.S. federal withholding taxes in respect of any payments to be made to such Agent by any Loan Party pursuant to any Loan Document including, as applicable, an IRS Form W-8IMY certifying that the Agent is a U.S. branch and intends to be treated as a U.S. person for purposes of withholding under Chapter 3 of the Code pursuant to Section 1.1441-1(b)(2)(iv) of the Treasury Regulations, and (y) on or before the date on which any such previously delivered documentation expires or becomes obsolete or invalid, after the occurrence of any event requiring a change in the most recent documentation previously delivered by it to the Borrower, and from time to time if reasonably requested by the Borrower, two further copies of such documentation.
(f) If any Lender or the Administrative Agent, as applicable, determines, in its sole discretion, that it has received a refund of an Indemnified Tax or Other Tax for which a payment has been made by a Loan Party pursuant to this Agreement or any other Loan Document, which refund in the good faith judgment of such Lender or the Administrative Agent, as the case may be, is attributable to such payment made by such Loan Party, then the Lender or the Administrative Agent, as the case may be, shall reimburse the Loan Party for such amount (net of all reasonable out-of-pocket expenses of such Lender or the Administrative Agent, as the case may be, and without interest other than any interest received thereon from the relevant Governmental Authority with respect to such refund) as the Lender or Administrative Agent, as the case may be, determines in its sole discretion to be the proportion of the refund as will leave it, after such reimbursement, in no better or worse position (taking into account expenses or any Taxes imposed on the refund) than it would have been in if the Indemnified Tax or Other Tax giving rise to such refund had not been imposed in the first instance; provided , that the Loan Party, upon the request of the Lender or the Administrative Agent agrees to repay the amount paid over to the Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Lender or the Administrative Agent in the event the Lender or the Administrative Agent is required to repay such refund to such Governmental Authority. In such event, such Lender or the Administrative Agent, as the case may be, shall, at the Borrower’s request, provide the Borrower with a copy of any notice of assessment or other evidence of the requirement to repay such refund received from the relevant Governmental Authority ( provided , that such Lender or the Administrative Agent may delete any information therein that it deems confidential). A Lender or the Administrative Agent shall claim any refund that it determines is available to it, unless it concludes in its sole discretion that it would be adversely affected by making such a claim. No Lender nor the Administrative Agent shall be obliged to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Loan Party in connection with this clause (f) or any other provision of this Section 2.17.
(g) If the Borrower determines that a reasonable basis exists for contesting an Indemnified Tax or Other Tax for which a Loan Party has paid additional amounts or indemnification payments, each affected Lender or Agent, as the case may be, shall use reasonable efforts to cooperate with the Borrower as the Borrower may reasonably request in challenging such Tax. The Borrower shall indemnify and hold each Lender and Agent harmless against any out-of-pocket expenses incurred by such person in connection with any request made by the Borrower pursuant to this Section 2.17(g). Nothing in this Section 2.17(g) shall obligate any Lender or Agent to take any action that such person, in its sole judgment, determines may result in a material detriment to such person.
(h) Each U.S. Lender shall deliver to the Borrower and the Administrative Agent two Internal Revenue Service Forms W-9 (or substitute or successor form), properly completed and duly executed, certifying that such U.S. Lender is exempt from United States federal backup withholding (i) on or prior to the Closing Date (or on or prior to the date it becomes a party to this Agreement), (ii) on or before the date that such form expires or becomes obsolete or invalid, (iii) after the occurrence of a change in the U.S. Lender’s circumstances requiring a change in the most recent form previously delivered by it to the Borrower and the Administrative Agent, and (iv) from time to time thereafter if reasonably requested by the Borrower or the Administrative Agent.
(i) If a payment made to any Lender or any Agent under this Agreement or any other Loan Document would be subject to U.S. federal withholding tax imposed by FATCA if such Lender or such Agent were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or
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1472(b) of the Code, as applicable), such Lender or such Agent shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower 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 Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA, to determine whether such Lender has or has not complied with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of this Section 2.17(i), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
(j) The agreements in this Section 2.17 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable under any Loan Document.
For purposes of this Section 2.17, the term “Lender” includes any Issuing Bank and the term “applicable Requirement of Law” includes FATCA.
Section 2.18 Payments Generally; Pro Rata Treatment; Sharing of Set-offs .
(a) Unless otherwise specified, the Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of L/C Disbursements, or of amounts payable under Sections 2.15, 2.16 or 2.17, or otherwise) prior to 2:00 p.m., Local Time, on the date when due, in immediately available funds, without condition or deduction for any defense, recoupment, 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 to the applicable account designated to the Borrower by the Administrative Agent, except payments to be made directly to the applicable Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.05 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. Except as otherwise expressly provided herein, 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 made under the Loan Documents shall be made in Dollars (or, in the case of Alternate Currency Letters of Credit, in the applicable Alternate Currency). Any payment required to be made by the Administrative Agent hereunder shall be deemed to have been made by the time required if the Administrative Agent shall, at or before such time, have taken the necessary steps to make such payment in accordance with the regulations or operating procedures of the clearing or settlement system used by the Administrative Agent to make such payment.
(b) Subject to Section 7.02, if at any time insufficient funds are received by and available to the Administrative Agent from the Borrower to pay fully all amounts of principal, unreimbursed L/C Disbursements, interest and fees then due from the Borrower hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, (ii) second, towards payment of principal of Swingline Loans and unreimbursed L/C Disbursements then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed L/C Disbursements then due to such parties, and (iii) third, towards payment of principal then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.
(c) 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 Term Loans, Revolving Facility Loans or participations in L/C Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Term Loans, Revolving Facility Loans and participations in L/C Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender entitled to receive the same proportion of such payment, then the Lender receiving such greater proportion shall purchase participations in the Term Loans, Revolving Facility Loans and participations in L/C Disbursements and Swingline Loans of such other Lenders to the extent necessary so that the benefit of all such payments shall be
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shared by all such Lenders ratably in accordance with the principal amount of each such Lender’s respective Term Loans, Revolving Facility Loans and participations in L/C Disbursements and Swingline Loans and accrued interest thereon; 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 price restored to the extent of such recovery, without interest, and (ii) the provisions of this clause (c) shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement 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 L/C Disbursements to any assignee or participant. The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the applicable Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the applicable Issuing Bank, as applicable, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the applicable Issuing Bank, as applicable, 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.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(b), 2.05(d) or (e), 2.06, or 2.18(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.
Section 2.19 Mitigation Obligations; Replacement of Lenders .
(a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17 or any event that gives rise to the operation of Section 2.20, 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 reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17 or mitigate the applicability of Section 2.20, as applicable, in the future and (ii) would not subject such Lender to any material unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender in any material respect. The Borrower hereby agrees 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 gives notice under Section 2.20, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender is a Defaulting Lender, or if any Lender is the subject to a Disqualification, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require any 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 and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided , that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and, if in respect of any Revolving Facility Commitment or Revolving Facility Loan, the Swingline Lender and the Issuing Banks), which consent, in each case, 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 L/C Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the
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Borrower (in the case of all other amounts) and (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 or a notice given under Section 2.20, such assignment will result in a reduction in such compensation or payments. Nothing in this Section 2.19 shall be deemed to prejudice any rights that the Borrower may have against any Lender that is a Defaulting Lender. No action by or consent of the removed Lender shall be necessary in connection with such assignment, which shall be immediately and automatically effective upon payment of such purchase price. In connection with any such assignment the Borrower, Administrative Agent, such removed Lender and the replacement Lender shall otherwise comply with Section 9.04, provided , that if such removed Lender does not comply with Section 9.04 within one Business Day after the Borrower’s request, compliance with Section 9.04 shall not be required to effect such assignment.
(c) If any Lender (such Lender, a “ Non-Consenting Lender ”) has failed to consent to a proposed amendment, waiver, discharge or termination which pursuant to the terms of Section 9.08 requires the consent of all of the Lenders affected and with respect to which the Required Lenders shall have granted their consent, then the Borrower shall have the right (unless such Non-Consenting Lender grants such consent) at its sole expense (including with respect to the processing and recordation fee referred to in Section 9.04(b)(ii)(B)) to replace such Non-Consenting Lender by requiring such Non-Consenting Lender to (and any such Non-Consenting Lender agrees that it shall, upon the Borrower’s request) assign its Loans and its Commitments (or, at the Borrower’s option, the Loans and Commitments under the Facility that is the subject of the proposed amendment, waiver, discharge or termination) hereunder to one or more assignees reasonably acceptable to (i) the Administrative Agent (unless such assignee is a Lender, an Affiliate of a Lender or an Approved Fund) and (ii) if in respect of any Revolving Facility Commitment or Revolving Facility Loan, the Swingline Lender and the Issuing Banks; provided , that: (a) all Loan Obligations of the Borrower owing to such Non-Consenting Lender being replaced shall be paid in full to such Non-Consenting Lender concurrently with such assignment, (b) the replacement Lender shall purchase the foregoing by paying to such Non-Consenting Lender a price equal to the principal amount thereof plus accrued and unpaid interest thereon and the replacement Lender or, at the option of the Borrower, the Borrower shall pay any amount required by Section 2.12(d)(y), if applicable, and (c) the replacement Lender shall grant its consent with respect to the applicable proposed amendment, waiver, discharge or termination. No action by or consent of the Non-Consenting Lender shall be necessary in connection with such assignment, which shall be immediately and automatically effective upon payment of such purchase price. In connection with any such assignment the Borrower, Administrative Agent, such Non-Consenting Lender and the replacement Lender shall otherwise comply with Section 9.04; provided , that if such Non-Consenting Lender does not comply with Section 9.04 within one Business Day after the Borrower’s request, compliance with Section 9.04 shall not be required to effect such assignment.
Section 2.20 Illegality . If any Lender reasonably determines that any Change in Law has made it unlawful, or that any Governmental Authority has asserted after the Closing Date that it is unlawful, for any Lender or its applicable Lending Office to make or maintain any Eurocurrency Loans, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligations of such Lender to make or continue Eurocurrency Loans or to convert ABR Borrowings to Eurocurrency Borrowings shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall upon demand from such Lender (with a copy to the Administrative Agent), either convert all Eurocurrency Borrowings of such Lender to ABR Borrowings, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurocurrency Borrowings to such day, or immediately, if such Lender may not lawfully continue to maintain such Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
Section 2.21 Incremental Commitments .
(a) The Borrower may, by written notice to the Administrative Agent from time to time, request Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments, as applicable, in an amount not to exceed the Incremental Amount available at the time such Incremental Commitments are established (or, at the option of the Borrower, at the time such Incremental Commitments are committed to) from one or more Incremental Term Lenders and/or Incremental Revolving Facility Lenders (which may include any existing Lender) willing to provide such Incremental Term Loans and/or Incremental Revolving Facility Commitments, as the case
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may be, in their own discretion; provided , that each Incremental Revolving Facility Lender providing a commitment to make revolving loans shall be subject to the approval of the Administrative Agent and, to the extent the same would be required for an assignment under Section 9.04, the Issuing Bank and the Swingline Lender (which approvals shall not be unreasonably withheld) unless such Incremental Revolving Facility Lender is a Revolving Facility Lender, an Affiliate of a Revolving Facility Lender or an Approved Fund of a Revolving Facility Lender. Such notice shall set forth (i) the amount of the Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments being requested (which shall be in minimum increments of $5,000,000 and a minimum amount of $10,000,000, or equal to the remaining Incremental Amount or, in each case, such lesser amount approved by the Administrative Agent), (ii) the date on which such Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments are requested to become effective, (iii) in the case of Incremental Revolving Facility Commitments, whether such Incremental Revolving Facility Commitments are to be (x) commitments to make additional Revolving Facility Loans on the same terms as the Initial Revolving Loans or (y) commitments to make revolving loans with pricing terms, final maturity dates, participation in mandatory prepayments or commitment reductions and/or other terms different from the Initial Revolving Loans (“ Other Revolving Loans ”) and (iv) in the case of Incremental Term Loan Commitments, whether such Incremental Term Loan Commitments are to be (x) commitments to make term loans with terms identical to Term B Loans or (y) commitments to make term loans with pricing, maturity, amortization, participation in mandatory prepayments and/or other terms different from the Term B Loans (“ Other Term Loans ”).
(b) The Borrower and each Incremental Term Lender and/or Incremental Revolving Facility Lender shall execute and deliver to the Administrative Agent an Incremental Assumption Agreement and such other documentation as the Administrative Agent shall reasonably specify to evidence the Incremental Term Loan Commitment of such Incremental Term Lender and/or Incremental Revolving Facility Commitment of such Incremental Revolving Facility Lender. Each Incremental Assumption Agreement shall specify the terms of the applicable Incremental Term Loans and/or Incremental Revolving Facility Commitments; provided , that:
(i) any commitments to make additional Term B Loans, and/or additional Initial Revolving Loans shall have the same terms as the Term B Loans or Initial Revolving Loans, respectively,
(ii) the Other Term Loans incurred pursuant to clause (a) of this Section 2.21 shall rank pari passu in right of security with the Term B Loans,
(iii) the final maturity date of any such Other Term Loans shall be no earlier than the Term B Facility Maturity Date and, except as to pricing, amortization, final maturity date, participation in mandatory prepayments and ranking as to security (which shall, subject to the other clauses of this proviso, be determined by the Borrower and the Incremental Term Loan Lenders in their sole discretion), shall have (x) substantially the same terms as the Term B Loans or (y) such other terms (including as to guarantees and collateral) as shall be reasonably satisfactory to the Administrative Agent,
(iv) the Weighted Average Life to Maturity of any such Other Term Loans shall be no shorter than the remaining Weighted Average Life to Maturity of the Term B Loans,
(v) the Other Revolving Loans incurred pursuant to clause (a) of this Section 2.21 shall rank pari passu in right of security with the Initial Revolving Loans,
(vi) the final maturity date of any such Other Revolving Loans shall be no earlier than the Revolving Facility Maturity Date with respect to the Initial Revolving Loans, there shall be no amortization and, except as to pricing, final maturity date, participation in mandatory prepayments and commitment reductions (which shall, subject to the other clauses of this proviso, be determined by the Borrower and the Incremental Revolving Facility Lenders in their sole discretion), shall have (x) substantially the same terms as the Initial Revolving Loans or (y) such other terms (including as to guarantees and collateral) as shall be reasonably satisfactory to the Administrative Agent,
(vii) with respect to any Other Term Loan incurred pursuant to clause (a) of this Section 2.21, the All-in Yield shall be the same as that applicable to the Term B Loans on the Closing Date, except that the All-in Yield in respect of any such Other Term Loan may exceed the All-in Yield in respect of such
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Term B Loans on the Closing Date by no more than 0.50%, or if it does so exceed such All-in Yield (such difference, the “ Term Yield Differential ”) by more than 0.50% then the Applicable Margin (or the “LIBOR floor” as provided in the following proviso) applicable to such Term B Loans shall be increased such that after giving effect to such increase, the Term Yield Differential shall not exceed 0.50%; provided , that, to the extent any portion of the Term Yield Differential is attributable to a higher “LIBOR floor” being applicable to such Other Term Loans, such floor shall only be included in the calculation of the Term Yield Differential to the extent such floor is greater than the Adjusted LIBO Rate in effect for an Interest Period of three months’ duration at such time, and, with respect to such excess, the “LIBOR floor” applicable to the outstanding Term B Loans shall be increased to an amount not to exceed the “LIBOR floor” applicable to such Other Term Loans prior to any increase in the Applicable Margin applicable to such Term B Loans then outstanding,
(viii) (A) such Other Revolving Loans may participate on a pro rata basis or a less than pro rata basis (but not a greater than pro rata basis) than the Initial Revolving Loans in (x) any voluntary or mandatory prepayment or commitment reduction hereunder and (y) any Borrowing at the time such Borrowing is made and (B) such Other Term Loans may participate on a pro rata basis or a less than pro rata basis (but not a greater than pro rata basis) than the Term B Loans in any mandatory prepayment hereunder, and
(ix) there shall be no obligor in respect of any Incremental Term Loan Commitments or Incremental Revolving Facility Commitments that is not a Loan Party.
Each party hereto hereby agrees that, upon the effectiveness of any Incremental Assumption Agreement, this Agreement shall be amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments evidenced thereby as provided for in Section 9.08(e). Any amendment to this Agreement or any other Loan Document that is necessary to effect the provisions of this Section 2.21 and any such collateral and other documentation shall be deemed “Loan Documents” hereunder and may be memorialized in writing by the Administrative Agent with the Borrower’s consent (not to be unreasonably withheld) and furnished to the other parties hereto.
(c) Notwithstanding the foregoing, no Incremental Term Loan Commitment or Incremental Revolving Facility Commitment shall become effective under this Section 2.21 unless (i) on the date of such effectiveness, (A) to the extent required by the relevant Incremental Assumption Agreement, the conditions set forth in clause (c) of Section 4.01 shall be satisfied and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Responsible Officer of the Borrower and (B) if such Incremental Term Loan Commitment or Incremental Revolving Facility Commitment is established for a purpose other than financing any Permitted Business Acquisition or any other acquisition that is permitted by this Agreement, no Event of Default under Section 7.01(b), (c), (h) or (i) shall have occurred or be continuing or would result therefrom and (ii) the Administrative Agent shall have received customary legal opinions, board resolutions and other customary closing certificates and documentation as required by the relevant Incremental Assumption Agreement and, to the extent required by the Administrative Agent, consistent with those delivered on the Closing Date under Section 4.02 and such additional customary documents and filings (including amendments to the Mortgages and other Security Documents and title endorsement bringdowns) as the Administrative Agent may reasonably request to assure that the Incremental Term Loans and/or Revolving Facility Loans in respect of Incremental Revolving Facility Commitments are secured by the Collateral ratably with one or more Classes of then-existing Term Loans and Revolving Facility Loans.
(d) Each of the parties hereto hereby agrees that the Administrative Agent may take any and all action as may be reasonably necessary to ensure that (i) all Incremental Term Loans (other than Other Term Loans), when originally made, are included in each Borrowing of the outstanding applicable Class of Term Loans on a pro rata basis, and (ii) all Revolving Facility Loans in respect of Incremental Revolving Facility Commitments (other than Other Revolving Loans), when originally made, are included in each Borrowing of the applicable Class of outstanding Revolving Facility Loans on a pro rata basis. The Borrower agrees that Section 2.16 shall apply to any conversion of Eurocurrency Loans to ABR Loans reasonably required by the Administrative Agent to effect the foregoing.
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(e) Notwithstanding anything to the contrary in this Agreement, including Section 2.18(c) (which provisions shall not be applicable to clauses (e) through (i) of this Section 2.21), pursuant to one or more offers made from time to time by the Borrower to all Lenders of any Class of Term Loans and/or Revolving Facility Commitments, on a pro rata basis (based, in the case of an offer to the Lenders under any Class of Term Loans, on the aggregate outstanding Term Loans of such Class and, in the case of an offer to the Lenders under any Revolving Facility, on the aggregate outstanding Revolving Facility Commitments under such Revolving Facility, as applicable) and on the same terms (“ Pro Rata Extension Offers ”), the Borrower is hereby permitted to consummate transactions with individual Lenders from time to time to extend the maturity date of such Lender’s Loans and/or Commitments of such Class and to otherwise modify the terms of such Lender’s Loans and/or Commitments of such Class pursuant to the terms of the relevant Pro Rata Extension Offer (including, without limitation, increasing the interest rate or fees payable in respect of such Lender’s Loans and/or Commitments and/or modifying the amortization schedule in respect of such Lender’s Loans). For the avoidance of doubt, the reference to “on the same terms” in the preceding sentence shall mean, (i) in the case of an offer to the Lenders under any Class of Term Loans, that all of the Term Loans of such Class are offered to be extended for the same amount of time and that the interest rate changes and fees payable with respect to such extension are the same and (ii) in the case of an offer to the Lenders under any Revolving Facility, that all of the Revolving Facility Commitments of such Facility are offered to be extended for the same amount of time and that the interest rate changes and fees payable with respect to such extension are the same. Any such extension (an “ Extension ”) agreed to between the Borrower and any such Lender (an “ Extending Lender ”) will be established under this Agreement by implementing an Incremental Term Loan for such Lender if such Lender is extending an existing Term Loan (such extended Term Loan, an “ Extended Term Loan ”) or an Incremental Revolving Facility Commitment for such Lender if such Lender is extending an existing Revolving Facility Commitment (such extended Revolving Facility Commitment, an “ Extended Revolving Facility Commitment ”). Each Pro Rata Extension Offer shall specify the date on which the Borrower proposes that the Extended Term Loan shall be made, which shall be a date not earlier than five Business Days after the date on which notice is delivered to the Administrative Agent (or such shorter period agreed to by the Administrative Agent in its reasonable discretion).
(f) The Borrower and each Extending Lender shall execute and deliver to the Administrative Agent an Incremental Assumption Agreement and such other documentation as the Administrative Agent shall reasonably specify to evidence the Extended Term Loans and/or Extended Revolving Facility Commitments of such Extending Lender. Each Incremental Assumption Agreement shall specify the terms of the applicable Extended Term Loans and/or Extended Revolving Facility Commitments; provided , that (i) except as to interest rates, fees, any other pricing terms, amortization, final maturity date and participation in prepayments and commitment reductions (which shall, subject to clauses (ii) and (iii) of this proviso, be determined by the Borrower and set forth in the Pro Rata Extension Offer), the Extended Term Loans shall have (x) the same terms as an existing Class of Term Loans or (y) such other terms as shall be reasonably satisfactory to the Administrative Agent, (ii) the final maturity date of any Extended Term Loans shall be no earlier than the latest Term Facility Maturity Date in effect on the date of incurrence, (iii) the Weighted Average Life to Maturity of any Extended Term Loans shall be no shorter than the remaining Weighted Average Life to Maturity of the Class of Term Loans to which such offer relates, (iv) except as to interest rates, fees, any other pricing terms, participation in mandatory prepayments and commitment reductions and final maturity (which shall be determined by the Borrower and set forth in the Pro Rata Extension Offer), any Extended Revolving Facility Commitment shall have (x) the same terms as an existing Class of Revolving Facility Commitments or (y) have such other terms as shall be reasonably satisfactory to the Administrative Agent, and (v) any Extended Term Loans and/or Extended Revolving Facility Commitments may participate on a pro rata basis or a less than pro rata basis (but not greater than a pro rata basis) in any voluntary or mandatory repayments or prepayments hereunder. Upon the effectiveness of any Incremental Assumption Agreement, this Agreement shall be amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Extended Term Loans and/or Extended Revolving Facility Commitments evidenced thereby as provided for in Section 9.08(e). Any such deemed amendment may be memorialized in writing by the Administrative Agent with the Borrower’s consent (not to be unreasonably withheld) and furnished to the other parties hereto. If provided in any Incremental Assumption Agreement with respect to any Extended Revolving Facility Commitments, and with the consent of each Swingline Lender and Issuing Bank, participations in Swingline Loans and Letters of Credit shall be reallocated to lenders holding such Extended Revolving Facility Commitments in the manner specified in such Incremental Assumption Agreement, including upon effectiveness of such Extended Revolving Facility Commitment or upon or prior to the maturity date for any Class of Revolving Facility Commitments.
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(g) Upon the effectiveness of any such Extension, the applicable Extending Lender’s Term Loan will be automatically designated an Extended Term Loan and/or such Extending Lender’s Revolving Facility Commitment will be automatically designated an Extended Revolving Facility Commitment. For purposes of this Agreement and the other Loan Documents, (i) if such Extending Lender is extending a Term Loan, such Extending Lender will be deemed to have an Incremental Term Loan having the terms of such Extended Term Loan and (ii) if such Extending Lender is extending a Revolving Facility Commitment, such Extending Lender will be deemed to have an Incremental Revolving Facility Commitment having the terms of such Extended Revolving Facility Commitment.
(h) Notwithstanding anything to the contrary set forth in this Agreement or any other Loan Document (including without limitation this Section 2.21), (i) the aggregate amount of Extended Term Loans and Extended Revolving Facility Commitments will not be included as a usage of the Incremental Amount (but, for the avoidance of doubt, will be taken into account in all calculations of the Net First Lien Leverage Ratio and the Total Net Leverage Ratio to the extent applicable), (ii) no Extended Term Loan or Extended Revolving Facility Commitment is required to be in any minimum amount or any minimum increment, (iii) any Extending Lender may extend all or any portion of its Term Loans and/or Revolving Facility Commitment pursuant to one or more Pro Rata Extension Offers (subject to applicable proration in the case of over participation) (including the extension of any Extended Term Loan and/or Extended Revolving Facility Commitment), (iv) there shall be no condition to any Extension of any Loan or Commitment at any time or from time to time other than notice to the Administrative Agent of such Extension and the terms of the Extended Term Loan or Extended Revolving Facility Commitment implemented thereby, (v) all Extended Term Loans, Extended Revolving Facility Commitments and all obligations in respect thereof shall be Loan Obligations of the relevant Loan Parties under this Agreement and the other Loan Documents that are secured by the Collateral on a pari passu basis with all other Obligations of the relevant Loan Parties under this Agreement and the other Loan Documents, (vi) no Issuing Bank or Swingline Lender shall be obligated to provide Swingline Loans or issue Letters of Credit under such Extended Revolving Facility Commitments unless it shall have consented thereto and (vii) there shall be no obligor in respect of any such Extended Term Loans or Extended Revolving Facility Commitments that is not a Loan Party.
(i) Each Extension shall be consummated pursuant to procedures set forth in the associated Pro Rata Extension Offer; provided , that the Borrower shall cooperate with the Administrative Agent prior to making any Pro Rata Extension Offer to establish reasonable procedures with respect to mechanical provisions relating to such Extension, including, without limitation, timing, rounding and other adjustments.
(j) Notwithstanding anything to the contrary in this Agreement, including Section 2.18(c) (which provisions shall not be applicable to clauses (j) through (o) of this Section 2.21), the Borrower may by written notice to the Administrative Agent establish one or more additional tranches of term loans under this Agreement (such loans, “ Refinancing Term Loans ”), the net cash proceeds of which are used to Refinance in whole or in part any Class of Term Loans. Each such notice shall specify the date (each, a “ Refinancing Effective Date ”) on which the Borrower proposes that the Refinancing Term Loans shall be made, which shall be a date not earlier than five Business Days after the date on which such notice is delivered to the Administrative Agent (or such shorter period agreed to by the Administrative Agent in its reasonable discretion); provided , that:
(i) before and after giving effect to the borrowing of such Refinancing Term Loans on the Refinancing Effective Date each of the conditions set forth in Section 4.01 shall be satisfied to the extent required by the relevant Incremental Assumption Agreement governing such Refinancing Term Loans;
(ii) the final maturity date of the Refinancing Term Loans shall be no earlier than the Term Facility Maturity Date of the refinanced Term Loans,
(iii) the Weighted Average Life to Maturity of such Refinancing Term Loans shall be no shorter than the then-remaining Weighted Average Life to Maturity of the refinanced Term Loans;
(iv) the aggregate principal amount of the Refinancing Term Loans shall not exceed the outstanding principal amount of the refinanced Term Loans plus amounts used to pay fees, premiums, costs and expenses (including original issue discount) and accrued interest associated therewith;
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(v) all other terms applicable to such Refinancing Term Loans (other than provisions relating to original issue discount, upfront fees, interest rates or any other pricing terms and optional prepayment or mandatory prepayment or redemption terms and final maturity, which shall be as agreed between the Borrower and the Lenders providing such Refinancing Term Loans) taken as a whole shall be substantially similar to, or not materially less favorable to the Borrower and its Subsidiaries than, the terms, taken as a whole, applicable to the Term B Loans (except to the extent such covenants and other terms apply solely to any period after the Term B Facility Maturity Date or are otherwise reasonably acceptable to the Administrative Agent), as determined by the Borrower in good faith. In addition, notwithstanding the foregoing, the Borrower may establish Refinancing Term Loans to refinance and/or replace all or any portion of a Revolving Facility Commitment (regardless of whether Revolving Facility Loans are outstanding under such Revolving Facility Commitments at the time of incurrence of such Refinancing Term Loans), so long as (i) the aggregate amount of such Refinancing Term Loans does not exceed the aggregate amount of Revolving Facility Commitments terminated at the time of incurrence thereof and (ii) if the Revolving Facility Credit Exposure outstanding on the Refinancing Effective Date would exceed the aggregate amount of Revolving Facility Commitments outstanding, in each case after giving effect to the termination of such Revolving Facility Commitments, the Borrower shall take one or more actions such that such Revolving Facility Credit Exposure does not exceed such aggregate amount of Revolving Facility Commitments in effect on the Refinancing Effective Date after giving effect to the termination of such Revolving Facility Commitments (it being understood that such Refinancing Term Loans may be provided by the Lenders holding the Revolving Facility Commitments being terminated and/or by any other person that would be a permitted Assignee hereunder);
(vi) with respect to Refinancing Term Loans secured by Liens on the Collateral that rank junior in right of security to an existing Class of Term Loans, such Liens will be subject to a Permitted Junior Intercreditor Agreement;
(vii) there shall be no obligor in respect of such Refinancing Term Loans that is not a Loan Party; and
(viii) the Refinancing Term Loans may participate on a pro rata basis or a less than pro rata basis (but not a greater than pro rata basis) than the Term B Loans in any prepayment hereunder.
(k) The Borrower may approach any Lender or any other person that would be a permitted Assignee pursuant to Section 9.04 to provide all or a portion of the Refinancing Term Loans; provided , that any Lender offered or approached to provide all or a portion of the Refinancing Term Loans may elect or decline, in its sole discretion, to provide a Refinancing Term Loan. Any Refinancing Term Loans made on any Refinancing Effective Date shall be designated an additional Class of Term Loans for all purposes of this Agreement; provided , further , that any Refinancing Term Loans may, to the extent provided in the applicable Incremental Assumption Agreement governing such Refinancing Term Loans, be designated as an increase in any previously established Class of Term Loans made to the Borrower.
(l) Notwithstanding anything to the contrary in this Agreement, including Section 2.18(c) (which provisions shall not be applicable to clause (l) through (o) of this Section 2.21), the Borrower may by written notice to the Administrative Agent establish one or more additional Facilities providing for revolving commitments (“ Replacement Revolving Facilities ” and the commitments thereunder, “ Replacement Revolving Facility Commitments ” and the revolving loans thereunder, “ Replacement Revolving Loans ”), which replace in whole or in part any Class of Revolving Facility Commitments under this Agreement. Each such notice shall specify the date (each, a “ Replacement Revolving Facility Effective Date ”) on which the Borrower proposes that the Replacement Revolving Facility Commitments shall become effective, which shall be a date not less than five Business Days after the date on which such notice is delivered to the Administrative Agent (or such shorter period agreed to by the Administrative Agent in its reasonable discretion); provided , that: (i) before and after giving effect to the establishment of such Replacement Revolving Facility Commitments on the Replacement Revolving Facility Effective Date, each of the conditions set forth in Section 4.01 shall be satisfied to the extent required by the relevant Incremental Assumption Agreement governing such Replacement Revolving Facility Commitments; (ii) after giving effect to the establishment of any Replacement Revolving Facility Commitments and any concurrent reduction in the aggregate amount of any other Revolving Facility Commitments, the aggregate amount of
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Revolving Facility Commitments shall not exceed the aggregate amount of the Revolving Facility Commitments outstanding immediately prior to the applicable Replacement Revolving Facility Effective Date; (iii) no Replacement Revolving Facility Commitments shall have a final maturity date (or require commitment reductions or amortizations) prior to the Revolving Facility Maturity Date in effect at the time of incurrence for the Revolving Facility Commitments being replaced; (iv) all other terms applicable to such Replacement Revolving Facility (other than provisions relating to (x) fees, interest rates and other pricing terms and prepayment and commitment reduction and optional redemption terms which shall be as agreed between the Borrower and the Lenders providing such Replacement Revolving Facility Commitments and (y) the amount of any letter of credit sublimit and swingline commitment under such Replacement Revolving Facility, which shall be as agreed between the Borrower, the Lenders providing such Replacement Revolving Facility Commitments, the Administrative Agent and the replacement issuing bank and replacement swingline lender, if any, under such Replacement Revolving Facility Commitments) taken as a whole shall be substantially similar to, or not materially more favorable to the Lenders providing such Replacement Revolving Facility Commitments than, those, taken as a whole, applicable to the Initial Revolving Loans (except to the extent such covenants and other terms apply solely to any period after the latest Revolving Facility Maturity Date in effect at the time of incurrence or are otherwise reasonably acceptable to the Administrative Agent); (v) there shall be no obligor in respect of such Replacement Revolving Facility that is not a Loan Party and (vi) the Replacement Revolving Facility Commitments may participate on a pro rata basis or a less than pro rata basis (but not a greater than pro rata basis) than the Initial Revolving Loans in (x) any voluntary or mandatory prepayment or commitment reduction hereunder and (y) any Borrowing at the time such Borrowing is made. In addition, the Borrower may establish Replacement Revolving Facility Commitments to refinance and/or replace all or any portion of a Term Loan hereunder (regardless of whether such Term Loan is repaid with the proceeds of Replacement Revolving Loans or otherwise), so long as the aggregate amount of such Replacement Revolving Facility Commitments does not exceed the aggregate amount of Term Loans repaid at the time of establishment thereof (it being understood that such Replacement Revolving Facility Commitment may be provided by the Lenders holding the Term Loans being repaid and/or by any other person that would be a permitted Assignee hereunder) so long as (i) before and after giving effect to the establishment such Replacement Revolving Facility Commitments on the Replacement Revolving Facility Effective Date each of the conditions set forth in Section 4.01 shall be satisfied to the extent required by the relevant agreement governing such Replacement Revolving Facility Commitments, (ii) the weighted average life to termination of such Replacement Revolving Facility Commitments shall be not shorter than the Weighted Average Life to Maturity then applicable to the refinanced Term Loans, (iii) the final termination date of the Replacement Revolving Facility Commitments shall be no earlier than the Term Facility Maturity Date of the refinanced Term Loans, (iv) with respect to Replacement Revolving Loans secured by Liens on Collateral that rank junior in right of security to the Revolving Facility Loans, such Liens will be subject to a Permitted Junior Intercreditor Agreement and (v) the requirement of clause (v) in the preceding sentence shall be satisfied mutatis mutandis. Solely to the extent that an Issuing Bank is not a replacement issuing bank under a Replacement Revolving Facility, it is understood and agreed that such Issuing Bank shall not be required to issue any letters of credit under such Replacement Revolving Facility and, to the extent it is necessary for such Issuing Bank to withdraw as an Issuing Bank at the time of the establishment of such Replacement Revolving Facility, such withdrawal shall be on terms and conditions reasonably satisfactory to such Issuing Bank in its sole discretion. The Borrower agrees to reimburse each Issuing Bank in full upon demand, for any reasonable and documented out-of-pocket cost or expense attributable to such withdrawal.
(m) The Borrower may approach any Lender or any other person that would be a permitted Assignee of a Revolving Facility Commitment pursuant to Section 9.04 to provide all or a portion of the Replacement Revolving Facility Commitments; provided , that any Lender offered or approached to provide all or a portion of the Replacement Revolving Facility Commitments may elect or decline, in its sole discretion, to provide a Replacement Revolving Facility Commitment. Any Replacement Revolving Facility Commitment made on any Replacement Revolving Facility Effective Date shall be designated an additional Class of Revolving Facility Commitments for all purposes of this Agreement; provided , that any Replacement Revolving Facility Commitments may, to the extent provided in the applicable Incremental Assumption Agreement, be designated as an increase in any previously established Class of Revolving Facility Commitments.
(n) On any Replacement Revolving Facility Effective Date, subject to the satisfaction of the foregoing terms and conditions, each of the Lenders with Replacement Revolving Facility Commitments of such Class shall purchase from each of the other Lenders with Replacement Revolving Facility Commitments of such Class, at the principal amount thereof and in the applicable currencies, such interests in the Replacement Revolving Loans and
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participations in Letters of Credit and Swingline Loans under such Replacement Revolving Facility Commitments of such Class then outstanding on such Replacement Revolving Facility Effective Date as shall be necessary in order that, after giving effect to all such assignments and purchases, the Replacement Revolving Loans and participations of such Replacement Revolving Facility Commitments of such Class will be held by the Lenders thereunder ratably in accordance with their Replacement Revolving Facility Commitments.
(o) For purposes of this Agreement and the other Loan Documents, (i) if a Lender is providing a Refinancing Term Loan, such Lender will be deemed to have an Incremental Term Loan having the terms of such Refinancing Term Loan and (ii) if a Lender is providing a Replacement Revolving Facility Commitment, such Lender will be deemed to have an Incremental Revolving Facility Commitment having the terms of such Replacement Revolving Facility Commitment. Notwithstanding anything to the contrary set forth in this Agreement or any other Loan Document (including without limitation this Section 2.21), (i) the aggregate amount of Refinancing Term Loans and Replacement Revolving Facility Commitments will not be included as a usage of the Incremental Amount (but, for the avoidance of doubt, will be taken into account in all calculations of the Net First Lien Leverage Ratio and the Total Net Leverage Ratio to the extent applicable), (ii) no Refinancing Term Loan or Replacement Revolving Facility Commitment is required to be in any minimum amount or any minimum increment, (iii) there shall be no condition to any incurrence of any Refinancing Term Loan or Replacement Revolving Facility Commitment at any time or from time to time other than those set forth in clauses (j) or (l) above, as applicable, and (iv) all Refinancing Term Loans, Replacement Revolving Facility Commitments and all obligations in respect thereof shall be Obligations under this Agreement and the other Loan Documents that are secured by the Collateral on a pari passu basis with all other Obligations under this Agreement and the other Loan Documents.
(p) Notwithstanding anything in the foregoing to the contrary, (i) for the purpose of determining the number of outstanding Eurocurrency Borrowings upon the incurrence of any Incremental Loans, (x) to the extent the last date of Interest Periods for multiple Eurocurrency Borrowings under the Term Facilities fall on the same day, such Eurocurrency Borrowings shall be considered a single Eurocurrency Borrowing and (y) to the extent the last date of Interest Periods for multiple Eurocurrency Borrowings under the Revolving Facilities fall on the same day, such Eurocurrency Borrowings shall be considered a single Eurocurrency Borrowing and (ii) the initial Interest Period with respect to any Eurocurrency Borrowing of Incremental Loans may, at the Borrower’s option, be of a duration of a number of Business Days that is less than one month, and the Adjusted LIBO Rate with respect to such initial Interest Period shall be the same as the Adjusted LIBO Rate applicable to any then-outstanding Eurocurrency Borrowing as the Borrower may direct, so long as the last day of such initial Interest Period is the same as the last day of the Interest Period with respect to such outstanding Eurocurrency Borrowing.
Section 2.22 Defaulting Lender .
(a) Defaulting Lender Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
(i) Waivers and Amendments . Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definitions of “Required Lenders” or “Required Revolving Facility Lenders”.
(ii) Defaulting Lender Waterfall . Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, following an Event of Default or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 9.06 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first , to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder, second , to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to any Issuing Bank or the Swingline Lender hereunder, third , to Cash Collateralize the Issuing Banks’ Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.05(j), fourth , as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent, fifth , if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro
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rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the Issuing Banks’ future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.05(j), sixth , to the payment of any amounts owing to the Lenders, the Issuing Banks or the Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, Issuing Bank or Swingline Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement, seventh , so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement, and eighth , to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.22 shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees .
(A) No Defaulting Lender shall be entitled to receive any Commitment Fee for any period during which that Lender is a Defaulting Lender.
(B) Each Defaulting Lender shall be entitled to receive L/C Participation Fees for any period during which that Lender is a Defaulting Lender only to the extent allocable to its pro rata share of the stated amount of Letters of Credit for which it has provided Cash Collateral.
(C) With respect to any Commitment Fee or L/C Participation Fee not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, the Borrower shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in Letters of Credit or Swingline Loans that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to each Issuing Bank and the Swingline Lender, as applicable, the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such Issuing Bank’s or the Swingline Lender’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(iv) Reallocation of Participations to Reduce Fronting Exposure . All or any part of such Defaulting Lender’s participation in Letters of Credit and Swingline Loans shall be reallocated among the Non-Defaulting Lenders in accordance with their respective pro rata Commitments (calculated without regard to such Defaulting Lender’s Commitment) but only to the extent that (x) the conditions set forth in Section 4.01 are satisfied at the time of such reallocation and (y) such reallocation does not cause the aggregate Revolving Facility Credit Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Revolving Facility Commitment. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(v) Cash Collateral, Repayment of Swingline Loans . If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, within three (3) Business Days following the written request of the (i) Administrative Agent or (ii) the Swingline Lender or any Issuing Bank, as applicable (with a copy to the Administrative Agent), (x) first, prepay Swingline Loans in an amount equal to the Swingline Lender’s Fronting Exposure and (y) second, Cash Collateralize the Issuing Banks’ Fronting Exposure in accordance with the procedures set forth in Section 2.05(j).
(b) Defaulting Lender Cure . If the Borrower, the Administrative Agent and the Swingline Lender and each Issuing Bank agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent
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applicable, purchase at par that portion of outstanding Revolving Facility Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held pro rata by the Lenders in accordance with their Revolving Facility Commitments (without giving effect to Section 2.22(a)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided , that, no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
(c) New Swingline Loans/Letters of Credit . So long as any Lender is a Defaulting Lender, (i) the Swingline Lender shall not be required to fund any Swingline Loans unless it is satisfied that it will have no Fronting Exposure after giving effect to such Swingline Loan and (ii) the Issuing Banks shall not be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.
ARTICLE III
Representations and Warranties
On the date of each Credit Event, the Borrower and Holdings, jointly and severally, represent and warrant to each of the Lenders that:
Section 3.01 Organization; Powers . Except as set forth on Schedule 3.01 , each of Holdings (prior to a Qualified IPO), the Borrower and each of the Material Subsidiaries (a) is a partnership, limited liability company or corporation duly organized, validly existing and in good standing (or, if applicable in a foreign jurisdiction, enjoys the equivalent status under the laws of any jurisdiction of organization outside the United States of America) under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted, (c) is qualified to do business in each jurisdiction where such qualification is required, except where the failure so to qualify would not reasonably be expected to have a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated thereby to which it is or will be a party and, in the case of the Borrower, to borrow and otherwise obtain credit hereunder.
Section 3.02 Authorization . The execution, delivery and performance by Holdings (prior to a Qualified IPO), the Borrower and each of the Subsidiary Loan Parties of each of the Loan Documents to which it is a party and the borrowings hereunder (a) have been duly authorized by all corporate, stockholder, partnership or limited liability company action required to be obtained by Holdings, the Borrower and such Subsidiary Loan Parties and (b) will not (i) violate (A) any provision of law, statute, rule or regulation applicable to Holdings, the Borrower or any such Subsidiary Loan Party, (B) the certificate or articles of incorporation or other constitutive documents (including any partnership, limited liability company or operating agreements) or by-laws of Holdings, the Borrower, or any such Subsidiary Loan Party, (C) any applicable order of any court or any rule, regulation or order of any Governmental Authority applicable to Holdings, the Borrower or any such Subsidiary Loan Party or (D) any provision of any indenture, certificate of designation for preferred stock, agreement or other instrument to which Holdings, the Borrower or any such Subsidiary Loan Party is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under, give rise to a right of or result in any cancellation or acceleration of any right or obligation (including any payment) under any such indenture, certificate of designation for preferred stock, agreement or other instrument, where any such conflict, violation, breach or default referred to in clause (i) or (ii) of this Section 3.02(b), would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or (iii) result in the creation or imposition of any Lien upon or with respect to (x) any property or assets now owned or hereafter acquired by the Borrower or any such Subsidiary Loan Party, other than the Liens created by the Loan Documents and Permitted Liens, or (y) any Equity Interests of the Borrower now owned or hereafter acquired by Holdings (prior to a Qualified IPO), other than Liens created by the Loan Documents or Liens permitted by Article VIA.
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Section 3.03 Enforceability . This Agreement has been duly executed and delivered by Holdings and the Borrower and constitutes, and each other Loan Document when executed and delivered by each Loan Party that is party thereto will constitute, a legal, valid and binding obligation of such Loan Party enforceable against each such Loan Party in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors’ rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), (iii) implied covenants of good faith and fair dealing and (iv) any foreign laws, rules and regulations as they relate to pledges of Equity Interests in Foreign Subsidiaries that are not Loan Parties.
Section 3.04 Governmental Approvals . No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required for the execution, delivery or performance of each Loan Document, except for (a) the filing of Uniform Commercial Code financing statements, (b) filings with the United States Patent and Trademark Office and the United States Copyright Office and comparable offices in foreign jurisdictions and equivalent filings in foreign jurisdictions, (c) recordation of the Mortgages, (d) such actions, consents and approvals under Gaming Laws or from Gaming Authorities the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect, (e) such actions, consents and approvals as have been made or obtained and are in full force and effect, (f) such actions, consents and approvals the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect and (g) filings or other actions listed on Schedule 3.04 and any other filings or registrations required by the Security Documents.
Section 3.05 Financial Statements . (a) The audited consolidated balance sheets, related statements of operations and comprehensive loss and related statements of cash flows of AP Gaming Holdco, Inc. and its subsidiaries, for each of the fiscal years ended December 31, 2014, December 31, 2015 and December 31, 2016 and (b) the unaudited consolidated balance sheets, related statements of operations and comprehensive loss and related statements of cash flows of AP Gaming Holdco, Inc. and its subsidiaries, for the fiscal quarter ended March 31, 2017, including, in each case, the notes thereto, if applicable, present fairly in all material respects the consolidated financial condition of AP Gaming Holdco, Inc. and its subsidiaries as of the dates and for the periods referred to therein and the results of operations and, if applicable, cash flows for the periods then ended, and, except as set forth on Schedule 3.05 , were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, in the case of interim period financial statements, for the absence of notes and for normal year-end adjustments and except as otherwise noted therein. The calculation of pro forma EBITDA of the Borrower and its Subsidiaries for the twelve-month period ended March 31, 2017 that has been included in the Information Memorandum (the “ Pro Forma EBITDA ”) has been prepared giving effect to the Transactions (as if such events occurred on the first day of such period). The calculation of Pro Forma EBITDA has been prepared in good faith based on assumptions believed by the Borrower to have been reasonable as of the date of delivery thereof (it being understood that such assumptions are based on good faith estimates of certain items and that the actual amount of such items on the Closing Date is subject to change).
Section 3.06 No Material Adverse Effect . Since December 31, 2016, there has been no event or circumstance that, individually or in the aggregate with other events or circumstances, has had or would reasonably be expected to have a Material Adverse Effect.
Section 3.07 Title to Properties; Possession Under Leases .
(a) Each of the Borrower and the Subsidiaries has good record and insurable title in fee simple to, or valid leasehold interests in, or easements or other limited property interests in, all its Real Properties (including all Mortgaged Properties) and has good and marketable title to its personal property and assets, in each case, except for Permitted Liens and except for defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes and except where the failure to have such title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. All such properties and assets are free and clear of Liens, other than Permitted Liens. The Equity Interests of the Borrower owned by Holdings (prior to a Qualified IPO) are free and clear of Liens, other than Liens permitted by Article VIA.
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(b) The Borrower and each of the Subsidiaries has complied with all material obligations under all leases to which it is a party, except where the failure to comply would not reasonably be expected to have Material Adverse Effect, and all such leases are in full force and effect, except leases in respect of which the failure to be in full force and effect would not reasonably be expected to have a Material Adverse Effect.
(c) As of the Closing Date, none of Holdings, the Borrower and the Subsidiaries has received any written notice of any pending or contemplated condemnation proceeding affecting any material portion of the Mortgaged Properties or any sale or disposition thereof in lieu of condemnation that remains unresolved as of the Closing Date.
(d) As of the Closing Date, none of Holdings, the Borrower and its Subsidiaries is obligated under any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein, except as permitted under Section 6.02 or 6.05.
(e) Schedule 1.01(B) lists each Material Real Property owned by any Loan Party as of the Closing Date.
Section 3.08 Subsidiaries .
(a) Schedule 3.08(a) sets forth as of the Closing Date the name and jurisdiction of incorporation, formation or organization of each subsidiary of Holdings and, as to each such subsidiary, the percentage of each class of Equity Interests owned by Holdings or by any such subsidiary.
(b) As of the Closing Date, after giving effect to the Transactions, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors (or entities controlled by directors) and shares held by directors (or entities controlled by directors)) relating to any Equity Interests of the Borrower or any of the Subsidiaries, except as set forth on Schedule 3.08(b) .
Section 3.09 Litigation; Compliance with Laws .
(a) There are no actions, suits or proceedings at law or in equity or by or on behalf of any Governmental Authority or in arbitration now pending, or, to the knowledge of Holdings (prior to a Qualified IPO) or the Borrower, threatened in writing against Holdings or the Borrower or any of the Subsidiaries or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) None of Holdings (prior to a Qualified IPO), the Borrower, the Subsidiaries and their respective properties or assets is in violation of (nor will the continued operation of their material properties and assets as currently conducted violate) any law, rule or regulation (including any zoning, building, ordinance, code or approval or any building permit, but excluding any Environmental Laws, which are the subject of Section 3.16) or any restriction of record or agreement affecting any Mortgaged Property, or is in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(c) The Borrower and each Subsidiary are in compliance with all Gaming Laws that are applicable to them and their businesses, except where a failure to so comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.10 Federal Reserve Regulations . Neither the making of any Loan (or the extension of any Letter of Credit) hereunder nor the use of the proceeds thereof will violate the provisions of Regulation T, Regulation U or Regulation X of the Board.
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Section 3.11 Investment Company Act . None of Holdings (prior to a Qualified IPO), the Borrower and the Subsidiaries is required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 3.12 Use of Proceeds . (a) The Borrower will use the proceeds of the Revolving Facility Loans and Swingline Loans, and may request the issuance of Letters of Credit, solely for general corporate purposes (including, without limitation, for Permitted Business Acquisitions, Transaction Expenses and, in the case of Letters of Credit, for the back-up or replacement of existing letters of credit) and (b) the Borrower will use the proceeds of the Term Loans made on the Closing Date (i) to finance a portion of the Transactions and for the payment of Transaction Expenses and (ii) for general corporate purposes (including, without limitation, Permitted Business Acquisitions)
Section 3.13 Tax Returns . Except as set forth on Schedule 3.13 :
(a) Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, Holdings, the Borrower and each of the Subsidiaries has filed or caused to be filed all federal, state, local and non-U.S. Tax returns required to have been filed by it (including in its capacity as withholding agent) and each such Tax return is true and correct;
(b) Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, Holdings, the Borrower and each of the Subsidiaries has timely paid or caused to be timely paid all Taxes shown to be due and payable by it on the returns referred to in clause (a) and all other Taxes or assessments (or made adequate provision (in accordance with GAAP) for the payment of all Taxes due), except Taxes or assessments that are being contested in good faith by appropriate proceedings in accordance with Section 5.03 and for which Holdings, the Borrower or any of the Subsidiaries (as the case may be) has set aside on its books adequate reserves in accordance with GAAP; and
(c) Other than as would not be, individually or in the aggregate, reasonably expected to have a Material Adverse Effect; as of the Closing Date, with respect to Holdings, the Borrower and each of the Subsidiaries, there are no claims being asserted in writing with respect to any Taxes.
Section 3.14 No Material Misstatements .
(a) All written factual information (other than the Projections, forward looking information and information of a general economic nature or general industry nature) (the “ Information ”) concerning Holdings, the Borrower, the Subsidiaries, the Transactions and any other transactions contemplated hereby included in the Information Memorandum or otherwise prepared by or on behalf of the foregoing or their representatives and made available to any Lenders or the Administrative Agent in connection with the Transactions or the other transactions contemplated hereby, when taken as a whole, was true and correct in all material respects, as of the date such Information was furnished to the Lenders and as of the Closing Date and did not, taken as a whole, contain any untrue statement of a material fact as of any such date or omit to state a material fact necessary in order to make the statements contained therein, taken as a whole, not materially misleading in light of the circumstances under which such statements were made (giving effect to all supplements and updates provided thereto).
(b) The Projections and other forward looking information and information of a general economic nature prepared by or on behalf of the Borrower or any of its representatives and that have been made available to any Lenders or the Administrative Agent in connection with the Transactions or the other transactions contemplated hereby (i) have been prepared in good faith based upon assumptions believed by the Borrower to be reasonable as of the date thereof (it being understood that such Projections are as to future events and are not to be viewed as facts, such Projections are subject to significant uncertainties and contingencies and that actual results during the period or periods covered by any such Projections may differ significantly from the projected results, and that no assurance can be given that the projected results will be realized), as of the date such Projections and information were furnished to the Lenders and as of the Closing Date, and (ii) as of the Closing Date, have not been modified in any material respect by the Borrower.
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Section 3.15 Employee Benefit Plans . Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: (i) no Reportable Event has occurred during the past five years as to which the Borrower, Holdings, any of their Subsidiaries or any ERISA Affiliate was required to file a report with the PBGC; (ii) no ERISA Event has occurred or is reasonably expected to occur and (iii) none of the Borrower, Holdings, the Subsidiaries or any of their ERISA Affiliates has received any written notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA.
Section 3.16 Environmental Matters . Except as to matters that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect: (i) no written notice, request for information, order, complaint or penalty has been received by the Borrower or any of its Subsidiaries, and there are no judicial, administrative or other actions, suits or proceedings pending or, to the Borrower’s knowledge, threatened which allege a violation of or liability under any Environmental Laws, in each case relating to the Borrower or any of its Subsidiaries, (ii) each of the Borrower and its Subsidiaries has all environmental permits, licenses and other approvals necessary for its operations to comply with all Environmental Laws (“ Environmental Permits ”) and is, and in the prior eighteen (18)-month period, has been, in compliance with the terms of such Environmental Permits and with all other Environmental Laws, (iii) no Hazardous Material is located at, on or under any property currently or, to the Borrower’s knowledge, formerly owned, operated or leased by the Borrower or any of its Subsidiaries that would reasonably be expected to give rise to any cost, liability or obligation of the Borrower or any of its Subsidiaries under any Environmental Laws or Environmental Permits, and no Hazardous Material has been generated, used, treated, stored, handled, disposed of or controlled, transported or Released at any location in a manner that would reasonably be expected to give rise to any cost, liability or obligation of the Borrower or any of its Subsidiaries under any Environmental Laws or Environmental Permits, (iv) there are no agreements in which the Borrower or any of its Subsidiaries has expressly assumed or undertaken responsibility for any known or reasonably likely liability or obligation of any other person arising under or relating to Environmental Laws, which in any such case has not been made available to the Administrative Agent prior to the Closing Date, and (v) there has been no material written environmental assessment or audit conducted (other than customary assessments not revealing anything that would reasonably be expected to result in a Material Adverse Effect), by or on behalf of the Borrower or any of the Subsidiaries of any property currently or, to the Borrower’s knowledge, formerly owned or leased by the Borrower or any of the Subsidiaries that has not been made available to the Administrative Agent prior to the Closing Date.
Section 3.17 Security Documents .
(a) The Collateral Agreement and the Holdings Guarantee and Pledge Agreement are effective to create in favor of the Collateral Agent (for the benefit of the Secured Parties), in each case, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. As of the Closing Date, in the case of the Pledged Collateral described in the Collateral Agreement and the Holdings Guarantee and Pledge Agreement, when certificates or promissory notes, as applicable, representing such Pledged Collateral and required to be delivered under the applicable Security Document are delivered to the Collateral Agent, and in the case of the other Collateral described in the Collateral Agreement (other than the Intellectual Property), when financing statements and other filings specified in the Perfection Certificate are filed in the offices specified in the Perfection Certificate, the Collateral Agent (for the benefit of the Secured Parties) shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and, subject to Section 9-315 of the New York Uniform Commercial Code, the proceeds thereof, as security for the Obligations to the extent perfection can be obtained by filing Uniform Commercial Code financing statements, in each case prior and superior in right to the Lien of any other person (except (x) Liens having priority by operation of law and (y) in the case of Collateral other than certificated securities and instruments of which the Collateral Agent has possession, Permitted Liens).
(b) When the Collateral Agreement or an ancillary document thereunder is properly filed and recorded in the United States Patent and Trademark Office and the United States Copyright Office, and, with respect to Collateral in which a security interest cannot be perfected by such filings, upon the proper filing of the financing statements referred to in clause (a) above, the Collateral Agent (for the benefit of the Secured Parties) shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties thereunder in the United States Intellectual Property included in the Collateral (but, in the case of the United States registered copyrights included in the Collateral, only to the extent such United States registered copyrights are listed in such
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ancillary document filed with the United States Copyright Office) listed in such ancillary document, in each case prior and superior in right to the Lien of any other person, except for Permitted Liens (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a Lien on registered trademarks and patents, trademark and patent applications and registered copyrights acquired by the Loan Parties after the Closing Date).
(c) The Mortgages, if any, executed and delivered on the Closing Date are, and the Mortgages executed and delivered after the Closing Date pursuant to Section 5.10 shall be, effective to create in favor of the Collateral Agent (for the benefit of the Secured Parties) legal, valid and enforceable Liens on all of the Loan Parties’ rights, titles and interests in and to the Mortgaged Property thereunder and the proceeds thereof, and when such Mortgages are filed or recorded in the proper real estate filing or recording offices, and all relevant mortgage taxes and recording charges are duly paid, the Collateral Agent (for the benefit of the Secured Parties) shall have valid Liens with record notice to third parties on, and security interests in, all rights, titles and interests of the Loan Parties in such Mortgaged Property and, to the extent applicable, subject to Section 9-315 of the Uniform Commercial Code, the proceeds thereof, in each case prior and superior in right to the Lien of any other person, except for Permitted Liens.
(d) Notwithstanding anything herein (including this Section 3.17) or in any other Loan Document to the contrary, (i) each of the parties hereto acknowledges and agrees that licensing by the Gaming Authorities may be required to enforce and/or exercise or foreclose upon certain security interests and such enforcement and/or exercise or foreclosure may be otherwise limited by the Gaming Laws and (ii) neither the Borrower nor any other Loan Party makes any representation or warranty as to the effects of perfection or non-perfection, the priority or the enforceability of any pledge of or security interest in any Equity Interests of any Foreign Subsidiary, or as to the rights and remedies of the Agents or any Lender with respect thereto, under foreign law.
Section 3.18 Location of Real Property and Leased Premises .
(a) The Perfection Certificate lists correctly, in all material respects, as of the Closing Date all material Real Property owned by the Borrower and the Subsidiary Loan Parties and the addresses thereof. As of the Closing Date, the Borrower and the Subsidiary Loan Parties own in fee all the Real Property set forth as being owned by them in the Perfection Certificate except to the extent set forth therein.
(b) The Perfection Certificate lists correctly in all material respects, as of the Closing Date, all material Real Property leased by the Borrower and the Subsidiary Loan Parties and the addresses thereof. As of the Closing Date, the Borrower and the Subsidiary Loan Parties have in all material respects valid leases in all the Real Property set forth as being leased by them in the Perfection Certificate except to the extent set forth therein.
Section 3.19 Solvency .
(a) On the Closing Date, immediately after giving effect to the Transactions, (i) the fair value of the assets of the Borrower and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Borrower and its Subsidiaries on a consolidated basis; (ii) the present fair saleable value of the property of the Borrower and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Borrower and its Subsidiaries on a consolidated basis on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date.
(b) As of the Closing Date, immediately after giving effect to the consummation of the Transactions, the Borrower does not intend to, and the Borrower does not believe that it or any of its Subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing and amounts of cash to be received by it or any such Subsidiary and the timing and amounts of cash to be payable on or in respect of its Indebtedness or the Indebtedness of any such Subsidiary.
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Section 3.20 Labor Matters . Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes pending or threatened against Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries; (b) the hours worked and payments made to employees of Holdings (prior to a Qualified IPO), the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters; and (c) all payments due from Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries or for which any claim may be made against Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries, on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as a liability on the books of Holdings (prior to a Qualified IPO), the Borrower or such Subsidiary to the extent required by GAAP. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, the consummation of the Transactions will not give rise to a right of termination or right of renegotiation on the part of any union under any material collective bargaining agreement to which Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries (or any predecessor) is a party or by which Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries (or any predecessor) is bound.
Section 3.21 Insurance . Schedule 3.21 sets forth a true, complete and correct description, in all material respects, of all material insurance (excluding any title insurance) maintained by or on behalf of the Borrower or the Subsidiaries as of the Closing Date. As of such date, such insurance is in full force and effect.
Section 3.22 No Default . No Default or Event of Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
Section 3.23 Intellectual Property; Licenses, Etc . Except as would not reasonably be expected to have a Material Adverse Effect or as set forth in Schedule 3.23 , (a) the Borrower and each of its Subsidiaries owns, or possesses the right to use, all Intellectual Property that are used or held for use in or are otherwise reasonably necessary for the present conduct of their respective businesses, (b) to the knowledge of the Borrower, the Borrower and its Subsidiaries are not interfering with, infringing upon, misappropriating or otherwise violating the Intellectual Property of any person, and (c) (i) no claim or litigation regarding any of the Intellectual Property owned by the Borrower and its Subsidiaries is pending or, to the knowledge of the Borrower, threatened and (ii) to the knowledge of the Borrower, no claim or litigation regarding any other Intellectual Property described in the foregoing clauses (a) and (b) is pending or threatened.
Section 3.24 Senior Debt . The Loan Obligations constitute “Senior Debt” (or the equivalent thereof) under the documentation governing any Material Indebtedness of any Loan Party permitted to be incurred hereunder constituting Indebtedness that is subordinated in right of payment to the Loan Obligations.
Section 3.25 USA PATRIOT Act; OFAC .
(a) Each Loan Party is in compliance in all material respects with the provisions of the USA PATRIOT Act. On or prior to the Closing Date, the Borrower has provided to the Administrative Agent all information related to the Loan Parties (including names, addresses and tax identification numbers (if applicable)) reasonably requested in writing by the Administrative Agent not less than ten (10) Business Days prior to the Closing Date and mutually agreed to be required under “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act, to be obtained by the Administrative Agent or any Lender.
(b) None of the Borrower or any of its Subsidiaries nor, to the knowledge of Borrower, any director, officer, agent, employee or Affiliate of Holdings, the Borrower or any of the Subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”); and, the Borrower will not directly or indirectly use the proceeds of the Loans or the Letters of Credit or otherwise make available such proceeds to any person, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
Section 3.26 Foreign Corrupt Practices Act . None of Holdings, the Borrower or any of its Subsidiaries, nor, to the knowledge of the Borrower or any of its Subsidiaries, any of their directors, officers, agents or employees, has in the past (5) years (i) violated or is in violation of any provision of the United States Foreign Corrupt Practices Act of 1977 or similar law of a jurisdiction in which the Borrower or any of its subsidiaries
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conduct their business and to which they are lawfully subject or (ii) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment. No part of the proceeds of the Loans made hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of any provision of the United States Foreign Corrupt Practices Act of 1977, as amended.
ARTICLE IV
Conditions of Lending
The obligations of (a) the Lenders (including the Swingline Lender) to make Loans and (b) any Issuing Bank to issue, amend, extend or renew Letters of Credit or increase the stated amounts of Letters of Credit hereunder (each, a “ Credit Event ”) are subject to the satisfaction (or waiver in accordance with Section 9.08) of the following conditions:
Section 4.01 All Credit Events . On the date of each Borrowing and on the date of each issuance, amendment, extension or renewal of a Letter of Credit:
(a) The Administrative Agent shall have received, in the case of a Borrowing, a Borrowing Request as required by Section 2.03 (or a Borrowing Request shall have been deemed given in accordance with the last paragraph of Section 2.03) or, in the case of the issuance of a Letter of Credit, the applicable Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Section 2.05(b).
(b) The representations and warranties set forth in the Loan Documents shall be true and correct in all material respects as of such date (other than an amendment, extension or renewal of a Letter of Credit without any increase in the stated amount of such Letter of Credit), as applicable, with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects as of such earlier date).
(c) At the time of and immediately after such Borrowing or issuance, amendment, extension or renewal of a Letter of Credit (other than an amendment, extension or renewal of a Letter of Credit without any increase in the stated amount of such Letter of Credit), as applicable, no Event of Default or Default shall have occurred and be continuing.
(d) Each Borrowing and each other Credit Event shall be deemed to constitute a representation and warranty by the Borrower on the date of such Borrowing, issuance, amendment, extension or renewal as applicable, as to the matters specified in paragraphs (b) and (c) of this Section 4.01.
Section 4.02 First Credit Event . On or prior to the Closing Date:
(a) The Administrative Agent (or its counsel) shall have received from each of Holdings, the Borrower, the Issuing Bank and the Lenders (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence reasonably satisfactory to the Administrative Agent (which may include delivery of a signed signature page of this Agreement by facsimile or other means of electronic transmission (e.g., “pdf”)) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received, on behalf of itself, the Lenders and each Issuing Bank, a written opinion of (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP, special counsel for the Loan Parties and (ii) Jones Walker LLP, special Georgia counsel for the Loan Parties, in each case, (A) dated the Closing Date, (B) addressed to each Issuing Bank, the Administrative Agent and the Lenders on the Closing Date and (C) in form and substance reasonably satisfactory to the Administrative Agent covering such matters relating to the Loan Documents as the Administrative Agent shall reasonably request.
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(c) The Administrative Agent shall have received a certificate of the Secretary or Assistant Secretary or similar officer of each Loan Party dated the Closing Date and certifying:
(i) a copy of the certificate or articles of incorporation, certificate of limited partnership, certificate of formation or other equivalent constituent and governing documents, including all amendments thereto, of such Loan Party, (1) in the case of a corporation, certified as of a recent date by the Secretary of State (or other similar official) of the jurisdiction of its organization, or (2) otherwise certified by the Secretary or Assistant Secretary of such Loan Party or other person duly authorized by the constituent documents of such Loan Party,
(ii) a certificate as to the good standing (to the extent such concept or a similar concept exists under the laws of such jurisdiction) of such Loan Party as of a recent date from such Secretary of State (or other similar official),
(iii) that attached thereto is a true and complete copy of the by-laws (or partnership agreement, limited liability company agreement or other equivalent constituent and governing documents) of such Loan Party as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (iv) below,
(iv) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors (or equivalent governing body) of such Loan Party (or its managing general partner or managing member) authorizing the execution, delivery and performance of the Loan Documents dated as of the Closing Date to which such person is a party and, in the case of the Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect on the Closing Date,
(v) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party, and
(vi) as to the absence of any pending proceeding for the dissolution or liquidation of such Loan Party or, to the knowledge of such person, threatening the existence of such Loan Party.
(d) The Administrative Agent shall have received a completed Perfection Certificate, dated the Closing Date and signed by a Responsible Officer of the Borrower, together with all attachments contemplated thereby, and the results of a search of the Uniform Commercial Code (or equivalent), tax and judgment, United States Patent and Trademark Office and United States Copyright Office filings made with respect to the Loan Parties in the jurisdictions contemplated by the Perfection Certificate and copies of the financing statements (or similar documents) disclosed by such search and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) are Permitted Liens or have been, or will be simultaneously or substantially concurrently with the closing under this Agreement, released (or arrangements reasonably satisfactory to the Administrative Agent for such release shall have been made).
(e) The Administrative Agent shall have received a solvency certificate substantially in the form of Exhibit C and signed by a Financial Officer of the Borrower confirming the solvency of Borrower and its Subsidiaries on a consolidated basis after giving effect to the Transactions on the Closing Date.
(f) The Agents shall have received all fees payable thereto or to any Lender on or prior to the Closing Date and, to the extent invoiced, all other amounts due and payable pursuant to the Loan Documents on or prior to the Closing Date, including, to the extent invoiced at least three Business Days prior to the Closing Date, reimbursement or payment of all reasonable and documented out-of-pocket expenses (including reasonable fees, charges and disbursements of Cahill Gordon & Reindel LLP) required to be reimbursed or paid by the Loan Parties hereunder or under any Loan Document.
(g) Except as set forth in Schedule 5.10 (which, for the avoidance of doubt, shall override the applicable clauses of the definition of “Collateral and Guarantee Requirement”) and subject to the grace periods and post-closing periods set forth in such definition, the Collateral and Guarantee Requirement shall be satisfied (or waived) as of the Closing Date.
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(h) The Administrative Agent shall have received all documentation and other information required by Section 3.25(a), to the extent such information has been requested not less than ten (10) Business Days prior to the Closing Date.
(i) The Borrower shall have delivered to the Administrative Agent a certificate, dated as of the Closing Date, to the effect set forth in Section 4.01(b)(i).
For purposes of determining compliance with the conditions specified in this Section 4.02, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Closing Date specifying its objection thereto and, in the case of a Borrowing, such Lender shall not have made available to the Administrative Agent such Lender’s ratable portion of the initial Borrowing.
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender that, until the Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and will cause each of the Subsidiaries to:
Section 5.01 Existence; Business and Properties .
(a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except, in the case of a Subsidiary of the Borrower, where the failure to do so would not reasonably be expected to have a Material Adverse Effect, and except as otherwise permitted under Section 6.05, and except for the liquidation or dissolution of Subsidiaries if the assets of such Subsidiaries to the extent they exceed estimated liabilities are acquired by the Borrower or a Wholly Owned Subsidiary of the Borrower in such liquidation or dissolution; provided , that Subsidiary Loan Parties may not be liquidated into Subsidiaries that are not Loan Parties and Domestic Subsidiaries may not be liquidated into Foreign Subsidiaries (except in each case as permitted under Section 6.05).
(b) Except where the failure to do so would not reasonably be expected to have a Material Adverse Effect, do or cause to be done all things necessary to (i) lawfully obtain, preserve, renew, extend and keep in full force and effect the permits, franchises, authorizations, Intellectual Property, licenses and rights with respect thereto used in or necessary to the normal conduct of its business, and (ii) at all times maintain, protect and preserve all property necessary to the normal conduct of its business and keep such property in good repair, working order and condition (ordinary wear and tear excepted), from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith, if any, may be properly conducted at all times (in each case except as permitted by this Agreement).
Section 5.02 Insurance .
(a) Maintain, with financially sound and reputable insurance companies, insurance (subject to customary deductibles and retentions) in such amounts and against such risks as are customarily maintained by similarly situated companies engaged in the same or similar businesses operating in the same or similar locations, cause the Borrower and Subsidiary Guarantors to be listed as insured and the Collateral Agent to be listed as a co-loss payee on property and casualty policies and as an additional insured on liability policies. Notwithstanding the foregoing, the Borrower and the Subsidiaries may self-insure with respect to such risks with respect to which companies of established reputation engaged in the same general line of business in the same general area usually self-insure.
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(b) Except as the Administrative Agent may agree, cause all such property and casualty insurance policies with respect to the Mortgaged Property located in the United States of America to be endorsed or otherwise amended to include a “standard” or “New York” lender’s loss payable endorsement, in form and substance reasonably satisfactory to the Administrative Agent; deliver a certificate of an insurance broker to the Collateral Agent; cause each such policy covered by this clause (b) to provide that it shall not be cancelled or not renewed upon less than 30 days’ prior written notice thereof by the insurer to the Collateral Agent; deliver to the Collateral Agent, prior to or concurrently with the cancellation or nonrenewal of any such policy of insurance covered by this clause (b), a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Collateral Agent), or insurance certificate with respect thereto, together with evidence satisfactory to the Administrative Agent of payment of the premium therefor, in each case of the foregoing, to the extent customarily maintained, purchased or provided to, or at the request of, lenders by similarly situated companies in connection with credit facilities of this nature.
(c) If any portion of any Mortgaged Property is at any time located in an area identified by the Federal Emergency Management Agency (or any successor agency) as a special flood hazard area (each a “ Special Flood Hazard Area ”) with respect to which flood insurance has been made available under the Flood Insurance Laws, (i) maintain, or cause to be maintained, with a financially sound and reputable insurer, flood insurance in an amount and otherwise sufficient to comply with all applicable rules and regulations promulgated pursuant to the Flood Insurance Laws and (ii) deliver to the Collateral Agent evidence of such compliance in form and substance reasonably acceptable to the Administrative Agent.
(d) In connection with the covenants set forth in this Section 5.02, it is understood and agreed that:
(i) the Administrative Agent, the Collateral Agent, the Lenders, the Issuing Bank and their respective agents or employees shall not be liable for any loss or damage insured by the insurance policies required to be maintained under this Section 5.02, it being understood that (A) the Loan Parties shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Administrative Agent, the Collateral Agent, the Lenders, any Issuing Bank or their agents or employees. If, however, the insurance policies, as a matter of the internal policy of such insurer, do not provide waiver of subrogation rights against such parties, as required above, then each of Holdings and the Borrower, on behalf of itself and behalf of each of its Subsidiaries, hereby agrees, to the extent permitted by law, to waive, and further agrees to cause each of their Subsidiaries to waive, its right of recovery, if any, against the Administrative Agent, the Collateral Agent, the Lenders, any Issuing Bank and their agents and employees; and
(ii) the designation of any form, type or amount of insurance coverage by the Collateral Agent (including acting in the capacity as the Collateral Agent) under this Section 5.02 shall in no event be deemed a representation, warranty or advice by the Collateral Agent or the Lenders that such insurance is adequate for the purposes of the business of Holdings, the Borrower and the Subsidiaries or the protection of their properties.
Section 5.03 Taxes . Pay its obligations in respect of all Tax liabilities, assessments and governmental charges, before the same shall become delinquent or in default, except where (i) the amount or validity thereof is being contested in good faith by appropriate proceedings and the Borrower or a Subsidiary thereof has set aside on its books adequate reserves therefor in accordance with GAAP or (ii) the failure to make payment could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
Section 5.04 Financial Statements, Reports, etc . Furnish to the Administrative Agent (which will promptly furnish such information to the Lenders):
(a) within 90 days after the end of each fiscal year, a consolidated balance sheet, related statements of operations and comprehensive loss and related statements of cash flows showing the financial
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position of the Borrower and its Subsidiaries as of the close of such fiscal year and the consolidated results of their operations during such year and, starting with the fiscal year ending December 31, 2017, setting forth in comparative form the corresponding figures for the prior fiscal year, which consolidated balance sheet, related statements of operations and comprehensive loss and related statements of cash flows and owners’ equity shall be accompanied by customary management’s discussion and analysis and audited by independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which opinion shall not be qualified as to scope of audit or as to the status of the Borrower or any Material Subsidiary as a going concern, other than solely with respect to, or resulting solely from an upcoming maturity date under this Agreement occurring within one year from the time such opinion is delivered or any potential inability to satisfy a financial maintenance covenant on a future date or in a future period) to the effect that such consolidated financial statements fairly present, in all material respects, the financial position and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP (it being understood that the delivery by the Borrower or AP Gaming Holdco, Inc. of annual reports on Form 10-K of the Borrower and its consolidated Subsidiaries or AP Gaming Holdco, Inc. and its consolidated Subsidiaries, as applicable, shall satisfy the requirements of this Section 5.04(a) to the extent such annual reports include the information specified herein);
(b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year (commencing with the fiscal quarter ending June 30, 2017), a consolidated balance sheet and related statements of operations and comprehensive loss and related statements of cash flows showing the financial position of the Borrower and its Subsidiaries as of the close of such fiscal quarter and the consolidated results of their operations during such fiscal quarter and the then-elapsed portion of the fiscal year and, starting with the fiscal quarter ending June 30, 2017 setting forth in comparative form the corresponding figures for the corresponding periods of the prior fiscal year, all of which shall be in reasonable detail, which consolidated balance sheet and related statements of operations and comprehensive loss and related statements of cash flows shall be accompanied by customary management’s discussion and analysis and shall be certified by a Financial Officer of the Borrower on behalf of the Borrower as fairly presenting, in all material respects, the financial position and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes) (it being understood that the delivery by the Borrower or AP Gaming Holdco, Inc. of quarterly reports on Form 10-Q of the Borrower and its consolidated Subsidiaries or AP Gaming Holdco, Inc. and its consolidated Subsidiaries, as applicable, shall satisfy the requirements of this Section 5.04(b) to the extent such quarterly reports include the information specified herein);
(c) (x) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto, (ii) commencing with the fiscal quarter ending on June 30, 2017, setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the Financial Covenant, and (iii) setting forth the calculation and uses of the Cumulative Credit for the fiscal period then ended if the Borrower shall have used the Cumulative Credit for any purpose during such fiscal period and (y) concurrently with any delivery of financial statements under clause (a) above, if the accounting firm is not restricted from providing such a certificate by its policies office, a certificate of the accounting firm opining on or certifying such statements stating whether they obtained knowledge during the course of their examination of such statements of any Default or Event of Default under the Financial Covenant (which certificate may be limited to accounting matters and disclaim responsibility for legal interpretations);
(d) promptly after the same become publicly available, copies of all periodic and other publicly available reports, proxy statements and, to the extent requested by the Administrative Agent, other materials filed by Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries with the SEC, or after an initial public offering, distributed to its stockholders generally, as applicable; provided , however , that such reports, proxy statements, filings and other materials required to be delivered pursuant to this clause (d) shall be deemed delivered for purposes of this Agreement when posted to the website of the Borrower or the website of the SEC and written notice of such posting has been delivered to the Administrative Agent;
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(e) within 90 days after the beginning of each fiscal year, a consolidated annual budget for such fiscal year consisting of a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year and the related consolidated statements of projected cash flow and projected income (collectively, the “Budget”), which Budget shall in each case be accompanied by the statement of a Financial Officer of the Borrower to the effect that the Budget is based on assumptions believed by the Borrower to be reasonable as of the date of delivery thereof;
(f) upon the reasonable request of the Administrative Agent not more frequently than once a year, an updated Perfection Certificate (or, to the extent such request relates to specified information contained in the Perfection Certificate, such information) reflecting all changes since the date of the information most recently received pursuant to this clause (f) or Section 5.10(f);
(g) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of Holdings, the Borrower or any of the Subsidiaries, or compliance with the terms of any Loan Document as in each case the Administrative Agent may reasonably request (for itself or on behalf of any Lender); and
(h) in the event that Holdings or any Parent Entity reports on a consolidated basis, such consolidated reporting at such Parent Entity’s level in a manner consistent with that described in clauses (a) and (b) of this Section 5.04 for the Borrower (together with a reconciliation showing the adjustments necessary to determine compliance by the Borrower and its Subsidiaries with the Financial Covenant) will satisfy the requirements of such paragraphs.
The Borrower hereby acknowledges and agrees that all financial statements furnished pursuant to paragraphs (a), (b) and (d) above are hereby deemed to be Borrower Materials suitable for distribution, and to be made available, to Public Lenders as contemplated by Section 9.17 and may be treated by the Administrative Agent and the Lenders as if the same had been marked “PUBLIC” in accordance with such paragraph (unless the Borrower otherwise notifies the Administrative Agent in writing on or prior to delivery thereof).
The Borrower shall also hold live quarterly conference calls with the opportunity to ask questions of management not later than ten Business Days following the date upon which the financial statements required pursuant to Sections 5.04(a) or (b), as applicable, were furnished to the Administrative Agent (or such later time approved by the Administrative Agent). No fewer than five Business Days prior to the date such conference call is to be held (or such later time approved by the Administrative Agent), the Borrower shall give notice to the Administrative Agent of such quarterly conference call for the benefit of the Lenders, which notice shall contain the time and the date of such conference call and information on how to access such quarterly conference call.
Section 5.05 Litigation and Other Notices . Furnish to the Administrative Agent (which will promptly thereafter furnish to the Lenders) written notice of the following promptly after any Responsible Officer of Holdings (prior to a Qualified IPO) or the Borrower obtains actual knowledge thereof:
(a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto;
(b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority or in arbitration, against Holdings, the Borrower or any of the Subsidiaries as to which an adverse determination is reasonably probable and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect;
(c) any other development specific to Holdings, the Borrower or any of the Subsidiaries that is not a matter of general public knowledge and that has had, or would reasonably be expected to have, a Material Adverse Effect; and
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(d) the occurrence of any ERISA Event that, together with all other ERISA Events that have occurred, would reasonably be expected to have a Material Adverse Effect.
Section 5.06 Compliance with Laws . Comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; provided , that this Section 5.06 shall not apply to Environmental Laws, which are the subject of Section 5.09, or to laws related to Taxes, which are the subject of Section 5.03.
Section 5.07 Maintaining Records ; Access to Properties and Inspections. Maintain all financial records in accordance with GAAP and permit any persons designated by the Administrative Agent or, upon the occurrence and during the continuance of an Event of Default, any Lender to visit and inspect the financial records and the properties of Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries at reasonable times, upon reasonable prior notice to Holdings (prior to a Qualified IPO) or the Borrower, and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any persons designated by the Administrative Agent or, upon the occurrence and during the continuance of an Event of Default, any Lender upon reasonable prior notice to Holdings (prior to a Qualified IPO) or the Borrower to discuss the affairs, finances and condition of Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries with the officers thereof and independent accountants therefor (so long as the Borrower has the opportunity to participate in any such discussions with such accountants), in each case, subject to reasonable requirements of confidentiality, including requirements imposed by law or by contract.
Section 5.08 Use of Proceeds . Use the proceeds of the Loans made and Letters of Credit issued in the manner contemplated by Section 3.12.
Section 5.09 Compliance with Environmental Laws . Comply, and make reasonable efforts to cause all lessees and other persons occupying its properties to comply, with all Environmental Laws applicable to its operations and properties; and obtain and renew all authorizations and permits required pursuant to Environmental Law for its operations and properties, in each case in accordance with Environmental Laws, except, in each case with respect to this Section 5.09, to the extent the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 5.10 Further Assurances; Additional Security .
(a) Execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, Mortgages and other documents) that the Collateral Agent may reasonably request (including, without limitation, those required by applicable law), to satisfy the Collateral and Guarantee Requirement and to cause the Collateral and Guarantee Requirement to be and remain satisfied, all at the expense of the Loan Parties and provide to the Collateral Agent, from time to time upon reasonable request, evidence reasonably satisfactory to the Collateral Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents.
(b) If any asset (other than Real Property) that has an individual fair market value (as determined in good faith by the Borrower) in an amount greater than $5,000,000 is acquired by the Borrower or any Subsidiary Loan Party after the Closing Date or owned by an entity at the time it becomes a Subsidiary Loan Party (in each case other than (x) assets constituting Collateral under a Security Document that become subject to the Lien of such Security Document upon acquisition thereof and (y) assets constituting Excluded Property), the Borrower or such Subsidiary Loan Party, as applicable, will (i) promptly notify the Collateral Agent of such acquisition or ownership and (ii) cause such asset to be subjected to a Lien (subject to any Permitted Liens) securing the Obligations and take, and cause the Subsidiary Loan Parties to take, such actions as shall be required by this Agreement or any Security Document reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in clause (a) of this Section 5.10, all at the expense of the Loan Parties, subject to clause (g) below.
(c) (i) Grant and cause each of the Subsidiary Loan Parties to grant to the Collateral Agent security interests in, and mortgages on, any Material Real Property of the Borrower or such Subsidiary Loan Parties, as applicable, that are not Mortgaged Property as of the Closing Date, to the extent acquired after the Closing Date,
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within 90 days after such acquisition (or such later date as the Collateral Agent may agree in its reasonable discretion) pursuant to documentation in form and substance reasonably satisfactory to the Collateral Agent and the Borrower (each, an “ Additional Mortgage ”), which security interest and mortgage shall constitute valid and enforceable Liens subject to no other Liens except Permitted Liens, at the time of recordation thereof, (ii) record or file, and cause each such Subsidiary to record or file, the Additional Mortgage and instruments related thereto in such manner and in such places as is required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent (for the benefit of the Secured Parties) required to be granted pursuant to the Additional Mortgages and pay, and cause each such Subsidiary to pay, in full, all Taxes, fees and other charges required to be paid in connection with such recording or filing, in each case subject to clause (g) below, and (iii) deliver to the Collateral Agent an updated Schedule 1.01(B) reflecting such additional Mortgaged Properties. Unless otherwise waived by the Collateral Agent, with respect to each such Additional Mortgage, the Borrower shall cause the requirements set forth in clauses (f) and (g) of the definition of “Collateral and Guarantee Requirement” to be satisfied with respect to such Material Real Property.
(d) If any additional direct or indirect Subsidiary of the Borrower is formed or acquired after the Closing Date (with any Subsidiary Redesignation resulting in an Unrestricted Subsidiary becoming a Subsidiary or any Excluded Subsidiary ceasing to be an Excluded Subsidiary being deemed to constitute the acquisition of a Subsidiary) and if such Subsidiary is a Subsidiary Loan Party, within 15 Business Days after the date such Subsidiary is formed or acquired (or such longer period as the Administrative Agent shall agree), notify the Collateral Agent thereof and, within twenty (20) Business Days after the date such Subsidiary is formed or acquired or such longer period as the Administrative Agent shall agree (or, with respect to clauses (f), (g) and (h) of the definition of “Collateral and Guarantee Requirement”, within 90 days after such formation or acquisition or such longer period as set forth therein or as the Administrative Agent may agree in its reasonable discretion, as applicable), cause the Collateral and Guarantee Requirement to be satisfied with respect to such Subsidiary and with respect to any Equity Interest in or Indebtedness of such Subsidiary owned by or on behalf of any Loan Party, subject to clause (g) below.
(e) If any additional Foreign Subsidiary of the Borrower is formed or acquired after the Closing Date (with any Subsidiary Redesignation resulting in an Unrestricted Subsidiary becoming a Subsidiary being deemed to constitute the acquisition of a Subsidiary) and if such Subsidiary is a “first tier” Foreign Subsidiary of a Loan Party, within 15 Business Days after the date such Foreign Subsidiary is formed or acquired (or such longer period as the Administrative Agent may agree in its reasonable discretion), notify the Collateral Agent thereof and, within 50 Business Days after the date such Foreign Subsidiary is formed or acquired or such longer period as the Collateral Agent shall agree, cause the Collateral and Guarantee Requirement to be satisfied with respect to any Equity Interest in such Foreign Subsidiary owned by or on behalf of any Loan Party, subject to clause (g) below.
(f) Furnish to the Collateral Agent prompt written notice of any change (A) in any Loan Party’s corporate or organization name, (B) in any Loan Party’s identity or organizational structure, (C) in any Loan Party’s organizational identification number, (D) in any Loan Party’s jurisdiction of organization or (E) in the location of the chief executive office of any Loan Party that is not a registered organization; provided , that the applicable Loan Party shall not effect or permit any such change unless all filings have been made, or will have been made within 30 days following such change (or such longer period as the Collateral Agent may agree in its reasonable discretion), under the Uniform Commercial Code that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral in which a security interest may be perfected by such filing, for the benefit of the Secured Parties, with the same priority as immediately prior to such change.
(g) The Collateral and Guarantee Requirement and the other provisions of this Section 5.10 and the other provisions of the Loan Documents with respect to Collateral need not be satisfied with respect to any of the following (collectively, the “ Excluded Property ”): (i) any Real Property other than Material Real Property, (ii) motor vehicles and other assets subject to certificates of title and letter of credit rights (in each case, other than to the extent a Lien on such assets or such rights can be perfected by filing a UCC-1) and commercial tort claims with a value of less than $3,000,000, (iii) pledges and security interests prohibited by applicable Requirements of Law (including any Gaming Law) or enforceable contractual obligation not in violation of Section 6.09(c) binding on the assets that existed at the time of the acquisition thereof and was not created or made binding on the assets in contemplation of or in connection with the acquisition of such assets (except in the case of assets (A) owned on the
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Closing Date or (B) acquired after the Closing Date with Indebtedness of the type permitted pursuant to clauses (i) or (j) of Section 6.01) (in each case, except to the extent such prohibition is unenforceable after giving effect to the applicable anti-assignment provisions of Article 9 of the Uniform Commercial Code), (iv) assets to the extent a security interest in such assets could reasonably be expected to result in material adverse tax consequences as determined in writing in good faith by the Borrower, (v) any lease, license or other agreement to the extent that a grant of a security interest therein would violate or invalidate such lease, license or agreement or create a right of termination in favor of any other party thereto (other than the Borrower or any Guarantor) after giving effect to the applicable anti-assignment provisions of Article 9 of the Uniform Commercial Code, (vi) those assets as to which the Administrative Agent and the Borrower reasonably agree that the cost or other consequence of obtaining or perfecting such a security interest or perfection thereof are excessive in relation to the value afforded thereby, (vii) any governmental licenses (including gaming licenses) or state or local franchises, charters and authorizations, to the extent security interests in such licenses, franchises, charters or authorizations are prohibited or restricted thereby after giving effect to the applicable anti-assignment provisions of Article 9 of the Uniform Commercial Code, (viii) pending United States “intent-to-use” trademark applications for which a verified statement of use or an amendment to allege use has not been filed with and accepted by the United States Patent and Trademark Office, (ix) other customary exclusions under applicable local law or in applicable local jurisdictions set forth in the Security Documents, (x) assets subject to Liens securing Permitted Receivables Financings, (xi) any Excluded Securities, (xii) any Third Party Funds and (xiii) all assets of Holdings other than Equity Interests in the Borrower directly held by Holdings and pledged pursuant to the Holdings Guarantee and Pledge Agreement; provided , that the Borrower may in its sole discretion elect to exclude any property from the definition of Excluded Property. Notwithstanding anything herein to the contrary, (A) the Administrative Agent may grant extensions of time or waiver of requirement for the creation or perfection of security interests in or the obtaining of insurance (including title insurance) or surveys with respect to particular assets (including extensions beyond the Closing Date for the perfection of security interests in the assets of the Loan Parties on such date) where it reasonably determines, in consultation with the Borrower, that perfection or obtaining of such items cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required by this Agreement or the other Loan Documents, (B) no control agreement or control, lockbox or similar arrangement shall be required with respect to any deposit accounts, securities accounts or commodities accounts, (C) no foreign-law governed security documents shall be required, (D) Liens required to be granted from time to time pursuant to, or any other requirements of, the Collateral and Guarantee Requirement and the Security Documents shall be subject to exceptions and limitations set forth in the Security Documents and, to the extent appropriate in the applicable jurisdiction, as otherwise agreed between the Administrative Agent and the Borrower and (E), to the extent any Mortgaged Property is located in a jurisdiction with mortgage recording or similar tax, the amount secured by the Security Document with respect to such Mortgaged Property shall be limited to the fair market value of such Mortgaged Property as determined in good faith by the Borrower (subject to any applicable laws in the relevant jurisdiction or such lesser amount agreed to by the Administrative Agent).
(h) Take all actions reasonably necessary to satisfy the items described on Schedule 5.10 within the applicable period of time specified in such Schedule (or such longer period as the Administrative Agent may agree in its reasonable discretion).
Section 5.11 Rating . Exercise commercially reasonable efforts to maintain ratings from each of Moody’s and S&P for the Term B Loans.
Section 5.12 Compliance with the USA Patriot Act, Anti-Corruption Laws and Sanctions Laws . Comply in all material respects with the USA PATRIOT Act, the United States Foreign Corrupt Practices Act of 1977 and all applicable sanctions laws and regulations administered by OFAC.
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender that, until the Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, and will not permit any of the Subsidiaries to:
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Section 6.01 Indebtedness . Incur, create, assume or permit to exist any Indebtedness, except:
(a) Indebtedness existing on the Closing Date ( provided , that any such Indebtedness that is (x) not intercompany Indebtedness and (y) in excess of $2,000,000 shall be set forth on Schedule 6.01 ) and any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness (other than intercompany indebtedness Refinanced with Indebtedness owed to a person not affiliated with the Borrower or any Subsidiary);
(b) Indebtedness created hereunder (including pursuant to Section 2.21) and under the other Loan Documents and any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness;
(c) Indebtedness of the Borrower or any Subsidiary pursuant to Hedging Agreements entered into for non-speculative purposes;
(d) Indebtedness owed to (including obligations in respect of letters of credit or bank guarantees or similar instruments for the benefit of) any person providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance to the Borrower or any Subsidiary, pursuant to reimbursement or indemnification obligations to such person, in each case in the ordinary course of business or consistent with past practice or industry practices;
(e) Indebtedness of the Borrower to Holdings or any Subsidiary and of any Subsidiary to Holdings, the Borrower or any other Subsidiary; provided , that (i) Indebtedness of any Subsidiary that is not a Subsidiary Loan Party owing to the Loan Parties shall be subject to Section 6.04 and (ii) Indebtedness owed by any Loan Party to any Subsidiary that is not a Loan Party shall be subordinated to the Loan Obligations under this Agreement on subordination terms described in the global intercompany note substantially in the form of Exhibit J hereto or on other subordination terms reasonably satisfactory to the Administrative Agent and the Borrower;
(f) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and completion guarantees and similar obligations, in each case provided in the ordinary course of business or consistent with past practice or industry practices, including those incurred to secure health, safety and environmental obligations in the ordinary course of business or consistent with past practice or industry practices;
(g) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business or other cash management services, in each case incurred the ordinary course of business;
(h) (i) Indebtedness of a Subsidiary acquired after the Closing Date or a person merged or consolidated with the Borrower or any Subsidiary after the Closing Date and Indebtedness otherwise incurred or assumed by the Borrower or any Subsidiary in connection with the acquisition of assets or Equity Interests, where such acquisition, merger or consolidation is not prohibited by this Agreement (including a Permitted Business Acquisition); provided , that, (x) in the case of any such Indebtedness secured by Liens on Collateral that rank pari passu with the Liens on the Collateral securing the Term B Loans, the Net First Lien Leverage Ratio on a Pro Forma Basis immediately after giving effect to such acquisition, merger or consolidation, the incurrence of such Indebtedness and the use of proceeds thereof (but without netting any of the net cash proceeds of such Indebtedness incurred on such date against the applicable amount of Consolidated Debt for purposes of such calculation at such time), and any related transactions is (I) not greater than 4.25 to 1.00 or (II) no greater than the Net First Lien Leverage Ratio in effect immediately prior thereto and (y) in the case of any other such Indebtedness, the Total Net Leverage Ratio on a Pro Forma Basis immediately after giving effect to such acquisition, merger or consolidation, the incurrence of such Indebtedness and the use of proceeds thereof (but without netting any of the net cash proceeds of such Indebtedness incurred on such date against the applicable amount of Consolidated Debt for purposes of such calculation at such time), and any related transactions is (I) not greater than 4.75 to 1.00 or (II) no greater than the Total Net Leverage Ratio in effect immediately prior thereto; provided that (1) the incurrence of any Indebtedness for borrowed money pursuant to this clause (h)(i) incurred in
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contemplation of such acquisition, merger or consolidation (except for any seller note or other seller financing) shall be subject to the last paragraph of this Section 6.01 and (2) the aggregate outstanding principal amount of Indebtedness permitted under this clause (h)(i) incurred by a Subsidiary other than a Subsidiary Loan Party in contemplation of such acquisition, merger or consolidation, together with the aggregate principal amount of Indebtedness of a Subsidiary other than a Subsidiary Loan Party then outstanding pursuant to Section 6.01(s)(i), shall not exceed the greater of $30,000,000 and 4.25% of Consolidated Total Assets as at the end of the then most recently ended Test Period, and (ii) any Permitted Refinancing Indebtedness incurred to Refinance any such Indebtedness;
(i) (x) Capitalized Lease Obligations, mortgage financings and other Indebtedness incurred by the Borrower or any Subsidiary prior to or within 270 days after the acquisition, lease, construction, repair, replacement or improvement of the respective property (real or personal, and whether through the direct purchase of property or the Equity Interest of any person owning such property) permitted under this Agreement in order to finance such acquisition, lease, construction, repair, replacement or improvement, in an aggregate principal amount that immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(i)(x), would not exceed (A) the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (B) any additional amounts, so long as immediately after giving effect to the incurrence of such additional amounts under this clause (B) and the use of proceeds thereof, the Total Net Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to 1.00, and (y) any Permitted Refinancing Indebtedness in respect thereof;
(j) Capitalized Lease Obligations incurred by the Borrower or any Subsidiary in respect of any Sale and Lease-Back Transaction that is permitted under Section 6.03 and any Permitted Refinancing Indebtedness in respect thereof;
(k) Indebtedness of the Borrower or any Subsidiary, in an aggregate principal amount that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(k), would not exceed the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness in respect thereof;
(l) [Reserved];
(m) Guarantees (i) by Holdings, the Borrower or any Subsidiary Loan Party of any Indebtedness of the Borrower or any Subsidiary Loan Party permitted to be incurred under this Agreement, (ii) by the Borrower or any Subsidiary Loan Party of Indebtedness otherwise permitted hereunder of any Subsidiary that is not a Subsidiary Loan Party to the extent such Guarantees are permitted by Section 6.04 (other than Section 6.04(v)), (iii) by any Subsidiary that is not a Subsidiary Loan Party of Indebtedness of another Subsidiary that is not a Subsidiary Loan Party, and (iv) by the Borrower of Indebtedness of Subsidiaries that are not Subsidiary Loan Parties incurred for working capital purposes in the ordinary course of business on ordinary business terms so long as such Indebtedness is permitted to be incurred under Section 6.01(t) to the extent such Guarantees are permitted by Section 6.04 (other than Section 6.04(v)); provided , that Guarantees by the Borrower or any Subsidiary Loan Party under this Section 6.01(m) of any other Indebtedness of a person that is subordinated to other Indebtedness of such person shall be expressly subordinated to the Loan Obligations to at least the same extent as such underlying Indebtedness is subordinated;
(n) Indebtedness arising from agreements of the Borrower or any Subsidiary providing for indemnification, adjustment of purchase or acquisition price or similar obligations (including earn-outs), in each case, incurred or assumed in connection with the Transactions, any Permitted Business Acquisition, other Investments or the disposition of any business, assets or a Subsidiary not prohibited by this Agreement;
(o) Indebtedness in respect of letters of credit, bank guarantees, warehouse receipts or similar instruments issued to support performance obligations and trade letters of credit (other than obligations in respect of other Indebtedness) in the ordinary course of business or consistent with past practice or industry practices;
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(p) other Indebtedness or Disqualified Stock of the Borrower or any Subsidiaries in an aggregate outstanding principal amount or liquidation preference not greater than 100.0% of the amount of net cash proceeds received by the Borrower from (x) the issuance or sale of its Qualified Equity Interests or (y) a contribution to its common equity with the net cash proceeds from the issuance and sale by Holdings or any Parent Entity of its Qualified Equity Interests or a contribution to its common equity (in each case of (x) and (y), other than proceeds from the sale of Equity Interests to, or contributions from, the Borrower or any of its Subsidiaries and other than Permitted Cure Securities), to the extent that such net cash proceeds do not increase the Cumulative Credit and do not constitute Excluded Contributions;
(q) Indebtedness consisting of (i) the financing of insurance premiums or (ii) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business;
(r) (i) Indebtedness secured by Liens on the Collateral ranking pari passu with the Liens on the Collateral securing the Term B Loans so long as (x) at the time of incurrence thereof, no Default or Event of Default shall have occurred and be continuing and (y) immediately after giving effect to the incurrence of such Indebtedness and the use of proceeds thereof, the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.25 to 1.00; provided that, (1) the net cash proceeds of Indebtedness incurred under this clause (r)(i) at such time shall not be netted against the applicable amount of Consolidated Debt for purposes of such calculation of the Net First Lien Leverage Ratio at such time and (2) the incurrence of any Indebtedness pursuant to this clause (r)(i) shall be subject to the last paragraph of this Section 6.01 and (ii) any Permitted Refinancing Indebtedness in respect thereof;
(s) (i) other Indebtedness so long as (x) at the time of incurrence thereof, no Default or Event of Default shall have occurred and be continuing, (y) immediately after giving effect to the incurrence of such Indebtedness and the use of proceeds thereof, the Total Net Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to 1.00 and (z) the aggregate principal amount of Indebtedness permitted under this clause (s)(i) incurred by a Subsidiary other than a Subsidiary Loan Party, together with the aggregate principal amount of Indebtedness of a Subsidiary other than a Subsidiary Loan Party then outstanding pursuant to Section 6.01(h)(i) incurred in contemplation of an acquisition, merger or consolidation, shall not exceed the greater of $30,000,000 and 4.25% of Consolidated Total Assets as at the end of the then most recently ended Test Period; provided that, (1) the net cash proceeds of Indebtedness incurred under this clause (s)(i) at such time shall not be netted against the applicable amount of Consolidated Debt for purposes of such calculation of the Total Net Leverage Ratio at such time and (2) the incurrence of any Indebtedness pursuant to this clause (s)(i) shall be subject to the last paragraph of this Section 6.01 and (ii) any Permitted Refinancing Indebtedness in respect thereof;
(t) Indebtedness of Subsidiaries that are not Subsidiary Loan Parties in an aggregate principal amount outstanding that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(t), would not exceed the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness in respect thereof;
(u) Indebtedness incurred in the ordinary course of business in respect of obligations of the Borrower or any Subsidiary to pay the deferred purchase price of goods or services or progress payments in connection with such goods and services; provided , that such obligations are incurred in connection with open accounts extended by suppliers on customary trade terms in the ordinary course of business and not in connection with the borrowing of money or any Hedging Agreements.
(v) Indebtedness representing deferred compensation to employees, consultants or independent contractors of the Borrower (or, to the extent such work is done for the Borrower or its Subsidiaries, any direct or indirect parent thereof) or any Subsidiary incurred in the ordinary course of business;
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(w) Indebtedness in connection with Permitted Receivables Financings;
(x) obligations in respect of Cash Management Agreements;
(y) Refinancing Notes and any Permitted Refinancing Indebtedness incurred in respect thereof;
(z) (i) Indebtedness in an aggregate principal amount outstanding not to exceed at the time of incurrence the Incremental Amount available at such time; provided , that (1) there shall be no obligor in respect of any such Indebtedness that is not a Loan Party and (2) the incurrence of any Indebtedness pursuant to this clause (z)(i) shall be subject to the last paragraph of this Section 6.01 and (ii) any Permitted Refinancing Indebtedness in respect thereof;
(aa) Guarantees of Indebtedness under ordinary course customer financing lines or credit;
(bb) Indebtedness incurred on behalf of, or representing Guarantees of Indebtedness of, joint ventures in an aggregate principal amount that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(bb), would not exceed the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness in respect thereof;
(cc) Indebtedness issued by the Borrower or any Subsidiary to current or former officers, directors and employees, their respective estates, spouses or former spouses to finance the purchase or redemption of Equity Interests of Holdings or any Parent Entity permitted by Section 6.06;
(dd) Indebtedness consisting of obligations of the Borrower or any Subsidiary under deferred compensation or other similar arrangements incurred by such person in connection with the Transactions and Permitted Business Acquisitions or any other Investment permitted hereunder;
(ee) Indebtedness of the Borrower or any Subsidiary to or on behalf of any joint venture (regardless of the form of legal entity) that is not a Subsidiary arising in the ordinary course of business in connection with the cash management operations (including with respect to intercompany self-insurance arrangements) of the Borrower and its Subsidiaries;
(ff) Indebtedness supported by a Letter of Credit, in a principal amount not in excess of the stated amount of such Letter of Credit; and
(gg) all premium (if any, including tender premiums) expenses, defeasance costs, interest (including post-petition interest), fees, expenses, charges and additional or contingent interest on obligations described in clauses (a) through (ff) above or refinancings thereof.
For purposes of determining compliance with this Section 6.01, the amount of any Indebtedness denominated in any currency other than Dollars shall be calculated based on customary currency exchange rates in effect, in the case of such Indebtedness incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness) on or prior to the Closing Date, on the Closing Date and, in the case of such Indebtedness incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness) after the Closing Date, on the date on which such Indebtedness was incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness); provided , that if such Indebtedness is incurred to refinance other Indebtedness denominated in a currency other than Dollars (or in a different currency from the Indebtedness being refinanced), and such refinancing would cause the applicable Dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such Dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (i) the outstanding or committed principal amount, as applicable, of such Indebtedness being refinanced plus (ii) the aggregate amount of fees, underwriting discounts, premiums (including tender premiums), defeasance costs and other costs and expenses incurred in connection with such refinancing.
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Further, for purposes of determining compliance with this Section 6.01, (A) Indebtedness need not be permitted solely by reference to one category of permitted Indebtedness (or any portion thereof) described in Sections 6.01(a) through (gg) (including, for the avoidance of doubt, with respect to the clauses set forth in the definition of “ Incremental Amount ”) but may be permitted in part under any combination thereof, (B) in the event that an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Indebtedness (or any portion thereof) described in Sections 6.01(a) through (gg) (including, for the avoidance of doubt, with respect to the clauses set forth in the definition of “ Incremental Amount ”), the Borrower may, in its sole discretion, classify or reclassify, or later divide, classify or reclassify (as if incurred at such later time), such item of Indebtedness (or any portion thereof) in any manner that complies with this Section 6.01 and at the time of incurrence, classification or reclassification will be entitled to only include the amount and type of such item of Indebtedness (or any portion thereof) in one of the above clauses (or any portion thereof) and such item of Indebtedness (or any portion thereof) that is pursuant to a dollar denominated basket shall be treated as having been incurred or existing pursuant to only such clause or clauses (or any portion thereof) without giving pro forma effect to such item (or portion thereof) when calculating the amount of Indebtedness that may be incurred, classified or reclassified pursuant to any other clause (or portion thereof) that relates to any ratio based basket at such time; provided , that all Indebtedness outstanding on the Closing Date under this Agreement shall at all times be deemed to have been incurred pursuant to clause (b) of this Section 6.01 and (C) in connection with (1) the incurrence of revolving loan Indebtedness under this Section 6.01 or (2) any commitment relating to the incurrence of Indebtedness under this Section 6.01 and the granting of any Lien to secure such Indebtedness, the Borrower or applicable Subsidiary may designate the incurrence of such Indebtedness and the granting of such Lien therefor as having occurred on the date of first incurrence of such revolving loan Indebtedness or commitment (such date, the “ Deemed Date ”), and any related subsequent actual incurrence and the granting of such Lien therefor will be deemed for purposes of this Section 6.01 and Section 6.02 of this Agreement to have been incurred or granted on such Deemed Date, including, without limitation, for purposes of calculating usage of any baskets hereunder (if applicable), the Net First Lien Leverage Ratio, the Total Net Leverage Ratio and EBITDA (and all such calculations, without duplication, on the Deemed Date and on any subsequent date until such commitment is funded or terminated or such election is rescinded without the incurrence thereby shall be made on a Pro Forma Basis after giving effect to the deemed incurrence, the granting of any Lien therefor and related transactions in connection therewith). In addition, with respect to any Indebtedness that was permitted to be incurred hereunder on the date of such incurrence, any Increased Amount of such Indebtedness shall also be permitted hereunder after the date of such incurrence.
With respect to any term Indebtedness for borrowed money incurred under Section 6.01(h)(i) (to the extent set forth therein), 6.01(r)(i), 6.01(s)(i) or 6.01(z)(i), (A) the stated maturity date of such Indebtedness shall be no earlier than the Term B Facility Maturity Date as in effect at the time such Indebtedness is incurred and (B) the Weighted Average Life to Maturity of such Indebtedness shall be no shorter than the remaining Weighted Average Life to Maturity of the Term B Loans in effect at the time such Indebtedness is incurred.
Section 6.02 Liens . Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person) of the Borrower or any Subsidiary at the time owned by it or on any income or revenues or rights in respect of any thereof, except the following (collectively, “ Permitted Liens ”):
(a) Liens on property or assets of the Borrower and the Subsidiaries existing on the Closing Date (or created following the Closing Date pursuant to agreements in existence on the Closing Date requiring the creation of such Liens) and, to the extent securing Indebtedness in an aggregate principal amount in excess of $2,000,000, set forth on Schedule 6.02(a) and any modifications, replacements, renewals or extensions thereof; provided , that such Liens shall secure only those obligations that they secure on the Closing Date (and any Permitted Refinancing Indebtedness in respect of such obligations permitted by Section 6.01(a)) and shall not subsequently apply to any other property or assets of the Borrower or any Subsidiary other than (A) after-acquired property that is affixed or incorporated into the property covered by such Lien, and (B) proceeds and products thereof;
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(b) any Lien created under the Loan Documents (including Liens created under the Security Documents securing obligations in respect of Secured Hedge Agreements and Secured Cash Management Agreements) or permitted in respect of any Mortgaged Property by the terms of the applicable Mortgage;
(c) any Lien on any property or asset of the Borrower or any Subsidiary securing Indebtedness or Permitted Refinancing Indebtedness permitted by Section 6.01(h); provided , that (i) in the case of Liens that do not extend to the Collateral, such Lien does not apply to any other property or assets of the Borrower or any of the Subsidiaries not securing such Indebtedness at the date of the acquisition of such property or asset and accessions and additions thereto and proceeds and products thereof (other than after-acquired property required to be subjected to such Lien pursuant to the terms of such Indebtedness (and refinancings thereof), it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition), (ii) in the case of Liens on the Collateral that are (or are intended to be) junior in priority to the Liens securing the Term B Loans, such Liens shall be subject to a Permitted Junior Intercreditor Agreement and (iii) in the case of Liens on the Collateral that are (or are intended to be) pari passu with the Liens on the Collateral securing the Term B Loans, such Liens shall be subject to a Permitted Pari Passu Intercreditor Agreement;
(d) Liens for Taxes, assessments or other governmental charges or levies not yet delinquent by more than 30 days or that are being contested in compliance with Section 5.03;
(e) Liens imposed by law, such as landlord’s, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, supplier’s, construction or other like Liens, securing obligations that are not overdue by more than 30 days or that are being contested in good faith by appropriate proceedings and in respect of which, if applicable, the Borrower or any Subsidiary shall have set aside on its books reserves in accordance with GAAP;
(f) (i) pledges and deposits and other Liens made in the ordinary course of business in compliance with the Federal Employers Liability Act or any other workers’ compensation, unemployment insurance and other social security laws or regulations and deposits securing liability to insurance carriers under insurance or self-insurance arrangements in respect of such obligations and (ii) pledges and deposits and other Liens securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to the Borrower or any Subsidiary;
(g) deposits and other Liens incurred in the ordinary course of business to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capitalized Lease Obligations), statutory obligations, surety and appeal bonds, performance and return of money bonds, bids, leases, government contracts, trade contracts, agreements with utilities, and other obligations of a like nature (including letters of credit in lieu of any such bonds or to support the issuance thereof), in each case, incurred in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business;
(h) zoning restrictions, easements, survey exceptions, trackage rights, leases (other than Capitalized Lease Obligations), licenses, special assessments, rights-of-way, covenants, conditions, restrictions and declarations on or with respect to the use of Real Property, servicing agreements, development agreements, site plan agreements and other similar encumbrances incurred in the ordinary course of business and title defects or irregularities that are of a minor nature and that, in the aggregate, do not interfere in any material respect with the ordinary conduct of the business of the Borrower or any Subsidiary;
(i) Liens securing Indebtedness permitted by Section 6.01(i); provided , that such Liens do not apply to any property or assets of the Borrower or any Subsidiary other than the property or assets acquired, leased, constructed, replaced, repaired or improved with such Indebtedness (or the Indebtedness Refinanced thereby), and accessions and additions thereto, proceeds and products thereof and customary security deposits; provided , further , that individual financings provided by one lender may be cross-collateralized to other financings provided by such lender (and its Affiliates) (it being understood that with
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respect to any Liens on the Collateral being incurred under this clause (i) to secure Permitted Refinancing Indebtedness, if Liens on the Collateral securing the Indebtedness being Refinanced (if any) were secured on a basis junior to the Liens securing the Loan Obligations, then any Liens on such Collateral being incurred under this clause (i) to secure Permitted Refinancing Indebtedness shall also be secured on a basis junior to the Liens securing the Loan Obligations);
(j) Liens arising out of capitalized lease transactions permitted under Section 6.03, so long as such Liens attach only to the property sold and being leased in such transaction and any accessions and additions thereto or proceeds and products thereof and related property;
(k) Liens securing judgments that do not constitute an Event of Default under Section 7.01(j);
(l) Liens disclosed by the title insurance policies delivered on (with respect to all Mortgages delivered on the Closing Date) or subsequent to the Closing Date and pursuant to Section 5.10 or Schedule 5.10 and any replacement, extension or renewal of any such Lien; provided , that such replacement, extension or renewal Lien shall not cover any property other than the property that was subject to such Lien prior to such replacement, extension or renewal; provided , further , that the Indebtedness and other obligations secured by such replacement, extension or renewal Lien are permitted by this Agreement;
(m) any interest or title of a lessor or sublessor under any leases or subleases entered into by the Borrower or any Subsidiary in the ordinary course of business;
(n) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks and other financial institutions not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposits, sweep accounts, reserve accounts or similar accounts of the Borrower or any Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower or any Subsidiary, including with respect to credit card charge-backs and similar obligations, or (iii) relating to purchase orders and other agreements entered into with customers, suppliers or service providers of the Borrower or any Subsidiary in the ordinary course of business;
(o) Liens (i) arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business, (iii) encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to brokerage accounts incurred in the ordinary course of business and not for speculative purposes or (iv) in respect of Third Party Funds;
(p) Liens securing obligations in respect of trade-related letters of credit, bankers’ acceptances or similar obligations permitted under Section 6.01(f), (k) or (o) and covering the property (or the documents of title in respect of such property) financed by such letters of credit, bankers’ acceptances or similar obligations and the proceeds and products thereof;
(q) leases or subleases, licenses or sublicenses (including with respect to Intellectual Property) granted to others in the ordinary course of business not interfering in any material respect with the business of the Borrower and its Subsidiaries, taken as a whole;
(r) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
(s) Liens solely on any cash earnest money deposits made by the Borrower or any of the Subsidiaries in connection with any letter of intent or purchase agreement in respect of any Investment permitted hereunder;
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(t) (i) Liens with respect to property or assets of any Subsidiary that is not a Loan Party securing obligations of a Subsidiary that is not a Loan Party permitted under Section 6.01 and (ii) Liens with respect to property or assets of any person securing Indebtedness permitted under Section 6.01(bb) (it being understood that with respect to any Liens on the Collateral being incurred under this clause (t)(ii) to secure Permitted Refinancing Indebtedness, if Liens on the Collateral securing the Indebtedness being Refinanced (if any) were secured on a basis junior to the Liens securing the Term B Loans, then any Liens on such Collateral being incurred under this clause (t)(ii) to secure Permitted Refinancing Indebtedness shall also be secured on a basis junior to the Liens securing the Term B Loans);
(u) Liens on any amounts held by a trustee under any indenture or other debt agreement issued in escrow pursuant to customary escrow arrangements pending the release thereof, or under any indenture or other debt agreement pursuant to customary discharge, redemption or defeasance provisions;
(v) the prior rights of consignees and their lenders under consignment arrangements entered into in the ordinary course of business;
(w) agreements to subordinate any interest of the Borrower or any Subsidiary in any accounts receivable or other proceeds arising from inventory consigned by the Borrower or any of their Subsidiaries pursuant to an agreement entered into in the ordinary course of business;
(x) Liens arising from precautionary Uniform Commercial Code financing statements regarding operating leases or other obligations not constituting Indebtedness;
(y) Liens on Equity Interests in joint ventures (i) securing obligations of such joint venture or (ii) pursuant to the relevant joint venture agreement or arrangement;
(z) Liens on securities that are the subject of repurchase agreements constituting Permitted Investments under clause (c) of the definition thereof;
(aa) Liens in respect of Permitted Receivables Financings that extend only to the Receivables Assets subject thereto;
(bb) Liens securing insurance premiums financing arrangements; provided , that such Liens are limited to the applicable unearned insurance premiums;
(cc) in the case of Real Property that constitutes a leasehold interest, any Lien to which the fee simple interest (or any superior leasehold interest) is subject;
(dd) Liens securing Indebtedness or other obligation (i) of the Borrower or a Subsidiary in favor of the Borrower or any Subsidiary Loan Party and (ii) of any Subsidiary that is not Loan Party in favor of any Subsidiary that is not a Loan Party;
(ee) Liens on not more than $5,000,000 of deposits securing Hedging Agreements entered into for non-speculative purposes;
(ff) Liens on goods or inventory the purchase, shipment or storage price of which is financed by a documentary letter of credit, bank guarantee or bankers’ acceptance issued or created for the account of the Borrower or any Subsidiary in the ordinary course of business; provided , that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect of such letter of credit, bank guarantee or banker’s acceptance to the extent permitted under Section 6.01;
(gg) Liens on Collateral that are junior to the Liens securing the Term B Loans, so long as such junior Liens are subject to a Permitted Junior Intercreditor Agreement;
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(hh) Liens on Collateral that are pari passu with the Liens securing the Term B Loans, so long as (i) immediately after giving effect to the incurrence of the Indebtedness secured by such pari passu Liens and the use of proceeds thereof (but without netting any of the net cash proceeds of such Indebtedness incurred on such date against the applicable amount of Consolidated Debt for purposes of such calculation on such date), the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.25 to 1.00 and (ii) such pari passu Liens are subject to a Permitted Pari Passu Intercreditor Agreement; provided , that, if any pari passu Liens pursuant to this clause (hh) secure Indebtedness that is in the form of term loans (other than High Yield-Style Loans) (any such Indebtedness secured by such pari passu Liens, a “ Pari Term Loan ”), then such Pari Term Loans shall be subject to the last paragraph of this Section 6.02;
(ii) Liens on Collateral that are pari passu with the Liens securing the Term B Loans, so long as such pari passu Liens (i) secure Indebtedness permitted by Section 6.01(b), 6.01(h), 6.01(r), 6.01(y) or 6.01(z) and (ii) are subject to a Permitted Pari Passu Intercreditor Agreement; provided , that, if any pari passu Liens pursuant to this clause (ii) secure Indebtedness that is in the form of a Pari Term Loan incurred pursuant to Section 6.01(r) or Section 6.01(z), then such Pari Term Loans shall be subject to the last paragraph of this Section 6.02;
(jj) [Reserved];
(kk) Liens to secure any Indebtedness issued or incurred to Refinance (or successive Indebtedness issued or incurred for subsequent Refinancings) as a whole, or in part, any Indebtedness secured by any Lien permitted by this Section 6.02; provided , however , that (v) with respect to any Liens on the Collateral being incurred under this clause (kk), if Liens on the Collateral securing the Indebtedness being Refinanced (if any) were secured on a basis junior to the Liens securing the Term B Loans, then such Liens on such Collateral being incurred under this clause (kk) shall also be secured on a basis junior to the Liens securing the Term B Loans, (w) with respect to any Liens on the Collateral being incurred under this clause (kk), if Liens on the Collateral securing the Indebtedness being Refinanced (if any) were secured on a basis pari passu with the Liens securing the Term B Loans, then such Liens on such Collateral being incurred under this clause (kk) may also be secured on a basis pari passu with the Liens securing the Term B Loans, so long as such Liens are subject to a Permitted Pari Passu Intercreditor Agreement, (x) (other than Liens contemplated by the foregoing clauses (v) and (w)) such new Lien shall be limited to all or part of the same type of property that secured the original Lien ( plus improvements on and accessions to such property, proceeds and products thereof, customary security deposits and any other assets pursuant to after-acquired property clauses to the extent such assets secured (or would have secured) the Indebtedness being Refinanced), (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount (or accreted value, if applicable) or, if greater, committed amount of the applicable Indebtedness at the time the original Lien became a Lien permitted hereunder, (B) unpaid accrued interest and premium (including tender premiums) and (C) an amount necessary to pay any associated underwriting discounts, defeasance costs, fees, commissions and expenses, and (z) on the date of the incurrence of the Indebtedness secured by such Liens, the grantors of any such Liens shall be no different from the grantors of the Liens securing the Indebtedness being Refinanced or grantors that would have been obligated to secure such Indebtedness or a Loan Party;
(ll) other Liens with respect to property or assets of the Borrower or any Subsidiary securing obligations in an aggregate principal amount that at the time of, and after giving effect to, the incurrence of such Liens, would not exceed the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period; and
(mm) Liens on property of, or on Equity Interests or Indebtedness of, any person existing at the time (A) such person becomes a Subsidiary of the Borrower or (B) such person or property is acquired by the Borrower or any Subsidiary; provided that (i) such Liens do not extend to any other assets of the Borrower or any Subsidiary (other than accessions and additions thereto and proceeds or products thereof and other than after-acquired property) and (ii) such Liens secure only those obligations which they secure on the date such person becomes a Subsidiary or the date of such acquisition (and any extensions, renewals, replacements or refinancings thereof).
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For purposes of determining compliance with this Section 6.02, (A) a Lien securing an item of Indebtedness need not be permitted solely by reference to one category of permitted Liens (or any portion thereof) described in Sections 6.02(a) through (mm) but may be permitted in part under any combination thereof and (B) in the event that a Lien securing an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Liens (or any portion thereof) described in Sections 6.02(a) through (mm), the Borrower may, in its sole discretion, classify or reclassify, or later divide, classify or reclassify (as if incurred at such later time), such Lien securing such item of Indebtedness (or any portion thereof) in any manner that complies with this Section 6.02 and at the time of incurrence, classification or reclassification will be entitled to only include the amount and type of such Lien or such item of Indebtedness secured by such Lien (or any portion thereof) in one of the above clauses (or any portion thereof) and such Lien securing such item of Indebtedness (or any portion thereof) will be treated as being incurred or existing pursuant to only such clause or clauses (or any portion thereof) without giving pro forma effect to such item (or any portion thereof) when calculating the amount of Liens or Indebtedness that may be incurred, classified or reclassified pursuant to any other clause (or any portion thereof) at such time. In addition, with respect to any revolving loan Indebtedness or commitment to incur Indebtedness that is designated to be incurred on any Deemed Date pursuant to clause (C) of the third paragraph of Section 6.01, any Lien that does or that shall secure such Indebtedness may also be designated by the Borrower or any Subsidiary to be incurred on such Deemed Date and, in such event, any related subsequent actual incurrence of such Lien shall be deemed for purposes of Section 6.01 and 6.02 of this Agreement, without duplication, to be incurred on such prior date (and on any subsequent date until such commitment is funded or terminated or such election is rescinded), including for purposes of calculating usage of any Permitted Lien. In addition, with respect to any Lien securing Indebtedness that was permitted to secure such Indebtedness at the time of the incurrence of such Indebtedness, such Lien shall also be permitted to secure any Increased Amount of such Indebtedness.
With respect to any Pari Term Loans secured by Liens referred to in the proviso to Section 6.02(hh) or Section 6.02(ii), if the All-in Yield in respect of such Pari Term Loans exceeds the All-in Yield in respect of the Term B Loans on the Closing Date (such difference, the “ Pari Yield Differential ”) by more than 0.50%, then the Applicable Margin (or “LIBOR floor” as provided in the following proviso) applicable to such Term B Loans on the Closing Date shall be increased such that after giving effect to such increase, the Pari Yield Differential shall not exceed 0.50%; provided , that, to the extent any portion of the Pari Yield Differential is attributable to a higher “LIBOR floor” being applicable to such Pari Term Loans, such floor shall only be included in the calculation of the Pari Yield Differential to the extent such floor is greater than the Adjusted LIBO Rate in effect for an Interest Period of three months’ duration at such time, and, with respect to such excess, the “LIBOR floor” applicable to such outstanding Term B Loans shall be increased to an amount not to exceed the “LIBOR floor” applicable to such Pari Term Loans prior to any increase in the Applicable Margin applicable to such Term B Loans then outstanding.
Section 6.03 Sale and Lease-Back Transactions . Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter, as part of such transaction, rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred (a “ Sale and Lease-Back Transaction ”); provided , that a Sale and Lease-Back Transaction shall be permitted (a) with respect to (i) Excluded Property, (ii) property owned by the Borrower or any Subsidiary Loan Party that is acquired after the Closing Date so long as such Sale and Lease-Back Transaction is consummated within 180 days of the acquisition of such property or (iii) property owned by any Subsidiary that is not a Loan Party regardless of when such property was acquired, and (b) with respect to any other property owned by the Borrower or any Subsidiary Loan Party, (x) if at the time the lease in connection therewith is entered into, no Default or Event of Default shall have occurred and be continuing or would result therefrom and (y) with respect to any such Sale and Lease-Back Transaction pursuant to this clause (b) with aggregate Net Proceeds in excess of $5,000,000, the Borrower or the applicable Subsidiary Loan Party shall receive at least fair market value (as determined in good faith by the Borrower) or, if not for fair market value, the shortfall is permitted as an Investment under Section 6.04, and (z) the Net Proceeds therefrom are used to prepay the Term Loans to the extent required by Section 2.11(b).
Section 6.04 Investments, Loans and Advances . (i) Purchase or acquire (including pursuant to any merger with a person that is not a Wholly Owned Subsidiary immediately prior to such merger) any Equity Interests, evidences of Indebtedness or other securities of any other person, (ii) make any loans or advances to or Guarantees of the Indebtedness of any other person (other than loans or advances in respect of (A) intercompany current liabilities incurred in connection with the cash management operations of the Borrower and the Subsidiaries and
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(B) intercompany loans, advances or Indebtedness having a term not exceeding 364 days (inclusive of any roll-overs or extensions of terms) and made in the ordinary course of business or consistent with industry practices), or (iii) purchase or otherwise acquire, in one transaction or a series of related transactions, (x) all or substantially all of the property and assets or business of another person or (y) assets constituting a business unit, line of business or division of such person (each of the foregoing, an “ Investment ”), except:
(a) the Transactions;
(b) (i) Investments by the Borrower or any Subsidiary in the Equity Interests of the Borrower or any Subsidiary; (ii) intercompany loans from the Borrower or any Subsidiary to the Borrower or any Subsidiary; and (iii) Guarantees by the Borrower or any Subsidiary of Indebtedness otherwise permitted hereunder of the Borrower or any Subsidiary; provided , that as at any date of determination, the aggregate outstanding amount of (A) Investments (valued at the time of the making thereof and without giving effect to any write-downs or write-offs thereof) made after the Closing Date by the Loan Parties pursuant to subclause (i) in Subsidiaries that are not Subsidiary Loan Parties, plus (B) net outstanding intercompany loans made after the Closing Date by the Loan Parties to Subsidiaries that are not Subsidiary Loan Parties pursuant to subclause (ii), plus (C) outstanding Guarantees by the Loan Parties of Indebtedness after the Closing Date of Subsidiaries that are not Subsidiary Loan Parties pursuant to subclause (iii) shall not exceed the sum of (X) the greater of (1) $30,000,000 and (2) 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment;
(c) Permitted Investments and Investments that were Permitted Investments when made;
(d) Investments arising out of the receipt by the Borrower or any Subsidiary of non-cash consideration for the Disposition of assets permitted under Section 6.05;
(e) loans and advances to officers, directors, employees or consultants of the Borrower or any Subsidiary (i) in the ordinary course of business not to exceed the greater of $5,000,000 and 1.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period in the aggregate at any time outstanding (calculated without regard to write-downs or write-offs thereof), (ii) in respect of payroll payments and expenses in the ordinary course of business and (iii) in connection with such person’s purchase of Equity Interests of Holdings (or any Parent Entity) solely to the extent that the amount of such loans and advances shall be contributed to the Borrower in cash as common equity;
(f) (i) accounts receivable, security deposits and prepayments arising, trade credit granted and Customer Development Agreements (and Customer Notes issued thereunder) (x) entered into in the ordinary course of business or (y) limited to an amount not to exceed $5,000,000 outstanding at any one time and (ii) any assets or securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss and any prepayments and other credits to suppliers made in the ordinary course of business;
(g) Hedging Agreements entered into for non-speculative purposes;
(h) Investments existing on, or contractually committed as of, the Closing Date consisting of intercompany loans or as set forth on Schedule 6.04 and any extensions, renewals or reinvestments thereof, so long as the aggregate amount of all Investments pursuant to this clause (h) is not increased at any time above the amount of such Investment existing or committed on the Closing Date (other than pursuant to an increase as required by the terms of any such Investment as in existence on the Closing Date);
(i) Investments resulting from pledges and deposits under Sections 6.02(f), (g), (o), (r), (s), (ee) and (ll);
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(j) other Investments by the Borrower or any Subsidiary in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write-downs or write-offs thereof) not to exceed the sum of (X) the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, plus (Y) so long as no Event of Default shall have occurred and be continuing, any portion of the Cumulative Credit on the date of such election that the Borrower elects to apply to this Section 6.04(j)(Y) which such election shall (unless such Investment is made pursuant to clause (a) of the definition of “Cumulative Credit”) be set forth in a written notice of a Responsible Officer thereof, which notice shall set forth calculations in reasonable detail the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied, and plus (Z) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment pursuant to clause (X); provided , that if any Investment pursuant to this Section 6.04(j) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Borrower, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) (to the extent permitted by the proviso thereto in the case of any Subsidiary that is not a Loan Party) and not in reliance on this Section 6.04(j);
(k) Investments constituting Permitted Business Acquisitions;
(l) intercompany loans between Subsidiaries that are not Loan Parties and Guarantees by Subsidiaries that are not Loan Parties permitted by Section 6.01(m);
(m) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with or judgments against, customers and suppliers, in each case in the ordinary course of business or Investments acquired by the Borrower or a Subsidiary as a result of a foreclosure by the Borrower or any of the Subsidiaries with respect to any secured Investments or other transfer of title with respect to any secured Investment in default;
(n) Investments of a Subsidiary acquired after the Closing Date or of a person merged into the Borrower or merged into or consolidated with a Subsidiary after the Closing Date, in each case, (i) to the extent such acquisition, merger or consolidation is permitted under this Section 6.04, (ii) in the case of any acquisition, merger or consolidation, in accordance with Section 6.05 and (iii) to the extent that such Investments were not made in contemplation of or in connection with such acquisition, merger or consolidation and were in existence on the date of such acquisition, merger or consolidation;
(o) acquisitions by the Borrower of obligations of one or more officers or other employees of Holdings, any Parent Entity, the Borrower or its Subsidiaries in connection with such officer’s or employee’s acquisition of Equity Interests of Holdings or any Parent Entity, so long as no cash is actually advanced by the Borrower or any of the Subsidiaries to such officers or employees in connection with the acquisition of any such obligations;
(p) Guarantees by the Borrower or any Subsidiary of operating leases (other than Capitalized Lease Obligations) or of other obligations that do not constitute Indebtedness, in each case entered into by the Borrower or any Subsidiary in the ordinary course of business;
(q) Investments to the extent that payment for such Investments is made with Equity Interests of the Borrower, Holdings or any Parent Entity; provided , that the issuance of such Equity Interests are not included in any determination of the Cumulative Credit;
(r) [Reserved];
(s) Investments consisting of Restricted Payments permitted under Section 6.06;
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(t) Investments in the ordinary course of business consisting of Uniform Commercial Code Article 3 endorsements for collection or deposit and Uniform Commercial Code Article 4 customary trade arrangements with customers;
(u) Investments in Subsidiaries that are not Loan Parties after giving effect to the applicable Investments in an aggregate outstanding amount (valued at the time of the making thereof and without giving effect to any write-downs or write-offs thereof) not to exceed the sum of (x) the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period in the aggregate plus (y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of Investments theretofore made pursuant to this Section 6.04(u);
(v) Guarantees permitted under Section 6.01 (except to the extent such Guarantee is expressly subject to this Section 6.04);
(w) advances in the form of a prepayment of expenses, so long as such expenses are being paid in accordance with customary trade terms of the Borrower or such Subsidiary;
(x) Investments by the Borrower and its Subsidiaries, including loans to any direct or indirect parent of the Borrower, if the Borrower or any other Subsidiary would otherwise be permitted to make a Restricted Payment in such amount ( provided , that the amount of any such Investment shall also be deemed to be a Restricted Payment under the appropriate clause of Section 6.06 for all purposes of this Agreement);
(y) Investments consisting of Receivable Assets or arising as a result of Permitted Receivables Financings;
(z) Investments consisting of the licensing or contribution of Intellectual Property pursuant to joint marketing or other arrangements with other persons;
(aa) to the extent constituting Investments, purchases and acquisitions of inventory, supplies, materials and equipment or purchases of contract rights or licenses or leases of Intellectual Property in each case in the ordinary course of business;
(bb) Investments received substantially contemporaneously in exchange for Equity Interests of the Borrower, Holdings or any Parent Entity; provided , that the issuance of such Equity Interests are not included in any determination of the Cumulative Credit;
(cc) Guarantees of Indebtedness in respect of ordinary course customer financing lines of credit;
(dd) Investments in joint ventures in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write downs or write offs thereof) not to exceed the sum of (X) the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment; provided , that if any Investment pursuant to this clause (dd) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Borrower, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) (to the extent permitted by the proviso thereto in the case of any Subsidiary that is not a Loan Party) and not in reliance on this Section 6.04(dd); and
(ee) Investments in Similar Businesses in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write downs or write offs thereof) not to exceed the sum of (X) the greater of $30,000,000 and 5% of the Consolidated Total Assets as at the end of the then
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most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment; provided , that if any Investment pursuant to this clause (ee) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Borrower, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) (to the extent permitted by the proviso thereto in the case of any Subsidiary that is not a Loan Party) and not in reliance on this Section 6.04(ee).
The amount of Investments that may be made at any time pursuant to Section 6.04(b), 6.04(j) or 6.04(ee) (such Sections, the “ Related Sections ”) may, at the election of the Borrower, be increased by the amount of Investments that could be made at such time under the other Related Section; provided , that the amount of each such increase in respect of one Related Section shall be treated as having been used under the other Related Section.
Any Investment in any person other than the Borrower or a Subsidiary Loan Party that is otherwise permitted by this Section 6.04 may be made through intermediate Investments in Subsidiaries that are not Loan Parties and such intermediate Investments shall be disregarded for purposes of determining the outstanding amount of Investments pursuant to any clause set forth above. The amount of any Investment made other than in the form of cash or cash equivalents shall be the fair market value thereof (as determined by the Borrower in good faith) valued at the time of the making thereof, and without giving effect to any subsequent write-downs or write-offs thereof.
Section 6.05 Mergers, Consolidations, Sales of Assets and Acquisitions . Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or Dispose of (in one transaction or in a series of related transactions) all or any part of its assets (whether now owned or hereafter acquired), or Dispose of any Equity Interests of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of related transactions) all of the assets of any other person or division or line of business of a person, except that this Section 6.05 shall not prohibit:
(a) (i) the purchase and Disposition of inventory, or the sale of receivables pursuant to non-recourse factoring arrangements, or the Disposition of any Customer Notes, in each case in the ordinary course of business by the Borrower or any Subsidiary, (ii) the acquisition or lease (pursuant to an operating lease) of any other asset in the ordinary course of business by the Borrower or any Subsidiary or, with respect to operating leases, otherwise for fair market value on market terms (as determined in good faith by the Borrower), (iii) the Disposition of surplus, obsolete, damaged or worn out equipment or other property in the ordinary course of business by the Borrower or any Subsidiary or (iv) the Disposition of Permitted Investments in the ordinary course of business;
(b) if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing or would result therefrom, (i) the merger or consolidation of any Subsidiary with or into the Borrower in a transaction in which the Borrower is the survivor, (ii) the merger or consolidation of any Subsidiary with or into any Subsidiary Loan Party in a transaction in which the surviving or resulting entity is or becomes a Subsidiary Loan Party and, in the case of each of clauses (i) and (ii), no person other than the Borrower or a Subsidiary Loan Party receives any consideration (unless otherwise permitted by Section 6.04), (iii) the merger or consolidation of any Subsidiary that is not a Subsidiary Loan Party with or into any other Subsidiary that is not a Subsidiary Loan Party, (iv) the liquidation or dissolution or change in form of entity of any Subsidiary if the Borrower determines in good faith that such liquidation, dissolution or change in form is in the best interests of the Borrower and is not materially disadvantageous to the Lenders or (v) any Subsidiary may merge or consolidate with any other person in order to effect an Investment permitted pursuant to Section 6.04 so long as the continuing or surviving person shall be a Subsidiary (unless otherwise permitted by Section 6.04), which shall be a Loan Party if the merging or consolidating Subsidiary was a Loan Party and which together with each of its Subsidiaries shall have complied with the requirements of Section 5.10;
(c) Dispositions to the Borrower or a Subsidiary (upon voluntary liquidation or otherwise); provided , that any Dispositions by a Loan Party to a Subsidiary that is not a Subsidiary Loan Party in reliance on this clause (c) shall be made in compliance with Section 6.07;
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(d) Sale and Lease-Back Transactions permitted by Section 6.03;
(e) Investments permitted by Section 6.04, Permitted Liens, and Restricted Payments permitted by Section 6.06;
(f) Dispositions of defaulted receivables in the ordinary course of business and not as part of an accounts receivables financing transaction;
(g) other Dispositions of assets; provided , that the Net Proceeds thereof, if any, are applied in accordance with Section 2.11(b);
(h) Permitted Business Acquisitions (including any merger, consolidation or amalgamation in order to effect a Permitted Business Acquisition); provided , that following any such merger, consolidation or amalgamation involving the Borrower, the Borrower is the surviving corporation;
(i) leases, licenses or subleases or sublicenses any real or personal property in the ordinary course of business;
(j) Dispositions of inventory or Dispositions or abandonment of Intellectual Property of the Borrower and its Subsidiaries determined in good faith business judgment of the management of the Borrower to be no longer useful or necessary in the operation of the business of the Borrower or any of the Subsidiaries;
(k) acquisitions and purchases made with the proceeds of any Asset Sale pursuant to the first proviso of clause (a) of the definition of “Net Proceeds”;
(l) the purchase and Disposition (including by capital contribution) of Receivables Assets including pursuant to Permitted Receivables Financings; and
(m) any exchange of assets for services and/or other assets of comparable or greater value; provided , that (i) at least 90% of the consideration received by the transferor consists of assets that will be used in a business or business activity permitted hereunder and (ii) in the event of a swap with a fair market value (as determined in good faith by the Borrower) in excess of $5,000,000, the Administrative Agent shall have received a certificate from a Responsible Officer of the Borrower with respect to such fair market value; provided , further , that (A) the aggregate gross consideration (including exchange assets, other non-cash consideration and cash proceeds) of any or all assets exchanged in reliance upon this clause (m) shall not exceed, in any fiscal year of the Borrower, the greater of $20,000,000 and 3% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, (B) no Default or Event of Default exists or would result therefrom, and (C) the Net Proceeds, if any, thereof are applied in accordance with Section 2.11(b).
Notwithstanding anything to the contrary contained in Section 6.05 above, (i) no Disposition of assets under Section 6.05(d) (to the extent required under Section 6.03(b)) or Section 6.05(g) shall be permitted unless such Disposition is for fair market value (as determined in good faith by the Borrower), or if not for fair market value, the shortfall is permitted as an Investment under Section 6.04, and (ii) no Disposition of assets under Section 6.05(g) or Section 6.05(d) (to the extent required under Section 6.03(b)) shall be permitted unless such Disposition (except to Loan Parties) is for at least 75% cash consideration; provided , that the provisions of this clause (ii) shall not apply to any individual transaction or series of related transactions involving assets with a fair market value (as determined in good faith by the Borrower) of less than $5,000,000; provided , further , that for purposes of this clause (ii), each of the following shall be deemed to be cash: (a) the amount of any liabilities (as shown on the Borrower’s or such Subsidiary’s most recent balance sheet or in the notes thereto) that are assumed by the transferee of any such assets or are otherwise cancelled in connection with such transaction, (b) any notes or other obligations or other securities or assets received by the Borrower or such Subsidiary from the transferee that are converted by the Borrower or such Subsidiary into cash within 180 days after receipt thereof (to the extent of the cash received) and (c) any Designated Non-Cash Consideration received by the Borrower or any of its Subsidiaries in such
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Disposition having an aggregate fair market value (as determined in good faith by the Borrower), taken together with all other Designated Non-Cash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed the greater of $30,000,000 and 4.25% of Consolidated Total Assets as at the end of the Test Period ended immediately prior to the receipt of such Designated Non-Cash Consideration (with the fair market value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value).
Section 6.06 Dividends and Distributions . Declare or pay any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any of its Equity Interests (other than dividends and distributions on Equity Interests payable solely by the issuance of additional Equity Interests (other than Disqualified Stock) of the person paying such dividends or distributions) or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any of the Borrower’s Equity Interests or set aside any amount for any such purpose (other than through the issuance of additional Equity Interests (other than Disqualified Stock) of the person redeeming, purchasing, retiring or acquiring such shares) (all of the foregoing, “ Restricted Payments ”); provided , however , that:
(a) Restricted Payments may be made to the Borrower or any Wholly Owned Subsidiary of the Borrower (or, in the case of non-Wholly Owned Subsidiaries, to the Borrower or any Subsidiary that is a direct or indirect parent of such Subsidiary and to each other owner of Equity Interests of such Subsidiary on a pro rata basis (or more favorable basis from the perspective of the Borrower or such Subsidiary) based on their relative ownership interests);
(b) Restricted Payments may be made in respect of (i) overhead, legal, accounting and other professional fees and expenses of Holdings or any Parent Entity, (ii) fees and expenses related to any public offering or private placement of Equity Interests or debt securities of Holdings or any Parent Entity whether or not consummated, (iii) franchise and similar taxes and other fees and expenses in connection with the maintenance of its (and any Parent Entity’s) existence and its (or any Parent Entity’s indirect) ownership of the Borrower, (iv) payments permitted by Section 6.07(b) (other than Section 6.07(b)(vii)), (v) in respect of any taxable period for which the Borrower and/or any of its Subsidiaries are members of a consolidated, combined, affiliated, unitary or similar tax group for U.S. federal and/or applicable state, local or foreign tax purposes of which a direct or indirect parent of the Borrower is the common parent, or for which the Borrower is a disregarded entity for U.S. federal income tax purposes that is wholly owned (directly or indirectly) by a C corporation for U.S. federal and/or applicable state or local income tax purposes, distributions to any direct or indirect parent of the Borrower in an amount not to exceed the amount of any U.S. federal, state, local or foreign taxes that the Borrower and/or its Subsidiaries, as applicable, would have paid for such taxable period had the Borrower and/or its Subsidiaries, as applicable, been a stand-alone corporate taxpayer or a stand-alone corporate group, and (vi) customary salary, bonus and other benefits payable to, and indemnities provided on behalf of, officers, directors and employees of Holdings or any Parent Entity, in each case in order to permit Holdings or any Parent Entity to make such payments; provided , that in the case of sub-clauses (i) and (iii), the amount of such Restricted Payments shall not exceed the portion of any amounts referred to in such sub-clauses (i) and (iii) that are allocable to the Borrower and its Subsidiaries (which shall be 100% at any time that, as the case may be, (x) Holdings owns no material assets other than the Equity Interests in the Borrower and assets incidental to such equity ownership or (y) any Parent Entity owns directly or indirectly no material assets other than Equity Interests in Holdings and any Parent Entity and assets incidental to such equity ownership);
(c) Restricted Payments may be made to Holdings, the proceeds of which are used to purchase or redeem the Equity Interests of Holdings or any Parent Entity (including related stock appreciation rights or similar securities) held by then present or former directors, consultants, officers or employees of any Parent Entity, Holdings, the Borrower or any of the Subsidiaries or by any Plan or any shareholders’ agreement then in effect upon such person’s death, disability, retirement or termination of employment or under the terms of any such Plan or any other agreement under which such shares of stock or related rights were issued; provided , that the aggregate amount of such purchases or redemptions under this clause (c) shall not exceed in any fiscal year $4,000,000 (which shall increase to $8,000,000 subsequent to a Qualified IPO) (plus (x) the amount of net proceeds contributed to the Borrower that were (x) received by Holdings or any Parent Entity during such calendar year from sales of Equity Interests of
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Holdings or any Parent Entity to directors, consultants, officers or employees of Holdings, any Parent Entity, the Borrower or any Subsidiary in connection with permitted employee compensation and incentive arrangements; provided , that such proceeds are not included in any determination of the Cumulative Credit, (y) the amount of net proceeds of any key-man life insurance policies received during such calendar year, and (z) the amount of any cash bonuses otherwise payable to members of management, directors or consultants of Holdings, any Parent Entity, the Borrower or the Subsidiaries in connection with the Transactions that are foregone in return for the receipt of Equity Interests), which, if not used in any year, may be carried forward to any subsequent calendar year; and provided , further , that cancellation of Indebtedness owing to the Borrower or any Subsidiary from members of management of Holdings, any Parent Entity, the Borrower or its Subsidiaries in connection with a repurchase of Equity Interests of Holdings or any Parent Entity will not be deemed to constitute a Restricted Payment for purposes of this Section 6.06;
(d) any person may make non-cash repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options;
(e) Restricted Payments may be made in an aggregate amount equal to a portion of the Cumulative Credit on the date of such election that the Borrower elects to apply to this Section 6.06(e), which such election shall (unless such Restricted Payment is made pursuant to clause (a) of the definition of “Cumulative Credit”) be set forth in a written notice of a Responsible Officer of the Borrower, which notice shall set forth calculations in reasonable detail the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied; provided , that no Event of Default shall have occurred and be continuing or would result therefrom and, immediately after giving effect thereto, the Net First Lien Leverage Ratio on a Pro Forma Basis shall not be greater than 4.25 to 1.00;
(f) Restricted Payments in connection with the consummation of the Transactions;
(g) Restricted Payments may be made to pay, or to allow Holdings or any Parent Entity to make payments, in cash, in lieu of the issuance of fractional shares, upon the exercise of warrants or upon the conversion or exchange of Equity Interests of any such person;
(h) after a Qualified IPO, Restricted Payments may be made to pay, or to allow Holding or any Parent Entity to pay, dividends and make distributions to, or repurchase or redeem shares from, its equity holders in an amount equal to 6.0% per annum of the net proceeds received by the Borrower from any public offering of Equity Interests of the Borrower or any direct or indirect parent of the Borrower;
(i) Restricted Payments may be made to Holdings or any Parent Entity to finance any Investment that if made by the Borrower or any Subsidiary directly would be permitted to be made pursuant to Section 6.04; provided , that (A) such Restricted Payments shall be made substantially concurrently with the closing of such Investment and (B) such parent shall, immediately following the closing thereof, cause (1) all property acquired (whether assets or Equity Interests) to be contributed to the Borrower or a Subsidiary or (2) the merger, consolidation or amalgamation (to the extent permitted in Section 6.05) of the person formed or acquired into the Borrower or a Subsidiary in order to consummate such Permitted Business Acquisition or Investment, in each case, in accordance with the requirements of Section 5.10;
(j) other Restricted Payments, when taken together with any payments or distributions made pursuant to Section 6.09(b)(i)(F), may be made in an aggregate amount not to exceed $30,000,000;
(k) [reserved]; or
(l) Restricted Payments made with Excluded Contributions.
Notwithstanding anything herein to the contrary, the foregoing provisions of Section 6.06 will not prohibit the payment of any Restricted Payment or the consummation of any redemption, purchase, defeasance or other payment within 60 days after the date of declaration thereof or the giving of notice, as applicable, if at the date of declaration or the giving of such notice such payment would have complied with the provisions of this Agreement.
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Section 6.07 Transactions with Affiliates .
(a) Sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transaction with, any of its Affiliates (other than the Borrower, Holdings, and the Subsidiaries or any person that becomes a Subsidiary as a result of such transaction) in a transaction (or series of related transactions) involving aggregate consideration in excess of $5,000,000, unless such transaction is (i) otherwise permitted (or required) under this Agreement or (ii) upon terms that are substantially no less favorable to the Borrower or such Subsidiary, as applicable, than would be obtained in a comparable arm’s-length transaction with a person that is not an Affiliate, as determined by the Board of Directors of the Borrower or such Subsidiary in good faith.
(b) The foregoing clause (a) shall not prohibit, to the extent otherwise permitted under this Agreement,
(i) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, equity purchase agreements, stock options and stock ownership plans approved by the board of directors of Holdings or of the Borrower,
(ii) loans or advances to employees or consultants of Holdings (or any Parent Entity), the Borrower or any of the Subsidiaries in accordance with Section 6.04(e),
(iii) transactions among the Borrower or any Subsidiary or any entity that becomes a Subsidiary as a result of such transaction (including via merger, consolidation or amalgamation in which the Borrower or a Subsidiary is the surviving entity),
(iv) the payment of fees, reasonable out-of-pocket costs and indemnities to directors, officers, consultants and employees of Holdings, any Parent Entity, the Borrower and the Subsidiaries in the ordinary course of business (limited, in the case of any Parent Entity, to the portion of such fees and expenses that are allocable to the Borrower and its Subsidiaries (which shall be 100% for so long as Holdings or such Parent Entity, as the case may be, owns no assets other than the Equity Interests in the Borrower, Holdings or any Parent Entity and assets incidental to the ownership of the Borrower and its Subsidiaries)),
(v) subject to the limitations set forth in Section 6.07(b)(xiv), if applicable, the Transactions and any transactions pursuant to the Loan Documents and permitted transactions, agreements and arrangements in existence on the Closing Date and, to the extent involving aggregate consideration in excess of $2,000,000, set forth on Schedule 6.07 or any amendment thereto or replacement thereof or similar arrangement to the extent such amendment, replacement or arrangement is not adverse to the Lenders when taken as a whole in any material respect (as determined by the Borrower in good faith),
(vi) (A) any employment agreements entered into by the Borrower or any of the Subsidiaries in the ordinary course of business, (B) any subscription agreement or similar agreement pertaining to the repurchase of Equity Interests pursuant to put/call rights or similar rights with employees, officers or directors, and (C) any employee compensation, benefit plan or arrangement, any health, disability or similar insurance plan which covers employees, and any reasonable employment contract and transactions pursuant thereto,
(vii) Restricted Payments permitted under Section 6.06, including payments to Holdings (and any Parent Entity), and Investments permitted under Section 6.04,
(viii) any purchase by Holdings of the Equity Interests of the Borrower; provided , that any Equity Interests of the Borrower purchased by Holdings shall be pledged to the Collateral Agent (and deliver the relevant certificates or other instruments (if any) representing such Equity Interests to the Collateral Agent) on behalf of the Lenders to the extent required by the Holdings Guarantee and Pledge Agreement,
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(ix) payments by the Borrower or any of the Subsidiaries to the Fund or any Fund Affiliate made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by the majority of the Board of Directors of the Borrower, or a majority of the Disinterested Directors of the Borrower, in good faith,
(x) transactions for the purchase or sale of goods, equipment, products, parts and services entered into in the ordinary course of business,
(xi) any transaction in respect of which the Borrower delivers to the Administrative Agent a letter addressed to the Board of Directors of the Borrower from an accounting, appraisal or investment banking firm, in each case of nationally recognized standing that is in the good faith determination of the Borrower qualified to render such letter, which letter states that (i) such transaction is on terms that are no less favorable to the Borrower or such Subsidiary, as applicable, than would be obtained in a comparable arm’s-length transaction with a person that is not an Affiliate or (ii) such transaction is fair to the Borrower or such Subsidiary, as applicable, from a financial point of view,
(xii) subject to subclause (xiv) below, if applicable, the payment of all fees, expenses, bonuses and awards related to the Transactions, including fees to the Fund or any Fund Affiliate,
(xiii) transactions with joint ventures for the purchase or sale of goods, equipment, products, parts and services entered into in the ordinary course of business,
(xiv) any agreement to pay, and the payment of, monitoring, consulting, management, transaction, advisory or similar fees payable to the Fund or any Fund Affiliate (A) in an aggregate amount in any fiscal year not to exceed the sum of (1) the greater of $1,000,000 and 3% of EBITDA for such fiscal year, plus reasonable out of pocket costs and expenses in connection therewith and unpaid amounts accrued for prior periods; plus (2) any deferred fees (to the extent such fees were within such amount in clause (A)(1) above originally), plus (B) 1% of the value of transactions with respect to which the Fund or any Fund Affiliate provides any transaction, advisory or other services, plus (C) so long as no Event of Default has occurred and is continuing, in the event of a Qualified IPO, the present value of all future amounts payable pursuant to any agreement referred to in clause (A)(1) above in connection with the termination of such agreement with the Fund and its Fund Affiliates; provided , that if any such payment pursuant to clause (C) is not permitted to be paid as a result of an Event of Default, such payment shall accrue and may be payable when no Events of Default are continuing to the extent that no further Event of Default would result therefrom,
(xv) the issuance, sale or transfer of Equity Interests of the Borrower, including in connection with capital contributions by Holdings (or any Parent Entity) to the Borrower,
(xvi) the issuance of Equity Interests to the management of Holdings, any Parent Entity, the Borrower or any Subsidiary in connection with the Transactions,
(xvii) payments by Holdings (and any Parent Entity), the Borrower and the Subsidiaries pursuant to a tax sharing agreement or arrangement (whether written or as a matter of practice) that complies with clause (v) of Section 6.06(b),
(xviii) transactions pursuant to any Permitted Receivables Financing,
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(xix) payments, loans (or cancellation of loans) or advances to employees or consultants that are (i) approved by a majority of the Disinterested Directors of Holdings or the Borrower in good faith, (ii) made in compliance with applicable law and (iii) otherwise permitted under this Agreement,
(xx) transactions with customers, clients or suppliers, purchasers or sellers of goods or services, in each case in the ordinary course of business or otherwise in compliance with the terms of this Agreement that are fair to the Borrower or the Subsidiaries,
(xxi) transactions between the Borrower or any of the Subsidiaries and any person, a director of which is also a director of the Borrower or any direct or indirect parent company of the Borrower; provided , however , that (A) such director abstains from voting as a director of the Borrower or such direct or indirect parent company, as the case may be, on any matter involving such other person and (B) such person is not an Affiliate of the Borrower for any reason other than such director’s acting in such capacity,
(xxii) transactions permitted by, and complying with, the provisions of Section 6.05,
(xxiii) intercompany transactions undertaken in good faith (as certified by a Responsible Officer of the Borrower) for the purpose of improving the consolidated tax efficiency of the Borrower and the Subsidiaries and not for the purpose of circumventing any covenant set forth herein, and
(xxiv) Investments by the Fund or a Fund Affiliate in securities of the Borrower or any of the Subsidiaries so long as (A) the Investment is being offered generally to other investors on the same or more favorable terms and (B) the Investment constitutes less than 5.0% of the outstanding issue amount of such class of securities.
Notwithstanding the foregoing, any portfolio company that is an Affiliate of the Fund or a Fund Affiliate shall not be considered an Affiliate of the Borrower or its Subsidiaries with respect to any transaction, so long as such transaction is in the ordinary course of business.
Section 6.08 Business of the Borrower and the Subsidiaries . Notwithstanding any other provisions hereof, engage at any time to any material respect in any business or business activity substantially different from any business or business activity conducted by any of them on the Closing Date or any Similar Business, and in the case of a Special Purpose Receivables Subsidiary, Permitted Receivables Financings.
Section 6.09 Limitation on Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc .
(a) Amend or modify in any manner materially adverse to the Lenders when taken as a whole (as determined in good faith by the Borrower), or grant any waiver or release under or terminate in any manner (if such granting or termination shall be materially adverse to the Lenders when taken as a whole (as determined in good faith by the Borrower)), the articles or certificate of incorporation, by-laws, limited liability company operating agreement, partnership agreement or other organizational documents of the Borrower or any of the Subsidiary Loan Parties.
(b) (i) Make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of, or in respect of, principal of or interest on any Indebtedness that is subordinated in right of payment to the Term B Loans (“ Junior Financing ”), or any payment or other distribution (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 in respect of any Junior Financing, except for:
(A) Refinancings with any Indebtedness permitted to be incurred under Section 6.01;
(B) payments of regularly-scheduled interest and fees due thereunder, other non-principal payments thereunder, any mandatory prepayments of principal, interest and fees thereunder, scheduled payments thereon necessary to avoid the Junior Financing from constituting “applicable high yield discount obligations” within the meaning of Section 163(i)(l) of the Code, and, to the extent this Agreement is then in effect, principal on the scheduled maturity date of any Junior Financing (or within one year thereof);
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(C) payments or distributions in respect of all or any portion of the Junior Financing with the proceeds contributed to the Borrower by Holdings from the issuance, sale or exchange by Holdings (or any Parent Entity) of Equity Interests that are not Disqualified Stock made within eighteen months prior thereto; provided , that such proceeds are not included in any determination of the Cumulative Credit;
(D) the conversion of any Junior Financing to Equity Interests of the Borrower, Holdings or any Parent Entity;
(E) so long as (1) no Event of Default has occurred and is continuing or would result therefrom and (2) after giving effect to such payments or distributions, the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.25 to 1.00, payments or distributions in respect of Junior Financings prior to any scheduled maturity made, in an aggregate amount, not to exceed a portion of the Cumulative Credit on the date of such election that the Borrower elects to apply to this Section 6.09(b)(i)(E) in a written notice of a Responsible Officer thereof, which notice shall set forth calculations in reasonable detail of the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied; and
(F) other payments and distributions, when taken together with any payments or distributions made pursuant to Section 6.06(j), in an aggregate amount not to exceed $30,000,000; or
(ii) Amend or modify, or permit the amendment or modification of, any provision of any Junior Financing that constitutes Material Indebtedness, or any agreement, document or instrument evidencing or relating thereto, other than amendments or modifications that (A) are not materially adverse to Lenders when taken as a whole (as determined in good faith by the Borrower) and that do not affect the subordination or payment provisions thereof (if any) in a manner adverse to the Lenders when taken as a whole (as determined in good faith by the Borrower) or (B) otherwise comply with the definition of “Permitted Refinancing Indebtedness”.
(c) Permit any Material Subsidiary to enter into any agreement or instrument that by its terms restricts (i) the payment of dividends or distributions or the making of cash advances to the Borrower or any Subsidiary that is a direct or indirect parent of such Subsidiary or (ii) the granting of Liens by the Borrower or such Material Subsidiary that is a Loan Party pursuant to the Security Documents, in each case other than those arising under any Loan Document, except, in each case, restrictions existing by reason of:
(A) restrictions imposed by applicable law;
(B) contractual encumbrances or restrictions in effect on the Closing Date under Indebtedness existing on the Closing Date and set forth on Schedule 6.01 , any Refinancing Notes or any agreements related to any Permitted Refinancing Indebtedness in respect of any such Indebtedness that does not materially expand the scope of any such encumbrance or restriction (as determined in good faith by the Borrower);
(C) any restriction on a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of the Equity Interests or assets of a Subsidiary pending the closing of such sale or disposition;
(D) customary provisions in joint venture agreements and other similar agreements applicable to joint ventures entered into in the ordinary course of business;
(E) any restrictions imposed by any agreement relating to secured Indebtedness permitted by this Agreement to the extent that such restrictions apply only to the specific property or assets securing such Indebtedness;
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(F) any restrictions imposed by any agreement relating to Indebtedness incurred pursuant to Section 6.01 or Permitted Refinancing Indebtedness in respect thereof, to the extent such restrictions are not materially more restrictive, taken as a whole, than the restrictions contained in this Agreement (as determined in good faith by the Borrower);
(G) customary provisions contained in leases or licenses of Intellectual Property and other similar agreements entered into in the ordinary course of business;
(H) customary provisions restricting subletting or assignment of any lease governing a leasehold interest;
(I) customary provisions restricting assignment of any agreement entered into in the ordinary course of business;
(J) customary restrictions and conditions contained in any agreement relating to the sale, transfer, lease or other disposition of any asset permitted under Section 6.05 pending the consummation of such sale, transfer, lease or other disposition;
(K) customary restrictions and conditions contained in the document relating to any Lien, so long as (1) such Lien is a Permitted Lien and such restrictions or conditions relate only to the specific asset subject to such Lien, and (2) such restrictions and conditions are not created for the purpose of avoiding the restrictions imposed by this Section 6.09;
(L) customary net worth provisions contained in Real Property leases entered into by Subsidiaries, so long as the Borrower has determined in good faith that such net worth provisions would not reasonably be expected to impair the ability of the Borrower and its Subsidiaries to meet their ongoing obligations;
(M) any agreement in effect at the time such subsidiary becomes a Subsidiary, so long as such agreement was not entered into in contemplation of such person becoming a Subsidiary;
(N) restrictions in agreements representing Indebtedness permitted under Section 6.01 of a Subsidiary of the Borrower that is not a Subsidiary Loan Party;
(O) customary restrictions contained in leases, subleases, licenses or Equity Interests or asset sale agreements otherwise permitted hereby as long as such restrictions relate to the Equity Interests and assets subject thereto;
(P) restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business;
(Q) restrictions contained in any Permitted Receivables Document with respect to any Special Purpose Receivables Subsidiary; or
(R) any encumbrances or restrictions of the type referred to in Section 6.09(c)(i) and 6.09(c)(ii) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of or similar arrangements to the contracts, instruments or obligations referred to in clauses (A) through (Q) above; provided , that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or similar arrangements are, in the good faith judgment of the Borrower, no more restrictive with respect to such dividend, other payment and Lien restrictions than those contained in the dividend, other payment or Lien restrictions as contemplated by such provisions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement, refinancing or similar arrangement.
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Section 6.10 Fiscal Year . In the case of the Borrower, permit its fiscal year to end on any date other than December 31 without prior notice to the Administrative Agent.
Section 6.11 Net First Lien Leverage Ratio . Permit the Net First Lien Leverage Ratio on the last day of any fiscal quarter (beginning with the fiscal quarter ended on June 30, 2017) to exceed 6.00 to 1.00.
ARTICLE VIA
Holdings Negative Covenants
Holdings (prior to a Qualified IPO) covenants and agrees with each Lender that, until the Termination Date, unless the Required Lenders shall otherwise consent in writing, (a) Holdings will not create, incur, assume or permit to exist any Lien other than (i) Liens created under the Loan Documents and (ii) Liens not prohibited by Section 6.02 on any of the Equity Interests issued by the Borrower held by Holdings, (b) Holdings shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence; provided , that so long as no Default has occurred and is continuing or would result therefrom, Holdings may merge with any other person (and if it is not the survivor of such merger, the survivor shall assume Holdings’ obligations, as applicable, under the Loan Documents) and (c) Holdings shall comply with clause (c) of the definition of “Change in Control.”
ARTICLE VII
Events of Default
Section 7.01 Events of Default . In case of the happening of any of the following events (each, an “ Event of Default ”):
(a) any representation or warranty made or deemed made by Holdings, the Borrower or any other Loan Party herein or in any other Loan Document or any certificate or document delivered pursuant hereto or thereto shall prove to have been false or misleading in any material respect when so made or deemed made; provided , that the failure of any representation or warranty made or deemed made by any Loan Party (other than the representations and warranties referred to in clause (i) of Section 4.01(b)) to be true and correct in any material respect on the Closing Date will not constitute an Event of Default hereunder;
(b) default shall be made in the payment of any principal of any Loan 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 by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Loan or the reimbursement with respect to any L/C Disbursement or in the payment of any Fee or any other amount (other than an amount referred to in clause (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five Business Days;
(d) default shall be made in the due observance or performance by the Borrower of any covenant, condition or agreement contained in, Section 5.01(a), 5.05(a) or 5.08 or in Article VI;
(e) default shall be made in the due observance or performance by Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiary Loan Parties of any covenant, condition or agreement contained in any Loan Document (other than those specified in clauses (b), (c) and (d) above) and such default shall continue unremedied for a period of 30 days (or 60 days if such default results solely from the failure of a Subsidiary that is not a Loan Party to duly observe or perform any such covenant, condition or agreement) after notice thereof from the Administrative Agent to the Borrower;
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(f) (i) any event or condition occurs that (A) results in any Material Indebtedness becoming due prior to its scheduled maturity or (B) enables or permits (with all applicable grace periods having expired) 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 prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; or (ii) the Borrower or any of the Subsidiaries shall fail to pay the principal of any Material Indebtedness at the stated final maturity thereof; provided , that this clause (f) shall not apply to any secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness;
(g) there shall have occurred a Change in Control;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any of the Material Subsidiaries, or of a substantial part of the property or assets of the Borrower or any Material Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of the Material Subsidiaries or for a substantial part of the property or assets of the Borrower or any of the Material Subsidiaries or (iii) the winding-up or liquidation of the Borrower or any Material Subsidiary (except in a transaction permitted hereunder); and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (h) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of the Material Subsidiaries or for a substantial part of the property or assets of the Borrower or any Material Subsidiary, (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) become unable or admit in writing its inability or fail generally to pay its debts as they become due;
(j) the failure by the Borrower or any Material Subsidiary to pay one or more final judgments aggregating in excess of $15,000,000 (to the extent not covered by insurance), which judgments are not discharged or effectively waived or stayed for a period of 45 consecutive days, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Material Subsidiary to enforce any such judgment;
(k) (i) an ERISA Event or ERISA Events shall have occurred, (ii) the PBGC shall institute proceedings (including giving notice of intent thereof) to terminate any Plan or Plans, (iii) the Borrower or any Subsidiary or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, or (iv) the Borrower or any Subsidiary shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan; and in each case in clauses (i) through (iv) above, such event or condition, together with all other such events or conditions, if any, would reasonably be expected to have a Material Adverse Effect; or
(l) (i) any Loan Document shall for any reason be asserted in writing by Holdings (prior to a Qualified IPO), the Borrower or any Subsidiary Loan Party not to be a legal, valid and binding obligation of any party thereto (other than in accordance with the terms thereof), (ii) any security interest purported to be created by any Security Document and to extend to assets that constitute a material portion of the Collateral shall cease to be, or shall be asserted in writing by the Borrower or any other Loan Party not to be (other than in accordance with the terms thereof), a valid and perfected security interest (perfected as or having the priority required by this Agreement or the relevant Security Document and subject to such limitations and restrictions as are set forth herein and therein) in the securities, assets or properties covered thereby, except to the extent that any such loss of perfection or priority results from the limitations of
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foreign laws, rules and regulations as they apply to pledges of Equity Interests in Foreign Subsidiaries or the application thereof, or from the failure of the Collateral Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Agreement and the Holdings Guarantee and Pledge Agreement or to file Uniform Commercial Code continuation statements or take the actions described on Schedule 3.04 and except to the extent that such loss is covered by a lender’s title insurance policy and the Collateral Agent shall be reasonably satisfied with the credit of such insurer, or (iii) a material portion of the Guarantees pursuant to the Security Documents by Holdings (prior to a Qualified IPO) or the Subsidiary Loan Parties guaranteeing the Obligations shall cease to be in full force and effect (other than in accordance with the terms thereof), or shall be asserted in writing by Holdings (prior to a Qualified IPO) or any Subsidiary Loan Party not to be in effect or not to be legal, valid and binding obligations (other than in accordance with the terms thereof); provided , that no Event of Default shall occur under this Section 7.01(l) if the Loan Parties cooperate with the Collateral Agent to replace or perfect such security interest and Lien, such security interest and Lien is replaced and the rights, powers and privileges of the Secured Parties are not materially adversely affected by such replacement;
then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) above), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate forthwith the Commitments, (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding and (iii) if the Loans have been declared due and payable pursuant to clause (ii) above, demand Cash Collateral pursuant to Section 2.05(j); and in any event with respect to the Borrower described in clause (h) or (i) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable and the Administrative Agent shall be deemed to have made a demand for Cash Collateral to the full extent permitted under Section 2.05(j), without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding.
For purposes of clauses (h) and (i) of this Section 7.01, “ Material Subsidiary ” shall mean any Subsidiary that would not be an Immaterial Subsidiary under clause (a) of the definition thereof.
Section 7.02 Treatment of Certain Payments . Any amount received by the Administrative Agent or the Collateral Agent from any Loan Party (or from proceeds of any Collateral) following any acceleration of the Obligations under this Agreement or any Event of Default with respect to the Borrower under Section 7.01(h) or (i), in each case that is continuing, shall be applied: (i) first, to the payment of all reasonable and documented out-of-pocket costs and expenses and indemnification amounts then due to the Administrative Agent or the Collateral Agent from the Borrower and all fees owed to them in connection with the collection or sale or otherwise in connection with this Agreement or any other Loan Document, including all court costs and reasonable and documented fees and expenses of its agents and legal counsel, the repayment of all advances made by the Administrative Agent or the Collateral Agent under this Agreement or any other Loan Document on behalf of any Loan Party and any other reasonable and documented costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document in its capacity as such, (ii) second, towards payment in full of interest and fees then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, (iii) third, towards payment in full of principal of Swingline Loans and unreimbursed L/C Disbursements then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed L/C Disbursements then due to such parties, (iv) fourth, towards payment in full of other Obligations (including Obligations of the Loan Parties owing under or in respect of any Secured Cash Management Agreement or Secured Hedge Agreement) then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of such Obligations then due to such parties and (v) last, the balance, if any, after all of the Obligations have been paid in full, to the Borrower or as otherwise required by Requirements of Law.
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Section 7.03 Right to Cure . Notwithstanding anything to the contrary contained in Section 7.01, in the event that the Borrower fails (or, but for the operation of this Section 7.03, would fail) to comply with the requirements of the Financial Covenant, from the last day of the applicable fiscal quarter until the expiration of the 10th Business Day subsequent to the date the certificate calculating such Financial Covenant is required to be delivered pursuant to Section 5.04(c), Holdings, the Borrower and any Parent Entity shall have the right to issue Permitted Cure Securities for cash or otherwise receive cash contributions to the capital of such entities, and in each case, to contribute any such cash to the capital of the Borrower (collectively, the “ Cure Right ”), and upon the receipt by the Borrower of such cash (the “ Cure Amount ”), pursuant to the exercise of the Cure Right, the Financial Covenant shall be recalculated giving effect to a pro forma adjustment by which EBITDA shall be increased with respect to such applicable quarter and any four-quarter period that contains such quarter, solely for the purpose of measuring the Financial Covenant and not for any other purpose under this Agreement, by an amount equal to the Cure Amount; provided , that (i) in each four consecutive fiscal quarter period there shall be at least two fiscal quarters in which a Cure Right is not exercised, (ii) a Cure Right shall not be exercised more than five times during the term of the Revolving Facility, (iii) for purposes of this Section 7.03, the Cure Amount shall be no greater than the amount required for purposes of complying with the Financial Covenant, (iv) there shall be no pro forma reduction in Indebtedness with the proceeds of the exercise of the Cure Right for determining compliance with the Financial Covenant for the fiscal quarter in respect of which such Cure Right is exercised (either directly through prepayment or indirectly as a result of the netting of unrestricted cash) and (v) the Cure Amount shall be disregarded for purposes of determining any financial ratio-based conditions, pricing or any baskets with respect to the covenants contained in this Agreement. If, after giving effect to the adjustments in this paragraph, the Borrower shall then be in compliance with the requirements of the Financial Covenant, the Borrower shall be deemed to have satisfied the requirements of the Financial Covenant as of the relevant date of determination with the same effect as though there had been no failure to comply therewith at such date, and the applicable breach or default of the Financial Covenant that had occurred shall be deemed cured for the purposes of this Agreement.
ARTICLE VIII
The Agents
Section 8.01 Appointment .
(a) Each Lender (in its capacities as a Lender and the Swingline Lender (if applicable) and on behalf of itself and its Affiliates as potential counterparties to Secured Cash Management Agreements and Secured Hedge Agreements) and each Issuing Bank (in such capacities and on behalf of itself and its Affiliates as potential counterparties to Secured Cash Management Agreements and Secured Hedge Agreements) hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, including as the Collateral Agent for such Lender and the other Secured Parties under the Security Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. In addition, to the extent required under the laws of any jurisdiction other than the United States of America, each of the Lenders and the Issuing Banks hereby grants to the Administrative Agent any required powers of attorney to execute any Security Document governed by the laws of such jurisdiction on such Lender’s or Issuing Bank’s behalf. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent.
(b) In furtherance of the foregoing, each Lender (in its capacities as a Lender and the Swingline Lender (if applicable) and on behalf of itself and its Affiliates as potential counterparties to Secured Cash Management Agreements or Secured Hedge Agreements) and each Issuing Bank (in such capacities and on behalf of itself and its Affiliates as potential counterparties to Secured Cash Management Agreements and Secured Hedge Agreements) hereby appoints and authorizes the Collateral Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection,
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the Collateral Agent (and any Subagents appointed by the Collateral Agent pursuant to Section 8.02 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Security Documents, or for exercising any rights or remedies thereunder at the direction of the Collateral Agent) shall be entitled to the benefits of this Article VIII (including, without limitation, Section 8.07) and Article IX (including, without limitation, Section 9.05) as though the Collateral Agent (and any such Subagents) were an “Agent” under the Loan Documents, as if set forth in full herein with respect thereto.
Section 8.02 Delegation of Duties . The Administrative Agent and the Collateral Agent may execute any of their respective duties under this Agreement and the other Loan Documents (including for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Each Agent may also from time to time, when it deems it to be necessary or desirable, appoint one or more trustees, co-trustees, collateral co-agents, collateral subagents or attorneys-in-fact (each, a “ Subagent ”) with respect to all or any part of the Collateral; provided , that no such Subagent shall be authorized to take any action with respect to any Collateral unless and except to the extent expressly authorized in writing by the Administrative Agent or the Collateral Agent. Should any instrument in writing from the Borrower or any other Loan Party be required by any Subagent so appointed by an Agent to more fully or certainly vest in and confirm to such Subagent such rights, powers, privileges and duties, the Borrower shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by such Agent. If any Subagent, or successor thereto, shall become incapable of acting, resign or be removed, all rights, powers, privileges and duties of such Subagent, to the extent permitted by law, shall automatically vest in and be exercised by the Administrative Agent or the Collateral Agent until the appointment of a new Subagent. No Agent shall be responsible for the negligence or misconduct of any agent, attorney-in-fact or Subagent that it selects with reasonable care.
Section 8.03 Exculpatory Provisions . None of the Agents, or their respective Affiliates or any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such person’s own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by any Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. No Agent shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. No Agent shall have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, (a) no Agent shall be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing, and (b) no Agent shall, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by such Agent or any of its Affiliates in any capacity. The Agents shall be deemed not to have knowledge of any Default or Event of Default unless and until written notice describing such Default or Event of Default is given to the Administrative Agent by the Borrower, a Lender or Issuing Bank. No Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Security Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. No Cash
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Management Bank or Hedge Bank that obtains the benefits of Section 7.02, any Guarantee or any Collateral by virtue of the provisions hereof or of any Guarantee or any Security 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. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements unless the Administrative Agent has received written notice of such Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Cash Management Bank or Hedge Bank, as the case may be.
Section 8.04 Reliance by Agents . Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) or conversation believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to any Credit Event, that by its terms must be fulfilled to the satisfaction of a Lender or any Issuing Bank, each Agent may presume that such condition is satisfactory to such Lender or Issuing Bank unless such Agent shall have received notice to the contrary from such Lender or Issuing Bank prior to such Credit Event. Each Agent may consult with legal counsel (including counsel to Holdings or the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Each Agent may deem and treat the Lender specified in the Register with respect to any amount owing hereunder as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with such Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all or other Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all or other Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.
Section 8.05 Notice of Default . Neither Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless such Agent has received written notice from a Lender, Holdings or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.” In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all or other Lenders); provided , that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.
Section 8.06 Non-Reliance on Agents and Other Lenders . Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender and Issuing Bank represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of, and investigation into the business, operations, property, financial and other condition and creditworthiness of, the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and
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decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.
Section 8.07 Indemnification . The Lenders agree to indemnify each Agent and the Revolving Facility Lenders agree to indemnify each Issuing Bank, in each case in its capacity as such (to the extent not reimbursed by Holdings or the Borrower and without limiting the obligation of Holdings or the Borrower to do so), in the amount of its pro rata share (based on its aggregate Revolving Facility Credit Exposure and, in the case of the indemnification of each Agent, outstanding Term Loans and unused Commitments hereunder; provided , that the aggregate principal amount of Swingline Loans owing to the Swingline Lender and of L/C Disbursements owing to any Issuing Bank shall be considered to be owed to the Revolving Facility Lenders ratably in accordance with their respective Revolving Facility Credit Exposure) (determined at the time such indemnity is sought), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against such Agent or such Issuing Bank in any way relating to or arising out of the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent or such Issuing Bank under or in connection with any of the foregoing; provided , that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent’s or such Issuing Bank’s gross negligence or willful misconduct. The failure of any Lender to reimburse any Agent or any Issuing Bank, as the case may be, promptly upon demand for its ratable share of any amount required to be paid by the Lenders to such Agent or such Issuing Bank, as the case may be, as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse such Agent or such Issuing Bank, as the case may be, for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse such Agent or such Issuing Bank, as the case may be, for such other Lender’s ratable share of such amount. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.
Section 8.08 Agent in Its Individual Capacity . Each Agent and its affiliates may make loans to, accept deposits from, and generally engage in any kind of business with any Loan Party as though such Agent were not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued, or Letter of Credit or Swingline Loan participated in, by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms “Lender” and “Lenders” shall include each Agent in its individual capacity.
Section 8.09 Successor Administrative Agent . The Administrative Agent may resign as Administrative Agent and Collateral Agent upon 10 days’ notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent and Collateral Agent under this Agreement and the other Loan Documents, then the Required Lenders shall have the right, subject to the reasonable consent of the Borrower (so long as no Event of Default under Section 7.01(b), (c), (h) or (i) shall have occurred and be continuing), to appoint a successor which shall have an office in the United States, or an Affiliate of any such successor with an office in the United States, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent and Collateral Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective (except in the case of the Collateral Agent holding collateral security on behalf of such Secured Parties, the retiring Collateral Agent shall continue to hold such collateral security as nominee until such time as a successor
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Collateral Agent is appointed), and the Lenders shall assume and perform all of the duties of the Administrative Agent and Collateral Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this Section 8.09 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents.
Section 8.10 Arrangers and Co-Manager . Notwithstanding any other provision of this Agreement or any provision of any other Loan Document, each of the persons named on the cover page hereof as Joint Bookrunner, Joint Lead Arranger, or Co-Manager is named as such for recognition purposes only, and in its capacity as such shall have no rights, duties, responsibilities or liabilities with respect to this Agreement or any other Loan Document, except that each such person and its Affiliates shall be entitled to the rights expressly stated to be applicable to them in Sections 9.05 and 9.17 (subject to the applicable obligations and limitations as set forth therein).
Section 8.11 Security Documents, Collateral Agent and Collateral Agent . The Lenders and the other Secured Parties authorize the Collateral Agent to release any Collateral or Guarantors in accordance with Section 9.18 or if approved, authorized or ratified in accordance with Section 9.08.
The Lenders and the other Secured Parties hereby irrevocably authorize and instruct the Collateral Agent to, without any further consent of any Lender or any other Secured Party, enter into (or acknowledge and consent to) or amend, renew, extend, supplement, restate, replace, waive or otherwise modify any First Lien/First Lien Intercreditor Agreement, any First Lien/Second Lien Intercreditor Agreement, any other Permitted Junior Intercreditor Agreement, any other Permitted Pari Passu Intercreditor Agreement or any other intercreditor agreement with the collateral agent or other representatives of the holders of Indebtedness that is to be secured by a Lien on the Collateral that is not prohibited (including with respect to priority) under this Agreement and to subject the Liens on the Collateral securing the Obligations to the provisions thereof (any of the foregoing, an “ Intercreditor Agreement ”). The Lenders and the other Secured Parties irrevocably agree that (x) the Collateral Agent may rely exclusively on a certificate of a Responsible Officer of the Borrower as to whether any such other Liens are not prohibited and (y) any Intercreditor Agreement entered into by the Collateral Agent shall be binding on the Secured Parties, and each Lender and each other Secured Party hereby agrees that it will take no actions contrary to the provisions of, if entered into and if applicable, any Intercreditor Agreement. The foregoing provisions are intended as an inducement to any provider of any Indebtedness not prohibited by Section 6.01 hereof to extend credit to the Loan Parties and such persons are intended third-party beneficiaries of such provisions. Furthermore, the Lenders and the other Secured Parties hereby authorize the Administrative Agent and the Collateral Agent to release any Lien on any property granted to or held by the Administrative Agent or the Collateral Agent under any Loan Document (i) to the holder of any Lien on such property that is permitted by clauses (c), (i), (j), (aa) or (mm) of Section 6.02 or Section 6.02(a) (if the Liens thereunder are of a type that is contemplated by any of the foregoing clauses) in each case to the extent the contract or agreement pursuant to which such Lien is granted prohibits any other Liens on such property or (ii) that is or becomes Excluded Property; and the Administrative Agent and the Collateral Agent shall do so upon request of the Borrower; provided , that prior to any such request, the Borrower shall have in each case delivered to the Administrative Agent a certificate of a Responsible Officer of the Borrower certifying (x) that such Lien is permitted under this Agreement, (y) in the case of a request pursuant to clause (i) of this sentence, that the contract or agreement pursuant to which such Lien is granted prohibits any other Lien on such property and (z) in the case of a request pursuant to clause (ii) of this sentence, that (A) such property is or has become Excluded Property and (B) if such property has become Excluded Property as a result of a contractual restriction, such restriction does not violate Section 6.09(c).
Section 8.12 Right to Realize on Collateral and Enforce Guarantees . In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, (i) the Administrative Agent (irrespective of whether the principal of any Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise (A) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of any or all of the Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Banks and the Administrative Agent and any Subagents allowed in such judicial proceeding, and (B) to collect and receive any
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monies or other property payable or deliverable on any such claims and to distribute the same, and (ii) any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and Issuing Bank to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders and the Issuing Banks, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under the Loan Documents. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or Issuing Bank or to authorize the Administrative Agent to vote in respect of the claim of any Lender or Issuing Bank in any such proceeding.
Anything contained in any of the Loan Documents to the contrary notwithstanding, the Borrower, the Administrative Agent, the Collateral Agent and each Secured Party hereby agree that (a) no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce the Guarantee, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by the Administrative Agent, on behalf of the Secured Parties in accordance with the terms hereof and all powers, rights and remedies under the Security Documents may be exercised solely by the Collateral Agent, and (b) in the event of a foreclosure by the Collateral Agent on any of the Collateral pursuant to a public or private sale or other disposition, any Agent or any Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition and the Collateral Agent, as agent for and representative of the Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless the Required Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by the Collateral Agent at such sale or other Disposition.
Section 8.13 Withholding Tax . To the extent required by any applicable Requirement of Law, the Administrative Agent may withhold from any payment to any Lender an amount equivalent to any applicable withholding Tax. If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold Tax from amounts paid to or for the account of any Lender for any reason (including because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from, or reduction of, withholding Tax ineffective), such Lender shall indemnify the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by any applicable Loan Party and without limiting the obligation of any applicable Loan Party to do so) fully for all amounts paid, directly or indirectly, by the Administrative Agent as Tax or otherwise, including penalties, fines, additions to Tax and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this Section 8.13.
ARTICLE IX
Miscellaneous
Section 9.01 Notices; Communications .
(a) Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in Section 9.01(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 telecopier or other electronic means as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
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(i) if to any Loan Party, the Administrative Agent, or any Issuing Bank as of the Closing Date or the Swingline Lender to the address, telecopier number, electronic mail address or telephone number specified for such person on Schedule 9.01 ; and
(ii) if to any other Lender or any other Issuing Bank, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.
(b) Notices and other communications to the Lenders and the Issuing Banks hereunder may be delivered or furnished by electronic communication (including e mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided , that the foregoing shall not apply to notices to any Lender or Issuing Bank pursuant to Article II if such Lender or Issuing Bank, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in their discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by them, provided, that approval of such procedures may be limited to particular notices or communications.
(c) Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received. Notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in Section 9.01(b) above shall be effective as provided in such Section 9.01(b).
(d) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.
(e) Documents required to be delivered pursuant to Section 5.04 may be delivered electronically (including as set forth in Section 9.17) and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 9.01 , or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided , that the Borrower shall notify the Administrative Agent (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Except for such certificates required by Section 5.04(c), the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Section 9.02 Survival of Agreement . All covenants, agreements, representations and warranties made by the Loan Parties herein, in the other Loan Documents and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and each Issuing Bank and shall survive the making by the Lenders of the Loans and the execution and delivery of the Loan Documents and the issuance of the Letters of Credit, regardless of any investigation made by such persons or on their behalf, and shall continue in full force and effect until the Termination Date. Without prejudice to the survival of any other agreements contained herein, indemnification and reimbursement obligations contained herein (including pursuant to Sections 2.15, 2.16, 2.17 and 9.05) shall survive the Termination Date.
Section 9.03 Binding Effect . This Agreement shall become effective when it shall have been executed by Holdings, the Borrower and the Administrative Agent and when the Administrative Agent shall have received copies 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 Holdings, the Borrower, the Administrative Agent, each Issuing Bank and each Lender and their respective permitted successors and assigns.
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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 an Issuing Bank that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower 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 9.04. 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 an Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in clause (c) of this Section 9.04), and, to the extent expressly contemplated hereby, the Related Parties of each of the Agents, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement or the other Loan Documents.
(b) (i) Subject to the conditions set forth in subclause (ii) below, any Lender may assign to one or more assignees (each, an “ Assignee ”) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:
(A) the Borrower, which consent, with respect to the assignment of a Term Loan, will be deemed to have been given if the Borrower has not responded within ten (10) Business Days after the delivery of any request for such consent; provided , that no consent of the Borrower shall be required for an assignment of a Term Loan to a Lender, an Affiliate of a Lender, an Approved Fund (as defined below), or in the case of assignments during the primary syndication of the Commitments and Loans to persons identified to and agreed by the Borrower in writing prior to the Closing Date, or for an assignment of a Revolving Facility Commitment or Revolving Facility Loan to a Revolving Facility Lender, an Affiliate of a Revolving Facility Lender or Approved Fund with respect to a Revolving Facility Lender, or, in each case, if an Event of Default under Section 7.01(b), (c), (h) or (i) has occurred and is continuing, any other person; and
(B) the Administrative Agent; provided , that no consent of the Administrative Agent shall be required for an assignment of all or any portion of a Term Loan to a Lender, an Affiliate of a Lender, an Approved Fund or an Affiliate of the Borrower made in accordance with Section 9.04(i) or Section 9.21; and
(C) the Issuing Banks and the Swingline Lender; provided , that no consent of the Issuing Banks and the Swingline Lender 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 Lender’s Commitments or Loans under any Facility, the amount of the Commitments or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than (x) $1,000,000 in the case of Term Loans and (y) $2,500,000 in the case of Revolving Facility Loans or Revolving Facility Commitments, unless each of the Borrower and the Administrative Agent otherwise consent; provided , that such amounts shall be aggregated in respect of each Lender and its Affiliates or Approved Funds (with simultaneous assignments to or by two or more Related Funds shall be treated as one assignment), if any;
(B) the parties to each assignment shall (1) execute and deliver to the Administrative Agent an Assignment and Acceptance via an electronic settlement system acceptable to the Administrative Agent or (2) if previously agreed with the Administrative Agent, manually execute and deliver to the Administrative Agent an Assignment and Acceptance, in each case together with a processing and recordation fee of $3,500 (which fee may be waived or reduced in the reasonable discretion of the Administrative Agent);
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(C) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire and any tax forms required to be delivered pursuant to Section 2.17; and
(D) the Assignee shall not be the Borrower or any of the Borrower’s Affiliates or Subsidiaries except in accordance with Section 9.04(i) or Section 9.21.
For the purposes of this Section 9.04, “ Approved Fund ” means any person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered 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. Notwithstanding the foregoing or anything to the contrary herein, no Lender shall be permitted to assign or transfer any portion of its rights and obligations under this Agreement to (A) any Ineligible Institution, (B) any Defaulting Lender or any of its Subsidiaries, or any person who, upon becoming a Lender hereunder, would constitute any of the foregoing persons described in this clause (B), or (C) a natural person. Notwithstanding the foregoing, each Loan Party and the Lenders acknowledge and agree that the Administrative Agent shall not have any responsibility or obligation to determine whether any Lender or potential Lender is an Ineligible Institution and the Administrative Agent shall have no liability with respect to any assignment made to an Ineligible Institution. Any assigning Lender shall, in connection with any potential assignment, provide to the Borrower a copy of its request (including the name of the prospective assignee) concurrently with its delivery of the same request to the Administrative Agent irrespective of whether or not an Event of Default under Section 7.01(b), (c), (h) or (i) has occurred and is continuing.
(iii) Subject to acceptance and recording thereof pursuant to subclause (v) below, from and after the effective date specified in each Assignment and Acceptance the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.05 (subject to the limitations and requirements of those Sections)); provided, that an Assignee shall not be entitled to receive any greater payment pursuant to Section 2.17 than the applicable Assignor would have been entitled to receive had no such assignment occurred. 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 clause (d) of this Section 9.04.
(iv) The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal and interest amounts of the Loans and Revolving L/C Exposure owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent, the Issuing Bank, the Swingline Lender and the Lenders shall treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Banks, the Swingline Lender and any Lender, at any reasonable time and from time to time upon reasonable prior notice; provided, that no Lender shall, in such capacity, have access to, or be otherwise permitted to review, any information in the Register other than information with respect to such Lender.
(v) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an Assignee, the Assignee’s completed Administrative Questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in clause (b) of this Section, if applicable, and any written consent to such assignment required by clause (b) of this Section and any applicable tax forms, the Administrative Agent shall accept such Assignment and Acceptance and promptly record the information contained therein in the Register. No assignment, whether or not evidenced by a promissory note, shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this subclause (v).
(c) [Reserved].
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(d) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations in Loans and Commitments to one or more banks or other entities other than (I) any Ineligible Institution (to the extent that the list of Ineligible Institutions has been made available to all Lenders; provided , that regardless of whether the list of Ineligible Institutions has been made available to all Lenders, no Lender may sell participations in Loans or Commitments to an Ineligible Institution without the consent of the Borrower if the list of Ineligible Institutions has been made available to such Lender) or (II) any Defaulting Lender or any of its Subsidiaries, or any person who, upon becoming a Lender hereunder, would constitute any of the foregoing persons described in this clause (II)) (a “ Participant ”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans owing to it); provided , that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and the other Loan Documents and to approve any amendment, modification or waiver of any provision of this Agreement and the other Loan Documents; provided , that (x) such agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver that both (1) requires the consent of each Lender directly affected thereby pursuant to clauses (i), (ii), (iii) or (vi) of the first proviso to Section 9.08(b) and (2) directly adversely affects such Participant (but, for the avoidance of doubt, not any waiver of any Default or Event of Default) and (y) no other agreement with respect to amendment, modification or waiver may exist between such Lender and such Participant. Subject to clause (d)(iii) of this Section 9.04, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the limitations and requirements of those Sections and Section 2.19) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to clause (b) of this Section 9.04. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.06 as though it were a Lender; provided , that such Participant shall be subject to Section 2.18(c) as though it were a Lender. Notwithstanding the foregoing, each Loan Party and the Lenders acknowledge and agree that the Administrative Agent shall not have any responsibility or obligation to determine whether any Participant or potential Participant is an Ineligible Institution and the Administrative Agent shall have no liability with respect to any participation made to an Ineligible Institution.
(ii) Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts and interest amounts of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “ Participant Register ”). The entries in the Participant Register shall be conclusive absent manifest error, and each party hereto shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. Without limitation of the requirements of Section 9.04(d), no Lender shall have any obligation to disclose all or any portion of a Participant Register to any person (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans or other Loan Obligations under any Loan Document), except to the extent that such disclosure is necessary to establish that such Commitment, Loan or other Loan Obligation is in registered form for U.S. federal income tax purposes or is otherwise required by applicable law. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(iii) A Participant shall not be entitled to receive any greater payment under Section 2.15, 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent (not to be unreasonably withheld or delayed), which consent shall state that it is being given pursuant to this Section 9.04(d)(iii); provided , that each potential Participant shall provide such information as is reasonably requested by the Borrower in order for the Borrower to determine whether to provide its consent.
(e) 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 in the case of any Lender that is an Approved Fund, any pledge or assignment to any holders of obligations owed, or securities issued, by such Lender, including to any trustee for, or any other representative of, such holders, and this Section 9.04 shall not apply to any such pledge or assignment of a security interest; provided , that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or Assignee for such Lender as a party hereto.
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(f) The Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in clause (e) above.
(g) Notwithstanding the foregoing, any Conduit Lender may assign any or all of the Loans it may have funded hereunder to its designating Lender without the consent of the Borrower or the Administrative Agent. Each of Holdings, the Borrower, each Lender and the Administrative Agent hereby confirms that it will not institute against a Conduit Lender or join any other person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided , however , that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto and each Loan Party for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance.
(h) If the Borrower wishes to replace the Loans or Commitments under any Facility with ones having different terms, it shall have the option, with the consent of the Administrative Agent and subject to at least three Business Days’ advance notice to the Lenders under such Facility, instead of prepaying the Loans or reducing or terminating the Commitments to be replaced, to (i) require the Lenders under such Facility to assign such Loans or Commitments to the Administrative Agent or its designees and (ii) amend the terms thereof in accordance with Section 9.08 (with such replacement, if applicable, being deemed to have been made pursuant to Section 9.08(d)). Pursuant to any such assignment, all Loans and Commitments to be replaced shall be purchased at par (allocated among the Lenders under such Facility in the same manner as would be required if such Loans were being optionally prepaid or such Commitments were being optionally reduced or terminated by the Borrower), accompanied by payment of any accrued interest and fees thereon and any amounts owing pursuant to Section 9.05(b). By receiving such purchase price, the Lenders under such Facility shall automatically be deemed to have assigned the Loans or Commitments under such Facility pursuant to the terms of the form of Assignment and Acceptance attached hereto as Exhibit A , and accordingly no other action by such Lenders shall be required in connection therewith. The provisions of this clause (h) are intended to facilitate the maintenance of the perfection and priority of existing security interests in the Collateral during any such replacement.
(i) Notwithstanding anything to the contrary in this Agreement, including Section 2.18(c) (which provisions shall not be applicable to clauses (i) or (j) of this Section 9.04), any of Holdings or its Subsidiaries, including the Borrower, may purchase by way of assignment and become an Assignee with respect to Term Loans at any time and from time to time from Lenders in accordance with Section 9.04(b) hereof (each, a “ Permitted Loan Purchase ”); provided , that, in respect of any Permitted Loan Purchase, (A) any such purchase occurs pursuant to Dutch auction procedures open to all Lenders of the relevant Class of Term Loans on a pro rata basis in accordance with customary procedures to be agreed between the Borrower and the Administrative Agent; provided , that any of Holdings or its Subsidiaries, including the Borrower shall be entitled to make open market purchases of the Term Loans without complying with such Dutch auction procedures so long as the aggregate principal amount (calculated on the par amount thereof) of all Term Loans purchased in open market purchases from the Closing Date does not exceed the Permitted Loan Purchase Amount, (B) no Permitted Loan Purchase shall be made from the proceeds of any extensions of credit under the Revolving Facility, (C) upon consummation of any such Permitted Loan Purchase, the Loans purchased pursuant thereto shall be deemed to be automatically and immediately cancelled and extinguished in accordance with Section 9.04(j), (D) in connection with any such Permitted Loan Purchase, any of Holdings or its Subsidiaries, including the Borrower, and such Lender that is the assignor (an “ Assignor ”) shall execute and deliver to the Administrative Agent a Permitted Loan Purchase Assignment and Acceptance (and for the avoidance of doubt, (x) shall make the representations and warranties set forth in the Permitted Loan Purchase Assignment and Acceptance and (y) shall not be required to execute and deliver an Assignment and Acceptance pursuant to Section 9.04(b)(ii)(B)) and shall otherwise comply with the conditions to assignments under this Section 9.04 and (E) no Default or Event of Default would exist after giving effect on a Pro Forma Basis to such Permitted Loan Purchase.
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(j) Each Permitted Loan Purchase shall, for purposes of this Agreement be deemed to be an automatic and immediate cancellation and extinguishment of such Term Loans and the Borrower shall, upon consummation of any Permitted Loan Purchase, notify the Administrative Agent that the Register be updated to record such event as if it were a prepayment of such Loans.
(k) In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, each Issuing Bank or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swingline Loans in accordance with its Revolving Facility Percentage; provided , that notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
(l) Notwithstanding anything to the contrary herein, the rights of the Lenders to make assignments and grant participations shall be subject to the approval of any Gaming Authority, to the extent required by any applicable Gaming Laws.
Section 9.05 Expenses; Indemnity .
(a) The Borrower agrees to pay (i) all reasonable and documented out-of-pocket expenses (including Other Taxes) incurred by the Administrative Agent or the Collateral Agent in connection with the preparation of this Agreement and the other Loan Documents, or by the Administrative Agent or the Collateral Agent in connection with the administration of this Agreement and any amendments, modifications or waivers of the provisions hereof or thereof, including the reasonable fees, charges and disbursements of Cahill Gordon & Reindel LLP , counsel for the Administrative Agent, the Collateral Agent and the Arrangers and the Co-Manager and, if necessary, the reasonable fees, charges and disbursements of one local counsel per jurisdiction, and (ii) all reasonable and documented out-of-pocket expenses (including Other Taxes) incurred by the Agents, any Issuing Bank or any Lender in connection with the enforcement of their rights in connection with this Agreement and the other Loan Documents, in connection with the Loans made or the Letters of Credit issued hereunder, including the fees, charges and disbursements of a single counsel for all such persons, taken as a whole, and, if necessary, a single local counsel in each appropriate jurisdiction for all such persons, taken as a whole (and, in the case of an actual or perceived conflict of interest where such person affected by such conflict informs the Borrower of such conflict and thereafter retains its own counsel with the Borrower’s prior written consent (not to be unreasonably withheld), of another firm of counsel for such affected person).
(b) The Borrower agrees to indemnify the Administrative Agent, the Collateral Agent, the Arrangers, the Joint Bookrunners, the Co-Manager, each Issuing Bank, each Lender, each of their respective Affiliates, successors and assignors, and each of their respective directors, trustees, officers, employees, agents, trustees and advisors, (each such person being called an “ Indemnitee ”) against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements (excluding the allocated costs of in house counsel and limited to not more than one counsel for all such Indemnitees, taken as a whole, and, if necessary, a single local counsel in each appropriate jurisdiction for all such Indemnitees, taken as a whole (and, in the case of an actual or perceived conflict of interest where the Indemnitee affected by such conflict informs the Borrower of such conflict and thereafter retains its own counsel with the Borrower’s prior written consent (not to be unreasonably withheld), of another firm of counsel for such affected Indemnitee)), incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto and thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated hereby, (ii) the use of the proceeds of the Loans or the use of any Letter of Credit, (iii) any violation of or liability under Environmental Laws by, or of, the Borrower or any Subsidiary, (iv) any actual or alleged presence, Release or
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threatened Release of or exposure to Hazardous Materials at, under, on, from or to any property owned, leased or operated by the Borrower or any Subsidiary or (v) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto and regardless of whether such matter is initiated by a third party or by Holdings, the Borrower or any of their subsidiaries or Affiliates; provided , that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the gross negligence, bad faith or willful misconduct of such Indemnitee or any of its Related Parties, (y) arose from a material breach of such Indemnitee’s or any of its Related Parties’ obligations under any Loan Document (as determined by a court of competent jurisdiction in a final, non-appealable judgment) or (z) arose from any claim, actions, suits, inquiries, litigation, investigation or proceeding that does not involve an act or omission of the Borrower or any of its Affiliates and is brought by an Indemnitee against another Indemnitee (other than any claim, actions, suits, inquiries, litigation, investigation or proceeding against any Agent or an Arranger or the Co-Manager in its capacity as such). None of the Indemnitees (or any of their respective affiliates) shall be responsible or liable to the Fund, Holdings, the Borrower or any of their respective subsidiaries, Affiliates or stockholders or any other person or entity for any special, indirect, consequential or punitive damages, which may be alleged as a result of the Facilities or the Transactions. The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, any Issuing Bank or any Lender. All amounts due under this Section 9.05 shall be payable within fifteen (15) days of written demand therefor accompanied by reasonable documentation with respect to any reimbursement, indemnification or other amount requested.
(c) Except as expressly provided in Section 9.05(a) with respect to Other Taxes, which shall not be duplicative with any amounts paid pursuant to Section 2.17, this Section 9.05 shall not apply to any Taxes (other than Taxes that represent losses, claims, damages, liabilities and related expenses resulting from a non-Tax claim), which shall be governed exclusively by Section 2.17 and, to the extent set forth therein, Section 2.15.
(d) To the fullest extent permitted by applicable law, Holdings and the Borrower shall not assert, and hereby waive, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e) The agreements in this Section 9.05 shall survive the resignation of the Administrative Agent, the Collateral Agent or any Issuing Bank, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all the other Obligations and the termination of this Agreement.
Section 9.06 Right of Set-off . If an Event of Default shall have occurred and be continuing, each Lender and each Issuing Bank 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) at any time held and other indebtedness at any time owing by such Lender or such Issuing Bank to or for the credit or the account of Holdings (prior to a Qualified IPO), the Borrower or any Subsidiary against any of and all the obligations of Holdings (prior to a Qualified IPO) or the Borrower now or hereafter existing under this Agreement or any other Loan Document held by such Lender or such Issuing Bank, irrespective of whether or not such Lender or such Issuing Bank shall have made any demand under this Agreement or such other Loan Document and although the obligations may be unmatured; provided , that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.22 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 and the Lenders, and (y) the
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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 and each Issuing Bank under this Section 9.06 are in addition to other rights and remedies (including other rights of set-off) that such Lender or such Issuing Bank may have.
Section 9.07 Applicable Law . THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSES OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (OTHER THAN AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY PRINCIPLE OF CONFLICTS OF LAW THAT COULD REQUIRE THE APPLICATION OF ANY OTHER LAW.
Section 9.08 Waivers; Amendment .
(a) No failure or delay of the Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or 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 Administrative Agent, each Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by Holdings, the Borrower or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by clause (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on Holdings, the Borrower or any other Loan Party in any case shall entitle such person to any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (x) as provided in Section 2.21, (y) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Holdings (prior to a Qualified IPO), the Borrower and the Required Lenders (or, in respect of any waiver, amendment or modification of Section 4.01 after the Closing Date, solely as relates to the Revolving Facility Loans and Letters of Credit, the Required Revolving Facility Lenders voting as a single Class, rather than the Required Lenders), and (z) in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by each Loan Party party thereto and the Administrative Agent and consented to by the Required Lenders; provided , however , that no such agreement shall:
(i) decrease or forgive the principal amount of, or extend the final maturity of, or decrease the rate of interest on, any Loan or any L/C Disbursement, or extend the stated expiration of any Letter of Credit beyond the applicable Revolving Facility Maturity Date (except as provided in Section 2.05(c)), without the prior written consent of each Lender directly adversely affected thereby (which, notwithstanding the foregoing, such consent of such Lender directly adversely affected thereby shall be the only consent required hereunder to make such modification); provided , that any amendment to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest for purposes of this clause (i),
(ii) increase or extend the Commitment of any Lender, or decrease the Commitment Fees, L/C Participation Fees or any other Fees of any Lender without the prior written consent of such Lender (which, notwithstanding the foregoing, such consent of such Lender shall be the only consent required hereunder to make such modification); provided , that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the aggregate Commitments shall not constitute an increase of the Commitments of any Lender,
(iii) extend or waive any Term Loan Installment Date or reduce the amount due on any Term Loan Installment Date or extend any date on which payment of interest on any Loan or any L/C Disbursement or any Fees is due, without the prior written consent of each Lender directly adversely affected thereby (which, notwithstanding the foregoing, such consent of such Lender directly adversely affected thereby shall be the only consent required hereunder to make such modification),
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(iv) amend the provisions of Section 2.18 or Section 7.02 in a manner that would by its terms alter the pro rata sharing of payments required thereby, without the prior written consent of each Lender adversely affected thereby (which, notwithstanding the foregoing, such consent of such Lender directly adversely affected thereby shall be the only consent required hereunder to make such modification),
(v) amend or modify the provisions of this Section 9.08 or the definition of the terms “Required Lenders,” “Majority Lenders” or 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 prior written consent of each Lender adversely affected thereby (it being understood that, with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Lenders on substantially the same basis as the Loans and Commitments are included on the Closing Date),
(vi) release all or substantially all of the Collateral or release all or substantially all of the Subsidiary Loan Parties from their respective Guarantees under the Subsidiary Guarantee Agreement, unless, in the case of a Subsidiary Loan Party, all or substantially all of the Equity Interests of such Subsidiary Loan Party is sold or otherwise disposed of in a transaction permitted by this Agreement or unless, in each case, such release is otherwise pursuant to the terms of the Collateral Agreement or the Subsidiary Guarantee Agreement, as applicable, without the prior written consent of each Lender;
(vii) effect any waiver, amendment or modification that by its terms adversely affects the rights in respect of payments or collateral of Lenders participating in any Facility differently from those of Lenders participating in another Facility, without the consent of the Majority Lenders participating in the adversely affected Facility (it being agreed that the Required Lenders may waive, in whole or in part, any prepayment or Commitment reduction required by Section 2.11 so long as the application of any prepayment or Commitment reduction still required to be made is not changed);
provided , further , that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent, Swingline Lender or an Issuing Bank hereunder without the prior written consent of the Administrative Agent, the Collateral Agent, Swingline Lender or such Issuing Bank acting as such at the effective date of such agreement, as applicable. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section 9.08 and any consent by any Lender pursuant to this Section 9.08 shall bind any Assignee of such Lender.
(c) Without the consent of any Lender or Issuing Bank, the Loan Parties and the Administrative Agent and/or the Collateral Agent may (in their respective sole discretion, or shall, to the extent required by any Loan Document) enter into any amendment, modification or waiver of any Loan Document, or enter into any new agreement or instrument, to effect the granting, perfection, protection, expansion or enhancement of any security interest in any Collateral or additional property to become Collateral for the benefit of the Secured Parties, or as required by local law to give effect to, or protect any security interest for the benefit of the Secured Parties, in any property or so that the security interests therein comply with applicable law or this Agreement or in each case to otherwise enhance the rights or benefits of any Lender under any Loan Document.
(d) Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent, Holdings (prior to a Qualified IPO) and the Borrower (a) to permit additional extensions of credit to be outstanding hereunder from time to time and the accrued interest and fees and other obligations in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Term Loans and the Revolving Facility Loans and the accrued interest and fees and other obligations in respect thereof and (b) to include appropriately the holders of such extensions of credit in any determination of the requisite lenders required hereunder, including Required Lenders and the Required Revolving Facility Lenders.
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(e) Notwithstanding the foregoing, technical and conforming modifications to the Loan Documents may be made with the consent of the Borrower and the Administrative Agent (but without the consent of any Lender) to the extent necessary (A) to cure any ambiguity, omission, defect or inconsistency or (B) to integrate any Incremental Term Loan Commitments or Incremental Revolving Facility Commitments in a manner consistent with Section 2.21, including, with respect to Other Revolving Loans or Other Term Loans, as may be necessary to establish such Incremental Term Loan Commitments or Incremental Revolving Facility Commitments as a separate Class or tranche from the existing Term Loans or Revolving Facility Commitments, as applicable, or (C) to cure any ambiguity, omission, defect or inconsistency.
(f) Each of the parties hereto hereby agrees that the Administrative Agent may take any and all action as may be necessary to ensure that all Term Loans established pursuant to Section 2.21 after the Closing Date that will be included in an existing Class of Term Loans outstanding on such date (an “ Applicable Date ”), when originally made, are included in each Borrowing of outstanding Term Loans of such Class (the “ Existing Class Loans ”), on a pro rata basis, and/or to ensure that, immediately after giving effect to such new Term Loans (the “ New Class Loans ” and, together with the Existing Class Loans, the “ Class Loans ”), each Lender holding Class Loans will be deemed to hold its Pro Rata Share of each Class Loan on the Applicable Date (but without changing the amount of any such Lender’s Term Loans), and each such Lender shall be deemed to have effectuated such assignments as shall be required to ensure the foregoing. The “ Pro Rata Share ” of any Lender on the Applicable Date is the ratio of (1) the sum of such Lender’s Existing Class Loans immediately prior to the Applicable Date plus the amount of New Class Loans made by such Lender on the Applicable Date over (2) the aggregate principal amount of all Class Loans on the Applicable Date.
(g) With respect to the incurrence of any secured or unsecured Indebtedness (including any intercreditor agreement relating thereto), the Borrower may elect (in its discretion, but shall not be obligated) to deliver to the Administrative Agent a certificate of a Responsible Officer at least three Business Days prior to the incurrence thereof (or such shorter time as the Administrative Agent may agree), together with either drafts of the material documentation relating to such Indebtedness or a description of such Indebtedness (including a description of the Liens intended to secure the same or the subordination provisions thereof, as applicable) in reasonably sufficient detail to be able to make the determinations referred to in this paragraph, which certificate shall either, at the Borrower’s election, (x) state that the Borrower has determined in good faith that such Indebtedness satisfies the requirements of the applicable provisions of Sections 6.01 and 6.02 (taking into account any other applicable provisions of this Section 9.08), in which case such certificate shall be conclusive evidence thereof, or (y) request the Administrative Agent to confirm, based on the information set forth in such certificate and any other information reasonably requested by the Administrative Agent, that such Indebtedness satisfies such requirements, in which case the Administrative Agent may determine whether, in its reasonable judgment, such requirements have been satisfied (in which case it shall deliver to the Borrower a written confirmation of the same), with any such determination of the Administrative Agent to be conclusive evidence thereof, and the Lenders hereby authorize the Administrative Agent to make such determinations.
(h) Notwithstanding the foregoing, this Agreement may be amended, waived or otherwise modified with the written consent of the Required Revolving Facility Lenders (and not the Required Lenders), the Administrative Agent, Holdings (prior to a Qualified IPO) and the Borrower with respect to the provisions of Section 4.01, solely as they relate to the Revolving Facility Loans and Letters of Credit.
Section 9.09 Interest Rate Limitation . Notwithstanding anything herein to the contrary, if at any time the applicable interest rate, together with all fees and charges that are treated as interest under applicable law (collectively, the “ Charges ”), as provided for herein or in any other document executed in connection herewith, or otherwise contracted for, charged, received, taken or reserved by any Lender or any Issuing Bank, shall exceed the maximum lawful rate (the “ Maximum Rate ”) that may be contracted for, charged, taken, received or reserved by such Lender in accordance with applicable law, the rate of interest payable hereunder, together with all Charges payable to such Lender or such Issuing Bank, shall be limited to the Maximum Rate; provided , that such excess amount shall be paid to such Lender or such Issuing Bank on subsequent payment dates to the extent not exceeding the legal limitation.
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Section 9.10 Entire Agreement . This Agreement, the other Loan Documents and the agreements regarding certain Fees referred to herein constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among or representations from the parties or their Affiliates with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents.
Section 9.11 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS (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 AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
Section 9.12 Severability . In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 9.13 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute but one contract, and shall become effective as provided in Section 9.03. Delivery of an executed counterpart to this Agreement by facsimile transmission (or other electronic transmission pursuant to procedures approved by the Administrative Agent) shall be as effective as delivery of a manually signed original.
Section 9.14 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 are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.
Section 9.15 Jurisdiction; Consent to Service of Process .
(a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York County, and of the United States District Court of the Southern District of New York sitting in New York County, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Loan Document shall affect any right that the Administrative Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or any other Loan Party or its properties in the courts of any jurisdiction.
(b) Each of the parties hereto 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 the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or federal court. 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.
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(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement or any other Loan Document to serve process in any other manner permitted by law.
Section 9.16 Confidentiality . Each of the Lenders, each Issuing Bank and each of the Agents agrees that it shall maintain in confidence any information relating to Holdings, any Parent Entity, the Borrower and any Subsidiary furnished to it by or on behalf of Holdings, any Parent Entity, the Borrower or any Subsidiary (other than information that (a) has become generally available to the public other than as a result of a disclosure by such party, (b) has been independently developed by such Lender, such Issuing Bank or such Agent without violating this Section 9.16 or (c) was available to such Lender, such Issuing Bank or such Agent from a third party having, to such person’s knowledge, no obligations of confidentiality to Holdings, any Parent Entity, the Borrower or any other Loan Party) and shall not reveal the same other than to its directors, trustees, officers, employees and advisors with a need to know and any numbering, administration or settlement service providers or to any person that approves or administers the Loans on behalf of such Lender (so long as each such person shall have been instructed to keep the same confidential in accordance with this Section 9.16), except: (A) to the extent necessary to comply with law or any legal process or the requirements of any Governmental Authority, the National Association of Insurance Commissioners or of any securities exchange on which securities of the disclosing party or any Affiliate of the disclosing party are listed or traded, (B) as part of normal reporting or review procedures to, or examinations by, Governmental Authorities or self-regulatory authorities, including the National Association of Insurance Commissioners or the Financial Industry Regulatory Authority, Inc., (C) to its parent companies, Affiliates or auditors (so long as each such person shall have been instructed to keep the same confidential in accordance with this Section 9.16), (D) in order to enforce its rights under any Loan Document in a legal proceeding, (E) to any pledgee under Section 9.04(d) or any other prospective assignee of, or prospective Participant in, any of its rights under this Agreement (so long as such person shall have been instructed to keep the same confidential in accordance with this Section 9.16) and (F) to any direct or indirect contractual counterparty in Hedging Agreements or such contractual counterparty’s professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section 9.16).
Section 9.17 Platform; Borrower Materials . The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arrangers will make available to the Lenders and the Issuing Banks materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “ Borrower Materials ”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “ Platform ”), and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to Holdings, the Borrower or its Subsidiaries or any of their respective securities (or, if Holdings is not at the time a public reporting company, material information of a type that would not reasonably be expected to be publicly available if Holdings was a public reporting company)) (each, a “ Public Lender ”). The Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (i) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof, (ii) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have authorized the Administrative Agent, the Arrangers, the Co-Manager, the Issuing Banks and the Lenders to treat such Borrower Materials as solely containing information that is either (A) publicly available information or (B) not material (although it may be sensitive and proprietary) with respect to Holdings, the Borrower or its Subsidiaries or any of their respective securities for purposes of United States Federal and state securities laws ( provided , however , that such Borrower Materials shall be treated as set forth in Section 9.16, to the extent such Borrower Materials constitute information subject to the terms thereof), (iii) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (iv) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”
Section 9.18 Release of Liens and Guarantees .
(a) The Lenders, the Issuing Banks and other Secured Parties hereby irrevocably agree that the Liens granted to the Collateral Agent by the Loan Parties on any Collateral shall be automatically released: (i) in full upon the occurrence of the Termination Date as set forth in Section 9.18(d) below; (ii) upon the Disposition (other than a lease) of such Collateral by any Loan Party to a person that is not (and is not required to become) a Loan Party in a
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transaction not prohibited by this Agreement (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (iii) to the extent that such Collateral comprises property leased to a Loan Party by a person that is not a Loan Party, upon termination or expiration of such lease (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (iv) if the release of such Lien is approved, authorized or ratified in writing by the Required Lenders (or such other percentage of the Lenders whose consent may be required in accordance with Section 9.08), (v) to the extent that the property constituting such Collateral is owned by any Guarantor, upon the release of such Guarantor from its obligations under the Guarantee in accordance with the Holdings Guarantee and Pledge Agreement or the Subsidiary Guarantee, as applicable, or clause (b) below (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (vi) as provided in Section 8.11 (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), and (vii) as required by the Collateral Agent to effect any Disposition of Collateral in connection with any exercise of remedies of the Collateral Agent pursuant to the Security Documents. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those being released) upon (or obligations (other than those being released) of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any Disposition, all of which shall continue to constitute part of the Collateral except to the extent otherwise released in accordance with the provisions of the Loan Documents.
(b) In addition, (i) the Lenders, the Issuing Banks and other Secured Parties hereby irrevocably agree that the Subsidiary Loan Parties shall be released from the Guarantees upon consummation of any transaction not prohibited hereunder resulting in such Subsidiary ceasing to constitute a Subsidiary Loan Party or otherwise becoming an Excluded Subsidiary (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry) and (ii) immediately prior to the consummation of a Qualified IPO of the Borrower, the Guarantee incurred by Holdings of the Obligations shall automatically terminate and Holdings shall be released from its obligations under the Loan Documents, shall cease to be a Loan Party and any Liens created by any Loan Documents on any assets or Equity Interests owned by Holdings shall automatically be released (unless the Borrower shall elect in its sole discretion that such release of Holdings shall not be effected).
(c) The Lenders, the Issuing Banks and other Secured Parties hereby authorize the Administrative Agent and the Collateral Agent, as applicable, to execute and deliver any instruments, documents, and agreements necessary or desirable to evidence and confirm the release of any Guarantor or Collateral pursuant to the foregoing provisions of this Section 9.18, all without the further consent or joinder of any Lender. Upon release pursuant to this Section 9.18, any representation, warranty or covenant contained in any Loan Document relating to any such Collateral or Guarantor shall no longer be deemed to be made. In connection with any release hereunder, the Administrative Agent and the Collateral Agent shall promptly (and the Secured Parties hereby authorize the Administrative Agent and the Collateral Agent to) take such action and execute any such documents as may be reasonably requested by the Borrower and at the Borrower’s expense in connection with the release of any Liens created by any Loan Document in respect of such Subsidiary, property or asset; provided , that the Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower containing such certifications as the Administrative Agent shall reasonably request.
(d) Notwithstanding anything to the contrary contained herein or any other Loan Document, on the Termination Date, all Liens granted to the Collateral Agent by the Loan Parties on any Collateral under the Loan Documents, and all obligations of the Borrower and the other Loan Parties under any Loan Documents (other than such obligations that expressly survive the Termination Date pursuant to the terms hereof) shall, in each case, be automatically released and, upon request of the Borrower, the Administrative Agent and/or the Collateral Agent, as applicable, shall (without notice to, or vote or consent of, any Secured Party) take such actions as shall be required to evidence the release its security interest in all Collateral granted to it pursuant to the Loan Documents (including returning to Holdings or the Borrower all possessory collateral (including share certificates (if any)) held by it pursuant to the Loan Documents in respect of any Collateral so released), and to evidence the release of all obligations under any Loan Document (other than such obligations that expressly survive the Termination Date pursuant to the terms hereof), whether or not on the date of such release there may be any (i) obligations in respect of any Secured Hedge Agreements or any Secured Cash Management Agreements and (ii) any contingent indemnification obligations or expense reimburse claims not then due; provided , that the Administrative Agent shall
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have received a certificate of a Responsible Officer of the Borrower containing such certifications as the Administrative Agent shall reasonably request. Any such release of obligations shall be deemed subject to the provision that such obligations shall be reinstated if after such release any portion of any payment in respect of the obligations guaranteed thereby shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payment had not been made. The Borrower agrees to pay all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent or the Collateral Agent (and their respective representatives) in connection with taking such actions to release security interest in all Collateral and all obligations under the Loan Documents as contemplated by this Section 9.18(d).
(e) Obligations of the Borrower or any of its Subsidiaries under any Secured Cash Management Agreement or Secured Hedge Agreement (after giving effect to all netting arrangements relating to such Secured Hedge Agreements) shall be secured and guaranteed pursuant to the Security Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed. No person shall have any voting rights under any Loan Document solely as a result of the existence of obligations owed to it under any such Secured Hedge Agreement or Secured Cash Management Agreement. For the avoidance of doubt, no release of Collateral or Guarantors effected in the manner permitted by this Agreement shall require the consent of any holder of obligations under Secured Hedge Agreements or any Secured Cash Management Agreements.
Section 9.19 Judgment Currency . If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Borrower in respect of any such sum due from it to the Administrative Agent or the Lenders hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the “ Judgment Currency ”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “ Agreement Currency ”), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Administrative Agent from the Borrower in the Agreement Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or the person to whom such obligation was owing against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Administrative Agent in such currency, the Administrative Agent agrees to return the amount of any excess to the Borrower (or to any other person who may be entitled thereto under applicable law).
Section 9.20 USA PATRIOT Act Notice . Each Lender that is subject to the USA PATRIOT Act and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the USA PATRIOT Act.
Section 9.21 Affiliate Lenders .
(a) Each Lender who is an Affiliate of the Borrower, excluding (x) Holdings, the Borrower and their respective Subsidiaries and (y) any Debt Fund Affiliate Lender (each, an “ Affiliate Lender ”; it being understood that (x) neither Holdings, the Borrower, nor any of their Subsidiaries may be Affiliate Lenders and (y) Debt Fund Affiliate Lenders and Affiliate Lenders may be Lenders hereunder in accordance with Section 9.04, subject in the case of Affiliate Lenders, to this Section 9.21), in connection with any (i) consent (or decision not to consent) to any amendment, modification, waiver, consent or other action with respect to any of the terms of any Loan Document, (ii) other action on any matter related to any Loan Document or (iii) direction to the Administrative Agent, the Collateral Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under
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any Loan Document, agrees that, except with respect to any amendment, modification, waiver, consent or other action (1) described in clauses (i), (ii), (iii) or (iv) of the first proviso of Section 9.08(b) or (2) that affects such Affiliate Lender (in its capacity as a Lender) in a disproportionately adverse manner as compared to other Lenders, such Affiliate Lender shall be deemed to have voted its interest as a Lender without discretion in such proportion as the allocation of voting with respect to such matter by Lenders who are not Affiliate Lenders. Each Affiliate Lender hereby irrevocably appoints the Administrative Agent (such appointment being coupled with an interest) as such Affiliate Lender’s attorney-in-fact, with full authority in the place and stead of such Affiliate Lender and in the name of such Affiliate Lender, from time to time in the Administrative Agent’s discretion to take any action and to execute any instrument that the Administrative Agent may deem reasonably necessary to carry out the provisions of this clause (a).
(b) Notwithstanding anything to the contrary in this Agreement, no Affiliate Lender shall have any right to (a) attend (including by telephone) any meeting or discussions (or portion thereof) among the Administrative Agent or any Lender to which representatives of the Borrower are not then present, (b) receive any information or material prepared by Administrative Agent or any Lender or any communication by or among Administrative Agent and/or one or more Lenders, except to the extent such information or materials have been made available to the Borrower or its representatives, (c) make or bring (or participate in, other than as a passive participant in or recipient of its pro rata benefits of) any claim, in its capacity as a Lender, against Administrative Agent, the Collateral Agent or any other Lender with respect to any duties or obligations or alleged duties or obligations of such Agent or any other such Lender under the Loan Documents, (d) purchase any Term Loan if, after giving effect to such purchase, Affiliate Lenders in the aggregate would own Term Loans with an aggregate principal amount in excess of 25% of the aggregate principal amount of all Term Loans then outstanding or (e) purchase any Revolving Facility Loans or Revolving Facility Commitments. It shall be a condition precedent to each assignment to an Affiliate Lender that such Affiliate Lender shall have (x) represented to the assigning Lender in the applicable Assignment and Acceptance, and notified the Administrative Agent, that it is (or will be, following the consummation of such assignment) an Affiliate Lender and that the aggregate amount of Term Loans held by it giving effect to such assignments shall not exceed the amount permitted by clause (d) of the preceding sentence and (y) represented in the applicable Assignment and Acceptance that it is not in possession of material non-public information (within the meaning of United States federal and state securities laws) with respect to Holdings, the Borrower, its Subsidiaries or their respective securities (or, if Holdings is not at the time a public reporting company, material information of a type that would not be reasonably expected to be publicly available if Holdings were a public reporting company) that (A) has not been disclosed to the assigning Lender or the Lenders generally (other than because any such Lender does not wish to receive material non-public information with respect to Holdings, the Borrower or its Subsidiaries) and (B) could reasonably be expected to have a material effect upon, or otherwise be material to, the assigning Lender’s decision make such assignment.
Section 9.22 Agency of the Borrower for the Loan Parties . Each of the other Loan Parties hereby appoints the Borrower as its agent for all purposes relevant to this Agreement and the other Loan Documents, including the giving and receipt of notices and the execution and delivery of all documents, instruments and certificates contemplated herein and therein and all modifications hereto and thereto.
Section 9.23 No Liability of the Issuing Banks . The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither any Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) such Issuing Bank’s willful misconduct or gross negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) such Issuing Bank’s willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, such Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.
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Section 9.24 Application of Gaming Laws .
(a) This Agreement and the other Loan Documents are subject to Gaming Laws. Without limiting the foregoing and notwithstanding anything herein or in any other Loan Document to the contrary, the Lenders, Agents and Secured Parties acknowledge that (i) they are subject to the jurisdiction of the Gaming Authorities, in their discretion, for licensing, qualification or findings of suitability or to file or provide other information, and (ii) all rights, remedies and powers in or under this Agreement and the other Loan Documents, including with respect to the Collateral (including the pledge and delivery of the Pledged Collateral (as defined in the applicable Security Documents)), any Mortgaged Property and the ownership and operation of facilities, are, in each case, subject to the jurisdiction of the Gaming Authorities, and may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of the Gaming Laws and only to the extent that required approvals (including prior approvals) are obtained from the relevant Gaming Authorities.
(b) The Lenders, Agents and Secured Parties agree to cooperate with all Gaming Authorities in connection with the provision in a timely manner of such documents or other information as may be requested by such Gaming Authorities relating to the Loan or Loan Documents. The Borrower shall bear all costs and expenses of any such Lenders, Agents and Secured Parties incurred in connection with such parties’ cooperation with any requests of such Gaming Authorities including, without limitation, any costs and expenses incurred by any Lenders, Agents and Secured Parties incurred in connection with such cooperation.
(c) The Lenders acknowledge and agree that if the Borrower receives a notice from any applicable Gaming Authority that any Lender is a Disqualified holder (and such Lender is notified by the Borrower in writing of such Disqualification), the Borrower shall, following any available appeal of such determination by such Gaming Authority (unless the rules of the applicable Gaming Authority do not permit such Lender to retain its Loans or Commitments pending appeal of such determination), have the right to (i) cause such Disqualified holder to transfer and assign, without recourse all of its interests, rights and obligations in its Loans and Commitments or (ii) in the event that (A) the Borrower is unable to assign such Loan or Commitments after using its best efforts to cause such an assignment and (B) no Default or Event of Default has occurred and is continuing, prepay such Disqualified holder’s Loan and terminate such Disqualified holder’s Commitments, as applicable. Notice to such Disqualified holder shall be given ten days prior to the required date of assignment or prepayment, as the case may be, and shall be accompanied by evidence demonstrating that such transfer or prepayment is required pursuant to Gaming Laws. If reasonably requested by any Disqualified holder, the Borrower will use commercially reasonable efforts to cooperate with any such holder that is seeking to appeal such determination and to afford such holder an opportunity to participate in any proceedings relating thereto. Notwithstanding anything herein to the contrary, any prepayment of a Loan shall be at a price that, unless otherwise directed by a Gaming Authority, shall be equal to the sum of the principal amount of such Loan and interest to the date on which such Lender or holder became a Disqualified holder (plus any fees and other amounts accrued for the account of such Disqualified holder to the date such Lender or holder became a Disqualified holder).
(d) If during the existence of an Event of Default hereunder or any of the other Loan Documents, it shall become necessary or, in the opinion of the Administrative Agent, advisable for an agent, supervisor, receiver or other representative of the Lenders to become licensed or found qualified under any Gaming Law as a condition to receiving the benefit of any Collateral encumbered by the Loan Documents or to otherwise enforce the rights of the Agents, Secured Parties and the Lenders under the Loan Documents, the Borrower hereby agrees to consent to the application for such license or qualification and to execute such further documents as may be required in connection with the evidencing of such consent.
Section 9.25 Acknowledgment and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
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(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
[Signature Pages Follow]
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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 written above.
AP GAMING HOLDINGS, LLC | ||
By: |
/s/ David Lopez |
|
Name: David Lopez | ||
Title: Authorized Signatory | ||
AP GAMING I, LLC | ||
By: |
/s/ David Lopez |
|
Name: David Lopez | ||
Title: Authorized Signatory |
[Signature Page to First Lien Credit Agreement]
JEFFERIES FINANCE LLC, as Administrative Agent, Collateral Agent, an Issuing Bank and as a Lender |
||
By: |
/s/ John Koehler |
|
Name: John Koehler | ||
Title: Senior Vice President |
[Signature Page to First Lien Credit Agreement]
MACQUARIE CAPITAL FUNDING LLC, as a Revolving Facility Lender and an Issuing Bank |
||
By: |
/s/ Lisa Grushkin |
|
Name: Lisa Grushkin | ||
Title: Authorized Signatory | ||
By: |
/s/ Ayesha Farooqi |
|
Name: Ayesha Farooqi | ||
Title: Authorized Signatory |
[Signature Page to First Lien Credit Agreement]
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the First Lien Credit Agreement, dated as of June 6, 2017 (as the same may be amended, restated, or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time (the “ Lenders ”) and Jefferies Finance LLC, as administrative agent (in such capacity, the “ Administrative Agent ”) for the Lenders. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Effective Date set forth below (the “ Effective Date ”) (but not prior to the registration of the information contained herein in the Register pursuant to Section 9.04(b)(v) of the Credit Agreement), the interests set forth below (the “ Assigned Interest ”) in the Assignor’s rights and obligations under the Credit Agreement and the other Loan Documents, including, without limitation, the amounts and percentages set forth below of (i) the Commitments of the Assignor on the Effective Date set forth below and (ii) the Loans owing to the Assignor which are outstanding on the Effective Date. Each of the Assignor and the Assignee hereby makes and agrees to be bound by all the representations, warranties and agreements set forth in Exhibit A hereto. From and after the Effective Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interests assigned by this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the Loan Documents and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.
2. Pursuant to Section 9.04(b)(ii) of the Credit Agreement, this Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if required by Section 9.04(b)(ii)(B) of the Credit Agreement, a processing and recordation fee of $3,500 and (ii) if the Assignee is not already a Lender under the Credit Agreement, a completed Administrative Questionnaire and any tax forms required to be delivered pursuant to Section 2.17 of the Credit Agreement.
3. This Assignment and Acceptance shall be construed in accordance with and governed by the laws of the State of New York, without regard to any principle of conflicts of law that could require the application of any other law.
Date of Assignment: |
Legal Name of Assignor (“ Assignor ”): |
Legal Name of Assignee (“ Assignee ”): |
Assignee’s Address for Notices: |
Effective Date of Assignment: |
Facility/Commitment |
Principal Amount
Assigned 1 |
Percentage Assigned of
Commitment (set forth, to at least 8 decimals, as a percentage of the Facility and the Aggregate Commitments of all Lenders thereunder) |
||||||
Term Loans/Facility Commitments |
$ | % | ||||||
Revolving Facility Loans/Commitments |
$ | % |
[Remainder of page intentionally left blank]
1 | Minimum amount of Commitments and/or Loans assigned is governed by Section 9.04(b)(ii) of the Credit Agreement. |
2 | To be completed to the extent consents are required under Section 9.04(b)(i) of the Credit Agreement. |
3 | Consent of the Administrative Agent shall not be required for an assignment of all or any portion of a Loan to a Lender, an Affiliate of a Lender, an Approved Fund or an Affiliate of the Borrower made in accordance with Section 9.04(i) (see Exhibit G to the Credit Agreement) or Section 9.21 of the Credit Agreement. |
[Signature Page to the Assignment and Acceptance]
[AP GAMING I, LLC, as Borrower] 4 |
||
by: |
|
|
Name: | ||
Title: |
4 | Consent of the Borrower shall not be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or if an Event of Default under Sections 7.01(b), (c), (h) or (i) of the Credit Agreement has occurred and is continuing. Consent of the Borrower, with respect to the assignment of a Term Loan, shall be deemed to have been given if the Borrower has not responded within ten (10) Business Days after any request for such consent. |
[Signature Page to the Assignment and Acceptance]
EXHIBIT A
REPRESENTATIONS AND WARRANTIES
Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
By executing and delivering this Assignment and Acceptance, the assigning Lender hereunder and the Assignee hereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows:
1. | Such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned hereby free and clear of any adverse claim and that its applicable Commitment, and the outstanding balances of its Term Loans and Revolving Facility Loans, in each case without giving effect to assignments hereof which have not become effective, are as set forth in such Assignment and Acceptance. |
2. | Except as set forth in (1) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, or the financial condition of Holdings, the Borrower or any Subsidiary or the performance or observance by Holdings, the Borrower or any Subsidiary of any of its obligations under the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto. |
3. | The Assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance. |
4. | The Assignee confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements referred to in Section 3.05 (or delivered pursuant to Section 5.04) of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance. |
5. | The Assignee will independently and without reliance upon any Agent, such assigning Lender 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. |
6. | The Assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to such Agent by the terms of the Credit Agreement, together with such powers as are reasonably incidental thereto. |
Exh. A-1
7. | The Assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. |
Exh. A-1
EXHIBIT B
[Reserved]
EXHIBIT C
FORM OF
SOLVENCY CERTIFICATE
[•], 201[•]
This Solvency Certificate is delivered pursuant to Section 4.02(e) of the First Lien Credit Agreement, dated as of June 6, 2017 (as the same may be amended, restated, or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time (the “ Lenders ”) and Jefferies Finance LLC, as Administrative Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
The undersigned hereby certifies, solely in [his][her] capacity as an Authorized Signatory of the Borrower and not in [his][her] individual capacity, as follows:
1. I am a Financial Officer of the Borrower. I am familiar with the Transactions, and have reviewed the Credit Agreement, financial statements referred to in Section 3.05 of the Credit Agreement and such documents and made such investigation as I have deemed relevant for the purposes of this Solvency Certificate.
2. As of the date hereof, immediately after giving effect to the consummation of the Transactions, on and as of such date (i) the fair value of the assets of the Borrower and its subsidiaries on a consolidated basis, at a fair valuation, exceeds the debts and liabilities, direct, subordinated, contingent or otherwise, of the Borrower and its subsidiaries on a consolidated basis; (ii) the present fair saleable value of the property of the Borrower and its subsidiaries on a consolidated basis is greater than the amount that will be required to pay the probable liability of the Borrower and its subsidiaries on a consolidated basis on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and its subsidiaries on a consolidated basis are able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and its subsidiaries on a consolidated basis do not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date.
3. As of the date hereof, immediately after giving effect to the consummation of the Transactions, the Borrower does not intend to, and the Borrower does not believe that it or any of its subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing and amounts of cash to be received by it or any such subsidiary and the timing and amounts of cash to be payable on or in respect of its debts or the debts of any such subsidiary.
This Solvency Certificate is being delivered by the undersigned Authorized Signatory only in [his][her] capacity as a Financial Officer of the Borrower and not individually and the undersigned shall have no personal liability to the Administrative Agent or the Lenders with respect thereto.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the undersigned has executed this Solvency Certificate on the date first written above.
AP GAMING I, LLC, as Borrower | ||
By: |
|
|
Name: | ||
Title: |
[Signature Page to the Solvency Certificate]
EXHIBIT D-1
FORM OF BORROWING REQUEST
Date: 1 ,
To: Jefferies Finance LLC, as administrative agent (in such capacity, the “ Administrative Agent ”) under that certain First Lien Credit Agreement, dated as of June 6, 2017 (as the same may be amended, restated, or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time and the Administrative Agent.
Ladies and Gentlemen:
Reference is made to the above-described Credit Agreement. Terms defined in the Credit Agreement, wherever used herein, unless otherwise defined herein, shall have the same meanings herein as are prescribed by the Credit Agreement. The undersigned hereby irrevocably notifies you of the Borrowing specified below:
1. The Borrowing will be a Borrowing of Loans. 2
2. The aggregate amount of the proposed Borrowing is: $ .
3. The Business Day of the proposed Borrowing is: .
4. The Borrowing is comprised of $ of ABR Loans and $ of the Eurocurrency Loans.
1 | The Borrower must notify the Administrative Agent by telephone not later than 12:00 p.m., Local Time (a) in the case of a Eurocurrency Borrowing, three (3) Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, no later than 10:00 a.m., Local Time, on the Business Day of the proposed Borrowing; provided, that, (i) to request a Borrowing on the Closing Date, the Borrower shall notify the Administrative Agent of such request by telephone not later than 5:00 p.m., Local Time, one Business Day prior to the Closing Date and (ii) any such notice of an ABR Revolving Facility Borrowing to finance the reimbursement of an L/C Disbursement as contemplated by Section 2.05(e) may be given not later than 10:00 a.m., Local Time, on the date of the proposed Borrowing. Each telephonic Borrowing Request will be irrevocable and must be confirmed promptly by hand delivery or electronic means of this form to the Administrative Agent. |
2 | Term B Loans, Revolving Facility Loans, Refinancing Term Loans, Other Term Loans, Other Revolving Loans or Replacement Revolving Loans. |
5. | The duration of the Interest Period for the Eurocurrency Loans, if any, included in the Borrowing shall be month(s). |
6. | The location and number of the account to which the proceeds of such Borrowing are to be deposited is . |
The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds thereof:
(A) The representations and warranties set forth in the Loan Documents are true and correct in all material respects as of the date hereof, with the same effect as though made on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties were true and correct in all material respects as of such earlier date); and
(B) No Event of Default or Default has occurred and is continuing or would result from the proposed Borrowing.
This Borrowing Request is issued pursuant to and is subject to the Credit Agreement, executed as of the date first written above.
AP GAMING I, LLC, as Borrower | ||
By: |
|
|
Name: | ||
Title: |
[Signature Page to the Borrowing Request]
EXHIBIT D-2
FORM OF SWINGLINE BORROWING REQUEST
Date: 1 ,
To: Jefferies Finance LLC, as administrative agent (in such capacity, the “ Administrative Agent ”) under that certain First Lien Credit Agreement, dated as of June 6, 2017 (as the same may be amended, restated, or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time and the Administrative Agent.
Ladies and Gentlemen:
Reference is made to the above-described Credit Agreement. Terms defined in the Credit Agreement, wherever used herein, unless otherwise defined herein, shall have the same meanings herein as are prescribed by the Credit Agreement. The undersigned hereby irrevocably notifies you, pursuant to Section 2.04(b) of the Credit Agreement, of the Swingline Borrowing specified below:
1. | The Business Day of the proposed Swingline Borrowing is: . |
2. | The amount of the proposed Swingline Borrowing is: $ . |
3. | The location and number of the account to which the proceeds of such Swingline Borrowing are to be deposited is . |
The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Swingline Borrowing, before and after giving effect thereto and to the application of the proceeds thereof:
(A) The representations and warranties set forth in the Loan Documents are true and correct in all material respects as of the date hereof, with the same effect as though made on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties were true and correct in all material respects as of such earlier date); and
(B) No Event of Default or Default has occurred and is continuing or would result from the proposed Swingline Borrowing.
1 | The Borrower must notify the Administrative Agent and the Swingline Lender by telephone not later than 1:00 p.m., Local Time, on the day of the proposed Swingline Borrowing. Each telephonic Swingline Borrowing Request will be irrevocable and must be confirmed by delivery of this form by electronic means to the Administrative Agent. |
This Swingline Borrowing Request is issued pursuant to and is subject to the Credit Agreement, executed as of the date first written above.
AP GAMING I, LLC, as Borrower | ||
By: |
|
|
Name: | ||
Title: |
[Signature Page to the Swingline Borrowing Request]
EXHIBIT E
FORM OF INTEREST ELECTION REQUEST
Date: 1 ,
To: | Jefferies Finance LLC, as administrative agent for the Lenders (in such capacity, the “ Administrative Agent ”) under that certain First Lien Credit Agreement, dated as of June 6, 2017 (as the same may be amended, restated, or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time and the Administrative Agent. |
Ladies and Gentlemen:
Reference is made to the above-described Credit Agreement. Terms defined in the Credit Agreement, wherever used herein, unless otherwise defined herein, shall have the same meanings herein as are prescribed by the Credit Agreement. This notice constitutes an Interest Election Request and the undersigned Borrower hereby makes an election with respect to Loans under the Credit Agreement, and in that connection such Borrower specifies the following information with respect to such election:
1. | Borrowing to which this request applies (including Facility, principal amount and Type of Loans subject to election): . 2 |
2. | Effective date of election (which shall be a Business Day): . |
3. | The Loans are to be [converted into] [continued as] [ABR] [Eurocurrency] Loans. |
4. | The duration of the Interest Period for the Eurocurrency Loans, if any, included in the election shall be months. |
(signature page follows)
1 | The Borrower must notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 of the Credit Agreement if such Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each telephonic Interest Election Request will be irrevocable and must be confirmed promptly by hand delivery or electronic means of this form to the Administrative Agent. |
2 | If different options are being elected with respect to different portions of the Borrowing, the portions thereof must be allocated to each resulting Borrowing (in which case the information to be specified pursuant to Paragraphs 3 and 4 shall be specified for each resulting Borrowing). |
This Interest Election Request is issued pursuant to and is subject to the Credit Agreement, executed as of the date first written above.
AP GAMING I, LLC, as Borrower | ||
By: |
|
|
Name: | ||
Title: |
[Signature Page to the Interest Election Request]
EXHIBIT F
[Reserved]
EXHIBIT G
FORM OF PERMITTED LOAN PURCHASE ASSIGNMENT AND ACCEPTANCE
Reference is made to the First Lien Credit Agreement, dated as of June 6, 2017 (as the same may be amended, restated, or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company (“ Holdings ”), AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time and Jefferies Finance LLC, as administrative agent (in such capacity, the “ Administrative Agent ”). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
The Assignor identified on Schedule l hereto (the “ Assignor ”) and the [Borrower][Holdings] agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below) and pursuant to the terms and conditions set forth in the Credit Agreement for Permitted Loan Purchases (including, without limitation, Section 9.04(i) and 9.04(j) thereof), the interest described in Schedule 1 hereto (the “ Assigned Interest ”) in and to the Assignor’s rights and obligations under the Credit Agreement with respect to those credit facilities contained in the Credit Agreement as are set forth on Schedule 1 hereto (individually, an “ Assigned Facility ”; collectively, the “ Assigned Facilities ”), in a principal amount for each Assigned Facility as set forth on Schedule 1 hereto.
2. 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 Permitted Loan Purchase Assignment and Acceptance and to consummate the transactions contemplated hereby; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of the Subsidiaries or any other obligor or the performance or observance by the Borrower, any of the Subsidiaries or any other obligor of any of their respective obligations under the Credit Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (d) attaches any Notes held by it evidencing the Assigned Facilities. To the extent the Assignor has retained any interest in the Assigned Facility and holds a Note evidencing such interest, the Assignor hereby requests that the Administrative Agent exchange the attached Notes for a new Note or Notes payable to the Assignor, in each case in amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date).
3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Permitted Loan Purchase Assignment and Acceptance and has taken all action necessary to execute and deliver this Permitted Loan Purchase Assignment and Acceptance and to consummate the transaction contemplated hereby; (b) represents and warrants that it satisfied the requirements, if any, specified in the Credit Agreement that are required to be satisfied in order to make a Permitted Loan Purchase of the Assigned Interest and (c) represents and warrants that it is not in possession of material non-public information (within the meaning of United States federal and state securities laws (or, in the case of any such person that is not a public reporting company, material information of a type that would not be reasonably expected to be publicly available if such person were a public reporting company) with respect to Holdings, the Borrower, the Subsidiaries or their respective securities that (A) has not been disclosed to the Assignor or the Lenders generally (other than because any such Assignor or other Lender does not wish to receive material non-public information (or, in the case of any such person that is not a public reporting company, material information of a type that would not be reasonably expected to be publicly available if such person were a public reporting company) with respect to Holdings, the Borrower, the Subsidiaries or their respective securities) and (B) could reasonably be expected to have a material effect upon, or otherwise be material to, Assignor’s decision to assign the Assigned Facilities to the Assignee.
4. The effective date of this Permitted Loan Purchase Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the “ Effective Date ”). Following the execution of this Permitted Loan Purchase Assignment and Acceptance, the Assigned Interest shall be deemed to be automatically and immediately (contributed to the Borrower, if applicable, and) cancelled and extinguished. The Administrative Agent shall update the Register, effective as of the Effective Date, to record such event as if it were a prepayment of such Assigned Interest pursuant to Section 9.04(j) of the Credit Agreement.
5. Upon such acceptance and recording, 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 prior to the Effective Date. No payments in respect of the Assigned Interest (which shall be deemed to have been cancelled and extinguished as of the Effective Date) shall be due to the Assignor or the Assignee from and after the Effective Date.
6. As of the Effective Date, the Assignor shall, to the extent provided in this Permitted Loan Purchase Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.
7. This Permitted Loan Purchase Assignment and Acceptance shall be binding upon, and inure to the benefit of the parties hereto and their respective successors and assigns. This Permitted Loan Purchase Assignment and Acceptance 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 Permitted Loan Purchase Assignment and Acceptance by electronic means shall be effective as delivery of a manually executed counterpart of this Permitted Loan Purchase Assignment and Acceptance.
8. This Permitted Loan Purchase Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Permitted Loan Purchase Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto.
[INSERT NAME], as Assignor |
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[INSERT NAME], as Assignee |
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[Signature Page to the Permitted Loan Purchase Assignment and Acceptance]
SCHEDULE 1
Assigned Interests
Facility Assigned |
(1) Amount of Loans / Commitments Assigned |
(2) Aggregate Amount of Commitments and Outstanding Loans of All Lenders |
(3) Aggregate
of Outstanding Term Loans |
(1) / (2) x 100% |
(1) / (3) x 100% |
|||||
Term B Loans | ||||||||||
Refinancing Term Loans | ||||||||||
Other Term Loans | ||||||||||
Extended Term Loans |
EXHIBIT H
[Reserved]
EXHIBIT I-1
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the First Lien Credit Agreement, dated as of June 6, 2017 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time and Jefferies Finance LLC, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
Pursuant to the provisions of Section 2.17(e) 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 Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not 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, (iii) it is not a “10-percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Borrower and the Administrative Agent with a certificate of its non-U.S. person status on IRS Form W-8BEN or W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent in writing and (2) the undersigned shall have at all times furnished the Borrower 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 by the Borrower or the Administrative Agent to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
[Foreign Lender] | ||
By: |
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Name: | ||
Title: | ||
[Address] |
Dated: , 20[ ]
EXHIBIT I-2
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the First Lien Credit Agreement, dated as of June 6, 2017 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time and Jefferies Finance LLC, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
Pursuant to the provisions of 2.17(e) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any 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 Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to the 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 “10-percent shareholder” of the Borrower 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 Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Borrower and the Administrative Agent with an 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 W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or W-8BEN-E from each of such partner’s/member’s 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 Borrower and the Administrative Agent in writing and (2) the undersigned shall have at all times furnished the Borrower 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 each such payment.
[Signature Page Follows]
[Foreign Lender] | ||
By: |
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Name: | ||
Title: | ||
[Address] |
Dated: , 20[ ]
EXHIBIT I-3
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the First Lien Credit Agreement, dated as of June 6, 2017 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time and Jefferies Finance LLC, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
Pursuant to the provisions of Section 2.17(e) and Section 9.04(d) 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) with respect to such participation, it is not 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, (iii) it is not a “10-percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a “controlled foreign corporation” related to the Borrower 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 or W-8BEN-E. 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 each such payment.
[Signature Page Follows]
[Foreign Participant] | ||
By: |
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Name: | ||
Title: | ||
[Address] |
Dated: , 20[ ]
EXHIBIT I-4
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the First Lien Credit Agreement, dated as of June 6, 2017 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time and Jefferies Finance LLC, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
Pursuant to the provisions of Section 2.17(e) and Section 9.04(d) 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 to 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 “10-percent shareholder” of the Borrower 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 Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with an IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or W-8BEN-E from each of such partner’s/member’s 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 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 each such payment.
[Signature Page Follows]
[Foreign Participant] | ||
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Title: | ||
[Address] |
Dated: , 20[ ]
[Signature Page to the Non-Bank Tax Certificate Exhibit I-4]
EXHIBIT J
FORM OF GLOBAL INTERCOMPANY NOTE
[•], 201[•]
FOR VALUE RECEIVED, each of the undersigned, to the extent a borrower from time to time from any other entity listed on the signature pages hereto (each, in such capacity, an “ Issuer ”), hereby promises to pay on demand to the order of such other entity listed below (each, in such capacity as lender to the applicable Issuer, a “ Holder ” and, together with each Issuer, a “ Note Party ”), in immediately available funds in the currencies as shall be agreed upon from time to time, at such location as the applicable Holder shall from time to time designate, the unpaid principal amount of all loans and advances or other credit extensions made by such Holder to such Issuer. Each Issuer promises also to pay interest on the unpaid principal amount of all such loans and advances or other credit extensions in like money at said location from the date of such loans and advances until paid at such rate per annum as shall be agreed upon from time to time by such Issuer and such Holder.
With respect to any Issuer and any Holder between whom loans, advances or other credit extensions exist as of the date of this intercompany promissory note (this “ Note ”) (such loans, advances or other credit extensions, “ Existing Obligations ”), (a) if any Existing Obligation is evidenced by a promissory note or other instrument or agreement in existence as of the date hereof (an “ Existing Note ”), it is agreed to between such Issuer and such Holder that the obligations under such Existing Note are hereafter to be evidenced by this Note and (b) it is agreed to between such Issuer and such Holder that the agreements in existence as of the date hereof with respect to any Existing Obligation (including agreements contained in any Existing Note) as to principal, amortization, currency, payment location and interest rate (if any) will continue to have effect under this Note until modified by agreement between such Issuer and such Holder.
Reference is hereby made to the First Lien Credit Agreement, dated as of June 6, 2017 (as amended, amended and restated, supplemented, refinanced, replaced or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company, AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the lenders party thereto from time to time (collectively, the “ Lenders ” and individually, a “ Lender ”), Jefferies Finance LLC, as administrative agent (in such capacity, the “ Agent ”). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
Anything in this Note to the contrary notwithstanding, the indebtedness evidenced by this Note owed by any Issuer that is the Borrower or a Subsidiary Loan Party to any Holder that is not a Loan Party shall be subordinate and junior in right of payment, to the extent and in the manner hereinafter set forth, to (i) all Obligations of the Borrower or such Issuer under the Credit Agreement and (ii) all other Indebtedness of such Issuer or any guaranty thereof other than Indebtedness that by its terms expressly provides that it shall not be Senior Indebtedness hereunder (such Obligations and such Indebtedness and other indebtedness and obligations in connection with any renewal, refunding, restructuring or refinancing thereof, including interest thereon accruing after the commencement of any proceedings referred to in clause (i) below, whether or not such interest is an allowed claim in such proceeding, being hereinafter collectively referred to as “ Senior Indebtedness ”):
(i) In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to any Issuer or to its creditors, as such, or to its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of such Issuer, whether or not involving insolvency or bankruptcy, then, if a Default has occurred and is continuing, (x) the holders of Senior Indebtedness shall be paid in full in cash in respect of all amounts constituting Senior Indebtedness before any Holder is entitled to receive (whether directly or indirectly), or make any demands for, any payment on account of this Note and (y) until the holders of Senior Indebtedness are paid in full in cash in respect of all amounts constituting Senior Indebtedness, any payment or distribution to which such Holder would otherwise be entitled (other than debt securities of such Issuer that are subordinated, to at least the same extent as this Note, to the payment of all Senior Indebtedness then outstanding (such securities being hereinafter referred to as “ Restructured Debt Securities ”)) shall be made to the holders of Senior Indebtedness;
(ii) if any Event of Default has occurred and is continuing with respect to any Senior Indebtedness (including any Default under the Credit Agreement), then no payment or distribution of any kind or character shall be made by or on behalf of any Issuer or any other Person on its behalf with respect to this Note; and
(iii) if any payment or distribution of any character, whether in cash, securities or other property (other than Restructured Debt Securities), in respect of this Note shall (despite these subordination provisions) be received by any Holder in violation of clause (i) or (ii) before all Senior Indebtedness shall have been paid in full in cash, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness (or their representatives), ratably according to the respective aggregate amounts remaining unpaid thereon, to the extent necessary to pay all Senior Indebtedness in full in cash.
To the fullest extent permitted by law, no present or future holder of Senior Indebtedness shall be prejudiced in its right to enforce the subordination of this Note by any act or failure to act on the part of any Issuer or by any act or failure to act on the part of such holder or any trustee or agent for such holder. Each Holder and each Issuer hereby agree that the subordination of this Note is for the benefit of the Agent and the Lenders and the Agent and the Lenders are obligees under this Note to the same extent as if their names were written herein as such and the Agent may, on behalf of itself and the Lenders, proceed to enforce the subordination provisions herein.
The indebtedness evidenced by this Note owed by any Issuer that is not the Borrower or a Subsidiary Loan Party shall not be subordinated to, and shall rank pari passu in right of payment with, any other obligation of such Issuer.
Notwithstanding the foregoing, nothing contained in the subordination provisions set forth above is intended to or will impair, as between each Issuer and each Holder, the obligations of such Issuer, which are absolute and unconditional, to pay to such Holder the principal of and interest on this Note as and when due and payable in accordance with its terms, or is intended to or will affect the relative rights of such Holder and other creditors of such Issuer other than the holders of Senior Indebtedness.
Each Holder is hereby authorized to record all loans and advances or other credit extensions made by it to any Issuer (all of which shall be evidenced by this Note), and all repayments or prepayments thereof, in its books and records, such books and records constituting prima facie evidence of the accuracy of the information contained therein. For the avoidance of doubt, this Note as between each Issuer and each Holder contains additional terms to any intercompany loan agreement between them and this Note does not in any way replace such intercompany loans between them nor does this Note in any way change the principal amount of any intercompany loans between them.
Upon execution and delivery after the date hereof by the Borrower or any subsidiary of the Borrower of a counterpart signature page hereto, such subsidiary shall become a Note Party hereunder with the same force and effect as if originally named as a Note Party hereunder. The rights and obligations of each Note Party hereunder shall remain in full force and effect notwithstanding the addition of any new Note Party as a party to this Note.
Each Issuer hereby waives presentment, demand, protest or notice of any kind in connection with this Note. All payments under this Note shall be made without offset, counterclaim or deduction of any kind.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[Remainder of page intentionally left blank]
EACH AS ISSUER AND HOLDER: | ||
AP GAMING HOLDINGS, LLC |
By: |
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Title: | ||
AP GAMING I, LLC |
By: |
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Title: |
AP GAMING II, INC. | ||
By: |
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Title: |
AP GAMING ACQUISITION, LLC | ||
By: |
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Title: |
AGS CAPITAL, LLC | ||
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Title: |
AGS LLC | ||
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Title: |
[Signature Page to the Global Intercompany Note]
AGS PARTNERS, LLC |
By: |
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Title: |
AGS ILLINOIS, LLLP |
By: |
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Title: |
APGAM CANADA ULC |
By: |
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Title: |
AGS CJ CORPORATION |
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Title: |
AGS CJ HOLDINGS CORPORATION |
By: |
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Title: |
CADILLAC JACK, INC. |
By: |
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Name: | ||
Title: |
[Signature Page to the Global Intercompany Note]
PLAYAGS UK LIMITED |
By: |
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Title: | ||
GAMINGO LIMITED |
By: |
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Name: | ||
Title: | ||
GAMINGO (ISRAEL), LTD. |
By: |
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Name: | ||
Title: | ||
AGS INTERACTIVE US, INC. |
By: |
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Name: | ||
Title: | ||
PLAYAGS BRASIL LTDA |
By: |
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Name: | ||
Title: | ||
PLAYAGS AUSTRALIA PTY |
By: |
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Title: |
[Signature Page to the Global Intercompany Note]
EQUIPOS Y SOLUCIONES TECNOLOGICAS CADILLAC JACK DE MEXICO, S. DE R.L. DE C.V. | ||
By: |
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Title: |
OPERADORA DE JUEGOS CADILLAC JACK DE MEXICO, S. DE R.L. DE C.V. | ||
By: |
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Name: | ||
Title: |
SERVICIOS ADMINISTRATIVOS CADILLAC JACK DE MEXICO, S. DE R.L. DE C.V. | ||
By: |
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Name: | ||
Title: |
COMERCIALIZADORA DE JUEGOS CADILLAC JACK DE MEXICO, S. DE R.L. DE C.V. | ||
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Title: |
[Signature Page to the Global Intercompany Note]
Exhibit 10.3
Execution Version
INCREMENTAL ASSUMPTION AGREEMENT
Dated as of December 6, 2017
among
AP GAMING HOLDINGS, LLC,
as Holdings,
AP GAMING I, LLC,
as Borrower,
THE SUBSIDIARY LOAN PARTIES,
THE LENDERS PARTY HERETO
and
JEFFERIES FINANCE LLC,
as Administrative Agent,
JEFFERIES FINANCE LLC,
and
MACQUARIE CAPITAL (USA) INC.,
as Joint Lead Arrangers and Joint Bookrunners,
INCREMENTAL ASSUMPTION AGREEMENT
This INCREMENTAL ASSUMPTION AGREEMENT (this “ Agreement ”), dated as of December 6, 2017, is made by and among AP Gaming Holdings, LLC, a Delaware limited liability company (“ Holdings ”), AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), each “Subsidiary Loan Party” listed on the signature pages hereto (each, a “ Subsidiary Loan Party ” and, collectively, jointly and severally, the “ Subsidiary Loan Parties ”), Jefferies Finance LLC, as Administrative Agent under the Existing Credit Agreement (as defined below) (the “ Administrative Agent ”), and each of the Lenders party hereto.
PRELIMINARY STATEMENTS:
(1) Holdings, the Borrower, the Lenders party thereto from time to time and the Administrative Agent are party to that certain First Lien Credit Agreement, dated as of June 6, 2017 (as amended, restated, supplemented, waived or otherwise modified from time to time prior to the date hereof, the “ Existing Credit Agreement ”).
(2) The Borrower has requested that the Incremental Term B Lenders (as defined below) provide, pursuant to Section 2.21(a) of the Existing Credit Agreement, Incremental Term B Loans (as defined below) in an aggregate principal amount of $65,000,000, the proceeds of which will be used by the Borrower (i) to finance the acquisition (the “ Acquisition ”) directly or indirectly by the Borrower of certain assets of Double Eagle Equipment Leasing, LLC, a Delaware limited liability company (“ DEEL ”) pursuant to that certain Asset Purchase Agreement, dated as of November 22, 2017, by AGS LLC, a Delaware limited liability company, and DEEL, and other related transactions in connection therewith, (ii) to pay fees and expenses in connection therewith, and (iii) for general corporate purposes (including, without limitation, permitted acquisitions, capital expenditures and transaction costs).
(3) Each Incremental Term B Lender who executes and delivers this Agreement as an Incremental Term B Lender will make Incremental Term B Loans on the Effective Date (as defined below) to the Borrower in an aggregate principal amount equal to its Incremental Term B Loan Commitment (as defined below).
(4) With respect to the Incremental Term B Loan Commitments, Jefferies Finance LLC and Macquarie Capital (USA) Inc. will act as the joint lead arrangers (in such capacity, the “ Incremental Arrangers ”) and joint bookrunners.
(5) The Administrative Agent, Holdings, the Borrower and the Incremental Term B Lenders desire to memorialize the terms of this Agreement by amending, in accordance with Section 9.08(e) of the Existing Credit Agreement, the Existing Credit Agreement as set forth below, such amendment to become effective on the Effective Date.
NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto hereby agree as follows:
1
SECTION 1. Defined Terms . Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Amended Credit Agreement (as defined below). In addition, as used in this Agreement, the following terms have the meanings specified:
“ Incremental Term B Lender ” shall mean a Lender with an Incremental Term B Loan Commitment on the Effective Date.
“ Incremental Term B Loan Commitment ” shall mean, with respect to each Incremental Term B Lender, the commitment of such Incremental Term B Lender to make Incremental Term B Loans to the Borrower on the Effective Date. The amount of each Lender’s Incremental Term B Loan Commitment as of the Effective Date is set forth on Schedule 1 hereto. The aggregate amount of the Incremental Term B Loan Commitments of all Incremental Term B Lenders as of the Effective Date is $65,000,000.
“ Incremental Term B Loans ” shall mean the Loans made pursuant to Section 2 of this Agreement.
SECTION 2. Incremental Term B Loan Commitments; Incremental Term B Loans . On the Effective Date, each of the Incremental Term B Lenders agrees to make Incremental Term B Loans to the Borrower in a principal amount not to exceed its Incremental Term B Loan Commitment. Unless previously terminated, the Incremental Term B Loan Commitments shall terminate at 11:59 p.m., New York City time, on the Effective Date.
SECTION 3. Requests for Incremental Term B Loans . To request a Borrowing of Incremental Term B Loans on the Effective Date, the Borrower shall notify the Administrative Agent of such request in writing not later than 5:00 p.m., New York City time, one Business Day prior to the Effective Date (or such later time as the Administrative Agent may agree).
SECTION 4. Representations of the Loan Parties . Each Loan Party hereby represents and warrants to the other parties hereto as of the Effective Date that:
(a) this Agreement has been duly authorized, executed and delivered by such Loan Party and constitutes a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors’ rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) implied covenants of good faith and fair dealing;
(b) the representations and warranties of the Borrower and each other Loan Party contained in Sections 3.01(a) and (d), 3.02(a), (b)(i)(B) and (b)(i)(D) (in the case of (b)(i)(D), limited to the Existing Credit Agreement), 3.03, 3.10, 3.11, 3.17(a) and (b) (limited to creation, validity and perfection), 3.19, 3.25 and 3.26 of the Existing Credit Agreement (collectively, the “ Specified Representations ”) are true and correct in all material respects on and as of the Effective Date (after giving effect to the borrowing of the Incremental Term B Loans and use of proceeds thereof) with the same effect as though made on the Effective Date, except to the extent such Specified Representations expressly relate to an earlier date (in which case such Specified Representations shall be true and correct in all material respects as of such earlier date).
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SECTION 5. Conditions of Lending . The obligations of the Incremental Term B Lenders to make Incremental Term B Loans on the Effective Date are subject (at the time of or substantially concurrently with the making of such Incremental Term B Loans) to the satisfaction (or waiver by a majority of the Incremental Term B Lenders) of the following conditions (the date of such satisfaction or waiver, the “ Effective Date ”):
(a) The Administrative Agent (or its counsel) shall have received (i) from each Incremental Term B Lender and (ii) from each of Holdings, the Borrower and the Subsidiary Loan Parties, either (x) a counterpart of this Agreement signed on behalf of such party or (y) written evidence reasonably satisfactory to the Administrative Agent (which may include delivery of a signed signature page of this Agreement by facsimile or other means of electronic transmission (e.g., “pdf”)) that such party has signed a counterpart of this Agreement.
(b) The Borrower shall have paid to the Administrative Agent, for the ratable account of each existing Lender with a Term B Loan outstanding under the Existing Credit Agreement immediately prior to the Effective Date, all accrued and unpaid interest on such existing Term B Loans outstanding under the Existing Credit Agreement to, but not including, the Effective Date.
(c) The Administrative Agent shall have received a certificate of the Secretary or Assistant Secretary or similar officer of each Loan Party dated the Effective Date:
(i) either (x) attaching a copy of the certificate or articles of incorporation, certificate of limited partnership, certificate of formation or other equivalent constituent and governing documents, including all amendments thereto, of such Loan Party, certified as of a recent date by the Secretary of State (or other similar official) of the jurisdiction of its organization or (y) with respect to any Loan Party other than the Borrower or Holdings, certifying there have been no changes to the certificate or articles of incorporation, certificate of limited partnership, certificate of formation or other equivalent constituent and governing documents of such Loan Party since the Closing Date,
(ii) attaching a certificate as to the good standing (to the extent such concept or a similar concept exists under the laws of such jurisdiction) of such Loan Party as of a recent date from such Secretary of State (or other similar official),
(iii) either (x) certifying that attached thereto is a true and complete copy of the by-laws (or partnership agreement, limited liability company agreement or other equivalent constituent and governing documents) of such Loan Party as in effect on the Effective Date and at all times since a date prior to the date of the resolutions described in clause (iv) below or (y) with respect to any Loan Party other than the Borrower or Holdings, certifying that there have been no changes to the by-laws (or partnership agreement, limited liability company agreement or other equivalent constituent and governing documents) of such Loan Party since the Closing Date,
(iv) certifying that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors (or equivalent governing body) of such Loan Party (or its managing general partner or managing member) authorizing the execution, delivery and performance of the Loan Documents executed in connection with this Agreement to which such Loan Party is a party and, in the case of the Borrower, the Borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect on the Effective Date,
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(v) certifying as to the incumbency and specimen signature of each officer executing any Loan Document executed in connection with this Agreement on behalf of such Loan Party, and
(vi) certifying as to the absence of any pending proceeding for the dissolution or liquidation of such Loan Party or, to the knowledge of such person, threatening the existence of such Loan Party.
(d) The Administrative Agent shall have received, on behalf of itself and the Incremental Term B Lenders, a written opinion of (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP and (ii) Jones Walker LLP, in each case, (A) dated the Effective Date, (B) addressed to the Administrative Agent and the Incremental Term B Lenders on the Effective Date and (C) in form and substance reasonably satisfactory to the Administrative Agent covering such matters relating to this Agreement as the Administrative Agent shall reasonably request.
(e) The Administrative Agent shall have received a solvency certificate substantially in the form of Exhibit C to the Existing Credit Agreement (as modified so that such certificate shall be made on the Effective Date after giving effect to the Incremental Term B Loans incurred on the Effective Date).
(f) The Administrative Agent shall have received all fees payable thereto or to any Incremental Arranger, on or prior to the Effective Date and, to the extent invoiced at least three (3) Business Days prior to the Effective Date, reimbursement or payment of all reasonable and documented out-of-pocket expenses (including reasonable fees, charges and disbursements of Cahill Gordon & Reindel LLP ) required to be reimbursed or paid by the Loan Parties hereunder or under any Loan Document on or prior to the Effective Date (which amounts may be offset against the proceeds of the Incremental Term B Loans made hereunder).
(g) The Administrative Agent shall have received on or prior to three (3) Business Days prior to the Effective Date all documentation and other information of the type set forth in Section 3.25(a) of the Existing Credit Agreement, to the extent such information has been requested by the Administrative Agent not less than five (5) Business Days prior to the Effective Date.
(h) The Borrower shall have delivered to the Administrative Agent a certificate from a Responsible Officer of the Borrower dated as of the Effective Date to the effect set forth in Section 4(b) hereof.
(i) The Acquisition shall be consummated simultaneously or substantially concurrently with the Borrowing of the Incremental Term B Loans on the Effective Date.
SECTION 6. Consent and Affirmation of the Loan Parties . Each of the Loan Parties, in its capacity as a guarantor under the Subsidiary Guarantee Agreement or Holdings Guarantee and Pledge Agreement, as applicable, and a pledgor under the other Security Documents to which it is a party, hereby (i) consents to the execution, delivery and performance of this Agreement and agrees that each of the Subsidiary Guarantee Agreement and the other Security Documents to which it is a party is, and shall continue to be, in full force and effect and is hereby in all respects ratified and confirmed on the Effective Date, except that, on and after the Effective Date, each reference to “Credit Agreement”, “First Lien Credit Agreement”, “thereunder”, “thereof” or words of like import shall, unless the context otherwise requires, mean and be a reference to the Amended Credit Agreement and (ii) confirms that the Security Documents to which each of the Loan Parties is a party and all of the Liens on Collateral described therein do, and shall continue to, secure the payment of all of the Obligations.
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SECTION 7. Amendment of the Existing Credit Agreement . Effective on and as of the Effective Date, the Existing Credit Agreement is hereby amended in accordance with Section 9.08(e) of the Existing Credit Agreement to delete the bold, stricken text (indicated textually in the same manner as the following example: stricken text ) and to add the bold, double-underlined text (indicated textually in the same manner as the following example: double-underlined text ) as set forth in the Existing Credit Agreement attached as Annex A hereto (the Existing Credit Agreement, as so amended, the “ Amended Credit Agreement ”).
SECTION 8. Reference to and Effect on the Loan Documents . (a) On and after the Effective Date, each reference in the Amended Credit Agreement to “hereunder”, “hereof”, “Agreement”, “this Agreement” or words of like import and each reference in the other Loan Documents to “Credit Agreement”, “First Lien Credit Agreement”, “thereunder”, “thereof” or words of like import shall, unless the context otherwise requires, mean and be a reference to the Amended Credit Agreement. From and after the Effective Date, this Agreement shall be a Loan Document under the Amended Credit Agreement.
(b) The Security Documents and each other Loan Document, as specifically amended by this Agreement, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed, and the respective guarantees, pledges, grants of security interests and other agreements, as applicable, under each of the Security Documents, notwithstanding the consummation of the transactions contemplated hereby, shall continue to be in full force and effect and shall accrue to the benefit of the Secured Parties under the Existing Credit Agreement and the Amended Credit Agreement. Without limiting the generality of the foregoing, the Security Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Loan Parties under the Loan Documents, in each case, as amended by this Agreement.
(c) The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
(d) This Agreement shall constitute an “Incremental Assumption Agreement”, the Incremental Term B Lenders shall constitute “Incremental Term Lenders” and “Lenders”, the Incremental Term B Loans shall constitute “Incremental Term Loans”, “Terp1m B Loans”, “Term Loans” and “Loans”, and the Incremental Term B Loan Commitments shall constitute “Incremental Term Loan Commitments”, “Term Facility Commitments” and “Commitments”, in each case, for all purposes of the Amended Credit Agreement and the other Loan Documents.
(e) This Agreement shall constitute notice to the Administrative Agent required under Section 2.21(a) of the Existing Credit Agreement.
SECTION 9. Execution in Counterparts . This Agreement 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 but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by .pdf or other electronic form shall be effective as delivery of a manually executed original counterpart of this Agreement.
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SECTION 10. Amendments; Headings; Severability . This Agreement may not be amended nor may any provision hereof be waived except pursuant to a writing signed by Holdings, the Borrower, the Administrative Agent and the Incremental Term B Lenders. The Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting this Agreement. Any provision of this Agreement 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 hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 11. Governing Law; Etc .
(a) THIS AGREEMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSES OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY PRINCIPLE OF CONFLICTS OF LAW THAT COULD REQUIRE THE APPLICATION OF ANY OTHER LAW.
(b) EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTIONS 9.11 AND 9.15 OF THE EXISTING CREDIT AGREEMENT AS IF SUCH SECTIONS WERE SET FORTH IN FULL HEREIN.
SECTION 12. No Novation . This Agreement shall not extinguish the obligations for the payment of money outstanding under the Existing Credit Agreement or discharge or release the Lien or priority of any Security Document or any other security therefor. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Existing Credit Agreement or instruments securing the same, which shall remain in full force and effect, except to any extent modified hereby or by instruments executed concurrently herewith and except to the extent repaid as provided herein. Nothing implied in this Agreement or in any other document contemplated hereby shall be construed as a release or other discharge of any of the Loan Parties under any Loan Document from any of its obligations and liabilities as a borrower, guarantor or pledgor under any of the Loan Documents.
SECTION 13. Notices . All notices hereunder shall be given in accordance with the provisions of Section 9.01 of the Amended Credit Agreement.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
HOLDINGS: | ||
AP GAMING HOLDINGS, LLC, a Delaware limited liability company | ||
By: | /s/ David Lopez | |
Name: David Lopez | ||
Title: Authorized Signatory |
BORROWER: | ||
AP GAMING I, LLC, a Delaware limited liability company | ||
By: | /s/ David Lopez | |
Name: David Lopez | ||
Title: Authorized Signatory |
SUBSIDIARY LOAN PARTIES: | ||
AP GAMING II, INC., a Delaware corporation | ||
AP GAMING ACQUISITION, LLC, a Delaware limited liability company | ||
AGS CAPITAL, LLC, a Delaware limited liability company | ||
AGS LLC, a Delaware limited liability company | ||
AGS PARTNERS, LLC, a Delaware limited liability company | ||
AGS ILLINOIS, LLLP, an Illinois limited partnership | ||
AGS CJ CORPORATION, a Delaware Corporation | ||
AGS CJ HOLDINGS CORPORATION, a Delaware corporation | ||
CADILLAC JACK, INC., a Georgia corporation | ||
By: | /s/ David Lopez | |
Name: David Lopez | ||
Title: Authorized Signatory |
[Incremental Assumption and Amendment Agreement]
JEFFERIES FINANCE LLC, as Administrative Agent | ||
By: | /s/ J. Paul McDonnell | |
Name: J. Paul McDonnell | ||
Title: Managing Director |
[Incremental Assumption and Amendment Agreement]
SCHEDULE 1
Incremental Term B Loan Commitments
Incremental Term B Lender |
Incremental Term B
Loan Commitment |
|||
Jefferies Finance LLC |
$ | 65,000,000 | ||
Total: |
$ | 65,000,000 |
ANNEX A
[See attached.]
Conformed Version incorporating the 2017 Incremental Assumption Agreement
(Incremental Term B Loans)
CONFIDENTIAL
FIRST LIEN CREDIT AGREEMENT
Dated as of June 6, 2017,
among
AP GAMING HOLDINGS, LLC,
as Holdings,
AP GAMING I, LLC,
as Borrower,
THE LENDERS PARTY HERETO,
JEFFERIES FINANCE LLC,
as Administrative Agent,
JEFFERIES FINANCE LLC,
and
MACQUARIE CAPITAL (USA) INC.,
as Joint Lead Arrangers and Joint Bookrunners,
APOLLO GLOBAL SECURITIES, LLC,
as Co-Manager
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | ||||||
Definitions | ||||||
Section 1.01 |
Defined Terms | 1 | ||||
Section 1.02 |
Terms Generally | 52 | ||||
Section 1.03 |
Effectuation of Transactions | 52 | ||||
Section 1.04 |
Exchange Rates; Currency Equivalents | 53 | ||||
Section 1.05 |
Timing of Payment or Performance | 53 | ||||
Section 1.06 |
Times of Day | 53 | ||||
ARTICLE II | ||||||
The Credits | ||||||
Section 2.01 |
Commitments | 53 | ||||
Section 2.02 |
Loans and Borrowings | 54 | ||||
Section 2.03 |
Requests for Borrowings | 54 | ||||
Section 2.04 |
Swingline Loans | 55 | ||||
Section 2.05 |
Letters of Credit | 56 | ||||
Section 2.06 |
Funding of Borrowings | 61 | ||||
Section 2.07 |
Interest Elections | 62 | ||||
Section 2.08 |
Termination and Reduction of Commitments | 63 | ||||
Section 2.09 |
Repayment of Loans; Evidence of Debt | 64 | ||||
Section 2.10 |
Repayment of Term Loans and Revolving Facility Loans | 64 | ||||
Section 2.11 |
Prepayment of Loans | 66 | ||||
Section 2.12 |
Fees | 67 | ||||
Section 2.13 |
Interest | 69 | ||||
Section 2.14 |
Alternate Rate of Interest | 69 | ||||
Section 2.15 |
Increased Costs | 70 | ||||
Section 2.16 |
Break Funding Payments | 71 | ||||
Section 2.17 |
Taxes | 71 | ||||
Section 2.18 |
Payments Generally; Pro Rata Treatment; Sharing of Set-offs | 74 | ||||
Section 2.19 |
Mitigation Obligations; Replacement of Lenders | 75 | ||||
Section 2.20 |
Illegality | 77 | ||||
Section 2.21 |
Incremental Commitments | 77 | ||||
Section 2.22 |
Defaulting Lender | 84 | ||||
ARTICLE III | ||||||
Representations and Warranties | ||||||
Section 3.01 |
Organization; Powers | 86 | ||||
Section 3.02 |
Authorization | 86 | ||||
Section 3.03 |
Enforceability | 87 | ||||
Section 3.04 |
Governmental Approvals | 87 | ||||
Section 3.05 |
Financial Statements | 87 | ||||
Section 3.06 |
No Material Adverse Effect | 88 | ||||
Section 3.07 |
Title to Properties; Possession Under Leases | 88 | ||||
Section 3.08 |
Subsidiaries | 88 | ||||
Section 3.09 |
Litigation; Compliance with Laws | 88 | ||||
Section 3.10 |
Federal Reserve Regulations | 89 |
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Page | ||||||
Section 3.11 |
Investment Company Act | 89 | ||||
Section 3.12 |
Use of Proceeds | 89 | ||||
Section 3.13 |
Tax Returns | 89 | ||||
Section 3.14 |
No Material Misstatements | 90 | ||||
Section 3.15 |
Employee Benefit Plans | 90 | ||||
Section 3.16 |
Environmental Matters | 90 | ||||
Section 3.17 |
Security Documents | 91 | ||||
Section 3.18 |
Location of Real Property and Leased Premises | 92 | ||||
Section 3.19 |
Solvency | 92 | ||||
Section 3.20 |
Labor Matters | 92 | ||||
Section 3.21 |
Insurance | 92 | ||||
Section 3.22 |
No Default | 93 | ||||
Section 3.23 |
Intellectual Property; Licenses, Etc. | 93 | ||||
Section 3.24 |
Senior Debt | 93 | ||||
Section 3.25 |
USA PATRIOT Act; OFAC | 93 | ||||
Section 3.26 |
Foreign Corrupt Practices Act | 93 | ||||
ARTICLE IV | ||||||
Conditions of Lending | ||||||
Section 4.01 |
All Credit Events | 94 | ||||
Section 4.02 |
First Credit Event | 94 | ||||
ARTICLE V | ||||||
Affirmative Covenants | ||||||
Section 5.01 |
Existence; Business and Properties | 96 | ||||
Section 5.02 |
Insurance | 96 | ||||
Section 5.03 |
Taxes | 97 | ||||
Section 5.04 |
Financial Statements, Reports, etc. | 98 | ||||
Section 5.05 |
Litigation and Other Notices | 100 | ||||
Section 5.06 |
Compliance with Laws | 100 | ||||
Section 5.07 |
Maintaining Records; Access to Properties and Inspections | 100 | ||||
Section 5.08 |
Use of Proceeds | 100 | ||||
Section 5.09 |
Compliance with Environmental Laws | 100 | ||||
Section 5.10 |
Further Assurances; Additional Security | 100 | ||||
Section 5.11 |
Rating | 103 | ||||
Section 5.12 |
Compliance with the USA Patriot Act, Anti-Corruption Laws and Sanctions Laws | 103 | ||||
ARTICLE VI | ||||||
Negative Covenants | ||||||
Section 6.01 |
Indebtedness | 103 | ||||
Section 6.02 |
Liens | 108 | ||||
Section 6.03 |
Sale and Lease-Back Transactions | 113 | ||||
Section 6.04 |
Investments, Loans and Advances | 114 | ||||
Section 6.05 |
Mergers, Consolidations, Sales of Assets and Acquisitions | 117 | ||||
Section 6.06 |
Dividends and Distributions | 119 | ||||
Section 6.07 |
Transactions with Affiliates | 121 | ||||
Section 6.08 |
Business of the Borrower and the Subsidiaries | 124 | ||||
Section 6.09 |
Limitation on Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. | 124 |
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Page | ||||||
Section 6.10 |
Fiscal Year | 127 | ||||
Section 6.11 |
Net First Lien Leverage Ratio | 127 | ||||
ARTICLE VIA | ||||||
Holdings Negative Covenants | ||||||
ARTICLE VII | ||||||
Events of Default | ||||||
Section 7.01 |
Events of Default | 127 | ||||
Section 7.02 |
Treatment of Certain Payments | 130 | ||||
Section 7.03 |
Right to Cure | 130 | ||||
ARTICLE VIII | ||||||
The Agents | ||||||
Section 8.01 |
Appointment | 131 | ||||
Section 8.02 |
Delegation of Duties | 131 | ||||
Section 8.03 |
Exculpatory Provisions | 132 | ||||
Section 8.04 |
Reliance by Agents | 132 | ||||
Section 8.05 |
Notice of Default | 133 | ||||
Section 8.06 |
Non-Reliance on Agents and Other Lenders | 133 | ||||
Section 8.07 |
Indemnification | 133 | ||||
Section 8.08 |
Agent in Its Individual Capacity | 134 | ||||
Section 8.09 |
Successor Administrative Agent | 134 | ||||
Section 8.10 |
Arrangers and Co-Manager | 134 | ||||
Section 8.11 |
Security Documents, Collateral Agent and Collateral Agent | 135 | ||||
Section 8.12 |
Right to Realize on Collateral and Enforce Guarantees | 135 | ||||
Section 8.13 |
Withholding Tax | 136 | ||||
ARTICLE IX | ||||||
Miscellaneous | ||||||
Section 9.01 |
Notices; Communications | 136 | ||||
Section 9.02 |
Survival of Agreement | 137 | ||||
Section 9.03 |
Binding Effect | 137 | ||||
Section 9.04 |
Successors and Assigns | 138 | ||||
Section 9.05 |
Expenses; Indemnity | 142 | ||||
Section 9.06 |
Right of Set-off | 144 | ||||
Section 9.07 |
Applicable Law | 144 | ||||
Section 9.08 |
Waivers; Amendment | 144 | ||||
Section 9.09 |
Interest Rate Limitation | 147 | ||||
Section 9.10 |
Entire Agreement | 147 | ||||
Section 9.11 |
WAIVER OF JURY TRIAL | 147 | ||||
Section 9.12 |
Severability | 148 | ||||
Section 9.13 |
Counterparts | 148 | ||||
Section 9.14 |
Headings | 148 | ||||
Section 9.15 |
Jurisdiction; Consent to Service of Process | 148 | ||||
Section 9.16 |
Confidentiality | 148 | ||||
Section 9.17 |
Platform; Borrower Materials | 149 | ||||
Section 9.18 |
Release of Liens and Guarantees | 149 |
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Page | ||||||
Section 9.19 |
Judgment Currency | 151 | ||||
Section 9.20 |
USA PATRIOT Act Notice | 151 | ||||
Section 9.21 |
Affiliate Lenders | 151 | ||||
Section 9.22 |
Agency of the Borrower for the Loan Parties | 152 | ||||
Section 9.23 |
No Liability of the Issuing Banks | 152 | ||||
Section 9.24 |
Application of Gaming Laws | 153 | ||||
Section 9.25 |
Acknowledgment and Consent to Bail-In of EEA Financial Institutions | 154 |
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Exhibits, Schedules and Annex
Exhibit A |
Form of Assignment and Acceptance |
|
Exhibit B |
[Reserved] |
|
Exhibit C |
Form of Solvency Certificate |
|
Exhibit D-1 |
Form of Borrowing Request |
|
Exhibit D-2 |
Form of Swingline Borrowing Request |
|
Exhibit E |
Form of Interest Election Request |
|
Exhibit F |
[Reserved] |
|
Exhibit G |
Form of Permitted Loan Purchase Assignment and Acceptance |
|
Exhibit H |
[Reserved] |
|
Exhibit I |
Form of Non-Bank Tax Certificate |
|
Exhibit J |
Form of Global Intercompany Note |
|
Schedule 1.01(A) |
Certain Excluded Equity Interests |
|
Schedule 1.01(B) |
Mortgaged Properties |
|
Schedule 1.01(C) |
Closing Date Unrestricted Subsidiaries |
|
Schedule 1.01(D) |
Specified L/C Sublimit |
|
Schedule 2.01 |
Commitments |
|
Schedule 3.01 |
Organization and Good Standing |
|
Schedule 3.04 |
Governmental Approvals |
|
Schedule 3.05 |
Financial Statements |
|
Schedule 3.08(a) |
Subsidiaries |
|
Schedule 3.08(b) |
Subscriptions |
|
Schedule 3.13 |
Taxes |
|
Schedule 3.21 |
Insurance |
|
Schedule 3.23 |
Intellectual Property |
|
Schedule 5.10 |
Post-Closing Items |
|
Schedule 6.01 |
Indebtedness |
|
Schedule 6.02(a) |
Liens |
|
Schedule 6.04 |
Investments |
|
Schedule 6.07 |
Transactions with Affiliates |
|
Schedule 9.01 |
Notice Information |
-i-
FIRST LIEN CREDIT AGREEMENT, dated as of June 6, 2017 (this “ Agreement ”), among AP GAMING HOLDINGS, LLC, a Delaware limited liability company (“ Holdings ”), AP GAMING I, LLC, a Delaware limited liability company (the “ Borrower ”), the LENDERS party hereto from time to time, and JEFFERIES FINANCE LLC, as Administrative Agent (in such capacity, the “ Administrative Agent ”) for the Lenders and Collateral Agent for the Secured Parties.
WHEREAS, the Borrower has requested the Lenders to extend credit in the form of (a) Term B Loans on the Closing Date in an aggregate principal amount of $450,000,000 and (b) Revolving Facility Loans and Letters of Credit at any time and from time to time prior to the Revolving Facility Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $30,000,000;
WHEREAS, the proceeds of the Facilities will be used by the Borrower (i) to repay all amounts outstanding under (A) the Borrower’s existing First Lien Credit Agreement, dated as of December 20, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Existing Credit Agreement ”), among the Borrower, Holdings, the lenders party thereto and Citicorp North America, Inc., as administrative agent and collateral agent for such lenders, and (B) the PIK Seller Notes, (ii) to pay Transaction Expenses and (iii) for general corporate purposes (including, without limitation, for Permitted Business Acquisitions).
NOW, THEREFORE, the Lenders and the Issuing Banks are willing to extend such credit to the Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01 Defined Terms . As used in this Agreement, the following terms shall have the meanings specified below:
“2017 Incremental Assumption Agreement” shall mean that certain Incremental Assumption Agreement, dated as of December 6, 2017, by and among Holdings, the Borrower, the Subsidiary Loan Parties party thereto, the Lenders party thereto and the Administrative Agent.
“ ABR ” shall mean, for any day, a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate in effect for such day plus 0.50%, (b) the Prime Rate in effect on such day and (c) the Adjusted LIBO Rate for a one-month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.00%; provided , that for the avoidance of doubt, the LIBO Rate for any day shall be based on the rate determined on such day at approximately 11:00 a.m. (London time) by reference to the ICE Benchmark Administration Interest Settlement Rates (or the successor thereto if the ICE Benchmark Administration is no longer making a LIBO Rate available) for deposits in Dollars (as set forth by any service selected by the Administrative Agent that has been nominated by the ICE Benchmark Administration (or the successor thereto if the ICE Benchmark Administration is no longer making a LIBO Rate available) as an authorized vendor for the purpose of displaying such rates). Any change in such 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, as the case may be.
“ ABR Borrowing ” shall mean a Borrowing comprised of ABR Loans.
“ ABR Loan ” shall mean any ABR Term Loan, ABR Revolving Loan or Swingline Loan.
“ ABR Revolving Facility Borrowing ” shall mean a Borrowing comprised of ABR Revolving Loans.
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“ ABR Revolving Loan ” shall mean any Revolving Facility Loan bearing interest at a rate determined by reference to the ABR in accordance with the provisions of Article II.
“ ABR Term Loan ” shall mean any Term Loan bearing interest at a rate determined by reference to the ABR in accordance with the provisions of Article II.
“ Additional Mortgage ” shall have the meaning assigned to such term in Section 5.10(c).
“ Adjusted LIBO Rate ” shall mean, with respect to any Eurocurrency Borrowing for any Interest Period, an interest rate per annum equal to the greater of (x) (a) the LIBO Rate in effect for such Interest Period divided by (b) one minus the Statutory Reserves applicable to such Eurocurrency Borrowing, if any; provided that if the Adjusted LIBO Rate shall be less than zero pursuant to this clause (x), such interest rate shall be deemed to be zero and (y) in the case of Eurocurrency Borrowings composed of Eurocurrency Term Loans, 1.00%.
“ Administrative Agent ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement, together with its successors and assigns.
“ Administrative Agent Fee Letter ” shall mean that certain Fee Letter, dated as of the date hereof by and among the Borrower and Jefferies Finance LLC.
“ Administrative Agent Fees ” shall have the meaning assigned to such term in Section 2.12(c).
“ Administrative Questionnaire ” shall mean an Administrative Questionnaire in the form supplied by the Administrative Agent.
“ Affiliate ” shall mean, when used 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. For purposes of this Agreement and the other Loan Documents, Jefferies LLC and its Affiliates shall be deemed to be Affiliates of Jefferies Finance LLC and its Affiliates.
“ Affiliate Lender ” shall have the meaning assigned to such term in Section 9.21(a).
“ Agents ” shall mean the Administrative Agent and the Collateral Agent.
“ Agreement ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement, as amended, restated, supplemented or otherwise modified from time to time.
“ Agreement Currency ” shall have the meaning assigned to such term in Section 9.19.
“ All-in Yield ” shall mean, as to any Loans (or Pari Term Loans, if applicable), the yield thereon payable to all Lenders (or other lenders, as applicable) providing such Loans (or Pari Term Loans, if applicable) in the primary syndication thereof, as reasonably determined by the Administrative Agent, whether in the form of interest rate, margin, original issue discount, up-front fees, rate floors or otherwise; provided , that original issue discount and up-front fees shall be equated to interest rate assuming a 4-year life to maturity (or, if less, the life of such Loans (or Pari Term Loans, if applicable)); and provided , further , that “All-in Yield” shall not include arrangement, commitment, underwriting, structuring or similar fees and customary consent fees for an amendment paid generally to consenting lenders.
“ Alternate Currency ” shall mean, with respect to any Letter of Credit, Canadian dollars and any other currency other than Dollars as may be acceptable to the Administrative Agent and the applicable Issuing Bank with respect thereto in their sole discretion.
“ Alternate Currency Letter of Credit ” shall mean any Letter of Credit denominated in an Alternate Currency.
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“ Applicable Commitment Fee ” shall mean for any day (i) 0.50% per annum or (ii) with respect to any Other Revolving Facility Commitments, the “Applicable Commitment Fee” set forth in the applicable Incremental Assumption Agreement.
“ Applicable Date ” shall have the meaning assigned to such term in Section 9.08(f).
“ Applicable Margin ” shall mean for any day (i) with respect to any Term B Loan, 5.50% per annum in the case of any Eurocurrency Loan and 4.50% per annum in the case of any ABR Loan, (ii) with respect to any Initial Revolving Loan, 5.50% per annum in the case of any Eurocurrency Loan and 4.50% per annum in the case of any ABR Loan and (iii) with respect to any Other Term Loan or Other Revolving Loan, the “Applicable Margin” set forth in the Incremental Assumption Agreement relating thereto.
“ Applicable Period ” shall mean an Excess Cash Flow Period or an Excess Cash Flow Interim Period, as the case may be.
“ Approved Fund ” shall have the meaning assigned to such term in Section 9.04(b)(ii).
“ Arrangers ” shall mean Jefferies Finance LLC and Macquarie Capital (USA) Inc.
“ Asset Sale ” shall mean any loss, damage, destruction or condemnation of, or any Disposition (including any sale and leaseback of assets and any mortgage or lease of Real Property) to any person of, any asset or assets of the Borrower or any Subsidiary.
“ Assignee ” shall have the meaning assigned to such term in Section 9.04(b)(i).
“ Assignment and Acceptance ” shall mean an assignment and acceptance entered into by a Lender and an Assignee, and accepted by the Administrative Agent and the Borrower (if required by Section 9.04), in the form of Exhibit A or such other form as shall be approved by the Administrative Agent and reasonably satisfactory to the Borrower.
“ Assignor ” shall have the meaning assigned to such term in Section 9.04(i).
“ Availability Period ” shall mean, with respect to any Class of Revolving Facility Commitments, the period from and including the Closing Date (or, if later, the effective date for such Class of Revolving Facility Commitments) to but excluding the earlier of the Revolving Facility Maturity Date for such Class and, in the case of each of the Revolving Facility Loans, Revolving Facility Borrowings, Swingline Loans, Swingline Borrowings and Letters of Credit, the date of termination of the Revolving Facility Commitments of such Class.
“ Available Unused Commitment ” shall mean, with respect to a Revolving Facility Lender under any Class of Revolving Facility Commitments at any time, an amount equal to the amount by which (a) the applicable Revolving Facility Commitment of such Revolving Facility Lender at such time exceeds (b) the applicable Revolving Facility Credit Exposure of such Revolving Facility Lender at such time.
“ Bail-In Action ” shall mean the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” shall mean, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“ Below Threshold Asset Sale Proceeds ” shall have the meaning assigned to such term in the definition of the term “Cumulative Credit”.
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“ Board ” shall mean the Board of Governors of the Federal Reserve System of the United States of America.
“ Board of Directors ” shall mean, as to any person, the board of directors or other governing body of such person, or if such person is owned or managed by a single entity, the board of directors or other governing body of such entity.
“ Borrower ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Borrower Materials ” shall have the meaning assigned to such term in Section 9.17.
“ Borrowing ” shall mean a group of Loans of a single Type under a single Facility, and made on a single date and, in the case of Eurocurrency Loans, as to which a single Interest Period is in effect.
“ Borrowing Minimum ” shall mean (a) in the case of Eurocurrency Loans, $1,000,000, (b) in the case of ABR Loans, $1,000,000 and (c) in the case of Swingline Loans, $500,000.
“ Borrowing Multiple ” shall mean (a) in the case of Eurocurrency Loans, $500,000, (b) in the case of ABR Loans, $250,000 and (c) in the case of Swingline Loans, $250,000.
“ Borrowing Request ” shall mean a request by the Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit D-1 or another form approved by the Administrative Agent.
“ Budget ” shall have the meaning assigned to such term in Section 5.04(e).
“ Business Day ” shall mean 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; provided , that when used in connection with a Eurocurrency Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in deposits in Dollars in the London interbank market.
“ Capital Expenditures ” shall mean, for any person in respect of any period, the aggregate of all expenditures incurred by such person during such period that, in accordance with GAAP, are or should be included in “additions to property, plant or equipment” or similar items reflected in the statement of cash flows of such person.
“ Capitalized Lease Obligations ” shall mean, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP; provided that obligations of the Borrower or its Subsidiaries, or of a special purpose or other entity not consolidated with the Borrower and its Subsidiaries, either existing on the Closing Date or created thereafter that (a) initially were not included on the consolidated balance sheet of the Borrower as capital lease obligations and were subsequently recharacterized as capital lease obligations or, in the case of such a special purpose or other entity becoming consolidated with the Borrower and its Subsidiaries were required to be characterized as capital lease obligations upon such consolidation, in either case, due to a change in accounting treatment or otherwise, or (b) did not exist on the Closing Date and were required to be characterized as capital lease obligations but would not have been required to be treated as capital lease obligations on the Closing Date had they existed at that time, shall for all purposes not be treated as Capitalized Lease Obligations or Indebtedness.
“ Capitalized Software Expenditures ” shall mean, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) by a person during such period in respect of licensed or purchased software or internally developed software and software enhancements that, in accordance with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of such person and its subsidiaries.
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“ Cash Collateralize ” shall mean to pledge and deposit with or deliver to the Collateral Agent, for the benefit of one or more of the Issuing Banks or Lenders, as collateral for Revolving L/C Exposure or obligations of the Lenders to fund participations in respect of Revolving L/C Exposure, cash or deposit account balances under the sole dominion and control of the Collateral Agent or, if the Administrative Agent and each Issuing Bank shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and each applicable Issuing Bank. “Cash Collateral” and “Cash Collateralization” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“ Cash Interest Expense ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis for any period, Interest Expense for such period, less the sum of, without duplication, (a) pay-in-kind Interest Expense or other non-cash Interest Expense (including as a result of the effects of purchase accounting), (b) to the extent included in Interest Expense, the amortization of any financing fees paid by, or on behalf of, the Borrower or any Subsidiary, including such fees paid in connection with the Transactions or upon entering into a Permitted Receivables Financing, and (c) the amortization of debt discounts, if any, or fees in respect of Hedging Agreements; provided , that Cash Interest Expense shall exclude any one time financing fees, including those paid in connection with the Transactions, or upon entering into a Permitted Receivables Financing or any amendment of this Agreement.
“ Cash Management Agreement ” shall mean any agreement to provide to Holdings, the Borrower or any Subsidiary cash management services for collections, treasury management services (including controlled disbursement, overdraft, automated clearing house fund transfer services, return items and interstate depository network services), any demand deposit, payroll, trust or operating account relationships, commercial credit cards, merchant card, purchase or debit cards, non-card e-payables services, and other cash management services, including electronic funds transfer services, lockbox services, stop payment services and wire transfer services.
“ Cash Management Bank ” shall mean any person that, at the time it enters into a Cash Management Agreement (or on the Closing Date), is an Agent, an Arranger, a Lender or an Affiliate of any such person, in each case, in its capacity as a party to such Cash Management Agreement.
“ CFC ” shall mean a “controlled foreign corporation” within the meaning of section 957(a) of the Code.
A “ Change in Control ” shall be deemed to occur if:
(a) (i) at any time prior to a Qualified IPO, (x) the Permitted Holders shall at any time cease to have, directly or indirectly, the power to vote or direct the voting of at least 35% of the Voting Stock of the Borrower or (y) any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such person, entity or “group” and its subsidiaries and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders, shall at any time have acquired direct or indirect beneficial ownership (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of a percentage of the voting power of the outstanding Voting Stock of the Borrower that is greater than the percentage of such voting power of such Voting Stock in the aggregate, directly or indirectly, beneficially owned by the Permitted Holders or (ii) at any time on and after a Qualified IPO, any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such person, entity or “group” and its subsidiaries and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders (or any holding company parent of the Borrower owned directly or indirectly by the Permitted Holders), shall at any time have acquired direct or indirect beneficial ownership (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act) of voting power of the outstanding
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Voting Stock of the Borrower having more than the greater of (A) 35% of the ordinary voting power for the election of directors of the Borrower and (B) the percentage of the ordinary voting power for the election of directors of the Borrower owned in the aggregate, directly or indirectly, beneficially, by the Permitted Holders, unless in the case of either clause (i) or (ii) of this clause (a), the Permitted Holders have, at such time, the right or the ability by voting power, contract or otherwise to elect or designate for election at least a majority of the members of the Board of Directors of the Borrower;
(b) at any time on or after a Qualified IPO, during any period of twelve (12) consecutive months, a majority of the seats (other than vacant seats) on the Board of Directors of the Borrower shall be occupied by individuals who were neither (1) nominated by the Board of Directors of the Borrower or a Permitted Holder, (2) appointed, approved or ratified by directors so nominated nor (3) appointed by a Permitted Holder; or
(c) Holdings shall fail to beneficially own, directly or indirectly, 100% of the issued and outstanding Equity Interests of the Borrower (other than in connection with a Qualified IPO of the Borrower).
“ Change in Law ” shall mean (a) the adoption of any law, rule or regulation after the Closing Date, (b) any change in law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Closing Date or (c) compliance by any Lender (or, for purposes of Section 2.15(b), by any Lending Office of such Lender or by such Lender’s holding company, if any) with any written request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Closing Date; provided , however , that notwithstanding anything herein to the contrary, (x) all requests, rules, guidelines or directives under or issued in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act, all interpretations and applications thereof and any compliance by a Lender with any request or directive relating thereto and (y) all requests, rules, guidelines or directives promulgated under or in connection with, all interpretations and applications of, or any compliance by a Lender with any request or directive relating to International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States of America or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case under this clauses (x) and (y) be deemed to be a “Change in Law” but only to the extent a Lender is imposing applicable increased costs or costs in connection with capital adequacy requirements similar to those described in clauses (a) and (b) of Section 2.15 generally on other borrowers of loans under U.S. cash flow senior secured credit facilities.
“ Charges ” shall have the meaning assigned to such term in Section 9.09.
“ Class ” shall mean, (a) when used in respect of any Loan or Borrowing, whether such Loan or the Loans comprising such Borrowing are Initial Term B Loans, Incremental Term B Loans , Other Term Loans, Initial Revolving Loans, Extended Revolving Loans or Other Revolving Loans; and (b) when used in respect of any Commitment, whether such Commitment is in respect of a commitment to make Initial Term B Loans, Incremental Term B Loans , Other Term Loans, Initial Revolving Loans, Extended Revolving Loans or Other Revolving Loans ; provided that from and after the Effective Date, the Initial Term B Loans and the Incremental Term B Loans shall be treated as Loans of the same “Class” for purposes of this Agreement and the other Loan Documents . Other Term Loans or Extended Revolving Loans or Other Revolving Loans that have different terms and conditions (together with the Commitments in respect thereof) from the Initial Term B Loans and the Incremental Term B Loans or the Initial Revolving Loans, respectively, or from other Other Term Loans or other Extended Revolving Loans or Other Revolving Loans, as applicable, shall each be construed to be in separate and distinct Classes.
“ Class Loans ” shall have the meaning assigned to such term in Section 9.08(f).
“ Closing Date ” shall mean June 6, 2017.
“ Co-Manager ” shall mean Apollo Global Securities, LLC.
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“ Code ” shall mean the Internal Revenue Code of 1986, as amended.
“ Co-Investors ” shall mean each of (a) the Fund and the Fund Affiliates (excluding any of their portfolio companies) and (b) the Management Group.
“ Collateral ” shall mean all the “Collateral” (or equivalent term) as defined in any Security Document and shall also include the Mortgaged Properties and all other property that is subject to any Lien in favor of the Administrative Agent, the Collateral Agent or any Subagent for the benefit of the Secured Parties pursuant to any Security Document.
“ Collateral Agent ” shall mean Jefferies Finance LLC acting as collateral agent for the Secured Parties, together with its successors and permitted assigns in such capacity.
“ Collateral Agreement ” shall mean the Collateral Agreement dated as of the date hereof as amended, restated, supplemented or otherwise modified from time to time, among the Borrower, each Subsidiary Loan Party and the Collateral Agent.
“ Collateral and Guarantee Requirement ” shall mean the requirement that (in each case subject to Sections 5.10(d), (e) and (g) and Schedule 5.10):
(a) on the Closing Date, the Collateral Agent shall have received (i) from the Borrower and each Subsidiary Loan Party, a counterpart of the Collateral Agreement, (ii) from each Subsidiary Loan Party, a counterpart of the Subsidiary Guarantee Agreement, (iii) from Holdings, a counterpart of the Holdings Guarantee and Pledge Agreement and (iv) from the Custodian, AP Gaming II, Inc., AGS LLC, AGS Capital, LLC and the Borrower, a counterpart of the Custodian Agreement, in each case duly executed and delivered on behalf of such person;
(b) on the Closing Date, (i)(x) all outstanding Equity Interests of the Borrower and all other outstanding Equity Interests, in each case, directly owned by the Loan Parties, other than Excluded Securities, and (y) all Indebtedness owing to any Loan Party (other than Holdings), other than Excluded Securities, shall have been pledged pursuant to the Collateral Agreement or the Holdings Guarantee and Pledge Agreement, as applicable, and (ii) subject to the terms of the Custodian Agreement, the Collateral Agent shall have received certificates or other instruments (if any) representing such Equity Interests (other than certificates or instruments included on Schedule 5.10, which shall be delivered to the Collateral Agent after the Closing Date pursuant to Section 5.10) and any notes or other instruments required to be delivered pursuant to the applicable Security Documents, together with stock powers, note powers or other instruments of transfer with respect thereto endorsed in blank;
(c) in the case of any person that becomes a Subsidiary Loan Party after the Closing Date, the Collateral Agent shall have received (i) a supplement to the Collateral Agreement and the Subsidiary Guarantee Agreement, (ii) supplements to the other Security Documents, if applicable, in the form specified therefor or otherwise reasonably acceptable to the Administrative Agent, in each case, duly executed and delivered on behalf of such Subsidiary Loan Party, and (iii) certificates or other instruments (if any) representing all Equity Interests (other than Excluded Securities) directly owned by such Subsidiary Loan Party and any notes or other instruments required to be delivered pursuant to the applicable Security Documents, together with stock powers, note powers or other instruments of transfer with respect thereto endorsed in blank;
(d) after the Closing Date, (x) all outstanding Equity Interests of any person that becomes a Subsidiary Loan Party after the Closing Date and (y) subject to Section 5.10(g) and, without duplication of clause (c)(iii) above, all Equity Interests, all notes and other instruments directly acquired by a Loan Party (other than Holdings) after the Closing Date (including the Equity Interests of any Special Purpose Receivables Subsidiary established after the Closing Date), other than Excluded Securities, shall have been pledged and, to the extent certificated, delivered to the Collateral Agent pursuant to the Collateral Agreement, together with stock powers or other instruments of transfer with respect thereto endorsed in blank;
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(e) on the Closing Date and at all times thereafter, except as otherwise contemplated by this Agreement or any Security Document, all documents and instruments, including Uniform Commercial Code financing statements, and filings with the United States Copyright Office and the United States Patent and Trademark Office, and all other actions required by the applicable Requirement of Law or reasonably requested by the Collateral Agent to be delivered, filed, registered or recorded to create the Liens intended to be created by the Security Documents (in each case, including any supplements thereto) and perfect such Liens to the extent required by, and with the priority required by, the Security Documents, shall have been delivered, filed, registered or recorded or delivered to the Collateral Agent for filing, registration or the recording concurrently with, or promptly following, the execution and delivery of each such Security Document;
(f) within (x) 90 days after the Closing Date with respect to the Mortgaged Property set forth on Schedule 1.01(B) (or such later date as the Collateral Agent may agree) and (y) within the time periods set forth in Section 5.10 with respect to Mortgaged Properties encumbered pursuant to said Section 5.10, the Collateral Agent shall have received (i) counterparts of each Mortgage to be entered into with respect to each such Mortgaged Property duly executed and delivered by the record owner of such Mortgaged Property and suitable for recording or filing in all filing or recording offices that the Collateral Agent may reasonably deem necessary or desirable in order to create a valid and enforceable Lien subject to no other Liens except Permitted Liens at the time of recordation thereof, (ii) with respect to the Mortgage encumbering each such Mortgaged Property, opinions of counsel regarding the enforceability, due authorization, execution and delivery of the Mortgages and such other matters customarily covered in real estate counsel opinions as the Collateral Agent may reasonably request, in form and substance reasonably acceptable to the Collateral Agent, (iii) with respect to each such Mortgaged Property, the Flood Documentation and (iv) such other documents as the Collateral Agent may reasonably request with respect to any such Mortgage or Mortgaged Property;
(g) within (x) 90 days after the Closing Date with respect to the Mortgaged Property set forth on Schedule 1.01(B) (or such later date as the Collateral Agent may agree) and (y) within the time periods set forth in Section 5.10 with respect to Mortgaged Properties encumbered pursuant to said Section 5.10, the Collateral Agent shall have received (i) a policy or policies or marked up unconditional binder of title insurance with respect to each such Mortgaged Property located in the United States of America, or a date down and modification endorsement, if available, paid for by the Borrower, issued by a nationally recognized title insurance company insuring the Lien of each Mortgage as a valid Lien on the Mortgaged Property described therein, free of any other Liens except Permitted Liens, together with such customary endorsements (including zoning endorsements where reasonably appropriate and available), coinsurance and reinsurance as the Collateral Agent may reasonably request and which are available at commercially reasonable rates in the jurisdiction where the applicable Mortgaged Property is located, and, with respect to any such property located in a state in which a zoning endorsement is not available at commercially reasonable rates, a zoning report from a recognized vendor or zoning compliance letter from the applicable municipality in a form reasonably acceptable to the Collateral Agent, as the Collateral Agent may reasonably request with respect to properties located in the United States of America and (ii) a survey of each Mortgaged Property (including all improvements, easements and other customary matters thereon reasonably required by the Collateral Agent), as applicable, for which all necessary fees (where applicable) have been paid with respect to properties located in the United States of America, which is (A) complying in all material respects with the minimum detail requirements of the American Land Title Association and American Congress of Surveying and Mapping as such requirements are in effect on the date of preparation of such survey and (B) sufficient for such title insurance company to remove all standard survey exceptions from the title insurance policy relating to such Mortgaged Property or otherwise reasonably acceptable to the Collateral Agent;
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(h) the Collateral Agent shall have received on the Closing Date, evidence of the insurance and related endorsements required by the terms of Section 5.02 hereof; and
(i) after the Closing Date, the Collateral Agent shall have received (i) such other Security Documents as may be required to be delivered pursuant to Section 5.10 or the Collateral Agreement, and (ii) upon reasonable request by the Collateral Agent, evidence of compliance with any other requirements of Section 5.10.
“ Commitment Fee ” shall have the meaning assigned to such term in Section 2.12(a).
“ Commitments ” shall mean (a) with respect to any Lender, such Lender’s Revolving Facility Commitment and Term Facility Commitment and (b) with respect to any Swingline Lender, its Swingline Commitment (it being understood that a Swingline Commitment does not increase the applicable Swingline Lender’s Revolving Facility Commitment).
“ Commodity Exchange Act ” shall mean the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“ Conduit Lender ” shall mean any special purpose corporation organized and administered by any Lender for the purpose of making Loans otherwise required to be made by such Lender and designated by such Lender in a written instrument; provided , that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all consents and waivers required or requested under this Agreement with respect to its Conduit Lender; provided , further , that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Sections 2.15, 2.16, 2.17 or 9.05 than the designating Lender would have been entitled to receive in respect of the extensions of credit made by such Conduit Lender unless the designation of such Conduit Lender is made with the prior written consent of the Borrower (not to be unreasonably withheld or delayed), which consent shall specify that it is being made pursuant to the proviso in the definition of Conduit Lender and provided , that the designating Lender provides such information as the Borrower reasonably requests in order for the Borrower to determine whether to provide its consent or (b) be deemed to have any Commitment.
“ Consolidated Debt ” at any date shall mean the sum of (without duplication) all Indebtedness (other than letters of credit or bank guarantees, to the extent undrawn) consisting of Capitalized Lease Obligations, Indebtedness for borrowed money and Disqualified Stock of the Borrower and the Subsidiaries determined on a consolidated basis on such date in accordance with GAAP.
“ Consolidated Net Income ” shall mean, with respect to any person for any period, the aggregate of the Net Income of such person and its subsidiaries for such period, on a consolidated basis; provided , however , that, without duplication,
(i) any net after-tax extraordinary, nonrecurring or unusual gains or losses or income or expense or charge (less all fees and expenses relating thereto), including any severance, relocation or other restructuring expenses, any expenses related to any New Project or any reconstruction, decommissioning, recommissioning or reconfiguration of fixed assets for alternative uses, fees, expenses or charges relating to facilities closing costs, curtailments or modifications to pension and post-retirement employee benefit plans, excess pension charges, acquisition integration costs, facilities opening costs, signing, retention or completion bonuses, and expenses or charges related to any offering of Equity Interests or debt securities of the Borrower, Holdings or any Parent Entity, any Investment, acquisition, Disposition, recapitalization or issuance, repayment, refinancing, amendment or modification of Indebtedness (in each case, whether or not successful), and any fees, expenses, charges or change in control payments related to the Transactions (including any costs relating to auditing prior periods, any transition-related expenses, and Transaction Expenses incurred before, on or after the Closing Date), in each case, shall be excluded,
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(ii) any net after-tax income or loss from Disposed of, abandoned, closed or discontinued operations or fixed assets and any net after-tax gain or loss on the Dispositions of Disposed of, abandoned, closed or discontinued operations or fixed assets shall be excluded,
(iii) any net after-tax gain or loss (less all fees and expenses or charges relating thereto) attributable to business Dispositions or asset Dispositions other than in the ordinary course of business (as determined in good faith by the management of the Borrower) shall be excluded,
(iv) any net after-tax income or loss (less all fees and expenses or charges relating thereto) attributable to the early extinguishment of indebtedness, Hedging Agreements or other derivative instruments shall be excluded,
(v) (A) the Net Income for such period of any person that is not a subsidiary of such person, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent person or a subsidiary thereof (other than an Unrestricted Subsidiary of such referent person) in respect of such period and (B) the Net Income for such period shall include any dividend, distribution or other payment in cash (or to the extent converted into cash) received by the referent person or a subsidiary thereof (other than an Unrestricted Subsidiary of such referent person) from any person in excess of, but without duplication of, the amounts included in subclause (A),
(vi) the cumulative effect of a change in accounting principles during such period shall be excluded,
(vii) effects of purchase accounting adjustments (including the effects of such adjustments pushed down to such person and its subsidiaries) in component amounts required or permitted by GAAP, resulting from the application of purchase accounting or the amortization or write-off of any amounts thereof, net of taxes, shall be excluded,
(viii) any impairment charges or asset write-offs, in each case pursuant to GAAP, and the amortization of intangibles and other fair value adjustments arising pursuant to GAAP, shall be excluded,
(ix) any non-cash compensation charge or expenses realized or resulting from stock option plans, employee benefit plans or post-employment benefit plans, or grants or sales of stock, stock appreciation or similar rights, stock options, restricted stock, preferred stock or other rights shall be excluded,
(x) accruals and reserves that are established or adjusted within twelve months after the Closing Date and that are so required to be established or adjusted in accordance with GAAP or as a result of adoption or modification of accounting policies shall be excluded,
(xi) non-cash gains, losses, income and expenses resulting from fair value accounting required by the applicable standard under GAAP and related interpretation shall be excluded,
(xii) [Reserved],
(xiii) any non-cash charges for deferred tax asset valuation allowances shall be excluded,
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(xiv) any currency translation gains and losses related to currency remeasurements of Indebtedness, and any net loss or gain resulting from Hedging Agreements for currency exchange risk, shall be excluded,
(xv) any deductions attributable to minority interests shall be excluded,
(xvi) (A) the non-cash portion of “straight-line” rent expense shall be excluded and (B) the cash portion of “straight-line” rent expense which exceeds the amount expensed in respect of such rent expense shall be included,
(xvii) (A) to the extent covered by insurance and actually reimbursed, or, so long as such person has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is (x) not denied by the applicable carrier in writing within 180 days and (y) in fact reimbursed within 365 days following the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within such 365 days), expenses with respect to liability or casualty events or business interruption shall be excluded; and (B) amounts estimated in good faith to be received from insurance in respect of lost revenues or earnings in respect of liability or casualty events or business interruption shall be included (with a deduction for amounts actually received up to such estimated amount to the extent included in Net Income in a future period), and
(xviii) without duplication, an amount equal to the amount of distributions actually made to any parent or equity holder of such person in respect of such period in accordance with Section 6.06(b)(v) shall be included as though such amounts had been paid as income taxes directly by such person for such period.
“ Consolidated Total Assets ” shall mean, as of any date of determination, the total assets of the Borrower and the consolidated Subsidiaries without giving effect to any amortization of the amount of intangible assets since December 31, 2013, determined on a consolidated basis in accordance with GAAP, as set forth on the consolidated balance sheet of the Borrower as of the last day of the fiscal quarter most recently ended for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b), as applicable, calculated on a Pro Forma Basis after giving effect to any acquisition or Disposition of a person or assets that may have occurred on or after the last day of such fiscal quarter. For purposes of testing whether any Lien, Investment, Immaterial Subsidiary, Disposition, Indebtedness or other item that is incurred (or made) based on a basket or threshold related to Consolidated Total Assets, such item shall be permitted if such basket or threshold was available on the date of such incurrence (or making) even if Consolidated Total Assets subsequently decreases.
“ Continuing Letter of Credit ” shall have the meaning assigned to such term in Section 2.05(k).
“ Control ” shall mean 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 ownership of voting securities, by contract or otherwise, and “ Controlling ” and “ Controlled ” shall have meanings correlative thereto.
“ Credit Event ” shall have the meaning assigned to such term in Article IV.
“ Cumulative Credit ” shall mean, at any date, an amount, not less than zero in the aggregate, determined on a cumulative basis equal to, without duplication:
(a) $30,000,000, plus
(b) the Cumulative Retained Excess Cash Flow Amount at such time, plus
(c) the aggregate amount of proceeds received after the Closing Date and prior to such time that would have constituted Net Proceeds pursuant to clause (a) of the definition thereof, except for the operation of clause (x), (y) or (z) of the second proviso thereof (the “ Below Threshold Asset Sale Proceeds ”), plus
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(d) (i) the cumulative amount of proceeds (including cash and the fair market value (as determined in good faith by the Borrower) of property other than cash) from the sale of Equity Interests of the Borrower, Holdings or any Parent Entity after the Closing Date and on or prior to such time (including upon exercise of warrants or options), which proceeds have been contributed as common equity to the capital of the Borrower, and (ii) common Equity Interests of the Borrower, Holdings or any Parent Entity issued upon conversion of Indebtedness after the Closing Date (other than Indebtedness that is contractually subordinated to the Loan Obligations in right of payment) of the Borrower or any Subsidiary owed to a person other than the Borrower or a Subsidiary not previously applied for a purpose other than use in the Cumulative Credit; provided , that this clause (d) shall exclude Permitted Cure Securities, proceeds of Equity Interests referred to in Section 6.01(p), proceeds of Excluded Contributions, sales of Equity Interests financed as contemplated by Section 6.04(e) or used as described in clause (ix) of the definition of EBITDA and any amounts used to finance the payments or distributions in respect of any Junior Financing pursuant to Section 6.09(b), plus
(e) 100% of the aggregate amount of contributions as common equity to the capital of the Borrower received in cash (and the fair market value (as determined in good faith by the Borrower) of property other than cash) after the Closing Date (subject to the same exclusions as are applicable to clause (d) above); plus
(f) 100% of the aggregate principal amount of any Indebtedness (including the liquidation preference or maximum fixed repurchase price, as the case may be, of any Disqualified Stock) of the Borrower or any Subsidiary thereof issued after the Closing Date (other than Indebtedness issued to a Subsidiary), which has been converted into or exchanged for Equity Interests (other than Disqualified Stock) in the Borrower, Holdings or any Parent Entity, plus
(g) 100% of the aggregate amount received by the Borrower or any Subsidiary in cash (and the fair market value (as determined in good faith by the Borrower) of property other than cash received by the Borrower or any Subsidiary) after the Closing Date from:
(A) the sale (other than to the Borrower or any Subsidiary) of the Equity Interests of an Unrestricted Subsidiary that was originally designated as such by use of the Cumulative Credit, or
(B) any dividend or other distribution by an Unrestricted Subsidiary that was originally designated as such by use of the Cumulative Credit, plus
(h) in the event any Unrestricted Subsidiary that was originally designated as such by use of the Cumulative Credit has been redesignated as a Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, Holdings, the Borrower or any Subsidiary, the fair market value (as determined in good faith by the Borrower) of the Investments of Holdings, the Borrower or any Subsidiary in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable), plus
(i) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received by the Borrower or any Subsidiary after the Closing Date in respect of any Investments made pursuant to Section 6.04(j)(Y), minus
(j) any amounts thereof used to make Investments pursuant to Section 6.04(j)(Y) after the Closing Date prior to such time, minus
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(k) any amount thereof used to make Restricted Payments pursuant to Section 6.06(e) after the Closing Date prior to such time, minus
(l) any amount thereof used to make payments or distributions in respect of Junior Financings pursuant to Section 6.09(b)(i)(E) after the Closing Date prior to such time (other than payments made with proceeds from the issuance of Equity Interests that were excluded from the calculation of the Cumulative Credit pursuant to clause (d) above);
provided , however , (A) for purposes of Section 6.06(e), the calculation of the Cumulative Credit shall not include any Below Threshold Asset Sale Proceeds except to the extent they are used as contemplated in clause (k) above and (B) the Cumulative Credit shall only be increased pursuant to clause (b) above with respect to any Excess Cash Flow Period if Excess Cash Flow for such Excess Cash Flow Period exceeds the ECF Threshold Amount) (or, with respect to any Excess Cash Flow Interim Period, a pro rata portion of such amount).
“ Cumulative Retained Excess Cash Flow Amount ” shall mean, at any date, an amount (which shall not be less than zero in the aggregate) determined on a cumulative basis equal to:
(a) the aggregate cumulative sum of the Retained Percentage of Excess Cash Flow for all Excess Cash Flow Periods ending after the Closing Date and prior to such date, plus
(b) for each Excess Cash Flow Interim Period ended prior to such date but as to which the corresponding Excess Cash Flow Period has not ended, an amount equal to the Retained Percentage of Excess Cash Flow for such Excess Cash Flow Interim Period, minus
(c) the cumulative amount of all Retained Excess Cash Flow Overfundings as of such date.
“ Cure Amount ” shall have the meaning assigned to such term in Section 7.03.
“ Cure Right ” shall have the meaning assigned to such term in Section 7.03.
“ Current Assets ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis at any date of determination, the sum of (a) all assets (other than cash and Permitted Investments or other cash equivalents) that would, in accordance with GAAP, be classified on a consolidated balance sheet of the Borrower and the Subsidiaries as current assets at such date of determination, other than amounts related to current or deferred Taxes based on income or profits, and (b) in the event that a Permitted Receivables Financing is accounted for off balance sheet, (x) gross accounts receivable comprising part of the Receivables Assets subject to such Permitted Receivables Financing less (y) collections against the amounts sold pursuant to clause (x).
“ Current Liabilities ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis at any date of determination, all liabilities that would, in accordance with GAAP, be classified on a consolidated balance sheet of the Borrower and the Subsidiaries as current liabilities at such date of determination, other than (a) the current portion of any Indebtedness, (b) accruals of Interest Expense (excluding Interest Expense that is due and unpaid), (c) accruals for current or deferred Taxes based on income or profits, (d) accruals, if any, of transaction costs resulting from the Transactions, (e) accruals of any costs or expenses related to (i) severance or termination of employees prior to the Closing Date or (ii) bonuses, pension and other post-retirement benefit obligations, and (f) accruals for add-backs to EBITDA included in clauses (a)(iv), (a)(v), and (a)(vii) of the definition of such term.
“ Custodian ” shall mean Wilmington Trust, National Association acting as custodian pursuant to the Custodian Agreement, together with its successors and assigns in such capacity.
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“ Custodian Agreement ” shall mean the Custodian Agreement dated as of the date hereof as amended, restated, supplemented or otherwise modified from time to time, among the Custodian, the Collateral Agent, AP Gaming II, Inc., AGS LLC, the Borrower and AGS Capital, LLC.
“ Customer Development Agreement ” shall mean any loan agreement or other financing instrument entered into in the ordinary course of business pursuant to which the Borrower or one of its Subsidiaries extends credit from time to time or makes payments to a customer party on one or more equipment and/or supplies lease or sale agreements with the Borrower or its Subsidiaries to finance such customer’s operation of the leased or purchased equipment and/or supplies (including rental or purchase payments owed to the Borrower or any of its Subsidiaries) and/or the development or acquisition of video gaming routes.
“ Customer Note ” shall mean any promissory note issued pursuant to a Customer Development Agreement by the customer borrower thereunder and made payable to the Borrower or a Subsidiary to evidence all obligations owed by such customer under such Customer Development Agreement.
“ Debt Fund Affiliate Lender ” shall mean entities managed by the Fund or funds advised by its affiliated management companies that are primarily engaged in, or advises funds or other investment vehicles that are engaged in, making, purchasing, holding or otherwise investing in commercial loans, bonds and similar extensions of credit or securities in the ordinary course and for which no personnel making investment decisions in respect of any equity fund which has a direct or indirect equity investment in Holdings, the Borrower or its Subsidiaries has the right to make any investment decisions.
“ Debt Service ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis for any period, Cash Interest Expense for such period plus scheduled principal amortization of Consolidated Debt for such period.
“ Debtor Relief Laws ” shall mean the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States of America or other applicable jurisdictions from time to time in effect.
“ Default ” shall mean any event or condition that upon notice, lapse of time or both would constitute an Event of Default.
“ Defaulting Lender ” shall mean, subject to Section 2.22, any Lender that (a) has failed to (i) fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder or (ii) pay to the Administrative Agent, any Issuing Bank, the Swingline Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline Loans) within two Business Days of the date when due, (b) has notified the Borrower, the Swingline Lender, Administrative Agent or any Issuing Bank in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder ( provided , that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower) or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action ( provided , that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States of America or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject,
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repudiate, disavow or disaffirm any contracts or agreements made with such Lender). Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.22) upon delivery of written notice of such determination to the Borrower, each Issuing Bank, the Swingline Lender and each Lender.
“ Designated Non-Cash Consideration ” shall mean the fair market value (as determined in good faith by the Borrower) of non-cash consideration received by the Borrower or one of its Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-Cash Consideration pursuant to a certificate of a Responsible Officer of the Borrower, setting forth such valuation, less the amount of cash or cash equivalents received in connection with a subsequent disposition of such Designated Non-Cash Consideration.
“ Disinterested Director ” shall mean, with respect to any person and transaction, a member of the Board of Directors of such person who does not have any material direct or indirect financial interest in or with respect to such transaction.
“ Dispose ” or “ Disposed of ” shall mean to convey, sell, lease, sell and leaseback, assign, farm-out, transfer or otherwise dispose of any property, business or asset. The term “Disposition” shall have a correlative meaning to the foregoing.
“ Disqualification ” shall mean, with respect to any Lender:
(a) the failure of that person timely to file pursuant to applicable Gaming Laws:
(i) any application requested of that person by any Gaming Authority in connection with any licensing required of that person as a lender to the Borrower; or
(ii) any required application or other papers in connection with determination of the suitability of that person as a lender to the Borrower;
(b) the withdrawal by that person (except where requested or permitted by the Gaming Authority) of any such application or other required papers;
(c) any finding by a Gaming Authority that there is reasonable cause to believe that such person may be found unqualified or unsuitable; or
(d) any final determination by a Gaming Authority pursuant to applicable Gaming Laws:
(i) that such person is “unsuitable” as a lender to the Borrower;
(ii) that such person shall be “disqualified” as a lender to the Borrower; or
(iii) denying the issuance to that person of any license or other approval required under applicable Gaming Laws to be held by all lenders to the Borrower.
The word “ Disqualified ” as used herein shall have a meaning correlative thereto.
“ Disqualified Stock ” shall mean, with respect to any person, any Equity Interests of such person that, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full
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of the Loans and all other Loan Obligations that are accrued and payable and the termination of the Commitments), (b) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part, (c) provides for the scheduled payments of dividends in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Stock, in each case, prior to the date that is ninety-one (91) days after the Latest Maturity Date in effect at the time of issuance thereof ( provided , that only the portion of the Equity Interests that so mature or are mandatorily redeemable, are so convertible or exchangeable or are so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock). Notwithstanding the foregoing: (i) any Equity Interests issued to any employee or to any plan for the benefit of employees of the Borrower or the Subsidiaries or by any such plan to such employees shall not constitute Disqualified Stock solely because they may be required to be repurchased by the Borrower in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability and (ii) any class of Equity Interests of such person that by its terms authorizes such person to satisfy its obligations thereunder by delivery of Equity Interests that are not Disqualified Stock shall not be deemed to be Disqualified Stock.
“ Dollar Equivalent ” shall mean, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any currency other than Dollars, the equivalent amount thereof in Dollars as determined by the Administrative Agent at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date or other applicable date of determination) for the purchase of Dollars with such currency.
“ Dollars ” or “ $ ” shall mean lawful money of the United States of America.
“ Domestic Subsidiary ” shall mean any Subsidiary that is not a Foreign Subsidiary.
“ EBITDA ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis for any period, the Consolidated Net Income of the Borrower and the Subsidiaries for such period plus (a) the sum of (in each case without duplication and to the extent the respective amounts described in subclauses (i) through (xiv) of this clause (a) reduced such Consolidated Net Income (and were not excluded therefrom) for the respective period for which EBITDA is being determined):
(i) provision for Taxes based on income, profits or capital of the Borrower and the Subsidiaries for such period, including, without limitation, state, franchise and similar taxes and foreign withholding taxes (including penalties and interest related to taxes or arising from tax examinations),
(ii) Interest Expense (and to the extent not included in Interest Expense, (x) all cash dividend payments (excluding items eliminated in consolidation) on any series of preferred stock or Disqualified Stock and (y) costs of surety bonds in connection with financing activities) of the Borrower and the Subsidiaries for such period,
(iii) depreciation and amortization expenses of the Borrower and the Subsidiaries for such period including the amortization of intangible assets, deferred financing fees, customer placement fees and Capitalized Software Expenditures and amortization of unrecognized prior service costs and actuarial gains and losses related to pensions and other post-employment benefits,
(iv) business optimization expenses and other restructuring charges or reserves (which, for the avoidance of doubt, shall include the effect of inventory optimization programs, facility closure, facility consolidations, retention, severance, systems establishment costs, contract termination costs, future lease commitments and excess pension charges); provided , that with respect to each business optimization expense or other restructuring charge, a Responsible Officer of the Borrower shall have delivered to the Administrative Agent an officer’s certificate specifying and quantifying such expense or charge,
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(v) any other non-cash charges; provided , that for purposes of this subclause (v) of this clause (a), any non-cash charges or losses shall be treated as cash charges or losses in any subsequent period during which cash disbursements attributable thereto are made (but excluding, for the avoidance of doubt, amortization of a prepaid cash item that was paid in a prior period),
(vi) the amount of management, consulting, monitoring, transaction and advisory fees and related expenses paid to the Fund or any Fund Affiliate (or any accruals related to such fees and related expenses) during such period not in contravention of this Agreement,
(vii) any expenses or charges (other than depreciation or amortization expense as described in the preceding clause (iii)) related to any issuance of Equity Interests, Investment, acquisition, New Project, Disposition, recapitalization or the incurrence, modification or repayment of Indebtedness permitted to be incurred by this Agreement (including a refinancing thereof) (whether or not successful), including (x) such fees, expenses or charges related to this Agreement, (y) any amendment or other modification of the Obligations or other Indebtedness and (z) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Permitted Receivables Financing,
(viii) the amount of loss on sale of receivables and related assets to a Special Purpose Receivables Subsidiary in connection with a Permitted Receivables Financing,
(ix) any costs or expense incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed to the capital of the Borrower or a Subsidiary Loan Party (other than contributions received from the Borrower or another Subsidiary Loan Party) or net cash proceeds of an issuance of Equity Interests of the Borrower (other than Disqualified Stock),
(x) non-operating expenses,
(xi) the amount of any loss attributable to a New Project, until the date that is 12 months after the date of completing the construction, acquisition, assembling or creation of such New Project, as the case may be; provided , that (A) such losses are reasonably identifiable and factually supportable and certified by a Responsible Officer of the Borrower and (B) losses attributable to such New Project after 12 months from the date of completing such construction, acquisition, assembling or creation, as the case may be, shall not be included in this clause (xi),
(xii) with respect to any joint venture that is not a Subsidiary and solely to the extent relating to any net income referred to in clause (v) of the definition of “Consolidated Net Income”, an amount equal to the proportion of those items described in clauses (i) and (ii) above relating to such joint venture corresponding to the Borrower’s and the Subsidiaries’ proportionate share of such joint venture’s Consolidated Net Income (determined as if such joint venture were a Subsidiary), and
(xiii) one-time costs associated with commencing Public Company Compliance;
minus (b) the sum of (without duplication and to the extent the amounts described in this clause (b) increased such Consolidated Net Income for the respective period for which EBITDA is being determined) non-cash items increasing Consolidated Net Income of the Borrower and the Subsidiaries for such period (but excluding any such items (A) in respect of which cash was received in a prior period or will be received in a future period or (B) which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges that reduced EBITDA in any prior period).
“ ECF Threshold Amount ” shall have the meaning assigned to such term in Section 2.11(c).
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“ EEA Financial Institution ” shall mean (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“ EEA Member Country ” shall mean any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” shall mean any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ Effective Date” shall have the meaning assigned to the term “Effective Date” in the 2017 Incremental Assumption Agreement.
“ EMU Legislation ” shall mean the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.
“ Environment ” shall mean ambient and indoor air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources such as flora and fauna, the workplace or as otherwise defined in any Environmental Law.
“ Environmental Laws ” shall mean all applicable laws (including common law), rules, regulations, codes, ordinances, orders, binding agreements, decrees or judgments, promulgated or entered into by or with any Governmental Authority, relating in any way to the Environment, preservation or reclamation of natural resources, the generation, management, Release or threatened Release of, or exposure to, any Hazardous Material or to occupational health and safety matters (to the extent relating to the Environment or Hazardous Materials).
“ Environmental Permits ” shall have the meaning assigned to such term in Section 3.16.
“ Equity Interests ” of any person shall mean any and all shares, interests, rights to purchase or otherwise acquire, warrants, options, participations or other equivalents of or interests in (however designated) equity or ownership of such person, including any preferred stock, any limited or general partnership interest and any limited liability company membership interest, and any securities or other rights or interests convertible into or exchangeable for any of the foregoing.
“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time and any final regulations promulgated and the rulings issued thereunder.
“ ERISA Affiliate ” shall mean any trade or business (whether or not incorporated) that, together with Holdings, the Borrower or a Subsidiary, is treated as a single employer under Section 414(b) or (c) of the Code, or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“ ERISA Event ” shall mean (a) any Reportable Event or the requirements of Section 4043(b) of ERISA apply with respect to a Plan; (b) with respect to any Plan, the failure to satisfy the minimum funding standard under Section 412 of the Code or Section 302 of ERISA, whether or not waived; (c) a determination that any Plan is, or is expected to be, in “at-risk” status (as defined in Section 303(i)(4) of ERISA or Section 430(i)(4) of the Code); (d) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan, the failure to make by its due date a required installment under Section 430(j) of the Code with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan; (e) the
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incurrence by Holdings, the Borrower, a Subsidiary or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan or Multiemployer Plan; (f) the receipt by Holdings, the Borrower, a Subsidiary or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or to appoint a trustee to administer any Plan under Section 4042 of ERISA; (g) the incurrence by Holdings, the Borrower, a Subsidiary or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; (h) the receipt by Holdings, the Borrower, a Subsidiary or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from Holdings, the Borrower, a Subsidiary or any ERISA Affiliate of any notice, concerning the impending 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, or in “endangered” or “critical” status, within the meaning of Section 432 of the Code or Section 305 of ERISA; (i) the conditions for imposition of a lien under Section 303(k) of ERISA shall have been met with respect to any Plan; or (j) the withdrawal of any of Holdings, the Borrower, a Subsidiary or any ERISA Affiliate from a Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA.
“ EU Bail-In Legislation Schedule ” shall mean the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“ Euro ” shall mean the lawful currency of the Participating Member States introduced in accordance with the EMU Legislation.
“ Eurocurrency Borrowing ” shall mean a Borrowing comprised of Eurocurrency Loans.
“ Eurocurrency Loan ” shall mean any Eurocurrency Term Loan or Eurocurrency Revolving Loan.
“ Eurocurrency Revolving Facility Borrowing ” shall mean a Borrowing comprised of Eurocurrency Revolving Loans.
“ Eurocurrency Revolving Loan ” shall mean any Revolving Facility Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II.
“ Eurocurrency Term Loan ” shall mean any Term Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II.
“ Event of Default ” shall have the meaning assigned to such term in Section 7.01.
“ Excess Cash Flow ” shall mean, with respect to the Borrower and its Subsidiaries on a consolidated basis for any Applicable Period, EBITDA of the Borrower and its Subsidiaries on a consolidated basis for such Applicable Period, minus , without duplication, (A):
(a) Debt Service for such Applicable Period,
(b) the amount of any voluntary prepayment permitted hereunder of term Indebtedness during such Applicable Period (other than any voluntary prepayment of the Term Loans, which shall be the subject of Section 2.11(c)) and the amount of any voluntary prepayments of revolving Indebtedness to the extent accompanied by permanent reductions of any revolving facility commitments (other than any voluntary prepayments of the Revolving Facility Commitment, which shall be the subject of Section 2.11(c)) during such Applicable Period to the extent an equal amount of loans thereunder was simultaneously repaid, so long as the amount of such prepayment is not already reflected in Debt Service,
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(c) (i) Capital Expenditures and Capitalized Software Expenditures by the Borrower and the Subsidiaries on a consolidated basis during such Applicable Period that are paid in cash and (ii) the aggregate consideration paid in cash during the Applicable Period in respect of Permitted Business Acquisitions, New Project expenditures and other Investments permitted hereunder (excluding Permitted Investments and intercompany Investments in Subsidiaries),
(d) Capital Expenditures, Capitalized Software Expenditures, Permitted Business Acquisitions, New Project expenditures or other Investments permitted hereunder (excluding Permitted Investments and intercompany Investments in Subsidiaries) that the Borrower or any Subsidiary shall, during such Applicable Period, become obligated to make or otherwise anticipated to make payments with respect thereto but that are not made during such Applicable Period; provided , that (i) the Borrower shall deliver a certificate to the Administrative Agent not later than 90 days after the end of such Applicable Period, signed by a Responsible Officer of the Borrower and certifying that payments in respect of such Capital Expenditures, Capitalized Software Expenditures, Permitted Business Acquisitions, New Project expenditures or other Investments permitted hereunder (excluding Permitted Investments and intercompany Investments in Subsidiaries) are expected to be made in the following Excess Cash Flow Period, and (ii) any amount so deducted shall not be deducted again in a subsequent Applicable Period,
(e) Taxes paid in cash by Holdings and its Subsidiaries on a consolidated basis during such Applicable Period or that will be paid within six months after the close of such Applicable Period; provided , that with respect to any such amounts to be paid after the close of such Applicable Period, (i) any amount so deducted shall not be deducted again in a subsequent Applicable Period, and (ii) appropriate reserves shall have been established in accordance with GAAP,
(f) (i) an amount equal to any increase in Working Capital of the Borrower and its Subsidiaries for such Applicable Period and any anticipated increase, estimated by the Borrower in good faith, for the following Excess Cash Flow Period and (ii) an amount equal to any increase in non-current Canadian tax receivables of the Borrower and its Subsidiaries for such Applicable Period and any anticipated increase, estimated by the Borrower in good faith, for the following Excess Cash Flow Period,
(g) cash expenditures made in respect of Hedging Agreements during such Applicable Period, to the extent not reflected in the computation of EBITDA or Interest Expense,
(h) permitted Restricted Payments paid in cash by the Borrower during such Applicable Period and permitted Restricted Payments paid by any Subsidiary to any person other than Holdings, the Borrower or any of the Subsidiaries during such Applicable Period, in each case in accordance with Section 6.06 (other than Section 6.06(e), except to the extent such Restricted Payments were financed with internally-generated cash flow of the Borrower or any Subsidiary),
(i) amounts paid in cash during such Applicable Period on account of (A) items that were accounted for as non-cash reductions of Net Income in determining Consolidated Net Income or as non-cash reductions of Consolidated Net Income in determining EBITDA of the Borrower and its Subsidiaries in a prior Applicable Period and (B) reserves or accruals established in purchase accounting,
(j) to the extent not deducted in the computation of Net Proceeds in respect of any asset disposition or condemnation giving rise thereto, the amount of any mandatory prepayment of Indebtedness (other than Indebtedness created hereunder or under any other Loan Document), together with any interest, premium or penalties required to be paid (and actually paid) in connection therewith, and
(k) the amount related to items that were added to or not deducted from Net Income in calculating Consolidated Net Income or were added to or not deducted from Consolidated Net Income in calculating EBITDA to the extent such items represented a cash payment (which had
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not reduced Excess Cash Flow upon the accrual thereof in a prior Applicable Period), or an accrual for a cash payment, by the Borrower and its Subsidiaries or did not represent cash received by the Borrower and its Subsidiaries, in each case on a consolidated basis during such Applicable Period,
plus , without duplication, (B):
(a) (i) an amount equal to any decrease in Working Capital of the Borrower and its Subsidiaries for such Applicable Period and (ii) an amount equal to any decrease in non-current Canadian tax receivables of the Borrower and its Subsidiaries for such Applicable Period,
(b) all amounts referred to in clauses (A)(b), (A)(c) and (A)(d) above to the extent funded with the proceeds of the issuance or the incurrence of Indebtedness (including Capitalized Lease Obligations and purchase money Indebtedness, but excluding proceeds of extensions of credit under any revolving credit facility), the sale or issuance of any Equity Interests (including any capital contributions) and any loss, damage, destruction or condemnation of, or any sale, transfer or other disposition (including any sale and leaseback of assets and any mortgage or lease of Real Property) to any person of any asset or assets, in each case to the extent there is a corresponding deduction from Excess Cash Flow above,
(c) to the extent any permitted Capital Expenditures, Permitted Business Acquisitions, New Project Expenditures or permitted Investments referred to in clause (A)(d) above do not occur in the following Applicable Period of the Borrower specified in the certificate of the Borrower provided pursuant to clause (A)(d) above, the amount of such Capital Expenditures, Permitted Business Acquisitions, New Project Expenditures or permitted Investments that were not so made in such following Applicable Period,
(d) cash payments received in respect of Hedging Agreements during such Applicable Period to the extent (i) not included in the computation of EBITDA or (ii) such payments do not reduce Cash Interest Expense,
(e) any extraordinary or nonrecurring gain realized in cash during such Applicable Period (except to the extent such gain consists of Net Proceeds subject to Section 2.11(b)), and
(f) the amount related to items that were deducted from or not added to Net Income in connection with calculating Consolidated Net Income or were deducted from or not added to Consolidated Net Income in calculating EBITDA to the extent either (i) such items represented cash received by the Borrower or any Subsidiary or (ii) such items do not represent cash paid by the Borrower or any Subsidiary, in each case on a consolidated basis during such Applicable Period.
“ Excess Cash Flow Interim Period ” shall mean, (x) during any Excess Cash Flow Period, any one, two, or three-quarter period (a) commencing on the later of (i) the end of the immediately preceding Excess Cash Flow Period and (ii) if applicable, the end of any prior Excess Cash Flow Interim Period occurring during the same Excess Cash Flow Period and (b) ending on the last day of the most recently ended fiscal quarter (other than the last day of the fiscal year) during such Excess Cash Flow Period for which financial statements are available and (y) during the period from the Closing Date until the beginning of the first Excess Cash Flow Period, any period commencing on the Closing Date and ending on the last day of the most recently ended fiscal quarter for which financial statements are available.
“ Excess Cash Flow Period ” shall mean each fiscal year of the Borrower, commencing with the fiscal year of the Borrower ending on December 31, 2018.
“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
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“ Excluded Contributions ” shall mean the amount received in cash (and the fair market value (as determined by the Borrower in good faith) of property other than cash) by the Borrower after the Closing Date from:
(a) contributions to its common Equity Interests, and
(b) the sale (other than to a Subsidiary of the Borrower or to any Subsidiary management equity plan or stock option plan or any other management or employee benefit plan or agreement) of Equity Interests (other than Disqualified Stock) of the Borrower,
in each case designated as Excluded Contributions pursuant to an officer’s certificate from a Responsible Officer of the Borrower on or promptly after the date on which such capital contributions are made or the date on which such Equity Interests is sold, as the case may be.
“ Excluded Indebtedness ” shall mean all Indebtedness not incurred in violation of Section 6.01.
“ Excluded Property ” shall have the meaning assigned to such term in Section 5.10(g).
“ Excluded Securities ” shall mean any of the following:
(a) any Equity Interests or Indebtedness with respect to which the Collateral Agent and the Borrower reasonably agree, in writing, that the cost or other consequences of pledging such Equity Interests or Indebtedness in favor of the Secured Parties under the Security Documents are likely to be excessive in relation to the value to be afforded thereby;
(b) in the case of any pledge of voting Equity Interests of any Foreign Subsidiary (in each case, that is owned directly by the Borrower or a Subsidiary Loan Party) to secure the Obligations, any voting Equity Interest of such Foreign Subsidiary in excess of 65% of the outstanding Equity Interests of such class;
(c) in the case of any pledge of voting Equity Interests of any FSHCO (in each case, that is owned directly by the Borrower or a Subsidiary Loan Party) to secure the Obligations, any voting Equity Interest of such FSHCO in excess of 65% of the outstanding Equity Interests of such class;
(d) any Equity Interests or Indebtedness to the extent and for so long as the pledge thereof would be prohibited by any Requirement of Law (including Gaming Laws);
(e) any Equity Interests of any person that is not a Wholly Owned Subsidiary to the extent (A) that a pledge thereof to secure the Obligations is prohibited by (i) any applicable organizational documents, joint venture agreement or shareholder agreement or (ii) any other enforceable contractual obligation with an unaffiliated third party not in violation of Section 6.09(c) binding on such Equity Interests that existed at the time of the acquisition thereof and was not created or made binding on such Equity Interests in contemplation of or in connection with the acquisition of such Equity Interests (except in the case of Equity Interests (A) owned on the Closing Date or (B) acquired after the Closing Date with Indebtedness of the type permitted under clause (i) or (j) of Section 6.01) (other than, in the case of subclause (A)(i) and this subclause (A)(ii), customary non-assignment provisions which are ineffective under Article 9 of the Uniform Commercial Code or other applicable Requirements of Law), (B) any organizational documents, joint venture agreement or shareholder agreement (or other contractual obligation referred to in subclause (A)(ii) above) prohibits such a pledge without the consent of any other party; provided , that this clause (B) shall not apply if (1) such other party is a Loan Party or a Wholly Owned Subsidiary or (2) consent has been obtained to consummate such pledge (it being understood that the foregoing shall not be deemed to obligate the Borrower or any Subsidiary to obtain any such consent) and for so long as such organizational documents, joint venture
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agreement or shareholder agreement or replacement or renewal thereof is in effect, or (C) a pledge thereof to secure the Obligations would give any other party (other than a Loan Party or a Wholly Owned Subsidiary) to any organizational documents, joint venture agreement or shareholder agreement governing such Equity Interests (or other contractual obligation referred to in subclause (A)(ii) above) the right to terminate its obligations thereunder (other than, in the case of other contractual obligations referred to in subclause (A)(ii), customary non-assignment provisions which are ineffective under Article 9 of the Uniform Commercial Code or other applicable Requirement of Law);
(f) any Equity Interests of any Immaterial Subsidiary and any Unrestricted Subsidiary;
(g) any Equity Interests of any Subsidiary of, or other Equity Interests owned by, a Foreign Subsidiary;
(h) any Equity Interests of any Subsidiary to the extent that the pledge of such Equity Interests could reasonably be expected to result in material adverse tax consequences to the Borrower or any Subsidiary as reasonably determined in good faith by the Borrower;
(i) any Equity Interests set forth on Schedule 1.01(A) to this Agreement which have been identified on or prior to the Closing Date in writing to the Agent by a Responsible Officer of the Borrower and agreed to by the Administrative Agent;
(j) (x) any Equity Interests owned by Holdings, other than Equity Interests in the Borrower and (y) any Indebtedness owned by Holdings; and
(k) any Margin Stock.
“ Excluded Subsidiary ” shall mean any of the following (except as otherwise provided in clause (b) of the definition of Subsidiary Loan Party):
(a) each Immaterial Subsidiary,
(b) each Domestic Subsidiary that is not a Wholly Owned Subsidiary (for so long as such Subsidiary remains a non-Wholly Owned Subsidiary),
(c) each Domestic Subsidiary that is prohibited from guaranteeing or granting Liens to secure the Obligations by any Requirement of Law (including Gaming Laws) or that would require consent, approval, license or authorization of a Governmental Authority to guarantee or grant Liens to secure the Obligations (unless such consent, approval, license or authorization has been received),
(d) each Domestic Subsidiary that is prohibited by any applicable contractual requirement from guaranteeing or granting Liens to secure the Obligations on the Closing Date or at the time such Subsidiary becomes a Subsidiary not in violation of Section 6.09(c) (and for so long as such restriction or any replacement or renewal thereof is in effect),
(e) any Special Purpose Receivables Subsidiary,
(f) any Foreign Subsidiary,
(g) any Domestic Subsidiary (i) that is an FSHCO or (ii) that is a Subsidiary of a Foreign Subsidiary,
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(h) any other Domestic Subsidiary with respect to which, (x) the Administrative Agent and the Borrower reasonably agree that the cost or other consequences of providing a Guarantee of or granting Liens to secure the Obligations are likely to be excessive in relation to the value to be afforded thereby or (y) providing such a Guarantee or granting such Liens could reasonably be expected to result in material adverse tax consequences as determined in good faith by the Borrower, and
(i) each Unrestricted Subsidiary.
“ Excluded Swap Obligation ” shall mean, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such 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) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation, unless otherwise agreed between the Administrative Agent and the Borrower. 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.
“ Excluded Taxes ” shall mean, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder or under any other Loan Document, (i) Taxes imposed on or measured by its overall net income or branch profits (however denominated, and including (for the avoidance of doubt) any backup withholding in respect thereof under Section 3406 of the Code or any similar provision of state, local or foreign law), and franchise (and similar) Taxes imposed on it (in lieu of net income Taxes), in each case by a jurisdiction (including any political subdivision thereof) as a result of such recipient being organized in, having its principal office in, or in the case of any Lender, having its applicable lending office in, such jurisdiction, or as a result of any other present or former connection with such jurisdiction (other than any such connection arising solely from this Agreement or any other Loan Documents or any transactions contemplated thereunder), (ii) U.S. federal withholding Tax imposed on any payment by or on account of any obligation of any Loan Party hereunder or under any other Loan Document that is required to be imposed on amounts payable to a Lender (other than to the extent such Lender is an assignee pursuant to a request by the Borrower under Section 2.19(b) or 2.19(c)) pursuant to laws in force at the time such Lender becomes a party hereto (or designates a new lending office), except to the extent that such Lender (or its assignor, if any) was entitled, immediately prior to the designation of a new lending office (or assignment), to receive additional amounts or indemnification payments from any Loan Party with respect to such withholding Tax pursuant to Section 2.17, (iii) any withholding Tax imposed on any payment by or on account of any obligation of any Loan Party hereunder or under any other Loan Document that is attributable to the Administrative Agent’s, any Lender’s or any other recipient’s failure to comply with Section 2.17(d) or (e) or (iv) any Tax imposed under FATCA.
“ Existing Class Loans ” shall have the meaning assigned to such term in Section 9.08(f).
“ Existing Credit Agreement ” shall have the meaning assigned to such term in the second recital hereto.
“ Extended Revolving Facility Commitment ” shall have the meaning assigned to such term in Section 2.21(e).
“ Extended Revolving Loan ” shall have the meaning assigned to such term in Section 2.21(e).
“ Extended Term Loan ” shall have the meaning assigned to such term in Section 2.21(e).
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“ Extending Lender ” shall have the meaning assigned to such term in Section 2.21(e).
“ Extension ” shall have the meaning assigned to such term in Section 2.21(e).
“ Facility ” shall mean the respective facility and commitments utilized in making Loans and credit extensions hereunder, it being understood that, (i) from and after the Effective Date there are two Facilities (i.e., the Term B Facility and the Revolving Facility Commitments in effect on the Effective Date and the extensions of credit thereunder) and (ii) thereafter, the term “Facility” may include any other Class of Commitments and the extensions of credit thereunder.
“ FATCA ” shall mean 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), or any Treasury regulations promulgated thereunder or official administrative interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code.
“ Federal Funds Effective Rate ” shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it; provided that if the Federal Funds Effective Rate shall be less than zero, such rate shall be deemed zero.
“ Fees ” shall mean the Commitment Fees, the L/C Participation Fees, the Issuing Bank Fees and the Administrative Agent Fees.
“ Financial Covenant ” shall mean the covenant of the Borrower set forth in Section 6.11.
“ Financial Officer ” of any person shall mean the Chief Financial Officer, principal accounting officer, Treasurer, Assistant Treasurer or Controller of such person, or a duly authorized employee of such person who is a Financial Officer of a subsidiary of such person.
“ First Lien/First Lien Intercreditor Agreement ” shall mean an intercreditor agreement in a customary form reasonably acceptable to the Administrative Agent and the Borrower, in each case, as such document may be amended, restated, supplemented or otherwise modified from time to time.
“ First Lien/Second Lien Intercreditor Agreement ” shall mean an intercreditor agreement in a customary form reasonably acceptable to the Administrative Agent and the Borrower, in each case, as such document may be amended, restated, supplemented or otherwise modified from time to time.
“ Flood Documentation ” shall mean, with respect to each Mortgaged Property located in the United States of America or any territory thereof, (i) a completed “life-of-loan” Federal Emergency Management Agency standard flood hazard determination, and, to the extent a Mortgaged Property is located in a Special Flood Hazard Area, a notice about Special Flood Hazard Area status and flood disaster assistance duly executed by the Borrower and the applicable Loan Party relating thereto and (ii) a copy of, or a certificate as to coverage under, and a declaration page relating to, the insurance policies required by Section 5.02(c) hereof and the applicable provisions of the Security Documents, each of which shall (A) be endorsed or otherwise amended to include a “standard” or “New York” lender’s loss payable or mortgagee endorsement (as applicable), (B) name the Collateral Agent, on behalf of the Secured Parties, as additional insured and loss payee/mortgagee, (C) identify the address of each property located in a Special Flood Hazard Area, the applicable flood zone designation and the flood insurance coverage and deductible relating thereto and (D) be otherwise in form and substance reasonably satisfactory to the Collateral Agent.
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“ Flood Insurance Laws ” shall mean, collectively, (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statute thereto, (iii) the National Flood Insurance Reform Act of 1994 as now or hereafter in effect or any successor statute thereto, (iv) the Flood Insurance Reform Act of 2004 as now or hereafter in effect or any successor statute thereto and (v) the Biggert-Waters Flood Insurance Reform Act of 2012 as now or hereafter in effect or any successor statute thereto.
“ Foreign Lender ” shall mean any Lender (a) that is not disregarded as separate from its owner for U.S. federal income tax purposes and that is not a “United States person” as defined by Section 7701(a)(30) of the Code or (b) that is disregarded as separate from its owner for U.S. federal income tax purposes and whose regarded owner is not a “United States person” as defined in Section 7701(a)(30) of the Code.
“ Foreign Subsidiary ” shall mean any Subsidiary that is incorporated or organized under the laws of any jurisdiction other than the United States of America, any state thereof or the District of Columbia.
“ Fronting Exposure ” shall mean, at any time there is a Defaulting Lender, (a) with respect to any Issuing Bank, such Defaulting Lender’s Revolving Facility Percentage of Revolving L/C Exposure with respect to Letters of Credit issued by such Issuing Bank other than such Revolving L/C Exposure as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof and (b) with respect to the Swingline Lender, such Defaulting Lender’s Swingline Exposure other than Swingline Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders.
“ FSHCO ” shall mean any Subsidiary that owns no material assets other than the Equity Interests of one or more Foreign Subsidiaries that are CFCs and/or of one or more FSHCOs.
“ Fund ” shall mean, collectively, investment funds managed by Affiliates of Apollo Global Management, LLC.
“ Fund Affiliate ” shall mean (i) each Affiliate of the Fund that is neither a “portfolio company” (which means a company actively engaged in providing goods or services to unaffiliated customers), whether or not controlled, nor a company controlled by a “portfolio company” and (ii) any individual who is a partner or employee of Apollo Management, L.P., Apollo Management VIII, L.P. or Apollo Commodities Management, L.P.
“ GAAP ” shall mean generally accepted accounting principles in effect from time to time in the United States of America, applied on a consistent basis, subject to the provisions of Section 1.02; provided , that any reference to the application of GAAP in Sections 3.13(b), 3.20, 5.03, 5.07 and 6.02(e) to a Foreign Subsidiary (and not as a consolidated Subsidiary of the Borrower) shall mean generally accepted accounting principles in effect from time to time in the jurisdiction of organization of such Foreign Subsidiary.
“ Gaming Authority ” shall mean any commission, panel, board or similar body or organization of any Governmental Authority or of any Indian Tribe, in each case, with authority to regulate gaming or other games of chance or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations in a jurisdiction.
“ Gaming Laws ” shall mean all laws, rules, regulations, judgments, injunctions, orders, decrees or other restrictions of any Gaming Authority, applicable to the business or activities of the Borrower or any of its Subsidiaries, including to the extent applicable, the gaming industry or Indian Tribes or the
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manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations.
“ Governmental Authority ” shall mean any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory or legislative body, including any Gaming Authority.
“ Guarantee ” of or by any person (the “ guarantor ”) shall mean (a) any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation payable or performable by another person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) 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, (iii) 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 (iv) entered into for the purpose of assuring in any other manner the holders of such Indebtedness or other obligation of the payment thereof or to protect such holders against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of the guarantor securing any Indebtedness or other obligation (or any existing right, contingent or otherwise, of the holder of Indebtedness or other obligation to be secured by such a Lien) of any other person, whether or not such Indebtedness or other obligation is assumed by the guarantor; provided , however , that the term “Guarantee” shall not include endorsements of instruments for deposit or collection in the ordinary course of business or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition or Disposition of assets permitted by this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such person in good faith.
“ guarantor ” shall have the meaning assigned to such term in the definition of the term “Guarantee.”
“ Guarantors ” shall mean the Loan Parties other than the Borrower.
“ Hazardous Materials ” shall mean all pollutants, contaminants, wastes, chemicals, materials, substances and constituents, including, without limitation, explosive or radioactive substances or petroleum by products or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas or pesticides, fungicides, fertilizers or other agricultural chemicals, of any nature subject to regulation or which can give rise to liability under any Environmental Law.
“ Hedge Bank ” shall mean any person that is (or an Affiliate thereof is) an Agent, an Arranger or a Lender on the Closing Date (or any person that becomes an Agent, Arranger or Lender or Affiliate thereof after the Closing Date) and that enters into a Hedging Agreement, in each case, in its capacity as a party to such Hedging Agreement.
“ Hedging Agreement ” shall mean 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 credit spread transaction, repurchase transaction, reserve repurchase transaction, securities lending transaction, weather index transaction, spot contracts, fixed price physical delivery contracts, or any similar transaction or any combination of these transactions, in each case of the foregoing, whether or not exchange traded; 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 Holdings, the Borrower or any of the Subsidiaries shall be a Hedging Agreement.
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“ High Yield-Style Loans ” shall mean, at any time of determination, term loans governed by documentation containing a set of negative covenants substantially similar to those customary in the high-yield bond market at such time (as determined by the Borrower in good faith).
“ Holdco PIK Notes ” shall mean the 11.25% Senior Secured PIK Notes issued by AP Gaming Holdco, Inc. on May 29, 2015.
“ Holdings ” shall have the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Holdings Guarantee and Pledge Agreement ” shall mean the Holdings Guarantee and Pledge Agreement dated as of the date hereof, as amended, restated, supplemented or otherwise modified from time to time, between Holdings and the Collateral Agent.
“ Immaterial Subsidiary ” shall mean any Subsidiary that (a) did not, as of the last day of the fiscal quarter of the Borrower most recently ended for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b), have assets with a value in excess of 5.0% of the Consolidated Total Assets or revenues representing in excess of 5.0% of total revenues of the Borrower and the Subsidiaries on a consolidated basis as of such date, and (b) taken together with all Immaterial Subsidiaries as of such date, did not have assets with a value in excess of 10% of Consolidated Total Assets or revenues representing in excess of 10% of total revenues of the Borrower and the Subsidiaries on a consolidated basis as of such date; provided , that the Borrower may elect in its sole discretion to exclude as an Immaterial Subsidiary any Subsidiary that would otherwise meet the definition thereof.
“ Increased Amount ” of any Indebtedness shall mean any increase in the amount of such Indebtedness in connection with any accrual of interest, the accretion of accreted value, the amortization of original issue discount, the payment of interest in the form of additional Indebtedness or in the form of common stock of the Borrower, the accretion of original issue discount or liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies.
“ Incremental Amount ” shall mean, at any time, the sum of:
(i) the excess (if any) of (a) $75,000,000 over (b) the sum of (x) the aggregate outstanding principal amount of all Incremental Term Loans and Incremental Revolving Facility Commitments, in each case, incurred or established after the Closing Date and outstanding at such time pursuant to Section 2.21 utilizing this clause (i) (other than Incremental Term Loans and Incremental Revolving Facility Commitments in respect of Refinancing Term Loans, Extended Term Loans, Extended Revolving Facility Commitments or Replacement Revolving Facility Commitments, respectively) and (y) the aggregate principal amount of Indebtedness outstanding under Section 6.01(z) at such time that was incurred utilizing this clause (i); plus
(ii) any amounts so long as immediately after giving effect to the establishment of the commitments in respect thereof utilizing this clause (ii) (and assuming any Incremental Revolving Facility Commitments established at such time utilizing this clause (ii) are fully drawn unless such commitments have been drawn or have otherwise been terminated) (or, at the option of the Borrower, immediately after giving effect to the incurrence of the Incremental Loans thereunder) and the use of proceeds of the loans thereunder, (a) in the case of Indebtedness secured by Liens on the Collateral that rank pari passu with the Liens on the Collateral securing the Term B Loans, the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.25 to 1.00 and (b) in the case of any other Indebtedness, the Total Net Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to1.00; provided that, for purposes of this clause (ii), the net cash proceeds of Incremental Loans incurred at such time shall not be netted against the applicable amount of Consolidated Debt for purposes of such calculation of the Net First Lien Leverage Ratio or the Total Net Leverage Ratio on such date of incurrence; plus
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(iii) the aggregate amount of all voluntary prepayments of Term B Loans outstanding on the Closing Date and Revolving Facility Loans pursuant to Section 2.11(a) (and accompanied by a reduction of Revolving Facility Commitments pursuant to Section 2.08(b) in the case of a prepayment of Revolving Facility Loans) made prior to such time except to the extent funded with the proceeds of long-term Indebtedness (other than revolving Indebtedness);
provided , that, for the avoidance of doubt, (A) amounts may be established or incurred utilizing clause (ii) above prior to utilizing clause (i) or (iii) above and (B) any calculation of the Net First Lien Leverage Ratio or the Total Net Leverage Ratio on a Pro Forma Basis pursuant to clause (ii) above may be determined, at the option of the Borrower, without giving effect to any simultaneous establishment or incurrence of any amounts utilizing clause (i) or (iii) above.
“ Incremental Assumption Agreement ” shall mean an Incremental Assumption Agreement in form and substance reasonably satisfactory to the Administrative Agent, among the Borrower, the Administrative Agent and, if applicable, one or more Incremental Term Lenders and/or Incremental Revolving Facility Lenders.
“ Incremental Commitment ” shall mean an Incremental Term Loan Commitment or an Incremental Revolving Facility Commitment.
“ Incremental Loan ” shall mean an Incremental Term Loan or an Incremental Revolving Loan.
“ Incremental Revolving Facility Commitment ” shall mean the commitment of any Lender, established pursuant to Section 2.21, to make Incremental Revolving Loans to the Borrower.
“ Incremental Revolving Facility Lender ” shall mean a Lender with an Incremental Revolving Facility Commitment or an outstanding Incremental Revolving Loan.
“ Incremental Revolving Loan ” shall mean (i) Revolving Facility Loans made by one or more Revolving Facility Lenders to the Borrower pursuant to an Incremental Revolving Facility Commitment to make additional Initial Revolving Loans and (ii) to the extent permitted by Section 2.21 and provided for in the relevant Incremental Assumption Agreement, Other Revolving Loans (including in the form of Extended Revolving Loans or Replacement Revolving Loans, as applicable), or (iii) any of the foregoing.
“Incremental Term B Lender” shall mean each Lender with an Incremental Term B Loan Commitment.
“Incremental Term B Loan Commitments” shall have the meaning assigned to the term “Incremental Term B Loan Commitments” in the 2017 Incremental Assumption Agreement. The amount of each Lender’s Incremental Term B Loan Commitment as of the Effective Date is set forth on Schedule 1 to the 2017 Incremental Assumption Agreement. The aggregate amount of the Incremental Term B Loan Commitments as of the Effective Date is $65,000,000.
“Incremental Term B Loans” shall have the meaning assigned to the term “Incremental Term B Loans” in the 2017 Incremental Assumption Agreement.
“ Incremental Term Borrowing ” shall mean a Borrowing comprised of Incremental Term Loans.
“ Incremental Term Facility ” shall mean any Class of Incremental Term Loan Commitments and the Incremental Term Loans made thereunder.
“ Incremental Term Lender ” shall mean a Lender with an Incremental Term Loan Commitment or an outstanding Incremental Term Loan.
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“ Incremental Term Loan Commitment ” shall mean the commitment of any Lender, established pursuant to Section 2.21, to make Incremental Term Loans to the Borrower.
“ Incremental Term Loan Installment Date ” shall have, with respect to any Class of Incremental Term Loans established pursuant to an Incremental Assumption Agreement, the meaning assigned to such term in Section 2.10(a)(ii).
“ Incremental Term Loans ” shall mean (i) Term Loans made by one or more Lenders to the Borrower pursuant to Section 2.01(c) consisting of additional Term B Loans and (ii) to the extent permitted by Section 2.21 and provided for in the relevant Incremental Assumption Agreement, Other Term Loans (including in the form of Extended Term Loans or Refinancing Term Loans, as applicable), or (iii) any of the foregoing.
“ Indebtedness ” of any person shall mean, if and to the extent (other than with respect to clause (i)) the same would constitute indebtedness or a liability in accordance with GAAP, 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 under conditional sale or other title retention agreements relating to property or assets purchased by such person, to the extent that the same would be required to be shown as a long term liability on a balance sheet prepared in accordance with GAAP, (d) all obligations of such person issued or assumed as the deferred purchase price of property or services (other than such obligations accrued in the ordinary course), to the extent that the same would be required to be shown as a long term liability on a balance sheet prepared in accordance with GAAP, (e) all Capitalized Lease Obligations of such person, (f) all net payments that such person would have to make in the event of an early termination, on the date Indebtedness of such person is being determined, in respect of outstanding Hedging Agreements, (g) the principal component of all obligations, contingent or otherwise, of such person as an account party in respect of letters of credit, (h) the principal component of all obligations of such person in respect of bankers’ acceptances, (i) all Guarantees by such person of Indebtedness described in clauses (a) to (h) above and (j) the amount of all obligations of such person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (excluding accrued dividends that have not increased the liquidation preference of such Disqualified Stock); provided , that Indebtedness shall not include (A) trade and other ordinary-course payables, accrued expenses, and intercompany liabilities arising in the ordinary course of business, (B) prepaid or deferred revenue, (C) purchase price holdbacks arising in the ordinary course of business in respect of a portion of the purchase prices of an asset to satisfy unperformed obligations of the seller of such asset, (D) earn-out obligations until such obligations become a liability on the balance sheet of such person in accordance with GAAP, (E) obligations in respect of Third Party Funds or (F) in the case of the Borrower and its Subsidiaries, (I) all intercompany Indebtedness having a term not exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary course of business and (II) intercompany liabilities in connection with the cash management, tax and accounting operations of the Borrower and the Subsidiaries. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner, other than to the extent that the instrument or agreement evidencing such Indebtedness limits the liability of such person in respect thereof. To the extent not otherwise included, Indebtedness shall include the amount of any Receivables Net Investment.
“ Indemnified Taxes ” shall mean all Taxes imposed on or with respect to or measured by any payment by or on account of any obligation of any Loan Party hereunder or under any other Loan Document other than (a) Excluded Taxes and (b) Other Taxes.
“ Indemnitee ” shall have the meaning assigned to such term in Section 9.05(b).
“ Indian Tribe ” shall mean any United States Native American Indian tribe, band, nation or other organized group or community recognized by the Secretary of the Interior of the United States of America as being eligible for special status as Indians and recognized as possessing powers of self-government.
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“ Ineligible Institution ” shall mean the persons identified in writing to the Administrative Agent by the Borrower on or prior to the Closing Date, and as may be identified in writing to the Administrative Agent by the Borrower from time to time thereafter in respect of bona fide business competitors of the Borrower (in the good faith determination of the Borrower) by delivery of a notice thereof to the Administrative Agent setting forth such person or persons (or the person or persons previously identified to the Administrative Agent that are to be no longer considered “Ineligible Institutions”); provided , that no such updates pursuant to this clause (ii) shall be deemed to retroactively disqualify any parties that have previously acquired an assignment or participation interest in respect of the Loans from continuing to hold or vote such previously acquired assignments and participations on the terms set forth herein for Lenders that are not Ineligible Institutions.
“ Information ” shall have the meaning assigned to such term in Section 3.14(a).
“ Information Memorandum ” shall mean the Confidential Information Memorandum, dated May 2017, as modified or supplemented prior to the Closing Date.
“ Initial Revolving Loan ” shall mean a Revolving Facility Loan made (i) pursuant to the Revolving Facility Commitments in effect on the Closing Date (as the same may be amended from time to time in accordance with this Agreement) or (ii) pursuant to any Incremental Revolving Facility Commitment on the same terms as the Revolving Facility Loans referred to in clause (i) of this definition.
“Initial Term B Lender” shall mean each Lender with an Initial Term B Loan Commitment.
“Initial Term B Loans” shall mean the term loans made by the Lenders to the Borrower pursuant to Section 2.01(a) (x) on the Closing Date.
“ Initial Term B Loan Commitment ” shall mean, with respect to each Lender, the commitment of such Lender to make the Initial Term B Loans hereunder on the Closing Date . The amount of each Lender’s Initial Term B Loan Commitment as of the Closing Date is set forth on Schedule 2.01 . The aggregate amount of the Initial Term B Loan Commitments as of the Closing Date was $450,000,000.
“ Intellectual Property ” shall have the meaning assigned to such term in the Collateral Agreement.
“ Intercreditor Agreement ” shall have the meaning assigned to such term in Section 8.11.
“ Interest Election Request ” shall mean a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.07 and substantially in the form of Exhibit E or another form approved by the Administrative Agent.
“ Interest Expense ” shall mean, with respect to any person for any period, the sum of (a) gross interest expense of such person for such period on a consolidated basis, including (i) the amortization of debt discounts, (ii) the amortization of all fees (including fees with respect to Hedging Agreements) payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of any payments or accruals with respect to Capitalized Lease Obligations allocable to interest expense, (b) capitalized interest of such person, and (c) commissions, discounts, yield and other fees and charges incurred in connection with any Permitted Receivables Financing which are payable to any person other than the Borrower or a Subsidiary Loan Party. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received and costs incurred by the Borrower and the Subsidiaries with respect to Hedging Agreements, and interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by the Borrower to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
“ Interest Payment Date ” shall mean, (a) with respect to any Eurocurrency Loan, (i) the last day of the Interest Period applicable to the Borrowing of which such Loan is a part, (ii) in the case of a Eurocurrency Borrowing with an Interest Period of more than three months’ duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months’ duration been applicable to such Borrowing and (iii) in addition, the date of any refinancing or conversion of such
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Borrowing with or to a Borrowing of a different Type or the date of repayment or prepayment in accordance with Section 2.10 or 2.11, (b) with respect to any ABR Loan, the last Business Day of each calendar quarter and (c) with respect to any Swingline Loan, the day that such Swingline Loan is required to be repaid pursuant to Section 2.09(a).
“ Interest Period ” shall mean, as to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as applicable, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter (or 12 months, if at the time of the relevant Borrowing, all relevant Lenders make interest periods of such length available or, if agreed to by the Administrative Agent, any shorter period), as the Borrower may elect; provided , however , that 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 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; provided, further, notwithstanding anything to the contrary contained in this Agreement, the initial Interest Period with respect to the Incremental Term B Loans made on the Effective Date shall be the period commencing on the Effective Date and ending on December 29, 2017. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.
“ Investment ” shall have the meaning assigned to such term in Section 6.04.
“ IRS ” shall mean the U.S. Internal Revenue Service.
“ ISP ” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).
“ Issuing Bank ” shall mean each of (i) Jefferies Finance LLC, (ii) Macquarie Capital Funding LLC and (iii) each other Issuing Bank designated pursuant to Section 2.05(l), in each case in its capacity as an issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.05(i). An Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates or designees of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate or designee with respect to Letters of Credit issued by such Affiliate or designee. Jefferies Finance LLC will cause Letters of Credit to be issued by unaffiliated financial institutions and such Letters of Credit shall be treated as issued by Jefferies Finance LLC for all purposes under the Loan Documents.
“ Issuing Bank Fees ” shall have the meaning assigned to such term in Section 2.12(b).
“ Joint Bookrunners ” shall mean Jefferies Finance LLC and Macquarie Capital (USA) Inc.
“ Judgment Currency ” shall have the meaning assigned to such term in Section 9.19.
“ L/C Disbursement ” shall mean a payment or disbursement made by an Issuing Bank pursuant to a Letter of Credit.
“ L/C Participation Fee ” shall have the meaning assigned to such term in Section 2.12(b).
“ Latest Maturity Date ” shall mean, at any date of determination, the latest of the latest Revolving Facility Maturity Date and the latest Term Facility Maturity Date, in each case then in effect on such date of determination.
“ Lender ” shall mean each financial institution listed on Schedule 2.01 and Schedule 1 to the 2017 Incremental Assumption Agreement (in each case, other than any such person that has ceased to be a party hereto pursuant to an Assignment and Acceptance in accordance with Section 9.04), as well as any person that becomes a “Lender” hereunder pursuant to Section 9.04 or Section 2.21. Unless the context clearly indicates otherwise, the term “Lenders” shall include any Swingline Lender.
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“ Lending Office ” shall mean, as to any Lender, the applicable branch, office or Affiliate of such Lender designated by such Lender to make Loans.
“ Letter of Credit ” shall mean any letter of credit or bank guarantee issued pursuant to Section 2.05, including any Alternate Currency Letter of Credit.
“ Letter of Credit Commitment ” shall mean, with respect to each Issuing Bank, the commitment of such Issuing Bank to issue Letters of Credit pursuant to Section 2.05.
“ Letter of Credit Sublimit ” shall mean the aggregate Letter of Credit Commitments of the Issuing Banks, in an amount not to exceed $7,500,000 (or the equivalent thereof in an Alternate Currency) or such larger amount not to exceed the Revolving Facility Commitment as the Administrative Agent and the applicable Issuing Bank may agree.
“ LIBO Rate ” shall mean for any Interest Period as to any Eurocurrency Loan, (i) the rate per annum determined by the Administrative Agent to be the offered rate which appears on the page of the Reuters Screen which displays the London interbank offered rate administered by ICE Benchmark Administration Limited (such page currently being the LIBOR01 page) for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 a.m. (London, England time), two Business Days prior to the commencement of such Interest Period, or (ii) in the event the rate referenced in the preceding clause (i) does not appear on such page or service or if such page or service shall cease to be available, the rate determined by the Administrative Agent to be the offered rate on such other page or other service which displays the LIBO Rate for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 a.m. (London, England time) two Business Days prior to the commencement of such Interest Period; provided that if LIBO Rates are quoted under either of the preceding clauses (i) or (ii), but there is no such quotation for the Interest Period elected, the LIBO Rate shall be equal to the Interpolated Rate; and provided , further , that if any such rate determined pursuant to the preceding clauses (i) or (ii) is below zero, the LIBO Rate will be deemed to be zero.
“ Lien ” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, hypothecation, pledge, charge, security interest or similar monetary encumbrance in or on such asset and (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; provided , that in no event shall an operating lease or an agreement to sell be deemed to constitute a Lien.
“ Loan Documents ” shall mean (i) this Agreement, (ii) the Subsidiary Guarantee Agreement, (iii) the Security Documents, (iv) each Incremental Assumption Agreement (including the 2017 Incremental Assumption Agreement) , (v) any Note issued under Section 2.09(e), (vi) the Letters of Credit and (vii) solely for the purposes of Sections 4.02 and 7.01 hereof, the Administrative Agent Fee Letter; provided that, for purposes of the expense reimbursement and indemnity provisions in Section 8.07 and Section 9.05 only, the First Lien/First Lien Intercreditor Agreement (if entered into) and the First Lien/Second Lien Intercreditor Agreement (if entered into) shall be deemed to be “Loan Documents”.
“ Loan Obligations ” shall mean (a) the due and punctual payment by the Borrower of (i) the unpaid principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans made to the Borrower under this Agreement, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under this Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon (including interest accruing during
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the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) and obligations to provide Cash Collateral and (iii) all other monetary obligations of the Borrower owed under or pursuant to this Agreement and each other Loan Document, including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), and (b) the due and punctual payment of all obligations of each other Loan Party under or pursuant to each of the Loan Documents.
“ Loan Parties ” shall mean Holdings (prior to a Qualified IPO of the Borrower), the Borrower and the Subsidiary Loan Parties.
“ Loans ” shall mean the Term Loans, the Revolving Facility Loans and the Swingline Loans.
“ Local Time ” shall mean New York City time (daylight or standard, as applicable).
“ Majority Lenders ” of any Facility shall mean, at any time, Lenders under such Facility having Loans and unused Commitments representing more than 50% of the sum of all Loans outstanding under such Facility and unused Commitments under such Facility at such time. The Loans and unused Commitments of any Defaulting Lenders shall be disregarded in determining Majority Lenders at any time.
“ Management Group ” shall mean the group consisting of the directors, executive officers and other management personnel of the Borrower, Holdings or any Parent Entity, as the case may be, on the Closing Date together with (a) any new directors whose election by such boards of directors or whose nomination for election by the shareholders of the Borrower, Holdings or any Parent Entity, as the case may be, was approved by a vote of a majority of the directors of the Borrower, Holdings or any Parent Entity, as the case may be, then still in office who were either directors on the Closing Date or whose election or nomination was previously so approved and (b) executive officers and other management personnel of the Borrower, Holdings or any Parent Entity, as the case may be, hired at a time when the directors on the Closing Date together with the directors so approved constituted a majority of the directors of the Borrower or Holdings, as the case may be.
“ Margin Stock ” shall have the meaning assigned to such term in Regulation U.
“ Material Adverse Effect ” shall mean a material adverse effect on the business, property, operations or financial condition of the Borrower and its Subsidiaries, taken as a whole, or the validity or enforceability of any of the Loan Documents or the rights and remedies of the Administrative Agent and the Lenders thereunder.
“ Material Indebtedness ” shall mean Indebtedness (other than Loans and Letters of Credit) of any one or more of the Borrower or any Subsidiary in an aggregate principal amount exceeding $15,000,000.
“ Material Real Property ” shall mean any parcel or parcels of Real Property located in the United States now or hereafter owned in fee by the Borrower or any Subsidiary Loan Party and having a fair market value (on a per-property basis) of at least $5,000,000 as of (x) the Closing Date, for Real Property now owned or (y) the date of acquisition, for Real Property acquired after the Closing Date, in each case as determined by the Borrower in good faith.
“ Material Subsidiary ” shall mean any Subsidiary other than an Immaterial Subsidiary.
“ Maximum Rate ” shall have the meaning assigned to such term in Section 9.09.
“ Minimum L/C Collateral Amount ” shall mean, at any time, in connection with any Letter of Credit, (i) with respect to Cash Collateral consisting of cash or deposit account balances, an amount equal to 103% of the Revolving L/C Exposure with respect to such Letter of Credit at such time and (ii) otherwise, an amount sufficient to provide credit support with respect to such Revolving L/C Exposure as determined by the Administrative Agent and the Issuing Banks in their sole discretion.
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“ Moody’s ” shall mean Moody’s Investors Service, Inc.
“ Mortgaged Properties ” shall mean the Material Real Properties owned in fee by the Borrower or any Subsidiary Loan Party that are set forth on Schedule 1.01(B) and each additional Material Real Property encumbered by a Mortgage pursuant to Section 5.10.
“ Mortgages ” shall mean, collectively, the mortgages, trust deeds, deeds of trust, deeds to secure debt, assignments of leases and rents, and other security documents (including amendments to any of the foregoing) delivered with respect to Mortgaged Properties, each in a form reasonably acceptable to the Administrative Agent as amended, supplemented or otherwise modified from time to time.
“ Multiemployer Plan ” shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Borrower, Holdings or any Subsidiary or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414) is making or accruing an obligation to make contributions, or has within any of the preceding six plan years made or accrued an obligation to make contributions.
“ Net First Lien Leverage Ratio ” shall mean, on any date, the ratio of (A) (i) the sum of, without duplication, (a) the aggregate principal amount of any Term B Loans and Revolving Facility Loans outstanding as of the last day of the Test Period most recently ended as of such date and (b) the aggregate principal amount of any other Consolidated Debt (including Capitalized Lease Obligations) of the Borrower and its Subsidiaries as of the last day of such Test Period that is then secured by Liens that are senior to or pari passu with the Liens securing the Term B Loans less (ii) without duplication, up to $50,000,000 of Unrestricted Cash and unrestricted Permitted Investments of the Borrower and its Subsidiaries as of the last day of such Test Period, to (B) EBITDA for such Test Period, all determined on a consolidated basis in accordance with GAAP; provided , that the Net First Lien Leverage Ratio shall be determined for the relevant Test Period on a Pro Forma Basis.
“ Net Income ” shall mean, with respect to any person, the net income (loss) of such person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends.
“ Net Proceeds ” shall mean:
(a) 100% of the cash proceeds actually received by the Borrower or any Subsidiary Loan Party (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise and including casualty insurance settlements and condemnation awards, but only as and when received) from any Asset Sale (other than any Asset Sales pursuant to Section 6.05(a), (b), (c), (d), (e), (f), (h), (i), (j), (k) and (l)), net of (i) attorneys’ fees, accountants’ fees, investment banking fees, survey costs, title insurance premiums, and related search and recording charges, transfer taxes, deed or mortgage recording taxes, required debt payments and required payments of other obligations relating to the applicable asset to the extent such debt or obligations are secured by a Lien permitted hereunder (other than pursuant to the Loan Documents) on such asset, other customary expenses and brokerage, consultant and other customary fees actually incurred in connection therewith, (ii) Taxes paid or payable (in the good faith determination of the Borrower) as a result thereof, and (iii) the amount of any reasonable reserve established in accordance with GAAP against any adjustment to the sale price or any liabilities (other than any taxes deducted pursuant to clause (i) or (ii) above) (x) related to any of the applicable assets and (y) retained by the Borrower or any of the Subsidiaries including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations (however, the amount of any subsequent reduction of such reserve (other than in connection with a payment in respect of any such liability) shall be deemed to be cash proceeds of such Asset Sale occurring on the date of such reduction); provided , that, if
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Holdings or the Borrower shall deliver a certificate of a Responsible Officer of Holdings or the Borrower to the Administrative Agent promptly following receipt of any such proceeds setting forth Holdings’ or the Borrower’s intention to use any portion of such proceeds, to acquire, maintain, develop, construct, improve, upgrade or repair assets useful in the business of the Borrower and the Subsidiaries or to make Permitted Business Acquisitions and other Investments permitted hereunder (excluding Permitted Investments and intercompany Investments in Subsidiaries) in each case within 12 months of such receipt, such portion of such proceeds shall not constitute Net Proceeds except to the extent not, within 12 months of such receipt, so used or contractually committed to be so used (it being understood that if any portion of such proceeds are not so used within such 12 month period but within such 12 month period are contractually committed to be used, then such remaining portion if not so used within six months following the end of such 12 month period shall constitute Net Proceeds as of such date without giving effect to this proviso); provided , further , that (x) no net cash proceeds calculated in accordance with the foregoing realized in a single transaction or series of related transactions shall constitute Net Proceeds unless such net cash proceeds shall exceed $6,000,000 (and thereafter only net cash proceeds in excess of such amount shall constitute Net Proceeds), (y) no net cash proceeds calculated in accordance with the foregoing shall constitute Net Proceeds in any fiscal year until the aggregate amount of all such net cash proceeds in such fiscal year shall exceed $12,000,000 (and thereafter only net cash proceeds in excess of such amount shall constitute Net Proceeds) and (z) if at the time of receipt of such net cash proceeds or at any time during the 12-month (or 18-month, as applicable) reinvestment period contemplated by the immediately preceding proviso, if Holdings or the Borrower shall deliver a certificate of a Responsible Officer of Holdings or the Borrower to the Administrative Agent certifying that on a Pro Forma Basis after giving effect to the Asset Sale and the application of the proceeds thereof, the Total Net Leverage Ratio is less than or equal to 3.00 to 1.00, up to $20,000,000 of such proceeds shall not constitute Net Proceeds; and
(b) 100% of the cash proceeds from the incurrence, issuance or sale by the Borrower or any Subsidiary Loan Party of any Indebtedness (other than Excluded Indebtedness), net of all taxes and fees (including investment banking fees), commissions, costs and other expenses, in each case incurred in connection with such issuance or sale.
“ New Class Loans ” shall have the meaning assigned to such term in Section 9.08(f).
“ New Project ” shall mean (x) each plant, facility or branch which is either a new plant, facility or branch or an expansion of an existing plant, facility or branch owned by the Borrower or the Subsidiaries which in fact commences operations and (y) each creation (in one or a series of related transactions) of a business unit to the extent such business unit commences operations or each expansion (in one or a series of related transactions, and including the process of obtaining regulatory approvals for entering into any new geographical jurisdiction) of business into a new market.
“ Non-Consenting Lender ” shall have the meaning assigned to such term in Section 2.19(c).
“ Non-Defaulting Lender ” shall mean, at any time, each Lender that is not a Defaulting Lender at such time.
“ Note ” shall have the meaning assigned to such term in Section 2.09(e).
“ Obligations ” shall mean, collectively, (a) the Loan Obligations, (b) obligations in respect of any Secured Cash Management Agreement and (c) obligations in respect of any Secured Hedge Agreement.
“ OFAC ” shall have the meaning provided in Section 3.25(b).
“ Other Revolving Facility Commitments ” shall mean Incremental Revolving Facility Commitments to make Other Revolving Loans.
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“ Other Revolving Loans ” shall have the meaning assigned to such term in Section 2.21.
“ Other Taxes ” shall mean any and all present or future stamp or documentary Taxes or any other excise, transfer, sales, property, intangible, mortgage recording or similar Taxes arising from any payment made hereunder or under any other Loan Document or from the execution, registration, delivery or enforcement of, consummation or administration of, from the receipt or perfection of security interest under, or otherwise with respect to, the Loan Documents (but excluding any Excluded Taxes).
“ Other Term Loans ” shall have the meaning assigned to such term in Section 2.21 (including in the form of Extended Term Loans or Refinancing Term Loans, as applicable).
“ Parent Entity ” shall mean any direct or indirect parent of the Borrower other than Holdings.
“ Pari Term Loans ” shall have the meaning assigned to such term in Section 6.02.
“ Pari Yield Differential ” shall have the meaning assigned to such term in Section 6.02.
“ Participant ” shall have the meaning assigned to such term in Section 9.04(d)(i).
“ Participant Register ” shall have the meaning assigned to such term in Section 9.04(d)(ii).
“ PBGC ” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
“ Perfection Certificate ” shall mean the Perfection Certificate with respect to the Borrower and the other Loan Parties in a form reasonably satisfactory to the Administrative Agent, as the same may be supplemented from time to time to the extent required by Section 5.04(f).
“ Permitted Business Acquisition ” shall mean any acquisition of all or substantially all the assets of, or all or substantially all the Equity Interests (other than directors’ qualifying shares) not previously held by the Borrower and its Subsidiaries in, or merger, consolidation or amalgamation with, a person or division or line of business of a person (or any subsequent investment made in a person, division or line of business previously acquired in a Permitted Business Acquisition), if immediately after giving effect thereto: (i) no Default or Event of Default shall have occurred and be continuing or would result therefrom; (ii) all transactions related thereto shall be consummated in accordance with applicable laws; (iii) with respect to any such acquisition or investment with cash consideration in excess of $10,000,000, the Borrower shall be in Pro Forma Compliance immediately after giving effect to such acquisition or investment and any related transaction; (iv) any acquired or newly formed Subsidiary shall not be liable for any Indebtedness except for Indebtedness permitted by Section 6.01; (v) to the extent required by Section 5.10, any person acquired in such acquisition, if acquired by the Borrower or a Domestic Subsidiary, shall be merged into the Borrower or a Subsidiary Loan Party or become upon consummation of such acquisition a Subsidiary Loan Party; and (vi) the aggregate cash consideration in respect of such acquisitions and investments in assets that are not owned by the Borrower or Subsidiary Loan Parties or in Equity Interests in persons that are not Subsidiary Loan Parties or do not become Subsidiary Loan Parties upon consummation of such acquisition shall not exceed the greater of (x) $30,000,000 and (y) 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period.
“ Permitted Cure Securities ” shall mean any equity securities of the Borrower, Holdings or any Parent Entity issued pursuant to the Cure Right other than Disqualified Stock.
“ Permitted Holder Group ” shall have the meaning assigned to such term in the definition of “Permitted Holders.”
“ Permitted Holders ” shall mean (i) the Co-Investors, (ii) any person that has no material assets other than the capital stock of the Borrower, Holdings or any Parent Entity and that, directly or indirectly, holds or acquires beneficial ownership of 100% on a fully diluted basis of the voting Equity Interests of the
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Borrower, and of which no other person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Closing Date), other than any of the other Permitted Holders, beneficially owns more than 50% on a fully diluted basis of the voting Equity Interests thereof and (iii) any “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Closing Date) the members of which include any of the other Permitted Holders specified in clause (i) or (ii) and that, directly or indirectly, hold or acquire beneficial ownership of the voting Equity Interests of the Borrower (a “ Permitted Holder Group ”), so long as (1) each member of the Permitted Holder Group has voting rights proportional to the percentage of ownership interests held or acquired by such member and (2) no person or other “group” (other than the other Permitted Holders) beneficially owns more than 50% on a fully diluted basis of the voting Equity Interests held by the Permitted Holder Group.
“ Permitted Investments ” shall mean:
(a) direct obligations of the United States of America or any member of the European Union or any agency thereof or obligations guaranteed by the United States of America or any member of the European Union or any agency thereof, in each case with maturities not exceeding two years;
(b) time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company that is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits in excess of $250,000,000 and whose long-term debt, or whose parent holding company’s long-term debt, is rated A (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act));
(c) repurchase obligations with a term of not more than 180 days for underlying securities of the types described in clause (a) above entered into with a bank meeting the qualifications described in clause (b) above;
(d) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of the Borrower) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of P-1 (or higher) according to Moody’s, or A-1 (or higher) according to S&P (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act));
(e) securities with maturities of two years or less from the date of acquisition, issued or fully guaranteed by any State, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least A by S&P or A by Moody’s (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act));
(f) shares of mutual funds whose investment guidelines restrict 95% of such funds’ investments to those satisfying the provisions of clauses (a) through (e) above;
(g) money market funds that (i) comply with the criteria set forth in Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000;
(h) time deposit accounts, certificates of deposit and money market deposits in an aggregate face amount not in excess of 0.5% of the total assets of the Borrower and the Subsidiaries, on a consolidated basis, as of the end of the Borrower’s most recently completed fiscal year; and
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(i) instruments equivalent to those referred to in clauses (a) through (h) above denominated in any foreign currency comparable in credit quality and tenor to those referred to above and commonly used by corporations for cash management purposes in any jurisdiction outside the United States of America to the extent reasonably required in connection with any business conducted by any Subsidiary organized in such jurisdiction.
“ Permitted Junior Intercreditor Agreement ” shall mean, with respect to any Liens on Collateral that are intended to be junior to any Liens securing the Term B Loans, either (as the Borrower shall elect) (x) any First Lien/Second Lien Intercreditor Agreement if such Liens secure “Second Lien Obligations” (as defined therein), (y) another intercreditor agreement not materially less favorable to the Lenders vis-à-vis such junior Liens than such First Lien/Second Lien Intercreditor Agreement (as determined by the Borrower in good faith) or (z) another intercreditor agreement the terms of which are consistent with market terms governing security arrangements for the sharing of liens on a junior basis at the time such intercreditor agreement is proposed to be established, as determined by the Administrative Agent and the Borrower in the exercise of reasonable judgment.
“ Permitted Liens ” shall have the meaning assigned to such term in Section 6.02.
“ Permitted Loan Purchase ” shall have the meaning assigned to such term in Section 9.04(i).
“ Permitted Loan Purchase Amount ” shall mean 25% of the sum of (x) the aggregate principal amount of the Term B Facility on the Closing Date plus (y) the aggregate principal amount of any Incremental Term Loans incurred since the Closing Date.
“ Permitted Loan Purchase Assignment and Acceptance ” shall mean an assignment and acceptance entered into by a Lender as an Assignor and the Borrower as an Assignee, as accepted by the Administrative Agent (if required by Section 9.04) in the form of Exhibit G or such other form as shall be approved by the Administrative Agent and the Borrower (such approval not to be unreasonably withheld or delayed).
“ Permitted Pari Passu Intercreditor Agreement ” shall mean, with respect to any Liens on Collateral that are intended to be secured on a pari passu basis with the Liens securing the Term B Loans, either (as the Borrower shall elect) (x) the First Lien/First Lien Intercreditor Agreement, (y) another intercreditor agreement not materially less favorable to the Lenders vis-à-vis such pari passu Liens than the First Lien/First Lien Intercreditor Agreement (as determined by the Borrower in good faith) or (z) another intercreditor agreement the terms of which are consistent with market terms governing security arrangements for the sharing of liens on a pari passu basis at the time such intercreditor agreement is proposed to be established, as determined by the Administrative Agent and the Borrower in the exercise of reasonable judgment.
“ Permitted Receivables Documents ” shall mean all documents and agreements evidencing, relating to or otherwise governing a Permitted Receivables Financing.
“ Permitted Receivables Financing ” shall mean one or more transactions pursuant to which (i) Receivables Assets or interests therein are sold to or financed by one or more Special Purpose Receivables Subsidiaries, and (ii) such Special Purpose Receivables Subsidiaries finance their acquisition of such Receivables Assets or interests therein, or the financing thereof, by selling or borrowing against Receivables Assets; provided , that recourse to the Borrower or any Subsidiary (other than the Special Purpose Receivables Subsidiaries) in connection with such transactions shall be limited to the extent customary for similar transactions in the applicable jurisdictions (including, to the extent applicable, in a manner consistent with the delivery of a “true sale”/“absolute transfer” opinion with respect to any transfer by the Borrower or any Subsidiary (other than a Special Purpose Receivables Subsidiary)).
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“ Permitted Refinancing Indebtedness ” shall mean any Indebtedness issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund (collectively, to “ Refinance ”), the Indebtedness being Refinanced (or previous refinancings thereof constituting Permitted Refinancing Indebtedness); provided , that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so Refinanced (plus unpaid accrued interest and premium (including tender premiums) thereon and underwriting discounts, defeasance costs, fees, commissions, expenses, plus an amount equal to letters of credit undrawn thereunder), (b) except with respect to Section 6.01(i), (i) the final maturity date of such Permitted Refinancing Indebtedness is on or after the earlier of (x) the final maturity date of the Indebtedness being Refinanced and (y) the Latest Maturity Date in effect at the time of incurrence thereof and (ii) the Weighted Average Life to Maturity of such Permitted Refinancing Indebtedness is greater than or equal to the lesser of (i) the Weighted Average Life to Maturity of the Indebtedness being Refinanced and (ii) the Weighted Average Life to Maturity of the Class of Term Loans then outstanding with the greatest remaining Weighted Average Life to Maturity, (c) if the Indebtedness being Refinanced is subordinated in right of payment to the Loan Obligations under this Agreement, such Permitted Refinancing Indebtedness shall be subordinated in right of payment to such Loan Obligations on terms in the aggregate not materially less favorable to the Lenders as those contained in the documentation governing the Indebtedness being Refinanced, (d) no Permitted Refinancing Indebtedness shall have obligors that are not (or would not have been) obligated with respect to the Indebtedness being so Refinanced (except that a Loan Party may be added as an additional obligor) and (e) if the Indebtedness being Refinanced is secured by Liens on any Collateral (whether senior to, equally and ratably with, or junior to the Liens on such Collateral securing the Loan Obligations or otherwise), such Permitted Refinancing Indebtedness may be secured by such Collateral (including any Collateral pursuant to after-acquired property clauses to the extent any such Collateral secured (or would have secured) the Indebtedness being Refinanced) on terms, taken as a whole, no less favorable to the Secured Parties than the Indebtedness being refinanced or on terms otherwise permitted by Section 6.02.
“ person ” shall mean any natural person, corporation, business trust, joint venture, association, company, partnership, limited liability company or government, individual or family trusts, or any agency or political subdivision thereof.
“ PIK Seller Notes ” shall mean (i) the 5.00% PIK Promissory Note, dated as of March 9, 2017, by AP Gaming Holdco, Inc. in favor of Amaya Inc., (ii) the 8.50% PIK Seller Note, dated as of January 15, 2014, by AP Gaming Inc. in favor of AGS Holdings, LLC, and (iii) the 8.50% PIK Seller Note, dated as of December 20, 2013, by AP Gaming, Inc. in favor of AGS Holdings, LLC.
“ Plan ” shall mean any employee pension benefit plan (other than a Multiemployer Plan) that is (i) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, (ii) sponsored or maintained (at the time of determination or at any time within the five years prior thereto) by Holdings, the Borrower, any Subsidiary or any ERISA Affiliate, and (iii) in respect of which Holdings, the Borrower, any Subsidiary or any ERISA Affiliate 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.
“ Platform ” shall have the meaning assigned to such term in Section 9.17.
“ Pledged Collateral ” shall have the meaning assigned to such term in the Collateral Agreement or the Holdings Guarantee and Pledge Agreement, as applicable.
“ primary obligor ” shall have the meaning assigned to such term in the definition of the term “Guarantee.”
“ Prime Rate ” shall mean the rate of interest per annum last quoted by The Wall Street Journal (or another national publication selected by the Administrative Agent) as the U.S. “Prime Rate”.
“ Pro Forma Basis ” shall mean, as to any person, for any events as described below that occur subsequent to the commencement of a period for which the financial effect of such events is being calculated, and giving effect to the events for which such calculation is being made, such calculation as will give pro forma effect to such events as if such events occurred on the first day of the four consecutive fiscal
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quarter period ended on or before the occurrence of such event (the “ Reference Period ”): (i) pro forma effect shall be given to any Disposition, any acquisition, Investment, capital expenditure, construction, repair, replacement, improvement, development, disposition, merger, amalgamation, consolidation (including the Transactions) (or any similar transaction or transactions not otherwise permitted under Section 6.04 or 6.05 that require a waiver or consent of the Required Lenders and such waiver or consent has been obtained), any dividend, distribution or other similar payment, any designation of any Subsidiary as an Unrestricted Subsidiary and any Subsidiary Redesignation, New Project, and any restructurings of the business of the Borrower or any of its Subsidiaries that the Borrower or any of the Subsidiaries has determined to make and/or made and are expected to have a continuing impact and are factually supportable, which would include cost savings resulting from head count reduction, closure of facilities and similar operational and other cost savings, which adjustments the Borrower determines are reasonable as set forth in a certificate of a Financial Officer of the Borrower (the foregoing, together with any transactions related thereto or in connection therewith, the “ relevant transactions ”), in each case that occurred during the Reference Period (or, in the case of determinations made pursuant to Section 2.21 or Article VI (other than Section 6.11), occurring during the Reference Period or thereafter and through and including the date upon which the relevant transaction is consummated), (ii) in making any determination on a Pro Forma Basis, (x) all Indebtedness (including Indebtedness issued, incurred or assumed as a result of, or to finance, any relevant transactions and for which the financial effect is being calculated, whether incurred under this Agreement or otherwise, but excluding normal fluctuations in revolving Indebtedness incurred for working capital purposes and amounts outstanding under any Permitted Receivables Financing, in each case not to finance any acquisition) issued, incurred, assumed or permanently repaid during the Reference Period (or, in the case of determinations made pursuant to Section 2.21 or Article VI (other than Section 6.11), occurring during the Reference Period or thereafter and through and including the date upon which the relevant transaction is consummated) shall be deemed to have been issued, incurred, assumed or permanently repaid at the beginning of such period, (y) Interest Expense of such person attributable to interest on any Indebtedness, for which pro forma effect is being given as provided in the preceding clause (x), bearing floating interest rates shall be computed on a pro forma basis as if the rates that would have been in effect during the period for which pro forma effect is being given had been actually in effect during such periods, and (z) in giving effect to clause (i) above with respect to each New Project which commences operations and records not less than one full fiscal quarter’s operations during the Reference Period, the operating results of such New Project shall be annualized on a straight line basis during such period, taking into account any seasonality adjustments determined by the Borrower in good faith, and (iii) (A) any Subsidiary Redesignation then being designated, effect shall be given to such Subsidiary Redesignation and all other Subsidiary Redesignations after the first day of the relevant Reference Period and on or prior to the date of the respective Subsidiary Redesignation then being designated, collectively, and (B) any designation of a Subsidiary as an Unrestricted Subsidiary, effect shall be given to such designation and all other designations of Subsidiaries as Unrestricted Subsidiaries after the first day of the relevant Reference Period and on or prior to the date of the then applicable designation of a Subsidiary as an Unrestricted Subsidiary, collectively.
Pro forma calculations made pursuant to the definition of the term “Pro Forma Basis” shall be determined in good faith by a Responsible Officer of the Borrower and may include adjustments to reflect (1) operating expense reductions and other operating improvements, synergies or cost savings, in each case, related to mergers and other business combinations, acquisitions and divestitures projected by the Borrower in good faith to result from actions taken or expected to be taken (in the good faith determination of the Borrower) after the date any such transaction is consummated (including, to the extent applicable, the Transactions), (2) all adjustments of the type used in connection with the calculation of “Pro-Forma EBITDA” as set forth in the Information Memorandum to the extent such adjustments, without duplication, continue to be applicable to such Reference Period, provided that any adjustment relating to new machines placed or to be placed on casino floors or other gaming establishments will be permitted to be given pro forma effect to the extent (i) such machines are under contract and expected to be placed in such locations within 6 months of the Reference Period in the good faith determination of the Borrower or (ii) the Borrower has incurred the capital or inventory cost of producing the machines, whether the machines are placed in inventory or delivered to customers, and (3) other operating expense reductions and other operating improvements, synergies or cost savings, in each case, projected by the Borrower in good faith to result from actions either taken or commenced or expected to be taken or commenced (in the good faith
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determination of the Borrower) within 12 months after the date any such transaction is consummated and, in the case of this clause (3), the amount of any adjustments pursuant to this clause (3) shall not exceed 20% of EBITDA for the Reference Period (calculated prior to giving effect to such cap); provided that the cap set forth in this clause (3) shall not apply to any calculations made with respect to the Financial Covenant. The Borrower shall deliver to the Administrative Agent a certificate of a Financial Officer of the Borrower setting forth such demonstrable or additional operating expense reductions, other operating improvements or synergies and adjustments pursuant to clause (2) above, and information and calculations supporting them in reasonable detail.
For purposes of this definition, any amount in a currency other than Dollars will be converted to Dollars based on the average exchange rate for such currency for the most recent twelve month period immediately prior to the date of determination in a manner consistent with that used in calculating EBITDA for the applicable period.
“ Pro Forma Compliance ” shall mean, at any date of determination, that the Borrower and its Subsidiaries shall be in compliance, on a Pro Forma Basis after giving effect on a Pro Forma Basis to the relevant transactions (including the assumption, the issuance, incurrence and permanent repayment of Indebtedness), with the Financial Covenant recomputed as at the last day of the most recently ended fiscal quarter of the Borrower and its Subsidiaries for which the financial statements and certificates required pursuant to Section 5.04 have been delivered.
“ Pro Forma EBITDA ” shall have the meaning assigned to such term in Section 3.05.
“ Pro Rata Extension Offers ” shall have the meaning assigned to such term in Section 2.21(e).
“ Pro Rata Share ” shall have the meaning assigned to such term in Section 9.08(f).
“ Projections ” shall mean the projections of the Borrower and the Subsidiaries included in the Information Memorandum and any other projections and any forward-looking statements (including statements with respect to booked business) of such entities furnished to the Lenders or the Administrative Agent by or on behalf of the Borrower or any of the Subsidiaries prior to the Closing Date.
“ Public Company Compliance ” shall mean compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, the provisions of the Securities Act and the Exchange Act, and the rules of national securities exchange listed companies (in each case, as applicable to companies with equity or debt securities held by the public), including procuring directors’ and officers’ insurance, legal and other professional fees, and listing fees.
“ Public Lender ” shall have the meaning assigned to such term in Section 9.17.
“ Qualified Equity Interests ” shall mean any Equity Interest other than Disqualified Stock.
“ Qualified IPO ” shall mean an underwritten public offering of the Equity Interests of the Borrower, Holdings or any Parent Entity which generates cash proceeds of at least $25,000,000.
“ Rate ” shall have the meaning assigned to such term in the definition of the term “Type”.
“ Real Property ” shall mean, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned in fee or leased by any Loan Party, whether by lease, license, or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, incidental to the ownership, lease or operation thereof.
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“ Receivables Assets ” shall mean accounts receivable (including any bills of exchange) and related assets and property from time to time originated, acquired or otherwise owned by the Borrower or any Subsidiary.
“ Receivables Net Investment ” shall mean the aggregate cash amount paid by the lenders or purchasers under any Permitted Receivables Financing in connection with their purchase of, or the making of loans secured by, Receivables Assets or interests therein, as the same may be reduced from time to time by collections with respect to such Receivables Assets or otherwise in accordance with the terms of the Permitted Receivables Documents (but excluding any such collections used to make payments of items included in clause (c) of the definition of Interest Expense); provided , however , that if all or any part of such Receivables Net Investment shall have been reduced by application of any distribution and thereafter such distribution is rescinded or must otherwise be returned for any reason, such Receivables Net Investment shall be increased by the amount of such distribution, all as though such distribution had not been made.
“ Reference Period ” shall have the meaning assigned to such term in the definition of the term “Pro Forma Basis.”
“ Refinance ” shall have the meaning assigned to such term in the definition of the term “ Permitted Refinancing Indebtedness ,” and “ Refinanced ” shall have a meaning correlative thereto.
“ Refinancing Effective Date ” shall have the meaning assigned to such term in Section 2.21(j).
“ Refinancing Notes ” shall mean any secured or unsecured notes or loans issued by the Borrower or any Subsidiary Loan Party (whether under an indenture, a credit agreement or otherwise) and the Indebtedness represented thereby; provided , that (a)(i) 100% of the Net Proceeds of such Refinancing Notes that are secured on a pari passu basis with the Term B Loans are used to permanently reduce Loans and/or replace Commitments substantially simultaneously with the issuance thereof or (ii) 90% of the Net Proceeds of any other Refinancing Notes are used to permanently reduce Loans and/or replace Commitments substantially simultaneously with the issuance thereof; (b) the principal amount (or accreted value, if applicable) of such Refinancing Notes does not exceed the principal amount (or accreted value, if applicable) of the aggregate portion of the Loans so reduced and/or Commitments so replaced (plus unpaid accrued interest and premium (including tender premiums) thereon and underwriting discounts, defeasance costs, fees, commissions and expenses); (c) the final maturity date of such Refinancing Notes is on or after the Term Facility Maturity Date or the Revolving Facility Maturity Date, as applicable, of the Term Loans so reduced or the Revolving Facility Commitments so replaced; (d) the Weighted Average Life to Maturity of such Refinancing Notes is greater than or equal to the Weighted Average Life to Maturity of the Term Loans so reduced or the Revolving Facility Commitments so replaced, as applicable; (e) in the case of Refinancing Notes in the form of notes issued under an indenture, the terms thereof do not provide for any scheduled repayment, mandatory redemption or sinking fund obligations prior to the Term Facility Maturity Date of the Term Loans so reduced or the Revolving Facility Maturity Date of the Revolving Facility Commitments so replaced, as applicable (other than customary offers to repurchase or mandatory prepayment provisions upon a change of control, asset sale or event of loss and customary acceleration rights after an event of default); (f) the other terms of such Refinancing Notes (other than pricing, fees, floors, funding discounts and redemption or prepayment premiums), taken as a whole, are substantially similar to, or not materially less favorable to the Borrower and its Subsidiaries than the terms, taken as a whole, applicable to the Term B Loans (except for covenants or other provisions applicable only to periods after the Latest Maturity Date in effect at the time such Refinancing Notes are issued), as determined by the Borrower in good faith; (g) there shall be no obligor in respect of such Refinancing Notes that is not a Loan Party; and (h) such Refinancing Notes shall not be secured by assets other than the Collateral and Refinancing Notes that are secured by Collateral shall be subject to the provisions of a Permitted Pari Passu Intercreditor Agreement or a Permitted Junior Intercreditor Agreement, as applicable.
“ Refinancing Term Loans ” shall have the meaning assigned to such term in Section 2.21(j).
“ Register ” shall have the meaning assigned to such term in Section 9.04(b)(iv).
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“ Regulation T ” shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation U ” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation X ” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Related Fund ” shall mean, with respect to any Lender that is a fund that invests in bank or commercial loans and similar extensions of credit, any other fund that invests in bank or commercial loans and similar extensions of credit and is advised or managed by (a) such Lender, (b) an Affiliate of such Lender or (c) an entity (or an Affiliate of such entity) that administers, advises or manages such Lender.
“ Related Parties ” shall mean, with respect to any specified person, such person’s Affiliates and the respective directors, trustees, officers, employees, agents and advisors of such person and such person’s Affiliates.
“ Related Sections ” shall have the meaning assigned to such term in Section 6.04.
“ Release ” shall mean any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, emanating or migrating in, into, onto or through the Environment.
“ Replacement Revolving Facility Commitments ” shall have the meaning assigned to such term in Section 2.21(l).
“ Replacement Revolving Facility Effective Date ” shall have the meaning assigned to such term in Section 2.21(l).
“ Replacement Revolving Loans ” shall have the meaning assigned to such term in Section 2.21(l).
“ Reportable Event ” shall mean any reportable event as defined in Section 4043(c) of ERISA or the regulations issued thereunder, other than those events as to which the 30-day notice period referred to in Section 4043(c) of ERISA has been waived, with respect to a Plan (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code).
“ Required Lenders ” shall mean, at any time, Lenders having (a) Loans (other than Swingline Loans) outstanding, (b) Revolving L/C Exposures, (c) Swingline Exposures and (d) Available Unused Commitments that, taken together, represent more than 50% of the sum of (w) all Loans (other than Swingline Loans) outstanding, (x) all Revolving L/C Exposures, (y) all Swingline Exposures and (z) the total Available Unused Commitments at such time; provided , that (i) the Loans, Revolving L/C Exposures, Swingline Exposures and Available Unused Commitment of any Defaulting Lender shall be disregarded in determining Required Lenders at any time and (ii) the portion of any Loans held by Debt Fund Affiliate Lenders in the aggregate in excess of 49.9% of the Required Amount of Loans shall be disregarded in determining Required Lenders at any time. For purposes of the foregoing, “Required Amount of Loans” means, at any time, the amount of Loans required to be held by Lenders in order for such Lenders to constitute “Required Lenders” (without giving effect to the foregoing clause (ii)).
“ Required Percentage ” shall mean, with respect to an Applicable Period, 50%; provided , that (a) if the Net First Lien Leverage Ratio as at the end of the Applicable Period is greater than 2.50:1.00 but less than or equal to 3.25:1.00, such percentage shall be 25%, and (b) if the Net First Lien Leverage Ratio as at the end of the Applicable Period is less than or equal to 2.50:1.00, such percentage shall be 0%.
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“ Required Revolving Facility Lenders ” shall mean, at any time, Revolving Facility Lenders having (a) Loans (other than Swingline Loans) outstanding, (b) Revolving L/C Exposures, (c) Swingline Exposures and (d) Available Unused Commitments that, taken together, represent more than 50% of the sum of (w) all Revolving Facility Loans (other than Swingline Loans) outstanding, (x) all Revolving L/C Exposures, (y) all Swingline Exposures and (z) the total Available Unused Commitments at such time; provided , that the Revolving Facility Loans, Revolving L/C Exposures, Swingline Exposures and Available Unused Commitment of any Defaulting Lender shall be disregarded in determining Required Revolving Facility Lenders at any time.
“ Requirement of Law ” shall mean, as to any person, any law, treaty, rule, regulation, statute, order, ordinance, decree, judgment, consent decree, writ, injunction, settlement agreement or governmental requirement enacted, promulgated or imposed or entered into or agreed by any Governmental Authority, including Gaming Laws, in each case applicable to or binding upon such person or any of its property or assets or to which such person or any of its property or assets is subject.
“ Responsible Officer ” of any person shall mean any executive officer or Financial Officer of such person, any other officer or similar official thereof responsible for the administration of the obligations of such person in respect of this Agreement, or any other duly authorized employee or signatory of such person.
“ Restricted Payments ” shall have the meaning assigned to such term in Section 6.06. The amount of any Restricted Payment made other than in the form of cash or cash equivalents shall be the fair market value thereof (as determined by the Borrower in good faith).
“ Retained Excess Cash Flow Overfunding ” shall mean, at any time, in respect of any Excess Cash Flow Period, the amount, if any, by which the portion of the Cumulative Credit attributable to the Retained Percentage of Excess Cash Flow for all Excess Cash Flow Interim Periods used in such Excess Cash Flow Period exceeds the actual Retained Percentage of Excess Cash Flow for such Excess Cash Flow Period.
“ Retained Percentage ” shall mean, with respect to any Excess Cash Flow Period (or Excess Cash Flow Interim Period), (a) 100% minus (b) the Required Percentage with respect to such Excess Cash Flow Period (or Excess Cash Flow Interim Period).
“ Revaluation Date ” shall mean, with respect to any Alternate Currency Letter of Credit, each of the following: (i) each date of issuance, extension or renewal of an Alternate Currency Letter of Credit, (ii) each date of an amendment of any Alternate Currency Letter of Credit having the effect of increasing the amount thereof, (iii) each date of any payment by the applicable Issuing Bank under any Alternate Currency Letter of Credit, and (iv) such additional dates as the Administrative Agent or the applicable Issuing Bank shall determine or the Required Lenders shall require.
“ Revolving Facility ” shall mean the Revolving Facility Commitments of any Class and the extensions of credit made hereunder by the Revolving Facility Lenders of such Class and, for purposes of Section 9.08(b), shall refer to all such Revolving Facility Commitments as a single Class.
“ Revolving Facility Borrowing ” shall mean a Borrowing comprised of Revolving Facility Loans of the same Class.
“ Revolving Facility Commitment ” shall mean, with respect to each Revolving Facility Lender, the commitment of such Revolving Facility Lender to make Revolving Facility Loans pursuant to Section 2.01(b), as such commitment may be (a) reduced from time to time pursuant to Section 2.08, (b) reduced or increased from time to time pursuant to assignments by or to such Lender under Section 9.04, and (c) increased (or replaced) as provided under Section 2.21. The initial amount of each Lender’s Revolving Facility Commitment is set forth on Schedule 2.01 , or in the Assignment and Acceptance or Incremental Assumption Agreement pursuant to which such Lender shall have assumed its Revolving Facility Commitment (or Incremental Revolving Facility Commitment), as applicable. The
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aggregate amount of the Lenders’ Revolving Facility Commitments on the Closing Date is $30,000,000. On the Closing Date, there is only one Class of Revolving Facility Commitments. After the Closing Date, additional Classes of Revolving Facility Commitments may be added or created pursuant to Incremental Assumption Agreements.
“ Revolving Facility Credit Exposure ” shall mean, at any time with respect to any Class of Revolving Facility Commitments, the sum of (a) the aggregate principal amount of the Revolving Facility Loans of such Class outstanding at such time, (b) the Swingline Exposure applicable to such Class at such time and (c) the Revolving L/C Exposure applicable to such Class at such time minus, for the purpose of Section 4.01(d), the amount of Letters of Credit that have been Cash Collateralized in an amount equal to the Minimum L/C Collateral Amount at such time. The Revolving Facility Credit Exposure of any Revolving Facility Lender at any time shall be the product of (x) such Revolving Facility Lender’s Revolving Facility Percentage of the applicable Class and (y) the aggregate Revolving Facility Credit Exposure of such Class of all Revolving Facility Lenders, collectively, at such time.
“ Revolving Facility Lender ” shall mean a Lender (including an Incremental Revolving Facility Lender) with a Revolving Facility Commitment or with outstanding Revolving Facility Loans.
“ Revolving Facility Loan ” shall mean a Loan made by a Revolving Facility Lender pursuant to Section 2.01(b). Unless the context otherwise requires, the term “Revolving Facility Loans” shall include the Other Revolving Loans.
“ Revolving Facility Maturity Date ” shall mean (a) with respect to the Revolving Facility Commitments in effect on the Closing Date, June 6, 2022, and (b) with respect to any other Classes of Revolving Facility Commitments, the maturity dates specified therefor in the applicable Incremental Assumption Agreement.
“ Revolving Facility Percentage ” shall mean, with respect to any Revolving Facility Lender of any Class, the percentage of the total Revolving Facility Commitments of such Class represented by such Lender’s Revolving Facility Commitment of such Class. If the Revolving Facility Commitments of such Class have terminated or expired, the Revolving Facility Percentages of such Class shall be determined based upon the Revolving Facility Commitments of such Class most recently in effect, giving effect to any assignments pursuant to Section 9.04.
“ Revolving Facility Termination Event ” shall have the meaning ascribed thereto in Section 2.05(k).
“ Revolving L/C Exposure ” of any Class shall mean at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit applicable to such Class outstanding at such time (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof) and (b) the aggregate principal amount of all L/C Disbursements applicable to such Class that have not yet been reimbursed at such time (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof). The Revolving L/C Exposure of any Class of any Revolving Facility Lender at any time shall mean its applicable Revolving Facility Percentage of the aggregate Revolving L/C Exposure applicable to such Class at such time. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the International Standby Practices, International Chamber of Commerce No. 590, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided , that with respect to any Letter of Credit that, by its terms or the terms of any document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
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“ Revolving Yield Differential ” shall have the meaning assigned to such term in Section 2.21(b)(viii).
“ S&P ” shall mean Standard & Poor’s Ratings Group, Inc.
“ Sale and Lease-Back Transaction ” shall have the meaning assigned to such term in Section 6.03.
“ SEC ” shall mean the Securities and Exchange Commission or any successor thereto.
“ Secured Cash Management Agreement ” shall mean any Cash Management Agreement that is entered into by and between any Loan Party and any Cash Management Bank to the extent that such Cash Management Agreement is not otherwise designated in writing by the Borrower and such Cash Management Bank to the Administrative Agent to not be included as a Secured Cash Management Agreement.
“ Secured Hedge Agreement ” shall mean any Hedging Agreement that is entered into by and between any Loan Party and any Hedge Bank to the extent that such Hedging Agreement is not otherwise designated in writing by the Borrower and such Hedge Bank to the Administrative Agent to not be included as a Secured Hedge Agreement. Notwithstanding the foregoing, for all purposes of the Loan Documents, any Guarantee of, or grant of any Lien to secure, any obligations in respect of a Secured Hedge Agreement by a Guarantor shall not include any Excluded Swap Obligations.
“ Secured Parties ” shall mean, collectively, the Administrative Agent, the Collateral Agent, each Lender, each Issuing Bank, each Hedge Bank that is party to any Secured Hedge Agreement, each Cash Management Bank that is party to any Secured Cash Management Agreement and each sub-agent appointed pursuant to Section 8.02 by the Administrative Agent with respect to matters relating to the Loan Documents or by the Collateral Agent with respect to matters relating to any Security Document.
“ Securities Act ” shall mean the Securities Act of 1933, as amended.
“ Security Documents ” shall mean the Mortgages, the Collateral Agreement, the Holdings Guarantee and Pledge Agreement, the IP Security Agreements (as defined in the Collateral Agreement), the Custodian Agreement and each of the security agreements, pledge agreements and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 4.02 or 5.10.
“ Similar Business ” shall mean any business, the majority of whose revenues are derived from (i) business or activities conducted by the Borrower and its Subsidiaries on the Closing Date, (ii) any business that is a natural outgrowth or reasonable extension, development or expansion of any such business or any business similar, reasonably related, incidental, complementary or ancillary to any of the foregoing or (iii) any business that in the Borrower’s good faith business judgment constitutes a reasonable diversification of businesses conducted by the Borrower and its Subsidiaries.
“ Special Flood Hazard Area ” shall have the meaning assigned to such term in Section 5.02(c).
“ Special Purpose Receivables Subsidiary ” shall mean (i) a direct or indirect Subsidiary of the Borrower established in connection with a Permitted Receivables Financing for the acquisition of Receivables Assets or interests therein, and which is organized in a manner intended to reduce the likelihood that it would be substantively consolidated with Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries (other than Special Purpose Receivables Subsidiaries) in the event Holdings (prior to a Qualified IPO), the Borrower or any such Subsidiary becomes subject to a proceeding under the U.S. Bankruptcy Code (or other insolvency law) and (ii) any Subsidiary of a Special Purposes Receivable Subsidiary.
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“ Specified L/C Sublimit ” shall mean, with respect to any Issuing Bank, the amount set forth beside such Issuing Bank’s name on Schedule 1.01(D) hereto or, in each case, such other amount as specified in the agreement pursuant to which such person becomes an Issuing Bank hereunder or, in each case, such larger amount not to exceed the Revolving Facility Commitment as the Administrative Agent and the applicable Issuing Bank may agree.
“ Spot Rate ” shall mean, with respect to any currency, the rate determined by the Administrative Agent or the applicable Issuing Bank, as applicable, to be the rate quoted by the person acting in such capacity as the spot rate for the purchase by such person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m., Local Time on the date three Business Days prior to the date as of which the foreign exchange computation is made or if such rate cannot be computed as of such date such other date as the Administrative Agent or such Issuing Bank shall reasonably determine is appropriate under the circumstances; provided , that the Administrative Agent or such Issuing Bank may obtain such spot rate from another financial institution designated by the Administrative Agent or such Issuing Bank if the person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency.
“ Standby Letters of Credit ” shall have the meaning assigned to such term in Section 2.05(a).
“ Statutory Reserves ” shall mean the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority, domestic or foreign, to which the Administrative Agent or any Lender (including any branch, Affiliate or other fronting office making or holding a Loan) is subject for Eurocurrency Liabilities (as defined in Regulation D of the Board). Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities (as defined in Regulation D of the Board) and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“ Subagent ” shall have the meaning assigned to such term in Section 8.02.
“ subsidiary ” shall mean, with respect to any person (herein referred to as the “ parent ”), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, directly or indirectly, owned, Controlled or held, or (b) that is, at the time any determination is made, 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 ” shall mean, unless the context otherwise requires, a subsidiary of the Borrower. Notwithstanding the foregoing, except for purposes of Sections 3.08, 3.09, 3.13, 3.15, 3.16, 3.25(b), 3.26, 5.03, 5.09 and 7.01(k), and the definition of Unrestricted Subsidiary contained herein, an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of the Borrower or any of its Subsidiaries for purposes of this Agreement.
“ Subsidiary Guarantee Agreement ” shall mean the Subsidiary Guarantee Agreement dated as of the date hereof, as amended, restated, supplemented or otherwise modified from time to time, between each Subsidiary Loan Party and the Collateral Agent.
“ Subsidiary Loan Party ” shall mean (a) each Wholly Owned Domestic Subsidiary of the Borrower that is not an Excluded Subsidiary and (b) any other Domestic Subsidiary of the Borrower that may be designated by the Borrower (by way of delivering to the Collateral Agent a supplement to the Collateral Agreement and a supplement to the Subsidiary Guarantee Agreement, in each case, duly executed by such Subsidiary) in its sole discretion from time to time to be a guarantor in respect of the Obligations and the obligations in respect of the Loan Documents, whereupon such Subsidiary shall be obligated to comply with the other requirements of Section 5.10(d) as if it were newly acquired.
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“ Subsidiary Redesignation ” shall have the meaning provided in the definition of “Unrestricted Subsidiary” contained in this Section 1.01.
“ Swap Obligation ” shall mean, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“ Swingline Borrowing ” shall mean a Borrowing comprised of Swingline Loans.
“ Swingline Borrowing Request ” shall mean a request by the Borrower substantially in the form of Exhibit D-2.
“ Swingline Commitment ” shall mean, with respect to each Swingline Lender, the commitment of such Swingline Lender to make Swingline Loans pursuant to Section 2.04. The aggregate amount of the Swingline Commitments on the Closing Date is $5,000,000. The Swingline Commitment is part of, and not in addition to, the Revolving Facility Commitments.
“ Swingline Exposure ” shall mean at any time the aggregate principal amount of all outstanding Swingline Borrowings at such time. The Swingline Exposure of any Revolving Facility Lender at any time shall mean its applicable Revolving Facility Percentage of the aggregate Swingline Exposure at such time.
“ Swingline Lender ” shall mean (a) Jefferies Finance LLC, in its capacity as a lender of Swingline Loans, and (b) each Revolving Facility Lender that shall have become a Swingline Lender hereunder as provided in Section 2.04(d), each in its capacity as a lender of Swingline Loans hereunder.
“ Swingline Loans ” shall mean the swingline loans made to the Borrower pursuant to Section 2.04.
“ Taxes ” shall mean any and all present or future taxes, duties, levies, imposts, assessments, deductions, withholdings or other similar charges imposed by any Governmental Authority, whether computed on a separate, consolidated, unitary, combined or other basis and any interest, fines, penalties or additions to tax with respect to the foregoing.
“ Term B Borrowing ” shall mean any Borrowing comprised of Term B Loans.
“ Term B Facility ” shall mean collectively the Initial Term B Loan Commitments and the Initial Term B Loans made hereunder and the Incremental Term B Loan Commitments and the Incremental Term B Loans made under the 2017 Incremental Assumption Agreement .
“ Term B Facility Maturity Date ” shall mean February 15, 2024.
“ Term B Loan Installment Date ” shall have the meaning assigned to such term in Section 2.10(a)(i).
“ Term B Loans ” shall mean (a) the Initial Term B Loans, (b) the Incremental Term B Loans and (c) any Incremental Term Loans in the form of Term B Loans made by the Incremental Term Lenders to the Borrower pursuant to Section 2.01(c). The aggregate principal amount of the Term B Loans outstanding as of the Effective Date after giving effect to the funding of the Incremental Term B Loans is $513,875,000.
“ Term Borrowing ” shall mean any Term B Borrowing or any Incremental Term Borrowing.
“ Term Facility ” shall mean the Term B Facility and/or any or all of the Incremental Term Facilities.
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“ Term Facility Commitment ” shall mean the commitment of a Lender to make Term Loans, including Term B Loans and/or Other Term Loans.
“ Term Facility Maturity Date ” shall mean, as the context may require, (a) with respect to the Term B Facility in effect on the Effective Date, the Term B Facility Maturity Date and (b) with respect to any other Class of Term Loans, the maturity dates specified therefor in the applicable Incremental Assumption Agreement.
“ Term Loan Installment Date ” shall mean any Term B Loan Installment Date or any Incremental Term Loan Installment Date.
“ Term Loans ” shall mean the Term B Loans and/or the Incremental Term Loans.
“ Term Yield Differential ” shall have the meaning assigned to such term in Section 2.21(b)(vii).
“ Termination Date ” shall mean the date on which (a) all Commitments shall have been terminated, (b) the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document shall have been paid in full (other than in respect of contingent indemnification and expense reimbursement claims not then due) and (c) all Letters of Credit (other than those that have been Cash Collateralized) have been cancelled or have expired and all amounts drawn or paid thereunder have been reimbursed in full.
“ Test Period ” shall mean, on any date of determination, the period of four consecutive fiscal quarters of the Borrower then most recently ended (taken as one accounting period) for which financial statements have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b) and, initially, the four fiscal quarter period ended March 31, 2017.
“ Third Party Funds ” shall mean any accounts or funds, or any portion thereof, received by Borrower or any of its Subsidiaries as agent on behalf of third parties in accordance with a written agreement that imposes a duty upon Borrower or one or more of its Subsidiaries to collect and remit those funds to such third parties.
“ Total Net Leverage Ratio ” shall mean, on any date, the ratio of (a) (i) the aggregate principal amount of Consolidated Debt of the Borrower and its Subsidiaries outstanding as of the last day of the Test Period most recently ended as of such date less (ii) without duplication, up to $50,000,000 of Unrestricted Cash and Permitted Investments of the Borrower and its Subsidiaries as of the last day of such Test Period, to (b) EBITDA for such Test Period, all determined on a consolidated basis in accordance with GAAP; provided , that the Total Net Leverage Ratio shall be determined for the relevant Test Period on a Pro Forma Basis.
“ Trade Letters of Credit ” shall have the meaning assigned to such term in Section 2.05(a).
“ Transaction Expenses ” shall mean any fees or expenses incurred or paid by the Borrower or any of its Subsidiaries or any of their Affiliates in connection with the Transactions, this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby.
“ Transactions ” shall mean, collectively, the transactions to occur pursuant to the Loan Documents, including (a) the execution, delivery and performance of the Loan Documents, the creation of the Liens pursuant to the Security Documents and the initial borrowings hereunder; (b) the repayment in full of, and the termination of all commitments under the Existing Credit Agreement and the PIK Seller Notes; (c) the amendment of the Holdco PIK Notes to, among other things, extend the maturity thereof and (d) the payment of all fees and expenses in connection with the foregoing.
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“ UCP ” shall mean, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (“ ICC ”) Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).
“ Type ” shall mean, when used in respect of any Loan or Borrowing, the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term “ Rate ” shall include the Adjusted LIBO Rate and the ABR.
“ Uniform Commercial Code ” shall mean the Uniform Commercial Code as the same may from time to time be in effect in the State of New York or the Uniform Commercial Code (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to any item or items of Collateral.
“ Unrestricted Cash ” shall mean cash or cash equivalents of the Borrower or any of its Subsidiaries that would not appear as “restricted” on a consolidated balance sheet of the Borrower or any of its Subsidiaries.
“ Unrestricted Subsidiary ” shall mean (1) any Subsidiary of the Borrower identified on Schedule 1.01(C) , (2) any other Subsidiary of the Borrower, whether now owned or acquired or created after the Closing Date, that is designated by the Borrower as an Unrestricted Subsidiary hereunder by written notice to the Administrative Agent; provided , that the Borrower shall only be permitted to so designate a new Unrestricted Subsidiary after the Closing Date so long as (a) no Default or Event of Default has occurred and is continuing or would result therefrom, (b) immediately after giving effect to such designation, the Borrower shall be in Pro Forma Compliance with the Financial Covenant as of the last day of the then most recently ended Test Period, (c) such Unrestricted Subsidiary shall be capitalized (to the extent capitalized by the Borrower or any of its Subsidiaries) through Investments as permitted by, and in compliance with, Section 6.04, and any prior or concurrent Investments in such Subsidiary by the Borrower or any of its Subsidiaries shall be deemed to have been made under Section 6.04 and (d) without duplication of clause (c), any assets owned by such Unrestricted Subsidiary at the time of the initial designation thereof shall be treated as Investments pursuant to Section 6.04; and (3) any subsidiary of an Unrestricted Subsidiary. The Borrower may designate any Unrestricted Subsidiary to be a Subsidiary for purposes of this Agreement (each, a “ Subsidiary Redesignation ”); provided , that (i) no Default or Event of Default has occurred and is continuing or would result therefrom, and (ii) the Borrower shall have delivered to the Administrative Agent an officer’s certificate executed by a Responsible Officer of the Borrower, certifying to the best of such officer’s knowledge, compliance with the requirements of preceding clause (i).
“ U.S. Bankruptcy Code ” shall mean Title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors.
“ U.S. Dollars ”, “ Dollars ” or “ $ ” shall mean lawful money of the United States of America.
“ U.S. Lender ” shall mean any Lender other than a Foreign Lender.
“ USA PATRIOT Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. No. 107 56 (signed into law October 26, 2001)).
“ Voting Stock ” shall mean, with respect to any person, such person’s Equity Interests having the right to vote for the election of directors of such person under ordinary circumstances.
“ Weighted Average Life to Maturity ” shall mean, when applied to any Indebtedness at any date, the number of years obtained by dividing : (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then outstanding principal amount of such Indebtedness.
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“ Wholly Owned Domestic Subsidiary ” shall mean a Wholly Owned Subsidiary that is also a Domestic Subsidiary.
“ Wholly Owned Subsidiary ” of any person shall mean a subsidiary of such person, all of the Equity Interests of which (other than directors’ qualifying shares or nominee or other similar shares required pursuant to applicable law) are owned by such person or another Wholly Owned Subsidiary of such person. Unless the context otherwise requires, “Wholly Owned Subsidiary” shall mean a Subsidiary of the Borrower that is a Wholly Owned Subsidiary of the Borrower.
“ Withdrawal Liability ” shall mean 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.
“ Working Capital ” shall mean, with respect to the Borrower and the Subsidiaries on a consolidated basis at any date of determination, Current Assets at such date of determination minus Current Liabilities at such date of determination; provided , that, for purposes of calculating Excess Cash Flow, increases or decreases in Working Capital shall be calculated without regard to any changes in Current Assets or Current Liabilities as a result of (a) any reclassification in accordance with GAAP of assets or liabilities, as applicable, between current and noncurrent or (b) the effects of purchase accounting.
“ Write-Down and Conversion Powers ” shall mean, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
Section 1.02 Terms Generally . The definitions set forth or referred to in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time. 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 Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Closing Date in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any changes in GAAP after the Closing Date, any lease of the Borrower or the Subsidiaries, or of a special purpose or other entity not consolidated with the Borrower and its Subsidiaries at the time of its incurrence of such lease, that would be characterized as an operating lease under GAAP in effect on the Closing Date (whether such lease is entered into before or after the Closing Date) shall not constitute Indebtedness or a Capitalized Lease Obligation of the Borrower or any Subsidiary under this Agreement or any other Loan Document as a result of such changes in GAAP.
Section 1.03 Effectuation of Transactions . Each of the representations and warranties of the Borrower contained in this Agreement (and all corresponding definitions) are made after giving effect to the Transactions as shall have taken place on or prior to the date of determination, unless the context otherwise require.
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Section 1.04 Exchange Rates; Currency Equivalents .
(a) The Administrative Agent shall determine the Spot Rate as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of Alternate Currency Letters of Credit. Such Spot Rate shall become effective as of such Revaluation Date and shall be the Spot Rate employed in converting any amounts between the Dollars and each Alternate Currency until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial ratios hereunder or except as otherwise provided herein, the applicable amount of any currency (other than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as determined by the Administrative Agent in accordance with this Agreement. No Default or Event of Default shall arise as a result of any limitation or threshold set forth in Dollars in Article VI or clause (f) or (j) of Section 7.01 being exceeded solely as a result of changes in currency exchange rates from those rates applicable on the first day of the fiscal quarter in which such determination occurs or in respect of which such determination is being made.
(b) Wherever in this Agreement in connection with an Alternate Currency Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, such amount shall be the Dollar Equivalent of such Dollar amount (rounded to the nearest unit of such Alternate Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the applicable Issuing Bank, as applicable.
Section 1.05 Timing of Payment or Performance . Except as otherwise expressly provided herein, when the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day which is not a Business Day, the date of such payment or performance shall extend to the immediately succeeding Business Day.
Section 1.06 Times of Day . Unless otherwise specified herein, all references herein to times of day shall be references to New York City time (daylight or standard, as applicable).
ARTICLE II
The Credits
Section 2.01 Commitments . Subject to the terms and conditions set forth herein:
(a) (x) on the Closing Date, the Initial Term B Lenders made the Initial Term B Loans to the Borrower in an aggregate principal amount of $450,000,000 and (y) on the Effective Date, the Incremental Term B Lenders agree to make the Incremental Term B Loans to the Borrower in an aggregate principal amount of $65,000,000 subject to the terms and conditions in the 2017 Incremental Assumption Agreement ,
(b) each Lender agrees to make Revolving Facility Loans of a Class in Dollars to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Lender’s Revolving Facility Credit Exposure of such Class exceeding such Lender’s Revolving Facility Commitment of such Class or (ii) the Revolving Facility Credit Exposure of such Class exceeding the total Revolving Facility Commitments of such Class. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Facility Loans,
(c) each Lender having an Incremental Term Loan Commitment agrees, subject to the terms and conditions set forth in the applicable Incremental Assumption Agreement, to make Incremental Term Loans to the Borrower in an aggregate principal amount not to exceed its Incremental Term Loan Commitment, and
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(d) amounts of Term B Loans borrowed under Section 2.01(a) or Section 2.01(c) that are repaid or prepaid may not be reborrowed.
For the avoidance of doubt, from and after the Effective Date, the Initial Term B Loans and the Incremental Term B Loans shall be treated as a single “Class” and have the same terms and conditions for all purposes of this Agreement and the other Loan Documents, including all scheduled, optional and mandatory prepayments .
Section 2.02 Loans and Borrowings .
(a) Each Loan shall be made as part of a Borrowing consisting of Loans under the same Facility and of the same Type made by the Lenders ratably in accordance with their respective Commitments under the applicable Facility (or, in the case of Swingline Loans, in accordance with their respective Swingline Commitments); provided , however , that Revolving Facility Loans of any Class shall be made by the Revolving Facility Lenders of such Class ratably in accordance with their respective Revolving Facility Percentages on the date such Loans are made hereunder. 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 Lender’s failure to make Loans as required.
(b) Subject to Section 2.14, each Borrowing (other than a Swingline Borrowing) shall be comprised entirely of ABR Loans or Eurocurrency Loans as the Borrower may request in accordance herewith. Each Swingline Borrowing shall be an ABR Borrowing. Each Lender at its option may make any ABR Loan or Eurocurrency 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 Borrower to repay such Loan in accordance with the terms of this Agreement and such Lender shall not be entitled to any amounts payable under Section 2.15 or 2.17 solely in respect of increased costs resulting from such exercise and existing at the time of such exercise.
(c) At the commencement of each Interest Period for any Eurocurrency Revolving Facility Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum. At the time that each ABR Revolving Facility Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum; provided , that an ABR Revolving Facility Borrowing may be in an aggregate amount that is equal to the entire unused available balance of the Revolving Facility Commitments or that is required to finance the reimbursement of an L/C Disbursement as contemplated by Section 2.05(e). Each Swingline Borrowing shall be in an amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum. Borrowings of more than one Type may be outstanding at the same time; provided , however , that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than 10 Eurocurrency Borrowings outstanding under all Facilities at any time. Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings.
(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing of any Class if the Interest Period requested with respect thereto would end after the Revolving Facility Maturity Date or the Term Facility Maturity Date for such Class, as applicable.
(e) Notwithstanding any other provision of this Agreement, the Incremental Term B Loans shall initially consist of Eurocurrency Loans with an Interest Period ending on December 29, 2017 and the Adjusted LIBO Rate shall be deemed to be 1.34978% for such Interest Period .
Section 2.03 Requests for Borrowings . To request a Revolving Facility Borrowing and/or a Term Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurocurrency Borrowing, not later than 12:00 noon, Local Time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 10:00 a.m. Local
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Time, on the Business Day of the proposed Borrowing; provided , that, (i) to request a Borrowing on the Closing Date or the Effective Date , the Borrower shall notify the Administrative Agent of such request by telephone not later than 5:00 p.m., Local Time, one Business Day prior to the Closing Date or the Effective Date, respectively and (ii) any such notice of an ABR Revolving Facility Borrowing to finance the reimbursement of an L/C Disbursement as contemplated by Section 2.05(e) may be given not later than 10:00 a.m., Local Time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or electronic means to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
(i) whether such Borrowing is to be a Borrowing of Initial Term B Loans, Incremental Term B Loans , Revolving Facility Loans, Refinancing Term Loans, Other Term Loans, Other Revolving Loans or Replacement Revolving Loans as applicable;
(ii) the aggregate amount of the requested Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing;
(v) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(vi) the location and number of the Borrower’s account to which funds are to be disbursed.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration (except in the case of the initial Interest Period of the Incremental Term B Loans, which shall be determined in accordance with the definition of Interest Period) . Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.
Section 2.04 Swingline Loans .
(a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower 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 the Swingline Commitment or (ii) the Revolving Facility Credit Exposure of the applicable Class exceeding the total Revolving Facility Commitments of such Class; provided , that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Borrowing. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Borrowing, the Borrower shall notify the Administrative Agent and the Swingline Lender of such request by telephone (confirmed by a Swingline Borrowing Request by electronic means), not later than 1:00 p.m., Local Time, on the day of a proposed Swingline Borrowing. Each such notice and Swingline Borrowing Request shall be irrevocable and shall specify (i) the requested date of such Swingline Borrowing (which shall be a Business Day) and (ii) the amount of the requested Swingline Borrowing. The Swingline Lender shall consult with the Administrative Agent as to whether the making of the Swingline Loan is in accordance with the terms of this Agreement prior to the Swingline
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Lender funding such Swingline Loan. The Swingline Lender shall make each Swingline Loan on the proposed date thereof by wire transfer of immediately available funds by 3:00 p.m., Local Time, to the account of the Borrower (or, in the case of a Swingline Borrowing made to finance the reimbursement of an L/C Disbursement as provided in Section 2.05(e), by remittance to the applicable Issuing Bank).
(c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., Local Time, on any Business Day require the Revolving Facility Lenders of the applicable Class to acquire participations on such Business Day in all or a portion of the outstanding Swingline Loans made by it. Such notice shall specify the aggregate amount of such Swingline Loans in which the Revolving Facility Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each such Lender, specifying in such notice such Revolving Facility Lender’s applicable Revolving Facility Percentage of such Swingline Loan or Loans. Each Revolving Facility 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 Facility Lender’s applicable Revolving Facility Percentage of such Swingline Loan or Loans. Each Revolving Facility Lender acknowledges and agrees that its respective 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 Event of 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 Facility Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06 with respect to Loans made by such Revolving Facility Lender (and Section 2.06 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 Facility Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph (c), and thereafter 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 Borrower (or other party on behalf of the Borrower) 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 Facility 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 Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof.
(d) The Borrower may, at any time and from time to time, designate as additional Swingline Lenders one or more Revolving Facility Lenders that agree to serve in such capacity as provided below. The acceptance by a Revolving Facility Lender of an appointment as a Swingline Lender hereunder shall be evidenced by an agreement, which shall be in form and substance reasonably satisfactory to the Administrative Agent and the Borrower, executed by the Borrower, the Administrative Agent and such designated Swingline Lender, and, from and after the effective date of such agreement, (i) such Revolving Facility Lender shall have all the rights and obligations of a Swingline Lender under this Agreement and (ii) references herein to the term “Swingline Lender” shall be deemed to include such Revolving Facility Lender in its capacity as a lender of Swingline Loans hereunder.
Section 2.05 Letters of Credit .
(a) General . Subject to the terms and conditions set forth herein, the Borrower may request the issuance of one or more letters of credit or bank guarantees in Dollars or any Alternate Currency in the form of (x) if agreed to by the applicable Issuing Bank in its sole discretion, trade letters of credit in support of trade obligations of the Borrower and its Subsidiaries incurred in the ordinary course of business (such letters of credit issued for such purposes, “ Trade Letters of Credit ”) and (y) standby letters of credit or, if agreed to by the applicable Issuing Bank in its sole discretion, bank guarantees issued for any other lawful purposes of the Borrower and its Subsidiaries (such letters of credit or bank guarantees issued for such
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purposes, “ Standby Letters of Credit ”; each such letter of credit or bank guarantee, issued hereunder, a “ Letter of Credit ” and collectively, the “ Letters of Credit ”) for its own account or for the account of any Subsidiary in a form reasonably acceptable to the applicable Issuing Bank, at any time and from time to time during the applicable Availability Period and prior to the date that is five Business Days prior to the applicable Revolving Facility Maturity Date. 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 Borrower to, or entered into by the Borrower with, an 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 (other than an automatic extension in accordance with paragraph (c) of this Section) or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank) to the applicable Issuing Bank and the Administrative Agent (at least three Business Days in advance of the requested date of issuance, amendment or extension or such shorter period as the Administrative Agent and the applicable Issuing Bank in their sole discretion may agree) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended or extended, and specifying the date of issuance, amendment 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 and currency (which may be Dollars or any Alternate Currency) of such Letter of Credit, the name and address of the beneficiary thereof, whether such Letter of Credit constitutes a Standby Letter of Credit or a Trade Letter of Credit and such other information as shall be necessary to issue, amend or extend such Letter of Credit. If requested by the applicable Issuing Bank, the Borrower also shall submit a letter of credit application on such Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended or extended only if (and upon issuance, amendment or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment or extension (i) the Revolving L/C Exposure shall not exceed the Letter of Credit Sublimit, (ii) the Revolving Facility Credit Exposure shall not exceed the applicable Revolving Facility Commitments (iii) no Alternate Currency Letter of Credit shall be issued if, after giving effect thereto, the aggregate amount of Revolving L/C Exposure with respect to all Alternate Currency Letters of Credit would exceed $3,000,000 (or such larger amount within the Letter of Credit Sublimit as the Administrative Agent and the applicable Issuing Bank may agree) and (iv) with respect to the applicable Issuing Bank, the stated amount of all outstanding Letters of Credit issued by such Issuing Bank shall not exceed the applicable Specified L/C Sublimit of such Issuing Bank then in effect. For the avoidance of doubt, no Issuing Bank shall be obligated to issue an Alternate Currency Letter of Credit if such Issuing Bank does not otherwise issue letters of credit in such Alternate Currency and Jefferies Finance LLC shall not be obligated to issue any Alternate Currency Letter of Credit. In addition, no Issuing Bank shall be under any obligation to issue any Letter of Credit if (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from issuing the Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or (ii) the issuance of the Letter of Credit would violate one or more policies of the Issuing Bank applicable to letters of credit generally.
(c) Expiration Date . Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year (unless otherwise agreed upon by the Borrower and the applicable Issuing Bank in their sole discretion) after the date of the issuance of such Letter of Credit (or, in the case of any extension thereof, one year (unless otherwise agreed upon by the Borrower and the applicable Issuing Bank in their sole discretion) after such renewal or extension) and (ii) the date that is five Business Days prior to the applicable Revolving Facility Maturity Date; provided , that any Letter of Credit with a one year tenor may provide for automatic renewal or extension thereof for additional one year periods (which, in no event, shall extend beyond the date referred to in clause (ii) of this paragraph (c)) so long as such Letter of Credit permits the applicable Issuing Bank to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof within a time period during such twelve-month period to be agreed upon at
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the time such Letter of Credit is issued; provided , further , that if such Issuing Bank consents in its sole discretion, the expiration date on any Letter of Credit may extend beyond the date referred to in clause (ii) above, provided , that if any such Letter of Credit is outstanding or is issued under the Revolving Facility Commitments of any Class after the date that is 30 days prior to the Revolving Facility Maturity Date for such Class the Borrower shall provide Cash Collateral pursuant to documentation reasonably satisfactory to the Administrative Agent and the relevant Issuing Bank in an amount equal to the Minimum L/C Collateral Amount on or prior to the date that is 30 days prior to such Revolving Facility Maturity Date or, if later, such date of issuance.
(d) Participations . By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) under the Revolving Facility Commitments of any Class and without any further action on the part of the applicable Issuing Bank or the Revolving Facility Lenders, such Issuing Bank hereby grants to each Revolving Facility Lender under such Class, and each such Revolving Facility Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Revolving Facility Lender’s applicable Revolving Facility Percentage of the aggregate amount available to be drawn under such Letter of Credit (calculated, in the case of Alternate Currency Letters of Credit, based on the Dollar Equivalent thereof). In consideration and in furtherance of the foregoing, each Revolving Facility Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the applicable Issuing Bank, in Dollars, such Revolving Facility Lender’s applicable Revolving Facility Percentage of each L/C Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason (calculated, in the case of any Alternate Currency Letter of Credit, based on the Dollar Equivalent thereof). Each Revolving Facility 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 Event of Default or reduction or termination of the Commitments or the fact that, as a result of changes in currency exchange rates, such Revolving Facility Lender’s Revolving Facility Credit Exposure at any time might exceed its Revolving Facility Commitment at such time (in which case Section 2.11(f) would apply), and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement . If the applicable Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such L/C Disbursement by paying to the Administrative Agent an amount in Dollars equal to such L/C Disbursement (or, in the case of an Alternate Currency Letter of Credit, the Dollar Equivalent thereof) not later than 2:00 p.m., Local Time, on the first Business Day after the Borrower receives notice under paragraph (g) of this Section of such L/C Disbursement (or the second Business Day, if such notice is received after 12:00 noon, Local Time), together with accrued interest thereon from the date of such L/C Disbursement at the rate applicable to ABR Revolving Facility Loans of the applicable Class; provided , that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.04 that such payment be financed with an ABR Revolving Facility Borrowing or a Swingline Borrowing of the applicable Class, as applicable, in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Facility Borrowing or Swingline Borrowing. If the Borrower fails to reimburse any L/C Disbursement when due, then the Administrative Agent shall promptly notify the applicable Issuing Bank and each other applicable Revolving Facility Lender of the applicable L/C Disbursement, the payment then due from the Borrower in respect thereof and, in the case of a Revolving Facility Lender, such Lender’s Revolving Facility Percentage thereof. Promptly following receipt of such notice, each Revolving Facility Lender with a Revolving Facility Commitment of the applicable Class shall pay to the Administrative Agent in Dollars its Revolving Facility Percentage of the payment then due from the Borrower in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis , to the payment obligations of the Revolving Facility Lenders), and the Administrative Agent shall promptly pay to the applicable Issuing Bank the amounts so received by it from the Revolving Facility Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the applicable Issuing Bank or, to the
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extent that Revolving Facility Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as their interests may appear. Any payment made by a Revolving Facility Lender pursuant to this paragraph to reimburse an Issuing Bank for any L/C Disbursement (other than the funding of an ABR Revolving Loan or a Swingline Borrowing as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such L/C Disbursement.
(f) Obligations Absolute . The obligation of the Borrower to reimburse L/C 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 applicable 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 Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders nor any Issuing Bank, 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 such Issuing Bank, or any of the circumstances referred to in clauses (i), (ii) or (iii) of the first sentence; provided , that the foregoing shall not be construed to excuse the applicable Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are determined by final and binding decision of a court of competent jurisdiction to have been caused by such Issuing Bank’s 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 applicable Issuing Bank, such 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 that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the applicable 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 applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by electronic means) of any such demand for payment under a Letter of Credit and whether such Issuing Bank has made or will make an L/C Disbursement thereunder; provided , that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Revolving Facility Lenders with respect to any such L/C Disbursement.
(h) Interim Interest . If an Issuing Bank shall make any L/C Disbursement, then, unless the Borrower shall reimburse such L/C Disbursement in full on the date such L/C Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such L/C Disbursement is made to but excluding the date that the Borrower reimburses such L/C Disbursement, at the rate per annum then applicable to ABR Revolving Loans of the applicable Class; provided , that, if such L/C Disbursement is not reimbursed by the Borrower 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 applicable Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Facility Lender pursuant to paragraph (e) of this Section to reimburse such Issuing Bank shall be for the account of such Revolving Facility Lender to the extent of such payment.
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(i) Replacement of an Issuing Bank . An Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of an Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12. From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the replaced 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 such Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization Following Certain Events . If and when the Borrower is required to Cash Collateralize any Revolving L/C Exposure relating to any outstanding Letters of Credit pursuant to any of Section 2.05(c), 2.11(e), 2.11(f), 2.11(g), 2.22(a)(v) or 7.01, the Borrower shall deposit in an account with or at the direction of the Administrative Agent, in the name of the Collateral Agent and for the benefit of the Lenders, an amount in cash in Dollars equal to the Revolving L/C Exposure as of such date (or, in the case of Sections 2.05(c), 2.11(e), 2.11(f), 2.11(g) and 2.22(a)(v), the portion thereof required by such sections). Each deposit of Cash Collateral (x) made pursuant to this paragraph or (y) made by the Administrative Agent pursuant to Section 2.22(a)(ii), in each case, shall be held by the Collateral Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over 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 (i) for so long as an Event of Default shall be continuing, the Collateral Agent and (ii) at any other time, the Borrower, in each case, in Permitted Investments and at the risk and expense of the Borrower, 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 Collateral Agent to reimburse each Issuing Bank for L/C Disbursements for which such Issuing Bank has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the Revolving L/C Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with Revolving L/C Exposure representing greater than 50% of the total Revolving L/C Exposure), be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of Cash Collateral hereunder as a result of the occurrence of an Event of Default or the existence of a Defaulting Lender or the occurrence of a limit under Section 2.11(e), (f) or (g) being exceeded, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived or the termination of the Defaulting Lender status or the limits under Sections 2.11(e), (f) or (g) no longer being exceeded, as applicable.
(k) Cash Collateralization Following Termination of the Revolving Facility . Notwithstanding anything to the contrary herein, in the event of the prepayment in full of all outstanding Revolving Facility Loans and the termination of all Revolving Facility Commitments (a “ Revolving Facility Termination Event ”) in connection with which the Borrower notifies any one or more Issuing Banks that it intends to maintain one or more Letters of Credit initially issued under this Agreement in effect after the date of such Revolving Facility Termination Event (each, a “ Continuing Letter of Credit ”), then the security interest of the Collateral Agent in the Collateral under the Security Documents may be terminated in accordance with Section 9.18 if each such Continuing Letter of Credit is Cash Collateralized in an amount equal to the Minimum L/C Collateral Amount, which shall be deposited with or at the direction of each such Issuing Bank.
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(l) Additional Issuing Banks . From time to time, the Borrower may by notice to the Administrative Agent designate any Lender (in addition to the initial Issuing Banks) each of which agrees (in its sole discretion) to act in such capacity and is reasonably satisfactory to the Administrative Agent as an Issuing Bank. Each such additional Issuing Bank shall execute a counterpart of this Agreement upon the approval of the Administrative Agent (which approval shall not be unreasonably withheld) and shall thereafter be an Issuing Bank hereunder for all purposes.
(m) Reporting . Unless otherwise requested by the Administrative Agent, each Issuing Bank shall (i) provide to the Administrative Agent copies of any notice received from the Borrower pursuant to Section 2.05(b) no later than the next Business Day after receipt thereof and (ii) report in writing to the Administrative Agent (A) on or prior to each Business Day on which such Issuing Bank expects to issue, amend or extend any Letter of Credit, the date of such issuance, amendment or extension, and the aggregate face amount of the Letters of Credit to be issued, amended or extended by it and outstanding after giving effect to such issuance, amendment or extension occurred (and whether the amount thereof changed), and such Issuing Bank shall be permitted to issue, amend or extend such Letter of Credit if the Administrative Agent shall not have advised such Issuing Bank that such issuance, amendment or extension would not be in conformity with the requirements of this Agreement, (B) on each Business Day on which such Issuing Bank makes any L/C Disbursement, the date of such L/C Disbursement and the amount of such L/C Disbursement and (C) on any other Business Day, such other information with respect to the outstanding Letters of Credit issued by such Issuing Bank as the Administrative Agent shall reasonably request.
(n) Unless otherwise expressly agreed by the applicable Issuing Bank and the Borrower, when a Letter of Credit is issued, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the UCP shall apply to each trade Letter of Credit. Notwithstanding the foregoing, the Issuing Banks shall not be responsible to the Borrower for, and the Issuing Banks’ rights and remedies against the Borrower shall not be impaired by, any action or inaction of the Issuing Banks required or permitted under any law, order, or practice that is required or permitted to be applied to any Letter of Credit or this Agreement, including the Requirement of Law or any order of a jurisdiction where the Issuing Bank or the beneficiary is located, the practice stated in the ISP or UCP, as applicable, or in the decisions, opinions, practice statements, or official commentary of the ICC Banking Commission, the Bankers Association for Finance and Trade – International Financial Services Association (BAFT-IFSA), or the Institute of International Banking Law & Practice, whether or not any Letter of Credit chooses such law or practice.
(o) Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower shall be obligated to reimburse the applicable Issuing Bank hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.
Section 2.06 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 by 12:00 noon, Local Time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; provided , that Swingline Loans shall be made as provided in Section 2.04. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower as specified in the applicable Borrowing Request; provided , that ABR Revolving Loans and Swingline Borrowings made to finance the reimbursement of a L/C Disbursement and reimbursements as provided in Section 2.05(e) shall be remitted by the Administrative Agent to the applicable 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 Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such
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share available on such date in accordance with clause (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand (without duplication) such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of (A) the Federal Funds Effective Rate and (B) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to ABR Loans at such time. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(c) The foregoing notwithstanding, the Administrative Agent, in its sole discretion, may from its own funds make a Revolving Facility Loan on behalf of the Lenders (including by means of Swingline Loans to the Borrower). In such event, the applicable Lenders on behalf of whom the Administrative Agent made the Revolving Facility Loan shall reimburse the Administrative Agent for all or any portion of such Revolving Facility Loan made on its behalf upon written notice given to each applicable Lender not later than 2:00 p.m., Local Time, on the Business Day such reimbursement is requested. The entire amount of interest attributable to such Revolving Facility Loan for the period from and including the date on which such Revolving Facility Loan was made on such Lender’s behalf to but excluding the date the Administrative Agent is reimbursed in respect of such Revolving Facility Loan by such Lender shall be paid to the Administrative Agent for its own account.
Section 2.07 Interest Elections .
(a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurocurrency Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower 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 into or continued as Eurocurrency Borrowings.
(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone, by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or electronic means to the Administrative Agent of a written Interest Election Request signed by the Borrower.
(c) Each telephonic and written Interest Election Request 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;
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(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; and
(iv) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period.”
If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. If less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall be in an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum and satisfy the limitations specified in Sections 2.02(c) regarding the maximum number of Borrowings of the relevant Type.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender to which such Interest Election Request relates of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency 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 such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the written request (including a request through electronic means) of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurocurrency Borrowing and (ii) unless repaid, each Eurocurrency Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
Section 2.08 Termination and Reduction of Commitments .
(a) Unless previously terminated, the Revolving Facility Commitments of each Class shall terminate on the applicable Revolving Facility Maturity Date for such Class. On the Closing Date (after giving effect to the funding of the Initial Term B Loans to be made on such date), the Initial Term B Loan Commitments of each Lender as of the Closing Date terminated. On the Effective Date (after giving effect to the funding of the Incremental Term B Loans to be made on such date), the Incremental Term B Loan Commitments of each Lender as of the Effective Date will terminate.
(b) The Borrower may at any time terminate, or from time to time reduce, the Revolving Facility Commitments of any Class; provided , that (i) each reduction of the Revolving Facility Commitments of any Class shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000 (or, if less, the remaining amount of the Revolving Facility Commitments of such Class) and (ii) the Borrower shall not terminate or reduce the Revolving Facility Commitments of any Class if, after giving effect to any concurrent prepayment of the Revolving Facility Loans in accordance with Section 2.11 and any Cash Collateralization of Letters of Credit in accordance with Section 2.05(j) or (k), the Revolving Facility Credit Exposure of such Class (excluding any Cash Collateralized Letter of Credit) would exceed the total Revolving Facility Commitments of such Class.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Revolving Facility Commitments of any Class under paragraph (b) of this Section 2.08 at least three Business Days prior to the effective date of such termination or reduction (or such shorter period acceptable to the Administrative Agent), specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the applicable Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section 2.08 shall be irrevocable; provided , that a notice of termination or reduction of the Revolving Facility Commitments of any Class delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, indentures or similar agreements or other transactions, in which case such notice may be revoked
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by the Borrower (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 of any Class shall be made ratably among the Lenders in accordance with their respective Commitments of such Class.
Section 2.09 Repayment of Loans; Evidence of Debt .
(a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Revolving Facility Lender the then unpaid principal amount of each Revolving Facility Loan to the Borrower on the Revolving Facility Maturity Date applicable to such Revolving Facility Loans, (ii) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Term Loan of such Lender as provided in Section 2.10 and (iii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan applicable to any Class of Revolving Facility Commitments on the earlier of the Revolving Facility Maturity Date for such Class and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least five Business Days after such Swingline Loan is made; provided , that on each date that a Revolving Facility Borrowing is made by the Borrower, the Borrower shall repay all Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Facility and Type thereof and the Interest Period (if any) applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) any amount received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d) The entries made in the accounts maintained pursuant to clause (b) or (c) 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 the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a promissory note (a “ Note ”). In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent and reasonably acceptable to the Borrower. Thereafter, unless otherwise agreed to by the applicable Lender, 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 payee named therein (or, if requested by such payee, to such payee and its registered assigns).
Section 2.10 Repayment of Term Loans and Revolving Facility Loans .
(a) Subject to the other clauses of this Section,
(i) the Borrower shall repay Term B Loans incurred on the Closing Date and the Effective Date on the last day of each March, June, September and December of each year (commencing on the last day of December, 2017 ) and on the applicable Term Facility Maturity Date or, if any such date is not a Business Day, on the next preceding Business Day (each such date being referred to as a “ Term B Loan Installment Date ”), in an aggregate principal amount of such Term B Loans equal to (A) in the case of quarterly payments due prior to the applicable Term Facility Maturity Date, an amount equal to 0.25% of the product of (x) the sum of (I) the aggregate
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principal amount of all Initial Term B Loans outstanding immediately prior to the Effective Date and (II) the aggregate principal amount of Incremental Term B Loans funded on the Effective Date and (y) a fraction, the numerator of which is the aggregate principal amount of the Initial Term B Loans funded on the Closing Date and the denominator of which is equal to the aggregate principal amount of Initial Term B Loans outstanding immediately prior to the Effective Date (for the avoidance of doubt, such repayment amount shall be, from and after the Effective Date, $1,287,907.27 on each such last day of each March, June, September and December) , and (B) in the case of such payment due on the applicable Term Facility Maturity Date, an amount equal to the then unpaid principal amount of such Term B Loans outstanding;
(ii) in the event that any Incremental Term Loans (other than the Incremental Term B Loans) are made, the Borrower shall repay such Incremental Term Loans on the dates and in the amounts set forth in the related Incremental Assumption Agreement (each such date being referred to as an “ Incremental Term Loan Installment Date ”); and
(iii) to the extent not previously paid, outstanding Term Loans shall be due and payable on the applicable Term Facility Maturity Date.
(b) To the extent not previously paid, outstanding Revolving Facility Loans shall be due and payable on the applicable Revolving Facility Maturity Date.
(c) Prepayment of the Loans from:
(i) all Net Proceeds pursuant to Section 2.11(b) and Excess Cash Flow pursuant to Section 2.11(c) shall be allocated to the Class or Classes of Term Loans determined pursuant to Section 2.10(d), with the application thereof to reduce in direct order amounts due on the succeeding Term Loan Installment Dates under such Classes as provided in the remaining scheduled amortization payments under such Classes; provided , that any Lender, at its option, may elect to decline any such prepayment of any Term Loan held by it if it shall give written notice to the Administrative Agent thereof by 5:00 p.m. Local Time at least three Business Days prior to the date of such prepayment (any such Lender, a “ Declining Lender ”) and on the date of any such prepayment, any amounts that would otherwise have been applied to prepay Term Loans owing to Declining Lenders shall instead be retained by the Borrower for application for any purpose not prohibited by this Agreement, and
(ii) any optional prepayments of the Term Loans pursuant to Section 2.11(a) shall be applied to the remaining installments of the Term Loans under the applicable Class or Classes as the Borrower may in each case direct.
(d) Any mandatory prepayment of Term Loans pursuant to Section 2.11(b) or (c) shall be applied so that the aggregate amount of such prepayment is allocated among the Term B Loans and the Other Term Loans, if any, pro rata based on the aggregate principal amount of outstanding Term B Loans and Other Term Loans, if any; provided that, subject to the pro rata application to Loans outstanding within any Class of Term Loans, the Borrower may allocate such prepayment in its discretion among the Class or Classes of Term Loans as the Borrower may specify (so long as the Term B Loans incurred on the Closing Date are allocated at least their pro rata share of such prepayment). Prior to any prepayment of any Loan under any Facility hereunder, the Borrower shall select the Borrowing or Borrowings under the applicable Facility to be prepaid and shall notify the Administrative Agent by telephone (confirmed by electronic means) of such selection not later than 2:00 p.m., Local Time, (i) in the case of an ABR Borrowing, at least one Business Day before the scheduled date of such prepayment and (ii) in the case of a Eurocurrency Borrowing, at least three Business Days before the scheduled date of such prepayment (or, in each case such shorter period acceptable to the Administrative Agent); provided , that a notice of prepayment may state that such notice is conditioned upon the effectiveness of other credit facilities, indentures or similar agreements or other transactions, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Each repayment of a Borrowing (x) in the case of the Revolving Facility of any Class, shall be applied to the
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Revolving Facility Loans included in the repaid Borrowing such that each Revolving Facility Lender receives its ratable share of such repayment (based upon the respective Revolving Facility Credit Exposures of the Revolving Facility Lenders of such Class at the time of such repayment) and (y) in all other cases, shall be applied ratably to the Loans included in the repaid Borrowing. All repayments of Loans shall be accompanied by accrued interest on the amount repaid to the extent required by Section 2.13(d).
Section 2.11 Prepayment of Loans .
(a) The Borrower shall have the right at any time and from time to time to prepay any Loan in whole or in part, without premium or penalty (but subject to Section 2.12(d) and Section 2.16), in an aggregate principal amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum or, if less, the amount outstanding, subject to prior notice in accordance with Section 2.10(d).
(b) The Borrower shall apply all Net Proceeds promptly upon receipt thereof to prepay Term Loans in accordance with clauses (c) and (d) of Section 2.10. Notwithstanding the foregoing, the Borrower may use a portion of such Net Proceeds to prepay or repurchase any Refinancing Notes that are secured by a pari passu Lien on the Collateral or other Indebtedness that is secured by pari passu Liens permitted by Section 6.02, in each case in an amount not to exceed the product of (x) the amount of such Net Proceeds and (y) a fraction, (A) the numerator of which is the outstanding principal amount of such Indebtedness secured by pari passu Liens and (B) the denominator of which is the sum of the outstanding principal amount of such Indebtedness and the outstanding principal amount of all Classes of Term Loans. Not later than five Business Days prior to the date of such prepayment, the Borrower shall provide written notice thereof to the Administrative Agent, including the amount of any required prepayment.
(c) Not later than 5 Business Days after the date on which the annual financial statements are, or are required to be, delivered under Section 5.04(a) with respect to each Excess Cash Flow Period, the Borrower shall calculate Excess Cash Flow for such Excess Cash Flow Period and, if and to the extent the amount of such Excess Cash Flow exceeds $6,000,000 (the “ ECF Threshold Amount ”), the Borrower shall apply an amount equal to (i) the Required Percentage of such excess portion of such Excess Cash Flow minus (ii) to the extent not financed using the proceeds of the incurrence of funded term Indebtedness, the sum of (A) the amount of any voluntary prepayments during such Excess Cash Flow Period ( plus , without duplication of any amounts previously deducted under this clause (A), the amount of any voluntary prepayments after the end of such Excess Cash Flow Period but before the date of prepayment under this clause (c)) of Term Loans (it being understood that the amount of any such prepayment constituting a below-par Permitted Loan Purchase shall be calculated to equal the amount of cash used and not the principal amount deemed prepaid therewith) and (B) the amount of any permanent voluntary reductions during such Excess Cash Flow Period (plus, without duplication of any amounts previously deducted under this clause (B), the amount of any permanent voluntary reductions after the end of such Excess Cash Flow Period but before the date of prepayment under this clause (c)) of Revolving Facility Commitments to the extent that an equal amount of Revolving Facility Loans were simultaneously repaid, to prepay Term Loans in accordance with clauses (c) and (d) of Section 2.10. Such calculation will be set forth in a certificate signed by a Financial Officer of the Borrower delivered to the Administrative Agent, setting forth the amount, if any, of Excess Cash Flow for such fiscal year, the amount of any required prepayment in respect thereof and the calculation thereof in reasonable detail.
(d) Notwithstanding any other provisions of this Section 2.11 to the contrary, (i) to the extent that any Net Proceeds of any Asset Sale by a Foreign Subsidiary or Excess Cash Flow attributable to a Foreign Subsidiary would otherwise be required to be applied pursuant to Section 2.11(b) or Section 2.11(c) but is prohibited or delayed by applicable local law from being repatriated to the United States of America, the portion of such Net Proceeds or Excess Cash Flow so affected will not be required to be applied to repay Term Loans at the times provided in Section 2.11(b) or Section 2.11(c) but may be retained by the applicable Foreign Subsidiary so long, but only so long, as the applicable local law will not permit repatriation to the United States of America (the Borrower hereby agreeing to cause the applicable Foreign Subsidiary to promptly use commercially reasonable efforts to take all actions reasonably required
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by the applicable local law to permit such repatriation), and once such repatriation of any of such affected Net Proceeds or Excess Cash Flow that was otherwise required to be applied pursuant to Section 2.11(b) or Section 2.11(c) is permitted under the applicable local law, such repatriation will be effected and such repatriated Net Proceeds or Excess Cash Flow will be promptly applied (net of additional taxes payable or reserved against as a result thereof) to the repayment of the Term Loans pursuant to Section 2.11(b) or Section 2.11(c), to the extent provided therein and (ii) to the extent that the Borrower has determined in good faith that repatriation of any or all of such Net Proceeds or Excess Cash Flow that would otherwise be required to be applied pursuant to Section 2.11(b) or Section 2.11(c) would have a material adverse tax cost consequence if so repatriated, the Net Proceeds or Excess Cash Flow so affected may be retained by the applicable Foreign Subsidiary (the Borrower hereby agreeing to cause the applicable Subsidiary to promptly use commercially reasonable efforts to take all actions that are reasonably required to eliminate such tax effects); provided , that in the case of this clause (ii), on or before the date on which any Net Proceeds or Excess Cash Flow so retained would otherwise have been required to be applied to prepayments pursuant to Section 2.11(b) or Section 2.11(c), (x) the Borrower applies an amount equal to such Net Proceeds or Excess Cash Flow to such prepayments as if such Net Proceeds or Excess Cash Flow had been received by the Borrower rather than such Foreign Subsidiary, less the amount of additional taxes that would have been payable or reserved against if such Net Proceeds or Excess Cash Flow had been repatriated (or, if less, Net Proceeds or Excess Cash Flow that would be calculated if received by such Foreign Subsidiary) or (y) such Net Proceeds or Excess Cash Flow is applied to the permanent repayment of Indebtedness of a Foreign Subsidiary.
(e) In the event that the aggregate amount of Revolving Facility Credit Exposure of any Class exceeds the total Revolving Facility Commitments of such Class, the Borrower shall prepay Revolving Facility Borrowings or Swingline Borrowings of such Class (or, if no such Borrowings are outstanding, provide Cash Collateral in respect of outstanding Letters of Credit pursuant to Section 2.05(j)) in an aggregate amount equal to such excess.
(f) In the event that the Revolving L/C Exposure exceeds the Letter of Credit Sublimit, at the request of the Administrative Agent, the Borrower shall provide Cash Collateral pursuant to Section 2.05(j) in an amount equal to such excess.
(g) If as a result of changes in currency exchange rates, on any Revaluation Date, (i) the total Revolving Facility Credit Exposure of any Class exceeds the total Revolving Facility Commitments of such Class, (ii) the Revolving L/C Exposure exceeds the Letter of Credit Sublimit or (iii) the Revolving L/C Exposure with respect to all Alternate Currency Letters of Credit exceeds $3,000,000 (or such larger amount within the Letter of Credit Sublimit as the Administrative Agent and the applicable Issuing Bank may agree), the Borrower shall, at the request of the Administrative Agent, within ten (10) days of such Revaluation Date (A) prepay Revolving Facility Borrowings or Swingline Borrowings or (B) provide Cash Collateral pursuant to Section 2.05(j), in an aggregate amount such that the applicable exposure does not exceed the applicable commitment, sublimit or amount set forth above.
Section 2.12 Fees .
(a) The Borrower agrees to pay to each Lender (other than any Defaulting Lender), through the Administrative Agent, on the last Business Day of March, June, September and December in each year and on the date on which the Revolving Facility Commitments of all the Lenders shall be terminated as provided herein, a commitment fee (a “ Commitment Fee ”) on the daily amount of the applicable Available Unused Commitment of such Lender during the preceding quarter (or other period commencing with the Closing Date or ending with the date on which the last of the Commitments of such Lender shall be terminated) at a rate equal to the Applicable Commitment Fee. All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. For the purpose of calculating any Lender’s Commitment Fee, the outstanding Swingline Loans during the period for which such Lender’s Commitment Fee is calculated shall be deemed to be zero. The Commitment Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the date on which the last of the Commitments of such Lender shall be terminated as provided herein.
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(b) The Borrower from time to time agrees to pay (i) to each Revolving Facility Lender of each Class (other than any Defaulting Lender), through the Administrative Agent, on the last Business Day of March, June, September and December of each year and on the date on which the Revolving Facility Commitments of all the Lenders shall be terminated as provided herein, a fee in Dollars (an “ L/C Participation Fee ”) on such Lender’s Revolving Facility Percentage of the daily aggregate Revolving L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) of such Class, during the preceding quarter (or shorter period commencing with the Closing Date or ending with the Revolving Facility Maturity Date or the date on which the Revolving Facility Commitments of such Class shall be terminated) at the rate per annum equal to the Applicable Margin for Eurocurrency Revolving Facility Borrowings of such Class effective for each day in such period, and (ii) to each Issuing Bank, for its own account (x) the last Business Day of March, June, September and December of each year and on the date on which the Revolving Facility Commitments of all the Lenders shall be terminated, a fronting fee in respect of each Letter of Credit issued by such Issuing Bank for the period from and including the date of issuance of such Letter of Credit to and including the termination of such Letter of Credit, computed at a rate equal to 1/8 of 1% per annum of the daily stated amount of such Letter of Credit), plus (y) in connection with the issuance, amendment or transfer of any such Letter of Credit or any L/C Disbursement thereunder, such Issuing Bank’s customary documentary and processing fees and charges (collectively, “ Issuing Bank Fees ”). All L/C Participation Fees and Issuing Bank Fees that are payable on a per annum basis shall be computed on the basis of the actual number of days elapsed in a year of 360 days.
(c) The Borrower agrees to pay to the Administrative Agent, for the account of the Administrative Agent, the “Administration Agent Fee” as set forth in the Administrative Agent Fee Letter, as amended, restated, supplemented or otherwise modified from time to time, at the times specified therein (the “ Administrative Agent Fees ”).
(d) In the event that, on or prior to the date that is six months after the Closing Date, the Borrower shall (x) make a prepayment of the Term B Loans pursuant to Section 2.11(a) (or Section 2.11(b) to the extent such proceeds constitute “Net Proceeds” under clause (b) of the definition thereof) with the proceeds of, or convert the Term B Loans into, any new or replacement tranche of long-term secured term loans that have an All-in Yield that is less than the All-in Yield of such Term B Loans or (y) effect any amendment to this Agreement which reduces the All-in Yield of the Term B Loans (other than, in the case of each of clauses (x) and (y), in connection with a Qualified IPO, a Change in Control or a transformative acquisition referred to in the last sentence of this paragraph), the Borrower shall pay to the Administrative Agent, for the ratable account of each of the applicable Term Loan Lenders, (A) in the case of clause (x), a prepayment premium of 1.00% of the aggregate principal amount of the Term B Loans so prepaid or converted and (B) in the case of clause (y), a fee equal to 1.00% of the aggregate principal amount of the applicable Term B Loans for which the All-in Yield has been reduced pursuant to such amendment (it being understood that if any Non-Consenting Lender is required to assign its Term B Loans in connection with such amendment, such fee shall be paid to such Non-Consenting Lender and not to its assignee). Such amounts shall be due and payable on the date of such prepayment or the effective date of such amendment, as the case may be. For purposes of this Section 2.12(d), a “transformative acquisition” is any acquisition by the Borrower or any Subsidiary that is (i) not permitted by the terms of the Loan Documents immediately prior to the consummation of such acquisition or (ii) if permitted by the terms of the Loan Documents immediately prior to the consummation of such acquisition, would not provide the Borrower and its Subsidiaries with adequate flexibility under the Loan Documents for the continuation and/or expansion of their combined operations following such consummation, as determined by the Borrower in good faith.
(e) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that Issuing Bank Fees shall be paid directly to the applicable Issuing Banks. Once paid, none of the Fees shall be refundable under any circumstances.
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Section 2.13 Interest .
(a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the ABR plus the Applicable Margin.
(b) The Loans comprising each Eurocurrency Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any Fees or other amount payable by the Borrower 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, 2% plus the rate otherwise applicable to such Loan as provided in the preceding clauses of this Section 2.13 or (ii) in the case of any other overdue amount, 2% plus the rate applicable to ABR Loans as provided in clause (a) of this Section; provided , that this clause (c) shall not apply to any Event of Default that has been waived by the Lenders pursuant to Section 9.08.
(d) Accrued interest on each Loan shall be payable in arrears (i) on each Interest Payment Date for such Loan, (ii) in the case of Revolving Facility Loans, upon termination of the applicable Revolving Facility Commitments and (iii) in the case of the Term Loans, on the applicable Term Facility Maturity Date; provided , that (A) interest accrued pursuant to clause (c) of this Section 2.13 shall be payable on demand, (B) in the event of any repayment or prepayment of any Loan (other than a prepayment of a Revolving Facility Loan that is an ABR Loan that is not made in conjunction with a permanent commitment reduction), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (C) in the event of any conversion of any Eurocurrency 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.
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the ABR at times when the ABR is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), 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 ABR, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
Section 2.14 Alternate Rate of Interest . If prior to the commencement of any Interest Period for a Eurocurrency 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 for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or electronic means as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower 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 Eurocurrency Borrowing shall be ineffective and such Borrowing shall be converted to or continued as on the last day of the Interest Period applicable thereto an ABR Borrowing, and (ii) if any Borrowing Request requests a Eurocurrency Borrowing, such Borrowing shall be made as an ABR Borrowing.
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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 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 Issuing Bank; or
(ii) subject any Lender to any Tax with respect to any Loan Document (other than (i) Taxes indemnifiable under Section 2.17 or (ii) Excluded Taxes); or
(iii) impose on any Lender or Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or Issuing Bank, as applicable, such additional amount or amounts as will compensate such Lender or Issuing Bank, as applicable, for such additional costs incurred or reduction suffered.
(b) If any Lender or 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 Lender’s or Issuing Bank’s capital or on the capital of such Lender’s or Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit or Swingline Loans held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy), then from time to time the Borrower shall pay to such Lender or such Issuing Bank, as applicable, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.
(c) A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or Issuing Bank or its holding company, as applicable, as specified in clause (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error; provided , that any such certificate claiming amounts described in clause (x) or (y) of the definition of “Change in Law” shall, in addition, state the basis upon which such amount has been calculated and certify that such Lender’s or Issuing Bank’s demand for payment of such costs hereunder, and such method of allocation is not inconsistent with its treatment of other borrowers which, as a credit matter, are similarly situated to the Borrower and which are subject to similar provisions. The Borrower shall pay such Lender or Issuing Bank, as applicable, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Promptly after any Lender or any Issuing Bank has determined that it will make a request for increased compensation pursuant to this Section 2.15, such Lender or Issuing Bank shall notify the Borrower thereof. Failure or delay on the part of any Lender or Issuing Bank to demand compensation pursuant to this Section 2.15 shall not constitute a waiver of such Lender’s or Issuing Bank’s right to demand such compensation; provided , that the Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section 2.15 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or Issuing Bank, as applicable, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or Issuing Bank’s 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 180 day period referred to above shall be extended to include the period of retroactive effect thereof.
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Section 2.16 Break Funding Payments . In the event of (a) the payment of any principal of any Eurocurrency Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurocurrency Loan on the date specified in any notice delivered pursuant hereto or (d) the assignment of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, such loss, cost or expense to any Lender shall be deemed to be the amount determined by such Lender (it being understood that the deemed amount shall not exceed the actual amount) to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the 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 a Eurocurrency Loan, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for deposits in Dollars of a comparable amount and period from other banks in the Eurocurrency market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 2.16 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
Section 2.17 Taxes .
(a) Any and all payments made by or on behalf of a Loan Party under this Agreement or any other Loan Document shall be made free and clear of, and without deduction or withholding for or on account of, any Taxes; provided , that if a Loan Party, the Administrative Agent or any other applicable withholding agent shall be required by applicable Requirement of Law to deduct or withhold any Taxes from such payments, then (i) the applicable withholding agent shall make such deductions or withholdings as are reasonably determined by the applicable withholding agent to be required by any applicable Requirement of Law, (ii) the applicable withholding agent shall timely pay the full amount deducted or withheld to the relevant Governmental Authority within the time allowed and in accordance with applicable Requirement of Law, and (iii) to the extent withholding or deduction is required to be made on account of Indemnified Taxes or Other Taxes, the sum payable by the Loan Party shall be increased as necessary so that after all required deductions and withholdings have been made (including deductions or withholdings applicable to additional sums payable under this Section 2.17) the Administrative Agent or any Lender, as applicable, receives an amount equal to the sum it would have received had no such deductions or withholdings been made. Whenever any Indemnified Taxes or Other Taxes are payable by a Loan Party, as promptly as possible thereafter, such Loan Party shall send to the Administrative Agent for its own account or for the account of a Lender, as the case may be, a certified copy of an official receipt (or other evidence acceptable to the Administrative Agent or such Lender, acting reasonably) received by the Loan Party showing payment thereof. Without duplication, after any payment of Taxes by any Loan Party or the Administrative Agent to a Governmental Authority as provided in this Section 2.17, the Borrower shall deliver to the Administrative Agent or the Administrative Agent shall deliver to the Borrower, as the case may be, a copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by applicable Requirements of Law to report such payment or other evidence of such payment reasonably satisfactory to the Borrower or the Administrative Agent, as the case may be.
(b) The Borrower shall timely pay any Other Taxes.
(c) The Borrower shall indemnify and hold harmless the Administrative Agent and each Lender within 15 Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes imposed on the Administrative Agent or such Lender, as applicable, as the case may
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be (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.17), and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate setting forth in reasonable detail the basis and calculation of the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent (as applicable) on its own behalf or on behalf of a Lender shall be conclusive absent manifest error.
(d) Each Lender shall deliver to the Borrower and the Administrative Agent, at such time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law and such other reasonably requested information as will permit the Borrower or the Administrative Agent, as the case may be, to determine (A) whether or not any payments made hereunder or under any other Loan Document are subject to withholding of Taxes, (B) if applicable, the required rate of withholding or deduction, and (C) such Lender’s entitlement to any available exemption from, or reduction of, any such withholding of Taxes in respect of any payments to be made to such Lender by any Loan Party pursuant to any Loan Document or otherwise to establish such Lender’s status for withholding tax purposes in the applicable jurisdiction. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.
(e) Without limiting the generality of Section 2.17(d), each Foreign Lender with respect to any Loan made to the Borrower shall, to the extent it is legally eligible to do so:
(i) deliver to the Borrower and the Administrative Agent, prior to the date on which the first payment to the Foreign Lender is due hereunder, two copies of (A) in the case of a Foreign Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest,” IRS Form W-8BEN or W-8BEN-E, as applicable, (or any applicable successor form) (together with a certificate (substantially in the form of Exhibit I hereto, such certificate, the “ Non-Bank Tax Certificate ”) certifying that such Foreign Lender is not a bank for purposes of Section 881(c) of the Code, is not a “10-percent shareholder” (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a CFC related to the Borrower (within the meaning of Section 864(d)(4) of the Code), and that the interest payments in question are not effectively connected with the conduct by such Lender of a trade or business within the United States of America), (B) IRS Form W-8BEN or W-8BEN-E, as applicable, or Form W-8ECI (or any applicable successor form), in each case properly completed and duly executed by such Foreign Lender claiming complete exemption from, or reduced rate of, U.S. federal withholding tax on payments by the Borrower under this Agreement, (C) IRS Form W-8IMY (or any applicable successor form) and all necessary attachments (including the forms described in clauses (A) and (B) above, provided that if the Foreign Lender is a partnership, and one or more of the partners is claiming portfolio interest treatment, the Non-Bank Tax Certificate may be provided by such Foreign Lender on behalf of such partners) or (D) 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 Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(ii) deliver to the Borrower and the Administrative Agent two further copies of any such form or certification (or any applicable successor form) on or before the date that any such form or certification expires or becomes obsolete or invalid, after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Administrative Agent, and from time to time thereafter if reasonably requested by the Borrower or the Administrative Agent.
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Any Foreign Lender that becomes legally ineligible to update any form or certification previously delivered shall promptly notify the Borrower and the Administrative Agent in writing of such Foreign Lender’s inability to do so.
Each person that shall become a Participant pursuant to Section 9.04 or a Lender pursuant to Section 9.04 shall, upon the effectiveness of the related transfer, be required to provide all the forms and statements required pursuant to this Section 2.17(e); provided , that a Participant shall furnish all such required forms and statements to the person from which the related participation shall have been purchased.
In addition, each Agent shall deliver to the Borrower (x)(I) prior to the date on which the first payment by the Borrower is due hereunder or (II) prior to the first date on or after the date on which such Agent becomes a successor Administrative Agent pursuant to Section 8.09 on which payment by the Borrower is due hereunder, as applicable, two copies of a properly completed and executed IRS Form W-9 certifying its exemption from U.S. federal backup withholding or such other properly completed and executed documentation prescribed by applicable law certifying its entitlement to an available exemption from applicable U.S. federal withholding taxes in respect of any payments to be made to such Agent by any Loan Party pursuant to any Loan Document including, as applicable, an IRS Form W-8IMY certifying that the Agent is a U.S. branch and intends to be treated as a U.S. person for purposes of withholding under Chapter 3 of the Code pursuant to Section 1.1441-1(b)(2)(iv) of the Treasury Regulations, and (y) on or before the date on which any such previously delivered documentation expires or becomes obsolete or invalid, after the occurrence of any event requiring a change in the most recent documentation previously delivered by it to the Borrower, and from time to time if reasonably requested by the Borrower, two further copies of such documentation.
(f) If any Lender or the Administrative Agent, as applicable, determines, in its sole discretion, that it has received a refund of an Indemnified Tax or Other Tax for which a payment has been made by a Loan Party pursuant to this Agreement or any other Loan Document, which refund in the good faith judgment of such Lender or the Administrative Agent, as the case may be, is attributable to such payment made by such Loan Party, then the Lender or the Administrative Agent, as the case may be, shall reimburse the Loan Party for such amount (net of all reasonable out-of-pocket expenses of such Lender or the Administrative Agent, as the case may be, and without interest other than any interest received thereon from the relevant Governmental Authority with respect to such refund) as the Lender or Administrative Agent, as the case may be, determines in its sole discretion to be the proportion of the refund as will leave it, after such reimbursement, in no better or worse position (taking into account expenses or any Taxes imposed on the refund) than it would have been in if the Indemnified Tax or Other Tax giving rise to such refund had not been imposed in the first instance; provided , that the Loan Party, upon the request of the Lender or the Administrative Agent agrees to repay the amount paid over to the Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Lender or the Administrative Agent in the event the Lender or the Administrative Agent is required to repay such refund to such Governmental Authority. In such event, such Lender or the Administrative Agent, as the case may be, shall, at the Borrower’s request, provide the Borrower with a copy of any notice of assessment or other evidence of the requirement to repay such refund received from the relevant Governmental Authority ( provided , that such Lender or the Administrative Agent may delete any information therein that it deems confidential). A Lender or the Administrative Agent shall claim any refund that it determines is available to it, unless it concludes in its sole discretion that it would be adversely affected by making such a claim. No Lender nor the Administrative Agent shall be obliged to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Loan Party in connection with this clause (f) or any other provision of this Section 2.17.
(g) If the Borrower determines that a reasonable basis exists for contesting an Indemnified Tax or Other Tax for which a Loan Party has paid additional amounts or indemnification payments, each affected Lender or Agent, as the case may be, shall use reasonable efforts to cooperate with the Borrower as the Borrower may reasonably request in challenging such Tax. The Borrower shall indemnify and hold each Lender and Agent harmless against any out-of-pocket expenses incurred by such person in connection with any request made by the Borrower pursuant to this Section 2.17(g). Nothing in this Section 2.17(g) shall obligate any Lender or Agent to take any action that such person, in its sole judgment, determines may result in a material detriment to such person.
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(h) Each U.S. Lender shall deliver to the Borrower and the Administrative Agent two Internal Revenue Service Forms W-9 (or substitute or successor form), properly completed and duly executed, certifying that such U.S. Lender is exempt from United States federal backup withholding (i) on or prior to the Closing Date (or on or prior to the date it becomes a party to this Agreement), (ii) on or before the date that such form expires or becomes obsolete or invalid, (iii) after the occurrence of a change in the U.S. Lender’s circumstances requiring a change in the most recent form previously delivered by it to the Borrower and the Administrative Agent, and (iv) from time to time thereafter if reasonably requested by the Borrower or the Administrative Agent.
(i) If a payment made to any Lender or any Agent under this Agreement or any other Loan Document would be subject to U.S. federal withholding tax imposed by FATCA if such Lender or such Agent 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 or such Agent shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower 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 Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA, to determine whether such Lender has or has not complied with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of this Section 2.17(i), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
(j) The agreements in this Section 2.17 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable under any Loan Document.
For purposes of this Section 2.17, the term “Lender” includes any Issuing Bank and the term “applicable Requirement of Law” includes FATCA.
Section 2.18 Payments Generally; Pro Rata Treatment; Sharing of Set-offs .
(a) Unless otherwise specified, the Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of L/C Disbursements, or of amounts payable under Sections 2.15, 2.16 or 2.17, or otherwise) prior to 2:00 p.m., Local Time, on the date when due, in immediately available funds, without condition or deduction for any defense, recoupment, 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 to the applicable account designated to the Borrower by the Administrative Agent, except payments to be made directly to the applicable Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.05 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. Except as otherwise expressly provided herein, 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 made under the Loan Documents shall be made in Dollars (or, in the case of Alternate Currency Letters of Credit, in the applicable Alternate Currency). Any payment required to be made by the Administrative Agent hereunder shall be deemed to have been made by the time required if the Administrative Agent shall, at or before such time, have taken the necessary steps to make such payment in accordance with the regulations or operating procedures of the clearing or settlement system used by the Administrative Agent to make such payment.
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(b) Subject to Section 7.02, if at any time insufficient funds are received by and available to the Administrative Agent from the Borrower to pay fully all amounts of principal, unreimbursed L/C Disbursements, interest and fees then due from the Borrower hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, (ii) second, towards payment of principal of Swingline Loans and unreimbursed L/C Disbursements then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed L/C Disbursements then due to such parties, and (iii) third, towards payment of principal then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.
(c) 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 Term Loans, Revolving Facility Loans or participations in L/C Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Term Loans, Revolving Facility Loans and participations in L/C Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender entitled to receive the same proportion of such payment, then the Lender receiving such greater proportion shall purchase participations in the Term Loans, Revolving Facility Loans and participations in L/C Disbursements and Swingline Loans of such other Lenders to the extent necessary so that the benefit of all such payments shall be shared by all such Lenders ratably in accordance with the principal amount of each such Lender’s respective Term Loans, Revolving Facility Loans and participations in L/C Disbursements and Swingline Loans and accrued interest thereon; 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 price restored to the extent of such recovery, without interest, and (ii) the provisions of this clause (c) shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement 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 L/C Disbursements to any assignee or participant. The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the applicable Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the applicable Issuing Bank, as applicable, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the applicable Issuing Bank, as applicable, 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.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(b), 2.05(d) or (e), 2.06, or 2.18(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.
Section 2.19 Mitigation Obligations; Replacement of Lenders .
(a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17 or any event that gives rise to the operation of Section 2.20, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or
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to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17 or mitigate the applicability of Section 2.20, as applicable, in the future and (ii) would not subject such Lender to any material unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender in any material respect. The Borrower hereby agrees 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 gives notice under Section 2.20, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender is a Defaulting Lender, or if any Lender is the subject to a Disqualification, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require any 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 and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided , that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and, if in respect of any Revolving Facility Commitment or Revolving Facility Loan, the Swingline Lender and the Issuing Banks), which consent, in each case, 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 L/C Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (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 or a notice given under Section 2.20, such assignment will result in a reduction in such compensation or payments. Nothing in this Section 2.19 shall be deemed to prejudice any rights that the Borrower may have against any Lender that is a Defaulting Lender. No action by or consent of the removed Lender shall be necessary in connection with such assignment, which shall be immediately and automatically effective upon payment of such purchase price. In connection with any such assignment the Borrower, Administrative Agent, such removed Lender and the replacement Lender shall otherwise comply with Section 9.04, provided , that if such removed Lender does not comply with Section 9.04 within one Business Day after the Borrower’s request, compliance with Section 9.04 shall not be required to effect such assignment.
(c) If any Lender (such Lender, a “ Non-Consenting Lender ”) has failed to consent to a proposed amendment, waiver, discharge or termination which pursuant to the terms of Section 9.08 requires the consent of all of the Lenders affected and with respect to which the Required Lenders shall have granted their consent, then the Borrower shall have the right (unless such Non-Consenting Lender grants such consent) at its sole expense (including with respect to the processing and recordation fee referred to in Section 9.04(b)(ii)(B)) to replace such Non-Consenting Lender by requiring such Non-Consenting Lender to (and any such Non-Consenting Lender agrees that it shall, upon the Borrower’s request) assign its Loans and its Commitments (or, at the Borrower’s option, the Loans and Commitments under the Facility that is the subject of the proposed amendment, waiver, discharge or termination) hereunder to one or more assignees reasonably acceptable to (i) the Administrative Agent (unless such assignee is a Lender, an Affiliate of a Lender or an Approved Fund) and (ii) if in respect of any Revolving Facility Commitment or Revolving Facility Loan, the Swingline Lender and the Issuing Banks; provided , that: (a) all Loan Obligations of the Borrower owing to such Non-Consenting Lender being replaced shall be paid in full to such Non-Consenting Lender concurrently with such assignment, (b) the replacement Lender shall purchase the foregoing by paying to such Non-Consenting Lender a price equal to the principal amount thereof plus accrued and unpaid interest thereon and the replacement Lender or, at the option of the Borrower, the Borrower shall pay any amount required by Section 2.12(d)(y), if applicable, and (c) the replacement Lender shall grant its consent with respect to the applicable proposed amendment, waiver, discharge or termination. No action by or consent of the Non-Consenting Lender shall be necessary in connection with such assignment, which shall be immediately and automatically effective upon payment of such purchase price. In connection with any such assignment the Borrower, Administrative Agent, such Non-Consenting Lender and the replacement Lender shall otherwise comply with Section 9.04; provided , that if such Non-Consenting Lender does not comply with Section 9.04 within one Business Day after the Borrower’s request, compliance with Section 9.04 shall not be required to effect such assignment.
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Section 2.20 Illegality . If any Lender reasonably determines that any Change in Law has made it unlawful, or that any Governmental Authority has asserted after the Closing Date that it is unlawful, for any Lender or its applicable Lending Office to make or maintain any Eurocurrency Loans, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligations of such Lender to make or continue Eurocurrency Loans or to convert ABR Borrowings to Eurocurrency Borrowings shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall upon demand from such Lender (with a copy to the Administrative Agent), either convert all Eurocurrency Borrowings of such Lender to ABR Borrowings, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurocurrency Borrowings to such day, or immediately, if such Lender may not lawfully continue to maintain such Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
Section 2.21 Incremental Commitments .
(a) The Borrower may, by written notice to the Administrative Agent from time to time, request Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments, as applicable, in an amount not to exceed the Incremental Amount available at the time such Incremental Commitments are established (or, at the option of the Borrower, at the time such Incremental Commitments are committed to) from one or more Incremental Term Lenders and/or Incremental Revolving Facility Lenders (which may include any existing Lender) willing to provide such Incremental Term Loans and/or Incremental Revolving Facility Commitments, as the case may be, in their own discretion; provided , that each Incremental Revolving Facility Lender providing a commitment to make revolving loans shall be subject to the approval of the Administrative Agent and, to the extent the same would be required for an assignment under Section 9.04, the Issuing Bank and the Swingline Lender (which approvals shall not be unreasonably withheld) unless such Incremental Revolving Facility Lender is a Revolving Facility Lender, an Affiliate of a Revolving Facility Lender or an Approved Fund of a Revolving Facility Lender. Such notice shall set forth (i) the amount of the Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments being requested (which shall be in minimum increments of $5,000,000 and a minimum amount of $10,000,000, or equal to the remaining Incremental Amount or, in each case, such lesser amount approved by the Administrative Agent), (ii) the date on which such Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments are requested to become effective, (iii) in the case of Incremental Revolving Facility Commitments, whether such Incremental Revolving Facility Commitments are to be (x) commitments to make additional Revolving Facility Loans on the same terms as the Initial Revolving Loans or (y) commitments to make revolving loans with pricing terms, final maturity dates, participation in mandatory prepayments or commitment reductions and/or other terms different from the Initial Revolving Loans (“ Other Revolving Loans” ) and (iv) in the case of Incremental Term Loan Commitments, whether such Incremental Term Loan Commitments are to be (x) commitments to make term loans with terms identical to Term B Loans or (y) commitments to make term loans with pricing, maturity, amortization, participation in mandatory prepayments and/or other terms different from the Term B Loans (“ Other Term Loans ”).
(b) The Borrower and each Incremental Term Lender and/or Incremental Revolving Facility Lender shall execute and deliver to the Administrative Agent an Incremental Assumption Agreement and such other documentation as the Administrative Agent shall reasonably specify to evidence the Incremental Term Loan Commitment of such Incremental Term Lender and/or Incremental Revolving Facility Commitment of such Incremental Revolving Facility Lender. Each Incremental Assumption Agreement shall specify the terms of the applicable Incremental Term Loans and/or Incremental Revolving Facility Commitments; provided , that:
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(i) any commitments to make additional Term B Loans, and/or additional Initial Revolving Loans shall have the same terms as the Term B Loans or Initial Revolving Loans, respectively,
(ii) the Other Term Loans incurred pursuant to clause (a) of this Section 2.21 shall rank pari passu in right of security with the Term B Loans,
(iii) the final maturity date of any such Other Term Loans shall be no earlier than the Term B Facility Maturity Date and, except as to pricing, amortization, final maturity date, participation in mandatory prepayments and ranking as to security (which shall, subject to the other clauses of this proviso, be determined by the Borrower and the Incremental Term Loan Lenders in their sole discretion), shall have (x) substantially the same terms as the Term B Loans or (y) such other terms (including as to guarantees and collateral) as shall be reasonably satisfactory to the Administrative Agent,
(iv) the Weighted Average Life to Maturity of any such Other Term Loans shall be no shorter than the remaining Weighted Average Life to Maturity of the Term B Loans,
(v) the Other Revolving Loans incurred pursuant to clause (a) of this Section 2.21 shall rank pari passu in right of security with the Initial Revolving Loans,
(vi) the final maturity date of any such Other Revolving Loans shall be no earlier than the Revolving Facility Maturity Date with respect to the Initial Revolving Loans, there shall be no amortization and, except as to pricing, final maturity date, participation in mandatory prepayments and commitment reductions (which shall, subject to the other clauses of this proviso, be determined by the Borrower and the Incremental Revolving Facility Lenders in their sole discretion), shall have (x) substantially the same terms as the Initial Revolving Loans or (y) such other terms (including as to guarantees and collateral) as shall be reasonably satisfactory to the Administrative Agent,
(vii) with respect to any Other Term Loan incurred pursuant to clause (a) of this Section 2.21, the All-in Yield shall be the same as that applicable to the Term B Loans on the Closing Date, except that the All-in Yield in respect of any such Other Term Loan may exceed the All-in Yield in respect of such Term B Loans on the Closing Date by no more than 0.50%, or if it does so exceed such All-in Yield (such difference, the “ Term Yield Differential ”) by more than 0.50% then the Applicable Margin (or the “LIBOR floor” as provided in the following proviso) applicable to the Term B Loans made on the Closing Date and the Effective Date shall be increased such that after giving effect to such increase, the Term Yield Differential shall not exceed 0.50%; provided , that, to the extent any portion of the Term Yield Differential is attributable to a higher “LIBOR floor” being applicable to such Other Term Loans, such floor shall only be included in the calculation of the Term Yield Differential to the extent such floor is greater than the Adjusted LIBO Rate in effect for an Interest Period of three months’ duration at such time, and, with respect to such excess, the “LIBOR floor” applicable to the outstanding Term B Loans shall be increased to an amount not to exceed the “LIBOR floor” applicable to such Other Term Loans prior to any increase in the Applicable Margin applicable to such Term B Loans then outstanding,
(viii) (A) such Other Revolving Loans may participate on a pro rata basis or a less than pro rata basis (but not a greater than pro rata basis) than the Initial Revolving Loans in (x) any voluntary or mandatory prepayment or commitment reduction hereunder and (y) any Borrowing at the time such Borrowing is made and (B) such Other Term Loans may participate on a pro rata basis or a less than pro rata basis (but not a greater than pro rata basis) than the Term B Loans in any mandatory prepayment hereunder, and
(ix) there shall be no obligor in respect of any Incremental Term Loan Commitments or Incremental Revolving Facility Commitments that is not a Loan Party.
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Each party hereto hereby agrees that, upon the effectiveness of any Incremental Assumption Agreement, this Agreement shall be amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Incremental Term Loan Commitments and/or Incremental Revolving Facility Commitments evidenced thereby as provided for in Section 9.08(e). Any amendment to this Agreement or any other Loan Document that is necessary to effect the provisions of this Section 2.21 and any such collateral and other documentation shall be deemed “Loan Documents” hereunder and may be memorialized in writing by the Administrative Agent with the Borrower’s consent (not to be unreasonably withheld) and furnished to the other parties hereto.
(c) Notwithstanding the foregoing, no Incremental Term Loan Commitment or Incremental Revolving Facility Commitment shall become effective under this Section 2.21 unless (i) on the date of such effectiveness, (A) to the extent required by the relevant Incremental Assumption Agreement, the conditions set forth in clause (c) of Section 4.01 shall be satisfied and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Responsible Officer of the Borrower and (B) if such Incremental Term Loan Commitment or Incremental Revolving Facility Commitment is established for a purpose other than financing any Permitted Business Acquisition or any other acquisition that is permitted by this Agreement, no Event of Default under Section 7.01(b), (c), (h) or (i) shall have occurred or be continuing or would result therefrom and (ii) the Administrative Agent shall have received customary legal opinions, board resolutions and other customary closing certificates and documentation as required by the relevant Incremental Assumption Agreement and, to the extent required by the Administrative Agent, consistent with those delivered on the Closing Date under Section 4.02 and such additional customary documents and filings (including amendments to the Mortgages and other Security Documents and title endorsement bringdowns) as the Administrative Agent may reasonably request to assure that the Incremental Term Loans and/or Revolving Facility Loans in respect of Incremental Revolving Facility Commitments are secured by the Collateral ratably with one or more Classes of then-existing Term Loans and Revolving Facility Loans.
(d) Each of the parties hereto hereby agrees that the Administrative Agent may take any and all action as may be reasonably necessary to ensure that (i) all Incremental Term Loans (other than Other Term Loans), when originally made, are included in each Borrowing of the outstanding applicable Class of Term Loans on a pro rata basis, and (ii) all Revolving Facility Loans in respect of Incremental Revolving Facility Commitments (other than Other Revolving Loans), when originally made, are included in each Borrowing of the applicable Class of outstanding Revolving Facility Loans on a pro rata basis. The Borrower agrees that Section 2.16 shall apply to any conversion of Eurocurrency Loans to ABR Loans reasonably required by the Administrative Agent to effect the foregoing.
(e) Notwithstanding anything to the contrary in this Agreement, including Section 2.18(c) (which provisions shall not be applicable to clauses (e) through (i) of this Section 2.21), pursuant to one or more offers made from time to time by the Borrower to all Lenders of any Class of Term Loans and/or Revolving Facility Commitments, on a pro rata basis (based, in the case of an offer to the Lenders under any Class of Term Loans, on the aggregate outstanding Term Loans of such Class and, in the case of an offer to the Lenders under any Revolving Facility, on the aggregate outstanding Revolving Facility Commitments under such Revolving Facility, as applicable) and on the same terms (“ Pro Rata Extension Offers ”), the Borrower is hereby permitted to consummate transactions with individual Lenders from time to time to extend the maturity date of such Lender’s Loans and/or Commitments of such Class and to otherwise modify the terms of such Lender’s Loans and/or Commitments of such Class pursuant to the terms of the relevant Pro Rata Extension Offer (including, without limitation, increasing the interest rate or fees payable in respect of such Lender’s Loans and/or Commitments and/or modifying the amortization schedule in respect of such Lender’s Loans). For the avoidance of doubt, the reference to “on the same terms” in the preceding sentence shall mean, (i) in the case of an offer to the Lenders under any Class of Term Loans, that all of the Term Loans of such Class are offered to be extended for the same amount of time and that the interest rate changes and fees payable with respect to such extension are the same and (ii) in the case of an offer to the Lenders under any Revolving Facility, that all of the Revolving Facility Commitments of such Facility are offered to be extended for the same amount of time and that the interest rate changes and fees payable with respect to such extension are the same. Any such extension (an “ Extension ”) agreed to between the Borrower and any such Lender (an “ Extending Lender ”) will be
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established under this Agreement by implementing an Incremental Term Loan for such Lender if such Lender is extending an existing Term Loan (such extended Term Loan, an “ Extended Term Loan ”) or an Incremental Revolving Facility Commitment for such Lender if such Lender is extending an existing Revolving Facility Commitment (such extended Revolving Facility Commitment, an “ Extended Revolving Facility Commitment ”). Each Pro Rata Extension Offer shall specify the date on which the Borrower proposes that the Extended Term Loan shall be made, which shall be a date not earlier than five Business Days after the date on which notice is delivered to the Administrative Agent (or such shorter period agreed to by the Administrative Agent in its reasonable discretion).
(f) The Borrower and each Extending Lender shall execute and deliver to the Administrative Agent an Incremental Assumption Agreement and such other documentation as the Administrative Agent shall reasonably specify to evidence the Extended Term Loans and/or Extended Revolving Facility Commitments of such Extending Lender. Each Incremental Assumption Agreement shall specify the terms of the applicable Extended Term Loans and/or Extended Revolving Facility Commitments; provided , that (i) except as to interest rates, fees, any other pricing terms, amortization, final maturity date and participation in prepayments and commitment reductions (which shall, subject to clauses (ii) and (iii) of this proviso, be determined by the Borrower and set forth in the Pro Rata Extension Offer), the Extended Term Loans shall have (x) the same terms as an existing Class of Term Loans or (y) such other terms as shall be reasonably satisfactory to the Administrative Agent, (ii) the final maturity date of any Extended Term Loans shall be no earlier than the latest Term Facility Maturity Date in effect on the date of incurrence, (iii) the Weighted Average Life to Maturity of any Extended Term Loans shall be no shorter than the remaining Weighted Average Life to Maturity of the Class of Term Loans to which such offer relates, (iv) except as to interest rates, fees, any other pricing terms, participation in mandatory prepayments and commitment reductions and final maturity (which shall be determined by the Borrower and set forth in the Pro Rata Extension Offer), any Extended Revolving Facility Commitment shall have (x) the same terms as an existing Class of Revolving Facility Commitments or (y) have such other terms as shall be reasonably satisfactory to the Administrative Agent, and (v) any Extended Term Loans and/or Extended Revolving Facility Commitments may participate on a pro rata basis or a less than pro rata basis (but not greater than a pro rata basis) in any voluntary or mandatory repayments or prepayments hereunder. Upon the effectiveness of any Incremental Assumption Agreement, this Agreement shall be amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Extended Term Loans and/or Extended Revolving Facility Commitments evidenced thereby as provided for in Section 9.08(e). Any such deemed amendment may be memorialized in writing by the Administrative Agent with the Borrower’s consent (not to be unreasonably withheld) and furnished to the other parties hereto. If provided in any Incremental Assumption Agreement with respect to any Extended Revolving Facility Commitments, and with the consent of each Swingline Lender and Issuing Bank, participations in Swingline Loans and Letters of Credit shall be reallocated to lenders holding such Extended Revolving Facility Commitments in the manner specified in such Incremental Assumption Agreement, including upon effectiveness of such Extended Revolving Facility Commitment or upon or prior to the maturity date for any Class of Revolving Facility Commitments.
(g) Upon the effectiveness of any such Extension, the applicable Extending Lender’s Term Loan will be automatically designated an Extended Term Loan and/or such Extending Lender’s Revolving Facility Commitment will be automatically designated an Extended Revolving Facility Commitment. For purposes of this Agreement and the other Loan Documents, (i) if such Extending Lender is extending a Term Loan, such Extending Lender will be deemed to have an Incremental Term Loan having the terms of such Extended Term Loan and (ii) if such Extending Lender is extending a Revolving Facility Commitment, such Extending Lender will be deemed to have an Incremental Revolving Facility Commitment having the terms of such Extended Revolving Facility Commitment.
(h) Notwithstanding anything to the contrary set forth in this Agreement or any other Loan Document (including without limitation this Section 2.21), (i) the aggregate amount of Extended Term Loans and Extended Revolving Facility Commitments will not be included as a usage of the Incremental Amount (but, for the avoidance of doubt, will be taken into account in all calculations of the Net First Lien Leverage Ratio and the Total Net Leverage Ratio to the extent applicable), (ii) no Extended Term Loan or Extended Revolving Facility Commitment is required to be in any minimum amount or any minimum
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increment, (iii) any Extending Lender may extend all or any portion of its Term Loans and/or Revolving Facility Commitment pursuant to one or more Pro Rata Extension Offers (subject to applicable proration in the case of over participation) (including the extension of any Extended Term Loan and/or Extended Revolving Facility Commitment), (iv) there shall be no condition to any Extension of any Loan or Commitment at any time or from time to time other than notice to the Administrative Agent of such Extension and the terms of the Extended Term Loan or Extended Revolving Facility Commitment implemented thereby, (v) all Extended Term Loans, Extended Revolving Facility Commitments and all obligations in respect thereof shall be Loan Obligations of the relevant Loan Parties under this Agreement and the other Loan Documents that are secured by the Collateral on a pari passu basis with all other Obligations of the relevant Loan Parties under this Agreement and the other Loan Documents, (vi) no Issuing Bank or Swingline Lender shall be obligated to provide Swingline Loans or issue Letters of Credit under such Extended Revolving Facility Commitments unless it shall have consented thereto and (vii) there shall be no obligor in respect of any such Extended Term Loans or Extended Revolving Facility Commitments that is not a Loan Party.
(i) Each Extension shall be consummated pursuant to procedures set forth in the associated Pro Rata Extension Offer; provided , that the Borrower shall cooperate with the Administrative Agent prior to making any Pro Rata Extension Offer to establish reasonable procedures with respect to mechanical provisions relating to such Extension, including, without limitation, timing, rounding and other adjustments.
(j) Notwithstanding anything to the contrary in this Agreement, including Section 2.18(c) (which provisions shall not be applicable to clauses (j) through (o) of this Section 2.21), the Borrower may by written notice to the Administrative Agent establish one or more additional tranches of term loans under this Agreement (such loans, “ Refinancing Term Loans ”), the net cash proceeds of which are used to Refinance in whole or in part any Class of Term Loans. Each such notice shall specify the date (each, a “ Refinancing Effective Date ”) on which the Borrower proposes that the Refinancing Term Loans shall be made, which shall be a date not earlier than five Business Days after the date on which such notice is delivered to the Administrative Agent (or such shorter period agreed to by the Administrative Agent in its reasonable discretion); provided , that:
(i) before and after giving effect to the borrowing of such Refinancing Term Loans on the Refinancing Effective Date each of the conditions set forth in Section 4.01 shall be satisfied to the extent required by the relevant Incremental Assumption Agreement governing such Refinancing Term Loans;
(ii) the final maturity date of the Refinancing Term Loans shall be no earlier than the Term Facility Maturity Date of the refinanced Term Loans,
(iii) the Weighted Average Life to Maturity of such Refinancing Term Loans shall be no shorter than the then-remaining Weighted Average Life to Maturity of the refinanced Term Loans;
(iv) the aggregate principal amount of the Refinancing Term Loans shall not exceed the outstanding principal amount of the refinanced Term Loans plus amounts used to pay fees, premiums, costs and expenses (including original issue discount) and accrued interest associated therewith;
(v) all other terms applicable to such Refinancing Term Loans (other than provisions relating to original issue discount, upfront fees, interest rates or any other pricing terms and optional prepayment or mandatory prepayment or redemption terms and final maturity, which shall be as agreed between the Borrower and the Lenders providing such Refinancing Term Loans) taken as a whole shall be substantially similar to, or not materially less favorable to the Borrower and its Subsidiaries than, the terms, taken as a whole, applicable to the Term B Loans (except to the extent such covenants and other terms apply solely to any period after the Term B Facility Maturity Date or are otherwise reasonably acceptable to the Administrative Agent), as
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determined by the Borrower in good faith. In addition, notwithstanding the foregoing, the Borrower may establish Refinancing Term Loans to refinance and/or replace all or any portion of a Revolving Facility Commitment (regardless of whether Revolving Facility Loans are outstanding under such Revolving Facility Commitments at the time of incurrence of such Refinancing Term Loans), so long as (i) the aggregate amount of such Refinancing Term Loans does not exceed the aggregate amount of Revolving Facility Commitments terminated at the time of incurrence thereof and (ii) if the Revolving Facility Credit Exposure outstanding on the Refinancing Effective Date would exceed the aggregate amount of Revolving Facility Commitments outstanding, in each case after giving effect to the termination of such Revolving Facility Commitments, the Borrower shall take one or more actions such that such Revolving Facility Credit Exposure does not exceed such aggregate amount of Revolving Facility Commitments in effect on the Refinancing Effective Date after giving effect to the termination of such Revolving Facility Commitments (it being understood that such Refinancing Term Loans may be provided by the Lenders holding the Revolving Facility Commitments being terminated and/or by any other person that would be a permitted Assignee hereunder);
(vi) with respect to Refinancing Term Loans secured by Liens on the Collateral that rank junior in right of security to an existing Class of Term Loans, such Liens will be subject to a Permitted Junior Intercreditor Agreement;
(vii) there shall be no obligor in respect of such Refinancing Term Loans that is not a Loan Party; and
(viii) the Refinancing Term Loans may participate on a pro rata basis or a less than pro rata basis (but not a greater than pro rata basis) than the Term B Loans in any prepayment hereunder.
(k) The Borrower may approach any Lender or any other person that would be a permitted Assignee pursuant to Section 9.04 to provide all or a portion of the Refinancing Term Loans; provided , that any Lender offered or approached to provide all or a portion of the Refinancing Term Loans may elect or decline, in its sole discretion, to provide a Refinancing Term Loan. Any Refinancing Term Loans made on any Refinancing Effective Date shall be designated an additional Class of Term Loans for all purposes of this Agreement; provided , further , that any Refinancing Term Loans may, to the extent provided in the applicable Incremental Assumption Agreement governing such Refinancing Term Loans, be designated as an increase in any previously established Class of Term Loans made to the Borrower.
(l) Notwithstanding anything to the contrary in this Agreement, including Section 2.18(c) (which provisions shall not be applicable to clause (l) through (o) of this Section 2.21), the Borrower may by written notice to the Administrative Agent establish one or more additional Facilities providing for revolving commitments (“ Replacement Revolving Facilities ” and the commitments thereunder, “ Replacement Revolving Facility Commitments ” and the revolving loans thereunder, “ Replacement Revolving Loans ”), which replace in whole or in part any Class of Revolving Facility Commitments under this Agreement. Each such notice shall specify the date (each, a “ Replacement Revolving Facility Effective Date ”) on which the Borrower proposes that the Replacement Revolving Facility Commitments shall become effective, which shall be a date not less than five Business Days after the date on which such notice is delivered to the Administrative Agent (or such shorter period agreed to by the Administrative Agent in its reasonable discretion); provided , that: (i) before and after giving effect to the establishment of such Replacement Revolving Facility Commitments on the Replacement Revolving Facility Effective Date, each of the conditions set forth in Section 4.01 shall be satisfied to the extent required by the relevant Incremental Assumption Agreement governing such Replacement Revolving Facility Commitments; (ii) after giving effect to the establishment of any Replacement Revolving Facility Commitments and any concurrent reduction in the aggregate amount of any other Revolving Facility Commitments, the aggregate amount of Revolving Facility Commitments shall not exceed the aggregate amount of the Revolving Facility Commitments outstanding immediately prior to the applicable Replacement Revolving Facility Effective Date; (iii) no Replacement Revolving Facility Commitments shall have a final maturity date (or require commitment reductions or amortizations) prior to the Revolving Facility Maturity Date in effect at
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the time of incurrence for the Revolving Facility Commitments being replaced; (iv) all other terms applicable to such Replacement Revolving Facility (other than provisions relating to (x) fees, interest rates and other pricing terms and prepayment and commitment reduction and optional redemption terms which shall be as agreed between the Borrower and the Lenders providing such Replacement Revolving Facility Commitments and (y) the amount of any letter of credit sublimit and swingline commitment under such Replacement Revolving Facility, which shall be as agreed between the Borrower, the Lenders providing such Replacement Revolving Facility Commitments, the Administrative Agent and the replacement issuing bank and replacement swingline lender, if any, under such Replacement Revolving Facility Commitments) taken as a whole shall be substantially similar to, or not materially more favorable to the Lenders providing such Replacement Revolving Facility Commitments than, those, taken as a whole, applicable to the Initial Revolving Loans (except to the extent such covenants and other terms apply solely to any period after the latest Revolving Facility Maturity Date in effect at the time of incurrence or are otherwise reasonably acceptable to the Administrative Agent); (v) there shall be no obligor in respect of such Replacement Revolving Facility that is not a Loan Party and (vi) the Replacement Revolving Facility Commitments may participate on a pro rata basis or a less than pro rata basis (but not a greater than pro rata basis) than the Initial Revolving Loans in (x) any voluntary or mandatory prepayment or commitment reduction hereunder and (y) any Borrowing at the time such Borrowing is made. In addition, the Borrower may establish Replacement Revolving Facility Commitments to refinance and/or replace all or any portion of a Term Loan hereunder (regardless of whether such Term Loan is repaid with the proceeds of Replacement Revolving Loans or otherwise), so long as the aggregate amount of such Replacement Revolving Facility Commitments does not exceed the aggregate amount of Term Loans repaid at the time of establishment thereof (it being understood that such Replacement Revolving Facility Commitment may be provided by the Lenders holding the Term Loans being repaid and/or by any other person that would be a permitted Assignee hereunder) so long as (i) before and after giving effect to the establishment such Replacement Revolving Facility Commitments on the Replacement Revolving Facility Effective Date each of the conditions set forth in Section 4.01 shall be satisfied to the extent required by the relevant agreement governing such Replacement Revolving Facility Commitments, (ii) the weighted average life to termination of such Replacement Revolving Facility Commitments shall be not shorter than the Weighted Average Life to Maturity then applicable to the refinanced Term Loans, (iii) the final termination date of the Replacement Revolving Facility Commitments shall be no earlier than the Term Facility Maturity Date of the refinanced Term Loans, (iv) with respect to Replacement Revolving Loans secured by Liens on Collateral that rank junior in right of security to the Revolving Facility Loans, such Liens will be subject to a Permitted Junior Intercreditor Agreement and (v) the requirement of clause (v) in the preceding sentence shall be satisfied mutatis mutandis. Solely to the extent that an Issuing Bank is not a replacement issuing bank under a Replacement Revolving Facility, it is understood and agreed that such Issuing Bank shall not be required to issue any letters of credit under such Replacement Revolving Facility and, to the extent it is necessary for such Issuing Bank to withdraw as an Issuing Bank at the time of the establishment of such Replacement Revolving Facility, such withdrawal shall be on terms and conditions reasonably satisfactory to such Issuing Bank in its sole discretion. The Borrower agrees to reimburse each Issuing Bank in full upon demand, for any reasonable and documented out-of-pocket cost or expense attributable to such withdrawal.
(m) The Borrower may approach any Lender or any other person that would be a permitted Assignee of a Revolving Facility Commitment pursuant to Section 9.04 to provide all or a portion of the Replacement Revolving Facility Commitments; provided , that any Lender offered or approached to provide all or a portion of the Replacement Revolving Facility Commitments may elect or decline, in its sole discretion, to provide a Replacement Revolving Facility Commitment. Any Replacement Revolving Facility Commitment made on any Replacement Revolving Facility Effective Date shall be designated an additional Class of Revolving Facility Commitments for all purposes of this Agreement; provided , that any Replacement Revolving Facility Commitments may, to the extent provided in the applicable Incremental Assumption Agreement, be designated as an increase in any previously established Class of Revolving Facility Commitments.
(n) On any Replacement Revolving Facility Effective Date, subject to the satisfaction of the foregoing terms and conditions, each of the Lenders with Replacement Revolving Facility Commitments of such Class shall purchase from each of the other Lenders with Replacement Revolving Facility
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Commitments of such Class, at the principal amount thereof and in the applicable currencies, such interests in the Replacement Revolving Loans and participations in Letters of Credit and Swingline Loans under such Replacement Revolving Facility Commitments of such Class then outstanding on such Replacement Revolving Facility Effective Date as shall be necessary in order that, after giving effect to all such assignments and purchases, the Replacement Revolving Loans and participations of such Replacement Revolving Facility Commitments of such Class will be held by the Lenders thereunder ratably in accordance with their Replacement Revolving Facility Commitments.
(o) For purposes of this Agreement and the other Loan Documents, (i) if a Lender is providing a Refinancing Term Loan, such Lender will be deemed to have an Incremental Term Loan having the terms of such Refinancing Term Loan and (ii) if a Lender is providing a Replacement Revolving Facility Commitment, such Lender will be deemed to have an Incremental Revolving Facility Commitment having the terms of such Replacement Revolving Facility Commitment. Notwithstanding anything to the contrary set forth in this Agreement or any other Loan Document (including without limitation this Section 2.21), (i) the aggregate amount of Refinancing Term Loans and Replacement Revolving Facility Commitments will not be included as a usage of the Incremental Amount (but, for the avoidance of doubt, will be taken into account in all calculations of the Net First Lien Leverage Ratio and the Total Net Leverage Ratio to the extent applicable), (ii) no Refinancing Term Loan or Replacement Revolving Facility Commitment is required to be in any minimum amount or any minimum increment, (iii) there shall be no condition to any incurrence of any Refinancing Term Loan or Replacement Revolving Facility Commitment at any time or from time to time other than those set forth in clauses (j) or (l) above, as applicable, and (iv) all Refinancing Term Loans, Replacement Revolving Facility Commitments and all obligations in respect thereof shall be Obligations under this Agreement and the other Loan Documents that are secured by the Collateral on a pari passu basis with all other Obligations under this Agreement and the other Loan Documents.
(p) Notwithstanding anything in the foregoing to the contrary, (i) for the purpose of determining the number of outstanding Eurocurrency Borrowings upon the incurrence of any Incremental Loans, (x) to the extent the last date of Interest Periods for multiple Eurocurrency Borrowings under the Term Facilities fall on the same day, such Eurocurrency Borrowings shall be considered a single Eurocurrency Borrowing and (y) to the extent the last date of Interest Periods for multiple Eurocurrency Borrowings under the Revolving Facilities fall on the same day, such Eurocurrency Borrowings shall be considered a single Eurocurrency Borrowing and (ii) the initial Interest Period with respect to any Eurocurrency Borrowing of Incremental Loans may, at the Borrower’s option, be of a duration of a number of Business Days that is less than one month, and the Adjusted LIBO Rate with respect to such initial Interest Period shall be the same as the Adjusted LIBO Rate applicable to any then-outstanding Eurocurrency Borrowing as the Borrower may direct, so long as the last day of such initial Interest Period is the same as the last day of the Interest Period with respect to such outstanding Eurocurrency Borrowing.
Section 2.22 Defaulting Lender .
(a) Defaulting Lender Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
(i) Waivers and Amendments . Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definitions of “Required Lenders” or “Required Revolving Facility Lenders”.
(ii) Defaulting Lender Waterfall . Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, following an Event of Default or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 9.06 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first , to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder, second , to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to any
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Issuing Bank or the Swingline Lender hereunder, third , to Cash Collateralize the Issuing Banks’ Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.05(j), fourth , as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent, fifth , if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the Issuing Banks’ future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.05(j), sixth , to the payment of any amounts owing to the Lenders, the Issuing Banks or the Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, Issuing Bank or Swingline Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement, seventh , so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement, and eighth , to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.22 shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees .
(A) No Defaulting Lender shall be entitled to receive any Commitment Fee for any period during which that Lender is a Defaulting Lender.
(B) Each Defaulting Lender shall be entitled to receive L/C Participation Fees for any period during which that Lender is a Defaulting Lender only to the extent allocable to its pro rata share of the stated amount of Letters of Credit for which it has provided Cash Collateral.
(C) With respect to any Commitment Fee or L/C Participation Fee not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, the Borrower shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in Letters of Credit or Swingline Loans that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to each Issuing Bank and the Swingline Lender, as applicable, the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such Issuing Bank’s or the Swingline Lender’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(iv) Reallocation of Participations to Reduce Fronting Exposure . All or any part of such Defaulting Lender’s participation in Letters of Credit and Swingline Loans shall be reallocated among the Non-Defaulting Lenders in accordance with their respective pro rata Commitments (calculated without regard to such Defaulting Lender’s Commitment) but only to the extent that (x) the conditions set forth in Section 4.01 are satisfied at the time of such reallocation and (y) such reallocation does not cause the aggregate Revolving Facility Credit Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Revolving Facility Commitment. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
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(v) Cash Collateral, Repayment of Swingline Loans . If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, within three (3) Business Days following the written request of the (i) Administrative Agent or (ii) the Swingline Lender or any Issuing Bank, as applicable (with a copy to the Administrative Agent), (x) first, prepay Swingline Loans in an amount equal to the Swingline Lender’s Fronting Exposure and (y) second, Cash Collateralize the Issuing Banks’ Fronting Exposure in accordance with the procedures set forth in Section 2.05(j).
(b) Defaulting Lender Cure . If the Borrower, the Administrative Agent and the Swingline Lender and each Issuing Bank agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Revolving Facility Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held pro rata by the Lenders in accordance with their Revolving Facility Commitments (without giving effect to Section 2.22(a)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided , that, no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
(c) New Swingline Loans/Letters of Credit . So long as any Lender is a Defaulting Lender, (i) the Swingline Lender shall not be required to fund any Swingline Loans unless it is satisfied that it will have no Fronting Exposure after giving effect to such Swingline Loan and (ii) the Issuing Banks shall not be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.
ARTICLE III
Representations and Warranties
On the date of each Credit Event, the Borrower and Holdings, jointly and severally, represent and warrant to each of the Lenders that:
Section 3.01 Organization; Powers . Except as set forth on Schedule 3.01 , each of Holdings (prior to a Qualified IPO), the Borrower and each of the Material Subsidiaries (a) is a partnership, limited liability company or corporation duly organized, validly existing and in good standing (or, if applicable in a foreign jurisdiction, enjoys the equivalent status under the laws of any jurisdiction of organization outside the United States of America) under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted, (c) is qualified to do business in each jurisdiction where such qualification is required, except where the failure so to qualify would not reasonably be expected to have a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated thereby to which it is or will be a party and, in the case of the Borrower, to borrow and otherwise obtain credit hereunder.
Section 3.02 Authorization . The execution, delivery and performance by Holdings (prior to a Qualified IPO), the Borrower and each of the Subsidiary Loan Parties of each of the Loan Documents to which it is a party and the borrowings hereunder (a) have been duly authorized by all corporate, stockholder, partnership or limited liability company action required to be obtained by Holdings, the Borrower and such Subsidiary Loan Parties and (b) will not (i) violate (A) any provision of law, statute, rule or regulation applicable to Holdings, the Borrower or any such Subsidiary Loan Party, (B) the certificate or articles of incorporation or other constitutive documents (including any partnership, limited liability company or operating agreements) or by-laws of Holdings, the Borrower, or any such Subsidiary Loan Party, (C) any applicable order of any court or any rule, regulation or order of any Governmental
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Authority applicable to Holdings, the Borrower or any such Subsidiary Loan Party or (D) any provision of any indenture, certificate of designation for preferred stock, agreement or other instrument to which Holdings, the Borrower or any such Subsidiary Loan Party is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under, give rise to a right of or result in any cancellation or acceleration of any right or obligation (including any payment) under any such indenture, certificate of designation for preferred stock, agreement or other instrument, where any such conflict, violation, breach or default referred to in clause (i) or (ii) of this Section 3.02(b), would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or (iii) result in the creation or imposition of any Lien upon or with respect to (x) any property or assets now owned or hereafter acquired by the Borrower or any such Subsidiary Loan Party, other than the Liens created by the Loan Documents and Permitted Liens, or (y) any Equity Interests of the Borrower now owned or hereafter acquired by Holdings (prior to a Qualified IPO), other than Liens created by the Loan Documents or Liens permitted by Article VIA.
Section 3.03 Enforceability . This Agreement has been duly executed and delivered by Holdings and the Borrower and constitutes, and each other Loan Document when executed and delivered by each Loan Party that is party thereto will constitute, a legal, valid and binding obligation of such Loan Party enforceable against each such Loan Party in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors’ rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), (iii) implied covenants of good faith and fair dealing and (iv) any foreign laws, rules and regulations as they relate to pledges of Equity Interests in Foreign Subsidiaries that are not Loan Parties.
Section 3.04 Governmental Approvals . No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required for the execution, delivery or performance of each Loan Document, except for (a) the filing of Uniform Commercial Code financing statements, (b) filings with the United States Patent and Trademark Office and the United States Copyright Office and comparable offices in foreign jurisdictions and equivalent filings in foreign jurisdictions, (c) recordation of the Mortgages, (d) such actions, consents and approvals under Gaming Laws or from Gaming Authorities the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect, (e) such actions, consents and approvals as have been made or obtained and are in full force and effect, (f) such actions, consents and approvals the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect and (g) filings or other actions listed on Schedule 3.04 and any other filings or registrations required by the Security Documents.
Section 3.05 Financial Statements . (a) The audited consolidated balance sheets, related statements of operations and comprehensive loss and related statements of cash flows of AP Gaming Holdco, Inc. and its subsidiaries, for each of the fiscal years ended December 31, 2014, December 31, 2015 and December 31, 2016 and (b) the unaudited consolidated balance sheets, related statements of operations and comprehensive loss and related statements of cash flows of AP Gaming Holdco, Inc. and its subsidiaries, for the fiscal quarter ended March 31, 2017, including, in each case, the notes thereto, if applicable, present fairly in all material respects the consolidated financial condition of AP Gaming Holdco, Inc. and its subsidiaries as of the dates and for the periods referred to therein and the results of operations and, if applicable, cash flows for the periods then ended, and, except as set forth on Schedule 3.05 , were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, in the case of interim period financial statements, for the absence of notes and for normal year-end adjustments and except as otherwise noted therein. The calculation of pro forma EBITDA of the Borrower and its Subsidiaries for the twelve-month period ended March 31, 2017 that has been included in the Information Memorandum (the “ Pro Forma EBITDA ”) has been prepared giving effect to the Transactions (as if such events occurred on the first day of such period). The calculation of Pro Forma EBITDA has been prepared in good faith based on assumptions believed by the Borrower to have been reasonable as of the date of delivery thereof (it being understood that such assumptions are based on good faith estimates of certain items and that the actual amount of such items on the Closing Date is subject to change).
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Section 3.06 No Material Adverse Effect . Since December 31, 2016, there has been no event or circumstance that, individually or in the aggregate with other events or circumstances, has had or would reasonably be expected to have a Material Adverse Effect.
Section 3.07 Title to Properties; Possession Under Leases .
(a) Each of the Borrower and the Subsidiaries has good record and insurable title in fee simple to, or valid leasehold interests in, or easements or other limited property interests in, all its Real Properties (including all Mortgaged Properties) and has good and marketable title to its personal property and assets, in each case, except for Permitted Liens and except for defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes and except where the failure to have such title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. All such properties and assets are free and clear of Liens, other than Permitted Liens. The Equity Interests of the Borrower owned by Holdings (prior to a Qualified IPO) are free and clear of Liens, other than Liens permitted by Article VIA.
(b) The Borrower and each of the Subsidiaries has complied with all material obligations under all leases to which it is a party, except where the failure to comply would not reasonably be expected to have Material Adverse Effect, and all such leases are in full force and effect, except leases in respect of which the failure to be in full force and effect would not reasonably be expected to have a Material Adverse Effect.
(c) As of the Closing Date, none of Holdings, the Borrower and the Subsidiaries has received any written notice of any pending or contemplated condemnation proceeding affecting any material portion of the Mortgaged Properties or any sale or disposition thereof in lieu of condemnation that remains unresolved as of the Closing Date.
(d) As of the Closing Date, none of Holdings, the Borrower and its Subsidiaries is obligated under any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein, except as permitted under Section 6.02 or 6.05.
(e) Schedule 1.01(B) lists each Material Real Property owned by any Loan Party as of the Closing Date.
Section 3.08 Subsidiaries .
(a) Schedule 3.08(a) sets forth as of the Closing Date the name and jurisdiction of incorporation, formation or organization of each subsidiary of Holdings and, as to each such subsidiary, the percentage of each class of Equity Interests owned by Holdings or by any such subsidiary.
(b) As of the Closing Date, after giving effect to the Transactions, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors (or entities controlled by directors) and shares held by directors (or entities controlled by directors)) relating to any Equity Interests of the Borrower or any of the Subsidiaries, except as set forth on Schedule 3.08(b) .
Section 3.09 Litigation; Compliance w ith Laws .
(a) There are no actions, suits or proceedings at law or in equity or by or on behalf of any Governmental Authority or in arbitration now pending, or, to the knowledge of Holdings (prior to a Qualified IPO) or the Borrower, threatened in writing against Holdings or the Borrower or any of the Subsidiaries or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
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(b) None of Holdings (prior to a Qualified IPO), the Borrower, the Subsidiaries and their respective properties or assets is in violation of (nor will the continued operation of their material properties and assets as currently conducted violate) any law, rule or regulation (including any zoning, building, ordinance, code or approval or any building permit, but excluding any Environmental Laws, which are the subject of Section 3.16) or any restriction of record or agreement affecting any Mortgaged Property, or is in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(c) The Borrower and each Subsidiary are in compliance with all Gaming Laws that are applicable to them and their businesses, except where a failure to so comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.10 Federal Reserve Regulations . Neither the making of any Loan (or the extension of any Letter of Credit) hereunder nor the use of the proceeds thereof will violate the provisions of Regulation T, Regulation U or Regulation X of the Board.
Section 3.11 Investment Company Act . None of Holdings (prior to a Qualified IPO), the Borrower and the Subsidiaries is required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 3.12 Use of Proceeds . (a) The Borrower will use the proceeds of the Revolving Facility Loans and Swingline Loans, and may request the issuance of Letters of Credit, solely for general corporate purposes (including, without limitation, for Permitted Business Acquisitions, Transaction Expenses and, in the case of Letters of Credit, for the back-up or replacement of existing letters of credit), (b) the Borrower will use the proceeds of the Term Loans made on the Closing Date (i) to finance a portion of the Transactions and for the payment of Transaction Expenses and (ii) for general corporate purposes (including, without limitation, Permitted Business Acquisitions) and (c) the Borrower will use the proceeds of the Incremental Term B Loans made on the Effective Date to finance the Acquisition (as defined in the 2017 Incremental Assumption Agreement), to pay fees and expenses in connection therewith and for general corporate purposes (including, without limitation, for Permitted Business Acquisitions, Capital Expenditures and fees and expenses) .
Section 3.13 Tax Returns . Except as set forth on Schedule 3.13 :
(a) Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, Holdings, the Borrower and each of the Subsidiaries has filed or caused to be filed all federal, state, local and non-U.S. Tax returns required to have been filed by it (including in its capacity as withholding agent) and each such Tax return is true and correct;
(b) Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, Holdings, the Borrower and each of the Subsidiaries has timely paid or caused to be timely paid all Taxes shown to be due and payable by it on the returns referred to in clause (a) and all other Taxes or assessments (or made adequate provision (in accordance with GAAP) for the payment of all Taxes due), except Taxes or assessments that are being contested in good faith by appropriate proceedings in accordance with Section 5.03 and for which Holdings, the Borrower or any of the Subsidiaries (as the case may be) has set aside on its books adequate reserves in accordance with GAAP; and
(c) Other than as would not be, individually or in the aggregate, reasonably expected to have a Material Adverse Effect; as of the Closing Date, with respect to Holdings, the Borrower and each of the Subsidiaries, there are no claims being asserted in writing with respect to any Taxes.
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Section 3.14 No Material Misstatements .
(a) All written factual information (other than the Projections, forward looking information and information of a general economic nature or general industry nature) (the “ Information ”) concerning Holdings, the Borrower, the Subsidiaries, the Transactions and any other transactions contemplated hereby included in the Information Memorandum or otherwise prepared by or on behalf of the foregoing or their representatives and made available to any Lenders or the Administrative Agent in connection with the Transactions or the other transactions contemplated hereby, when taken as a whole, was true and correct in all material respects, as of the date such Information was furnished to the Lenders and as of the Closing Date and did not, taken as a whole, contain any untrue statement of a material fact as of any such date or omit to state a material fact necessary in order to make the statements contained therein, taken as a whole, not materially misleading in light of the circumstances under which such statements were made (giving effect to all supplements and updates provided thereto).
(b) The Projections and other forward looking information and information of a general economic nature prepared by or on behalf of the Borrower or any of its representatives and that have been made available to any Lenders or the Administrative Agent in connection with the Transactions or the other transactions contemplated hereby (i) have been prepared in good faith based upon assumptions believed by the Borrower to be reasonable as of the date thereof (it being understood that such Projections are as to future events and are not to be viewed as facts, such Projections are subject to significant uncertainties and contingencies and that actual results during the period or periods covered by any such Projections may differ significantly from the projected results, and that no assurance can be given that the projected results will be realized), as of the date such Projections and information were furnished to the Lenders and as of the Closing Date, and (ii) as of the Closing Date, have not been modified in any material respect by the Borrower.
Section 3.15 Employee Benefit Plans . Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: (i) no Reportable Event has occurred during the past five years as to which the Borrower, Holdings, any of their Subsidiaries or any ERISA Affiliate was required to file a report with the PBGC; (ii) no ERISA Event has occurred or is reasonably expected to occur and (iii) none of the Borrower, Holdings, the Subsidiaries or any of their ERISA Affiliates has received any written notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA.
Section 3.16 Environmental Matters . Except as to matters that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect: (i) no written notice, request for information, order, complaint or penalty has been received by the Borrower or any of its Subsidiaries, and there are no judicial, administrative or other actions, suits or proceedings pending or, to the Borrower’s knowledge, threatened which allege a violation of or liability under any Environmental Laws, in each case relating to the Borrower or any of its Subsidiaries, (ii) each of the Borrower and its Subsidiaries has all environmental permits, licenses and other approvals necessary for its operations to comply with all Environmental Laws (“ Environmental Permits ”) and is, and in the prior eighteen (18)-month period, has been, in compliance with the terms of such Environmental Permits and with all other Environmental Laws, (iii) no Hazardous Material is located at, on or under any property currently or, to the Borrower’s knowledge, formerly owned, operated or leased by the Borrower or any of its Subsidiaries that would reasonably be expected to give rise to any cost, liability or obligation of the Borrower or any of its Subsidiaries under any Environmental Laws or Environmental Permits, and no Hazardous Material has been generated, used, treated, stored, handled, disposed of or controlled, transported or Released at any location in a manner that would reasonably be expected to give rise to any cost, liability or obligation of the Borrower or any of its Subsidiaries under any Environmental Laws or Environmental Permits, (iv) there are no agreements in which the Borrower or any of its Subsidiaries has expressly assumed or undertaken responsibility for any known or reasonably likely liability or obligation of any other person arising under or relating to Environmental Laws, which in any such case has not been made available to the Administrative
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Agent prior to the Closing Date, and (v) there has been no material written environmental assessment or audit conducted (other than customary assessments not revealing anything that would reasonably be expected to result in a Material Adverse Effect), by or on behalf of the Borrower or any of the Subsidiaries of any property currently or, to the Borrower’s knowledge, formerly owned or leased by the Borrower or any of the Subsidiaries that has not been made available to the Administrative Agent prior to the Closing Date.
Section 3.17 Security Documents .
(a) The Collateral Agreement and the Holdings Guarantee and Pledge Agreement are effective to create in favor of the Collateral Agent (for the benefit of the Secured Parties), in each case, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. As of the Closing Date, in the case of the Pledged Collateral described in the Collateral Agreement and the Holdings Guarantee and Pledge Agreement, when certificates or promissory notes, as applicable, representing such Pledged Collateral and required to be delivered under the applicable Security Document are delivered to the Collateral Agent, and in the case of the other Collateral described in the Collateral Agreement (other than the Intellectual Property), when financing statements and other filings specified in the Perfection Certificate are filed in the offices specified in the Perfection Certificate, the Collateral Agent (for the benefit of the Secured Parties) shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and, subject to Section 9-315 of the New York Uniform Commercial Code, the proceeds thereof, as security for the Obligations to the extent perfection can be obtained by filing Uniform Commercial Code financing statements, in each case prior and superior in right to the Lien of any other person (except (x) Liens having priority by operation of law and (y) in the case of Collateral other than certificated securities and instruments of which the Collateral Agent has possession, Permitted Liens).
(b) When the Collateral Agreement or an ancillary document thereunder is properly filed and recorded in the United States Patent and Trademark Office and the United States Copyright Office, and, with respect to Collateral in which a security interest cannot be perfected by such filings, upon the proper filing of the financing statements referred to in clause (a) above, the Collateral Agent (for the benefit of the Secured Parties) shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties thereunder in the United States Intellectual Property included in the Collateral (but, in the case of the United States registered copyrights included in the Collateral, only to the extent such United States registered copyrights are listed in such ancillary document filed with the United States Copyright Office) listed in such ancillary document, in each case prior and superior in right to the Lien of any other person, except for Permitted Liens (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a Lien on registered trademarks and patents, trademark and patent applications and registered copyrights acquired by the Loan Parties after the Closing Date).
(c) The Mortgages, if any, executed and delivered on the Closing Date are, and the Mortgages executed and delivered after the Closing Date pursuant to Section 5.10 shall be, effective to create in favor of the Collateral Agent (for the benefit of the Secured Parties) legal, valid and enforceable Liens on all of the Loan Parties’ rights, titles and interests in and to the Mortgaged Property thereunder and the proceeds thereof, and when such Mortgages are filed or recorded in the proper real estate filing or recording offices, and all relevant mortgage taxes and recording charges are duly paid, the Collateral Agent (for the benefit of the Secured Parties) shall have valid Liens with record notice to third parties on, and security interests in, all rights, titles and interests of the Loan Parties in such Mortgaged Property and, to the extent applicable, subject to Section 9-315 of the Uniform Commercial Code, the proceeds thereof, in each case prior and superior in right to the Lien of any other person, except for Permitted Liens.
(d) Notwithstanding anything herein (including this Section 3.17) or in any other Loan Document to the contrary, (i) each of the parties hereto acknowledges and agrees that licensing by the Gaming Authorities may be required to enforce and/or exercise or foreclose upon certain security interests and such enforcement and/or exercise or foreclosure may be otherwise limited by the Gaming Laws and (ii) neither the Borrower nor any other Loan Party makes any representation or warranty as to the effects of perfection or non-perfection, the priority or the enforceability of any pledge of or security interest in any Equity Interests of any Foreign Subsidiary, or as to the rights and remedies of the Agents or any Lender with respect thereto, under foreign law.
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Section 3.18 Location of Real Property and Leased Premises .
(a) The Perfection Certificate lists correctly, in all material respects, as of the Closing Date all material Real Property owned by the Borrower and the Subsidiary Loan Parties and the addresses thereof. As of the Closing Date, the Borrower and the Subsidiary Loan Parties own in fee all the Real Property set forth as being owned by them in the Perfection Certificate except to the extent set forth therein.
(b) The Perfection Certificate lists correctly in all material respects, as of the Closing Date, all material Real Property leased by the Borrower and the Subsidiary Loan Parties and the addresses thereof. As of the Closing Date, the Borrower and the Subsidiary Loan Parties have in all material respects valid leases in all the Real Property set forth as being leased by them in the Perfection Certificate except to the extent set forth therein.
Section 3.19 Solvency .
(a) On the Closing Date, immediately after giving effect to the Transactions, (i) the fair value of the assets of the Borrower and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Borrower and its Subsidiaries on a consolidated basis; (ii) the present fair saleable value of the property of the Borrower and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Borrower and its Subsidiaries on a consolidated basis on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date.
(b) As of the Closing Date, immediately after giving effect to the consummation of the Transactions, the Borrower does not intend to, and the Borrower does not believe that it or any of its Subsidiaries will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing and amounts of cash to be received by it or any such Subsidiary and the timing and amounts of cash to be payable on or in respect of its Indebtedness or the Indebtedness of any such Subsidiary.
Section 3.20 Labor Matters . Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes pending or threatened against Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries; (b) the hours worked and payments made to employees of Holdings (prior to a Qualified IPO), the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters; and (c) all payments due from Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries or for which any claim may be made against Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries, on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as a liability on the books of Holdings (prior to a Qualified IPO), the Borrower or such Subsidiary to the extent required by GAAP. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, the consummation of the Transactions will not give rise to a right of termination or right of renegotiation on the part of any union under any material collective bargaining agreement to which Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries (or any predecessor) is a party or by which Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries (or any predecessor) is bound.
Section 3.21 Insurance . Schedule 3.21 sets forth a true, complete and correct description, in all material respects, of all material insurance (excluding any title insurance) maintained by or on behalf of the Borrower or the Subsidiaries as of the Closing Date. As of such date, such insurance is in full force and effect.
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Section 3.22 No Default . No Default or Event of Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
Section 3.23 Intellectual Property; Licenses, Etc . Except as would not reasonably be expected to have a Material Adverse Effect or as set forth in Schedule 3.23 , (a) the Borrower and each of its Subsidiaries owns, or possesses the right to use, all Intellectual Property that are used or held for use in or are otherwise reasonably necessary for the present conduct of their respective businesses, (b) to the knowledge of the Borrower, the Borrower and its Subsidiaries are not interfering with, infringing upon, misappropriating or otherwise violating the Intellectual Property of any person, and (c) (i) no claim or litigation regarding any of the Intellectual Property owned by the Borrower and its Subsidiaries is pending or, to the knowledge of the Borrower, threatened and (ii) to the knowledge of the Borrower, no claim or litigation regarding any other Intellectual Property described in the foregoing clauses (a) and (b) is pending or threatened.
Section 3.24 Senior Debt . The Loan Obligations constitute “Senior Debt” (or the equivalent thereof) under the documentation governing any Material Indebtedness of any Loan Party permitted to be incurred hereunder constituting Indebtedness that is subordinated in right of payment to the Loan Obligations.
Section 3.25 USA PATRIOT Act; OFAC .
(a) Each Loan Party is in compliance in all material respects with the provisions of the USA PATRIOT Act. On or prior to the Closing Date, the Borrower has provided to the Administrative Agent all information related to the Loan Parties (including names, addresses and tax identification numbers (if applicable)) reasonably requested in writing by the Administrative Agent not less than ten (10) Business Days prior to the Closing Date and mutually agreed to be required under “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act, to be obtained by the Administrative Agent or any Lender.
(b) None of the Borrower or any of its Subsidiaries nor, to the knowledge of Borrower, any director, officer, agent, employee or Affiliate of Holdings, the Borrower or any of the Subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”); and, the Borrower will not directly or indirectly use the proceeds of the Loans or the Letters of Credit or otherwise make available such proceeds to any person, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
Section 3.26 Foreign Corrupt Practices Act . None of Holdings, the Borrower or any of its Subsidiaries, nor, to the knowledge of the Borrower or any of its Subsidiaries, any of their directors, officers, agents or employees, has in the past (5) years (i) violated or is in violation of any provision of the United States Foreign Corrupt Practices Act of 1977 or similar law of a jurisdiction in which the Borrower or any of its subsidiaries conduct their business and to which they are lawfully subject or (ii) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment. No part of the proceeds of the Loans made hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of any provision of the United States Foreign Corrupt Practices Act of 1977, as amended.
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ARTICLE IV
Conditions of Lending
The obligations of (a) the Lenders (including the Swingline Lender) to make Loans (other than the Incremental Term B Loans on the Effective Date, the conditions with respect to which are set forth in the 2017 Incremental Assumption Agreement) and (b) any Issuing Bank to issue, amend, extend or renew Letters of Credit or increase the stated amounts of Letters of Credit hereunder (each, a “ Credit Event ”) are subject to the satisfaction (or waiver in accordance with Section 9.08) of the following conditions:
Section 4.01 All Credit Events . On the date of each Borrowing and on the date of each issuance, amendment, extension or renewal of a Letter of Credit:
(a) The Administrative Agent shall have received, in the case of a Borrowing, a Borrowing Request as required by Section 2.03 (or a Borrowing Request shall have been deemed given in accordance with the last paragraph of Section 2.03) or, in the case of the issuance of a Letter of Credit, the applicable Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Section 2.05(b).
(b) The representations and warranties set forth in the Loan Documents shall be true and correct in all material respects as of such date (other than an amendment, extension or renewal of a Letter of Credit without any increase in the stated amount of such Letter of Credit), as applicable, with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects as of such earlier date).
(c) At the time of and immediately after such Borrowing or issuance, amendment, extension or renewal of a Letter of Credit (other than an amendment, extension or renewal of a Letter of Credit without any increase in the stated amount of such Letter of Credit), as applicable, no Event of Default or Default shall have occurred and be continuing.
(d) Each Borrowing and each other Credit Event shall be deemed to constitute a representation and warranty by the Borrower on the date of such Borrowing, issuance, amendment, extension or renewal as applicable, as to the matters specified in paragraphs (b) and (c) of this Section 4.01.
Section 4.02 First Credit Event . On or prior to the Closing Date:
(a) The Administrative Agent (or its counsel) shall have received from each of Holdings, the Borrower, the Issuing Bank and the Lenders (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence reasonably satisfactory to the Administrative Agent (which may include delivery of a signed signature page of this Agreement by facsimile or other means of electronic transmission (e.g., “pdf”)) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received, on behalf of itself, the Lenders and each Issuing Bank, a written opinion of (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP, special counsel for the Loan Parties and (ii) Jones Walker LLP, special Georgia counsel for the Loan Parties, in each case, (A) dated the Closing Date, (B) addressed to each Issuing Bank, the Administrative Agent and the Lenders on the Closing Date and (C) in form and substance reasonably satisfactory to the Administrative Agent covering such matters relating to the Loan Documents as the Administrative Agent shall reasonably request.
(c) The Administrative Agent shall have received a certificate of the Secretary or Assistant Secretary or similar officer of each Loan Party dated the Closing Date and certifying:
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(i) a copy of the certificate or articles of incorporation, certificate of limited partnership, certificate of formation or other equivalent constituent and governing documents, including all amendments thereto, of such Loan Party, (1) in the case of a corporation, certified as of a recent date by the Secretary of State (or other similar official) of the jurisdiction of its organization, or (2) otherwise certified by the Secretary or Assistant Secretary of such Loan Party or other person duly authorized by the constituent documents of such Loan Party,
(ii) a certificate as to the good standing (to the extent such concept or a similar concept exists under the laws of such jurisdiction) of such Loan Party as of a recent date from such Secretary of State (or other similar official),
(iii) that attached thereto is a true and complete copy of the by-laws (or partnership agreement, limited liability company agreement or other equivalent constituent and governing documents) of such Loan Party as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (iv) below,
(iv) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors (or equivalent governing body) of such Loan Party (or its managing general partner or managing member) authorizing the execution, delivery and performance of the Loan Documents dated as of the Closing Date to which such person is a party and, in the case of the Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect on the Closing Date,
(v) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party, and
(vi) as to the absence of any pending proceeding for the dissolution or liquidation of such Loan Party or, to the knowledge of such person, threatening the existence of such Loan Party.
(d) The Administrative Agent shall have received a completed Perfection Certificate, dated the Closing Date and signed by a Responsible Officer of the Borrower, together with all attachments contemplated thereby, and the results of a search of the Uniform Commercial Code (or equivalent), tax and judgment, United States Patent and Trademark Office and United States Copyright Office filings made with respect to the Loan Parties in the jurisdictions contemplated by the Perfection Certificate and copies of the financing statements (or similar documents) disclosed by such search and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) are Permitted Liens or have been, or will be simultaneously or substantially concurrently with the closing under this Agreement, released (or arrangements reasonably satisfactory to the Administrative Agent for such release shall have been made).
(e) The Administrative Agent shall have received a solvency certificate substantially in the form of Exhibit C and signed by a Financial Officer of the Borrower confirming the solvency of Borrower and its Subsidiaries on a consolidated basis after giving effect to the Transactions on the Closing Date.
(f) The Agents shall have received all fees payable thereto or to any Lender on or prior to the Closing Date and, to the extent invoiced, all other amounts due and payable pursuant to the Loan Documents on or prior to the Closing Date, including, to the extent invoiced at least three Business Days prior to the Closing Date, reimbursement or payment of all reasonable and documented out-of-pocket expenses (including reasonable fees, charges and disbursements of Cahill Gordon & Reindel LLP) required to be reimbursed or paid by the Loan Parties hereunder or under any Loan Document.
(g) Except as set forth in Schedule 5.10 (which, for the avoidance of doubt, shall override the applicable clauses of the definition of “Collateral and Guarantee Requirement”) and subject to the grace periods and post-closing periods set forth in such definition, the Collateral and Guarantee Requirement shall be satisfied (or waived) as of the Closing Date.
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(h) The Administrative Agent shall have received all documentation and other information required by Section 3.25(a), to the extent such information has been requested not less than ten (10) Business Days prior to the Closing Date.
(i) The Borrower shall have delivered to the Administrative Agent a certificate, dated as of the Closing Date, to the effect set forth in Section 4.01(b)(i).
For purposes of determining compliance with the conditions specified in this Section 4.02, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Closing Date specifying its objection thereto and, in the case of a Borrowing, such Lender shall not have made available to the Administrative Agent such Lender’s ratable portion of the initial Borrowing.
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender that, until the Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and will cause each of the Subsidiaries to:
Section 5.01 Existence; Business and Properties .
(a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except, in the case of a Subsidiary of the Borrower, where the failure to do so would not reasonably be expected to have a Material Adverse Effect, and except as otherwise permitted under Section 6.05, and except for the liquidation or dissolution of Subsidiaries if the assets of such Subsidiaries to the extent they exceed estimated liabilities are acquired by the Borrower or a Wholly Owned Subsidiary of the Borrower in such liquidation or dissolution; provided , that Subsidiary Loan Parties may not be liquidated into Subsidiaries that are not Loan Parties and Domestic Subsidiaries may not be liquidated into Foreign Subsidiaries (except in each case as permitted under Section 6.05).
(b) Except where the failure to do so would not reasonably be expected to have a Material Adverse Effect, do or cause to be done all things necessary to (i) lawfully obtain, preserve, renew, extend and keep in full force and effect the permits, franchises, authorizations, Intellectual Property, licenses and rights with respect thereto used in or necessary to the normal conduct of its business, and (ii) at all times maintain, protect and preserve all property necessary to the normal conduct of its business and keep such property in good repair, working order and condition (ordinary wear and tear excepted), from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith, if any, may be properly conducted at all times (in each case except as permitted by this Agreement).
Section 5.02 Insurance .
(a) Maintain, with financially sound and reputable insurance companies, insurance (subject to customary deductibles and retentions) in such amounts and against such risks as are customarily maintained by similarly situated companies engaged in the same or similar businesses operating in the same or similar locations, cause the Borrower and Subsidiary Guarantors to be listed as insured and the Collateral Agent to be listed as a co-loss payee on property and casualty policies and as an additional insured on liability policies. Notwithstanding the foregoing, the Borrower and the Subsidiaries may self-insure with respect to such risks with respect to which companies of established reputation engaged in the same general line of business in the same general area usually self-insure.
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(b) Except as the Administrative Agent may agree, cause all such property and casualty insurance policies with respect to the Mortgaged Property located in the United States of America to be endorsed or otherwise amended to include a “standard” or “New York” lender’s loss payable endorsement, in form and substance reasonably satisfactory to the Administrative Agent; deliver a certificate of an insurance broker to the Collateral Agent; cause each such policy covered by this clause (b) to provide that it shall not be cancelled or not renewed upon less than 30 days’ prior written notice thereof by the insurer to the Collateral Agent; deliver to the Collateral Agent, prior to or concurrently with the cancellation or nonrenewal of any such policy of insurance covered by this clause (b), a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Collateral Agent), or insurance certificate with respect thereto, together with evidence satisfactory to the Administrative Agent of payment of the premium therefor, in each case of the foregoing, to the extent customarily maintained, purchased or provided to, or at the request of, lenders by similarly situated companies in connection with credit facilities of this nature.
(c) If any portion of any Mortgaged Property is at any time located in an area identified by the Federal Emergency Management Agency (or any successor agency) as a special flood hazard area (each a “ Special Flood Hazard Area ”) with respect to which flood insurance has been made available under the Flood Insurance Laws, (i) maintain, or cause to be maintained, with a financially sound and reputable insurer, flood insurance in an amount and otherwise sufficient to comply with all applicable rules and regulations promulgated pursuant to the Flood Insurance Laws and (ii) deliver to the Collateral Agent evidence of such compliance in form and substance reasonably acceptable to the Administrative Agent.
(d) In connection with the covenants set forth in this Section 5.02, it is understood and agreed that:
(i) the Administrative Agent, the Collateral Agent, the Lenders, the Issuing Bank and their respective agents or employees shall not be liable for any loss or damage insured by the insurance policies required to be maintained under this Section 5.02, it being understood that (A) the Loan Parties shall look solely to their insurance companies or any other parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Administrative Agent, the Collateral Agent, the Lenders, any Issuing Bank or their agents or employees. If, however, the insurance policies, as a matter of the internal policy of such insurer, do not provide waiver of subrogation rights against such parties, as required above, then each of Holdings and the Borrower, on behalf of itself and behalf of each of its Subsidiaries, hereby agrees, to the extent permitted by law, to waive, and further agrees to cause each of their Subsidiaries to waive, its right of recovery, if any, against the Administrative Agent, the Collateral Agent, the Lenders, any Issuing Bank and their agents and employees; and
(ii) the designation of any form, type or amount of insurance coverage by the Collateral Agent (including acting in the capacity as the Collateral Agent) under this Section 5.02 shall in no event be deemed a representation, warranty or advice by the Collateral Agent or the Lenders that such insurance is adequate for the purposes of the business of Holdings, the Borrower and the Subsidiaries or the protection of their properties.
Section 5.03 Taxes . Pay its obligations in respect of all Tax liabilities, assessments and governmental charges, before the same shall become delinquent or in default, except where (i) the amount or validity thereof is being contested in good faith by appropriate proceedings and the Borrower or a Subsidiary thereof has set aside on its books adequate reserves therefor in accordance with GAAP or (ii) the failure to make payment could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
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Section 5.04 Financial Statements, Reports, etc . Furnish to the Administrative Agent (which will promptly furnish such information to the Lenders):
(a) within 90 days after the end of each fiscal year, a consolidated balance sheet, related statements of operations and comprehensive loss and related statements of cash flows showing the financial position of the Borrower and its Subsidiaries as of the close of such fiscal year and the consolidated results of their operations during such year and, starting with the fiscal year ending December 31, 2017, setting forth in comparative form the corresponding figures for the prior fiscal year, which consolidated balance sheet, related statements of operations and comprehensive loss and related statements of cash flows and owners’ equity shall be accompanied by customary management’s discussion and analysis and audited by independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which opinion shall not be qualified as to scope of audit or as to the status of the Borrower or any Material Subsidiary as a going concern, other than solely with respect to, or resulting solely from an upcoming maturity date under this Agreement occurring within one year from the time such opinion is delivered or any potential inability to satisfy a financial maintenance covenant on a future date or in a future period) to the effect that such consolidated financial statements fairly present, in all material respects, the financial position and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP (it being understood that the delivery by the Borrower or AP Gaming Holdco, Inc. of annual reports on Form 10-K of the Borrower and its consolidated Subsidiaries or AP Gaming Holdco, Inc. and its consolidated Subsidiaries, as applicable, shall satisfy the requirements of this Section 5.04(a) to the extent such annual reports include the information specified herein);
(b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year (commencing with the fiscal quarter ending June 30, 2017), a consolidated balance sheet and related statements of operations and comprehensive loss and related statements of cash flows showing the financial position of the Borrower and its Subsidiaries as of the close of such fiscal quarter and the consolidated results of their operations during such fiscal quarter and the then-elapsed portion of the fiscal year and, starting with the fiscal quarter ending June 30, 2017 setting forth in comparative form the corresponding figures for the corresponding periods of the prior fiscal year, all of which shall be in reasonable detail, which consolidated balance sheet and related statements of operations and comprehensive loss and related statements of cash flows shall be accompanied by customary management’s discussion and analysis and shall be certified by a Financial Officer of the Borrower on behalf of the Borrower as fairly presenting, in all material respects, the financial position and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes) (it being understood that the delivery by the Borrower or AP Gaming Holdco, Inc. of quarterly reports on Form 10-Q of the Borrower and its consolidated Subsidiaries or AP Gaming Holdco, Inc. and its consolidated Subsidiaries, as applicable, shall satisfy the requirements of this Section 5.04(b) to the extent such quarterly reports include the information specified herein);
(c) (x) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto, (ii) commencing with the fiscal quarter ending on June 30, 2017, setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the Financial Covenant, and (iii) setting forth the calculation and uses of the Cumulative Credit for the fiscal period then ended if the Borrower shall have used the Cumulative Credit for any purpose during such fiscal period and (y) concurrently with any delivery of financial statements under clause (a) above, if the accounting firm is not restricted from providing such a certificate by its policies office, a certificate of the accounting firm opining on or certifying such statements stating whether they obtained knowledge during the course of their examination of such statements of any Default or Event of Default under the Financial Covenant (which certificate may be limited to accounting matters and disclaim responsibility for legal interpretations);
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(d) promptly after the same become publicly available, copies of all periodic and other publicly available reports, proxy statements and, to the extent requested by the Administrative Agent, other materials filed by Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries with the SEC, or after an initial public offering, distributed to its stockholders generally, as applicable; provided , however , that such reports, proxy statements, filings and other materials required to be delivered pursuant to this clause (d) shall be deemed delivered for purposes of this Agreement when posted to the website of the Borrower or the website of the SEC and written notice of such posting has been delivered to the Administrative Agent;
(e) within 90 days after the beginning of each fiscal year, a consolidated annual budget for such fiscal year consisting of a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year and the related consolidated statements of projected cash flow and projected income (collectively, the “ Budget ”), which Budget shall in each case be accompanied by the statement of a Financial Officer of the Borrower to the effect that the Budget is based on assumptions believed by the Borrower to be reasonable as of the date of delivery thereof;
(f) upon the reasonable request of the Administrative Agent not more frequently than once a year, an updated Perfection Certificate (or, to the extent such request relates to specified information contained in the Perfection Certificate, such information) reflecting all changes since the date of the information most recently received pursuant to this clause (f) or Section 5.10(f);
(g) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of Holdings, the Borrower or any of the Subsidiaries, or compliance with the terms of any Loan Document as in each case the Administrative Agent may reasonably request (for itself or on behalf of any Lender); and
(h) in the event that Holdings or any Parent Entity reports on a consolidated basis, such consolidated reporting at such Parent Entity’s level in a manner consistent with that described in clauses (a) and (b) of this Section 5.04 for the Borrower (together with a reconciliation showing the adjustments necessary to determine compliance by the Borrower and its Subsidiaries with the Financial Covenant) will satisfy the requirements of such paragraphs.
The Borrower hereby acknowledges and agrees that all financial statements furnished pursuant to paragraphs (a), (b) and (d) above are hereby deemed to be Borrower Materials suitable for distribution, and to be made available, to Public Lenders as contemplated by Section 9.17 and may be treated by the Administrative Agent and the Lenders as if the same had been marked “PUBLIC” in accordance with such paragraph (unless the Borrower otherwise notifies the Administrative Agent in writing on or prior to delivery thereof).
The Borrower shall also hold live quarterly conference calls with the opportunity to ask questions of management not later than ten Business Days following the date upon which the financial statements required pursuant to Sections 5.04(a) or (b), as applicable, were furnished to the Administrative Agent (or such later time approved by the Administrative Agent). No fewer than five Business Days prior to the date such conference call is to be held (or such later time approved by the Administrative Agent), the Borrower shall give notice to the Administrative Agent of such quarterly conference call for the benefit of the Lenders, which notice shall contain the time and the date of such conference call and information on how to access such quarterly conference call.
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Section 5.05 Litigation and Other Notices . Furnish to the Administrative Agent (which will promptly thereafter furnish to the Lenders) written notice of the following promptly after any Responsible Officer of Holdings (prior to a Qualified IPO) or the Borrower obtains actual knowledge thereof:
(a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto;
(b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority or in arbitration, against Holdings, the Borrower or any of the Subsidiaries as to which an adverse determination is reasonably probable and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect;
(c) any other development specific to Holdings, the Borrower or any of the Subsidiaries that is not a matter of general public knowledge and that has had, or would reasonably be expected to have, a Material Adverse Effect; and
(d) the occurrence of any ERISA Event that, together with all other ERISA Events that have occurred, would reasonably be expected to have a Material Adverse Effect.
Section 5.06 Compliance with Laws . Comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; provided , that this Section 5.06 shall not apply to Environmental Laws, which are the subject of Section 5.09, or to laws related to Taxes, which are the subject of Section 5.03.
Section 5.07 Maintaining Records; Access to Properties and Inspections . Maintain all financial records in accordance with GAAP and permit any persons designated by the Administrative Agent or, upon the occurrence and during the continuance of an Event of Default, any Lender to visit and inspect the financial records and the properties of Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries at reasonable times, upon reasonable prior notice to Holdings (prior to a Qualified IPO) or the Borrower, and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any persons designated by the Administrative Agent or, upon the occurrence and during the continuance of an Event of Default, any Lender upon reasonable prior notice to Holdings (prior to a Qualified IPO) or the Borrower to discuss the affairs, finances and condition of Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiaries with the officers thereof and independent accountants therefor (so long as the Borrower has the opportunity to participate in any such discussions with such accountants), in each case, subject to reasonable requirements of confidentiality, including requirements imposed by law or by contract.
Section 5.08 Use of Proceeds . Use the proceeds of the Loans made and Letters of Credit issued in the manner contemplated by Section 3.12.
Section 5.09 Compliance with Environmental Laws . Comply, and make reasonable efforts to cause all lessees and other persons occupying its properties to comply, with all Environmental Laws applicable to its operations and properties; and obtain and renew all authorizations and permits required pursuant to Environmental Law for its operations and properties, in each case in accordance with Environmental Laws, except, in each case with respect to this Section 5.09, to the extent the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 5.10 Further Assurances; Additional Security .
(a) Execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, Mortgages and other documents) that the Collateral Agent may reasonably request
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(including, without limitation, those required by applicable law), to satisfy the Collateral and Guarantee Requirement and to cause the Collateral and Guarantee Requirement to be and remain satisfied, all at the expense of the Loan Parties and provide to the Collateral Agent, from time to time upon reasonable request, evidence reasonably satisfactory to the Collateral Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents.
(b) If any asset (other than Real Property) that has an individual fair market value (as determined in good faith by the Borrower) in an amount greater than $5,000,000 is acquired by the Borrower or any Subsidiary Loan Party after the Closing Date or owned by an entity at the time it becomes a Subsidiary Loan Party (in each case other than (x) assets constituting Collateral under a Security Document that become subject to the Lien of such Security Document upon acquisition thereof and (y) assets constituting Excluded Property), the Borrower or such Subsidiary Loan Party, as applicable, will (i) promptly notify the Collateral Agent of such acquisition or ownership and (ii) cause such asset to be subjected to a Lien (subject to any Permitted Liens) securing the Obligations and take, and cause the Subsidiary Loan Parties to take, such actions as shall be required by this Agreement or any Security Document reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in clause (a) of this Section 5.10, all at the expense of the Loan Parties, subject to clause (g) below.
(c) (i) Grant and cause each of the Subsidiary Loan Parties to grant to the Collateral Agent security interests in, and mortgages on, any Material Real Property of the Borrower or such Subsidiary Loan Parties, as applicable, that are not Mortgaged Property as of the Closing Date, to the extent acquired after the Closing Date, within 90 days after such acquisition (or such later date as the Collateral Agent may agree in its reasonable discretion) pursuant to documentation in form and substance reasonably satisfactory to the Collateral Agent and the Borrower (each, an “ Additional Mortgage ”), which security interest and mortgage shall constitute valid and enforceable Liens subject to no other Liens except Permitted Liens, at the time of recordation thereof, (ii) record or file, and cause each such Subsidiary to record or file, the Additional Mortgage and instruments related thereto in such manner and in such places as is required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent (for the benefit of the Secured Parties) required to be granted pursuant to the Additional Mortgages and pay, and cause each such Subsidiary to pay, in full, all Taxes, fees and other charges required to be paid in connection with such recording or filing, in each case subject to clause (g) below, and (iii) deliver to the Collateral Agent an updated Schedule 1.01(B) reflecting such additional Mortgaged Properties. Unless otherwise waived by the Collateral Agent, with respect to each such Additional Mortgage, the Borrower shall cause the requirements set forth in clauses (f) and (g) of the definition of “Collateral and Guarantee Requirement” to be satisfied with respect to such Material Real Property.
(d) If any additional direct or indirect Subsidiary of the Borrower is formed or acquired after the Closing Date (with any Subsidiary Redesignation resulting in an Unrestricted Subsidiary becoming a Subsidiary or any Excluded Subsidiary ceasing to be an Excluded Subsidiary being deemed to constitute the acquisition of a Subsidiary) and if such Subsidiary is a Subsidiary Loan Party, within 15 Business Days after the date such Subsidiary is formed or acquired (or such longer period as the Administrative Agent shall agree), notify the Collateral Agent thereof and, within twenty (20) Business Days after the date such Subsidiary is formed or acquired or such longer period as the Administrative Agent shall agree (or, with respect to clauses (f), (g) and (h) of the definition of “Collateral and Guarantee Requirement”, within 90 days after such formation or acquisition or such longer period as set forth therein or as the Administrative Agent may agree in its reasonable discretion, as applicable), cause the Collateral and Guarantee Requirement to be satisfied with respect to such Subsidiary and with respect to any Equity Interest in or Indebtedness of such Subsidiary owned by or on behalf of any Loan Party, subject to clause (g) below.
(e) If any additional Foreign Subsidiary of the Borrower is formed or acquired after the Closing Date (with any Subsidiary Redesignation resulting in an Unrestricted Subsidiary becoming a Subsidiary being deemed to constitute the acquisition of a Subsidiary) and if such Subsidiary is a “first tier” Foreign Subsidiary of a Loan Party, within 15 Business Days after the date such Foreign Subsidiary is formed or acquired (or such longer period as the Administrative Agent may agree in its reasonable discretion), notify the Collateral Agent thereof and, within 50 Business Days after the date such Foreign Subsidiary is formed or acquired or such longer period as the Collateral Agent shall agree, cause the Collateral and Guarantee Requirement to be satisfied with respect to any Equity Interest in such Foreign Subsidiary owned by or on behalf of any Loan Party, subject to clause (g) below.
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(f) Furnish to the Collateral Agent prompt written notice of any change (A) in any Loan Party’s corporate or organization name, (B) in any Loan Party’s identity or organizational structure, (C) in any Loan Party’s organizational identification number, (D) in any Loan Party’s jurisdiction of organization or (E) in the location of the chief executive office of any Loan Party that is not a registered organization; provided , that the applicable Loan Party shall not effect or permit any such change unless all filings have been made, or will have been made within 30 days following such change (or such longer period as the Collateral Agent may agree in its reasonable discretion), under the Uniform Commercial Code that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral in which a security interest may be perfected by such filing, for the benefit of the Secured Parties, with the same priority as immediately prior to such change.
(g) The Collateral and Guarantee Requirement and the other provisions of this Section 5.10 and the other provisions of the Loan Documents with respect to Collateral need not be satisfied with respect to any of the following (collectively, the “ Excluded Property ”): (i) any Real Property other than Material Real Property, (ii) motor vehicles and other assets subject to certificates of title and letter of credit rights (in each case, other than to the extent a Lien on such assets or such rights can be perfected by filing a UCC-1) and commercial tort claims with a value of less than $3,000,000, (iii) pledges and security interests prohibited by applicable Requirements of Law (including any Gaming Law) or enforceable contractual obligation not in violation of Section 6.09(c) binding on the assets that existed at the time of the acquisition thereof and was not created or made binding on the assets in contemplation of or in connection with the acquisition of such assets (except in the case of assets (A) owned on the Closing Date or (B) acquired after the Closing Date with Indebtedness of the type permitted pursuant to clauses (i) or (j) of Section 6.01) (in each case, except to the extent such prohibition is unenforceable after giving effect to the applicable anti-assignment provisions of Article 9 of the Uniform Commercial Code), (iv) assets to the extent a security interest in such assets could reasonably be expected to result in material adverse tax consequences as determined in writing in good faith by the Borrower, (v) any lease, license or other agreement to the extent that a grant of a security interest therein would violate or invalidate such lease, license or agreement or create a right of termination in favor of any other party thereto (other than the Borrower or any Guarantor) after giving effect to the applicable anti-assignment provisions of Article 9 of the Uniform Commercial Code, (vi) those assets as to which the Administrative Agent and the Borrower reasonably agree that the cost or other consequence of obtaining or perfecting such a security interest or perfection thereof are excessive in relation to the value afforded thereby, (vii) any governmental licenses (including gaming licenses) or state or local franchises, charters and authorizations, to the extent security interests in such licenses, franchises, charters or authorizations are prohibited or restricted thereby after giving effect to the applicable anti-assignment provisions of Article 9 of the Uniform Commercial Code, (viii) pending United States “intent-to-use” trademark applications for which a verified statement of use or an amendment to allege use has not been filed with and accepted by the United States Patent and Trademark Office, (ix) other customary exclusions under applicable local law or in applicable local jurisdictions set forth in the Security Documents, (x) assets subject to Liens securing Permitted Receivables Financings, (xi) any Excluded Securities, (xii) any Third Party Funds and (xiii) all assets of Holdings other than Equity Interests in the Borrower directly held by Holdings and pledged pursuant to the Holdings Guarantee and Pledge Agreement; provided , that the Borrower may in its sole discretion elect to exclude any property from the definition of Excluded Property. Notwithstanding anything herein to the contrary, (A) the Administrative Agent may grant extensions of time or waiver of requirement for the creation or perfection of security interests in or the obtaining of insurance (including title insurance) or surveys with respect to particular assets (including extensions beyond the Closing Date for the perfection of security interests in the assets of the Loan Parties on such date) where it reasonably determines, in consultation with the Borrower, that perfection or obtaining of such items cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required by this Agreement or the other Loan Documents, (B) no control agreement or control, lockbox or similar arrangement shall be required with respect to any deposit accounts, securities accounts or commodities accounts, (C) no foreign-law governed security documents
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shall be required, (D) Liens required to be granted from time to time pursuant to, or any other requirements of, the Collateral and Guarantee Requirement and the Security Documents shall be subject to exceptions and limitations set forth in the Security Documents and, to the extent appropriate in the applicable jurisdiction, as otherwise agreed between the Administrative Agent and the Borrower and (E), to the extent any Mortgaged Property is located in a jurisdiction with mortgage recording or similar tax, the amount secured by the Security Document with respect to such Mortgaged Property shall be limited to the fair market value of such Mortgaged Property as determined in good faith by the Borrower (subject to any applicable laws in the relevant jurisdiction or such lesser amount agreed to by the Administrative Agent).
(h) Take all actions reasonably necessary to satisfy the items described on Schedule 5.10 within the applicable period of time specified in such Schedule (or such longer period as the Administrative Agent may agree in its reasonable discretion).
Section 5.11 Rating . Exercise commercially reasonable efforts to maintain ratings from each of Moody’s and S&P for the Term B Loans.
Section 5.12 Compliance with the USA Patriot Act, Anti-Corruption Laws and Sanctions Laws . Comply in all material respects with the USA PATRIOT Act, the United States Foreign Corrupt Practices Act of 1977 and all applicable sanctions laws and regulations administered by OFAC.
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender that, until the Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, and will not permit any of the Subsidiaries to:
Section 6.01 Indebtedness . Incur, create, assume or permit to exist any Indebtedness, except:
(a) Indebtedness existing on the Closing Date ( provided , that any such Indebtedness that is (x) not intercompany Indebtedness and (y) in excess of $2,000,000 shall be set forth on Schedule 6.01 ) and any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness (other than intercompany indebtedness Refinanced with Indebtedness owed to a person not affiliated with the Borrower or any Subsidiary);
(b) Indebtedness created hereunder (including pursuant to Section 2.21) and under the other Loan Documents and any Permitted Refinancing Indebtedness incurred to Refinance such Indebtedness;
(c) Indebtedness of the Borrower or any Subsidiary pursuant to Hedging Agreements entered into for non-speculative purposes;
(d) Indebtedness owed to (including obligations in respect of letters of credit or bank guarantees or similar instruments for the benefit of) any person providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance to the Borrower or any Subsidiary, pursuant to reimbursement or indemnification obligations to such person, in each case in the ordinary course of business or consistent with past practice or industry practices;
(e) Indebtedness of the Borrower to Holdings or any Subsidiary and of any Subsidiary to Holdings, the Borrower or any other Subsidiary; provided , that (i) Indebtedness of any Subsidiary that is not a Subsidiary Loan Party owing to the Loan Parties shall be subject to
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Section 6.04 and (ii) Indebtedness owed by any Loan Party to any Subsidiary that is not a Loan Party shall be subordinated to the Loan Obligations under this Agreement on subordination terms described in the global intercompany note substantially in the form of Exhibit J hereto or on other subordination terms reasonably satisfactory to the Administrative Agent and the Borrower;
(f) Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and completion guarantees and similar obligations, in each case provided in the ordinary course of business or consistent with past practice or industry practices, including those incurred to secure health, safety and environmental obligations in the ordinary course of business or consistent with past practice or industry practices;
(g) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business or other cash management services, in each case incurred the ordinary course of business;
(h) (i) Indebtedness of a Subsidiary acquired after the Closing Date or a person merged or consolidated with the Borrower or any Subsidiary after the Closing Date and Indebtedness otherwise incurred or assumed by the Borrower or any Subsidiary in connection with the acquisition of assets or Equity Interests, where such acquisition, merger or consolidation is not prohibited by this Agreement (including a Permitted Business Acquisition); provided , that, (x) in the case of any such Indebtedness secured by Liens on Collateral that rank pari passu with the Liens on the Collateral securing the Term B Loans, the Net First Lien Leverage Ratio on a Pro Forma Basis immediately after giving effect to such acquisition, merger or consolidation, the incurrence of such Indebtedness and the use of proceeds thereof (but without netting any of the net cash proceeds of such Indebtedness incurred on such date against the applicable amount of Consolidated Debt for purposes of such calculation at such time), and any related transactions is (I) not greater than 4.25 to 1.00 or (II) no greater than the Net First Lien Leverage Ratio in effect immediately prior thereto and (y) in the case of any other such Indebtedness, the Total Net Leverage Ratio on a Pro Forma Basis immediately after giving effect to such acquisition, merger or consolidation, the incurrence of such Indebtedness and the use of proceeds thereof (but without netting any of the net cash proceeds of such Indebtedness incurred on such date against the applicable amount of Consolidated Debt for purposes of such calculation at such time), and any related transactions is (I) not greater than 4.75 to 1.00 or (II) no greater than the Total Net Leverage Ratio in effect immediately prior thereto; provided that (1) the incurrence of any Indebtedness for borrowed money pursuant to this clause (h)(i) incurred in contemplation of such acquisition, merger or consolidation (except for any seller note or other seller financing) shall be subject to the last paragraph of this Section 6.01 and (2) the aggregate outstanding principal amount of Indebtedness permitted under this clause (h)(i) incurred by a Subsidiary other than a Subsidiary Loan Party in contemplation of such acquisition, merger or consolidation, together with the aggregate principal amount of Indebtedness of a Subsidiary other than a Subsidiary Loan Party then outstanding pursuant to Section 6.01(s)(i), shall not exceed the greater of $30,000,000 and 4.25% of Consolidated Total Assets as at the end of the then most recently ended Test Period, and (ii) any Permitted Refinancing Indebtedness incurred to Refinance any such Indebtedness;
(i) (x) Capitalized Lease Obligations, mortgage financings and other Indebtedness incurred by the Borrower or any Subsidiary prior to or within 270 days after the acquisition, lease, construction, repair, replacement or improvement of the respective property (real or personal, and whether through the direct purchase of property or the Equity Interest of any person owning such property) permitted under this Agreement in order to finance such acquisition, lease, construction, repair, replacement or improvement, in an aggregate principal amount that immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(i)(x), would not exceed (A) the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (B) any additional amounts, so long as immediately after giving effect to the incurrence of such additional amounts under this clause (B) and the use of proceeds thereof, the Total Net Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to 1.00, and (y) any Permitted Refinancing Indebtedness in respect thereof;
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(j) Capitalized Lease Obligations incurred by the Borrower or any Subsidiary in respect of any Sale and Lease-Back Transaction that is permitted under Section 6.03 and any Permitted Refinancing Indebtedness in respect thereof;
(k) Indebtedness of the Borrower or any Subsidiary, in an aggregate principal amount that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(k), would not exceed the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness in respect thereof;
(l) [Reserved];
(m) Guarantees (i) by Holdings, the Borrower or any Subsidiary Loan Party of any Indebtedness of the Borrower or any Subsidiary Loan Party permitted to be incurred under this Agreement, (ii) by the Borrower or any Subsidiary Loan Party of Indebtedness otherwise permitted hereunder of any Subsidiary that is not a Subsidiary Loan Party to the extent such Guarantees are permitted by Section 6.04 (other than Section 6.04(v)), (iii) by any Subsidiary that is not a Subsidiary Loan Party of Indebtedness of another Subsidiary that is not a Subsidiary Loan Party, and (iv) by the Borrower of Indebtedness of Subsidiaries that are not Subsidiary Loan Parties incurred for working capital purposes in the ordinary course of business on ordinary business terms so long as such Indebtedness is permitted to be incurred under Section 6.01(t) to the extent such Guarantees are permitted by Section 6.04 (other than Section 6.04(v)); provided , that Guarantees by the Borrower or any Subsidiary Loan Party under this Section 6.01(m) of any other Indebtedness of a person that is subordinated to other Indebtedness of such person shall be expressly subordinated to the Loan Obligations to at least the same extent as such underlying Indebtedness is subordinated;
(n) Indebtedness arising from agreements of the Borrower or any Subsidiary providing for indemnification, adjustment of purchase or acquisition price or similar obligations (including earn-outs), in each case, incurred or assumed in connection with the Transactions, any Permitted Business Acquisition, other Investments or the disposition of any business, assets or a Subsidiary not prohibited by this Agreement;
(o) Indebtedness in respect of letters of credit, bank guarantees, warehouse receipts or similar instruments issued to support performance obligations and trade letters of credit (other than obligations in respect of other Indebtedness) in the ordinary course of business or consistent with past practice or industry practices;
(p) other Indebtedness or Disqualified Stock of the Borrower or any Subsidiaries in an aggregate outstanding principal amount or liquidation preference not greater than 100.0% of the amount of net cash proceeds received by the Borrower from (x) the issuance or sale of its Qualified Equity Interests or (y) a contribution to its common equity with the net cash proceeds from the issuance and sale by Holdings or any Parent Entity of its Qualified Equity Interests or a contribution to its common equity (in each case of (x) and (y), other than proceeds from the sale of Equity Interests to, or contributions from, the Borrower or any of its Subsidiaries and other than Permitted Cure Securities), to the extent that such net cash proceeds do not increase the Cumulative Credit and do not constitute Excluded Contributions;
(q) Indebtedness consisting of (i) the financing of insurance premiums or (ii) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business;
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(r) (i) Indebtedness secured by Liens on the Collateral ranking pari passu with the Liens on the Collateral securing the Term B Loans so long as (x) at the time of incurrence thereof, no Default or Event of Default shall have occurred and be continuing and (y) immediately after giving effect to the incurrence of such Indebtedness and the use of proceeds thereof, the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.25 to 1.00; provided that, (1) the net cash proceeds of Indebtedness incurred under this clause (r)(i) at such time shall not be netted against the applicable amount of Consolidated Debt for purposes of such calculation of the Net First Lien Leverage Ratio at such time and (2) the incurrence of any Indebtedness pursuant to this clause (r)(i) shall be subject to the last paragraph of this Section 6.01 and (ii) any Permitted Refinancing Indebtedness in respect thereof;
(s) (i) other Indebtedness so long as (x) at the time of incurrence thereof, no Default or Event of Default shall have occurred and be continuing, (y) immediately after giving effect to the incurrence of such Indebtedness and the use of proceeds thereof, the Total Net Leverage Ratio on a Pro Forma Basis is not greater than 4.75 to 1.00 and (z) the aggregate principal amount of Indebtedness permitted under this clause (s)(i) incurred by a Subsidiary other than a Subsidiary Loan Party, together with the aggregate principal amount of Indebtedness of a Subsidiary other than a Subsidiary Loan Party then outstanding pursuant to Section 6.01(h)(i) incurred in contemplation of an acquisition, merger or consolidation, shall not exceed the greater of $30,000,000 and 4.25% of Consolidated Total Assets as at the end of the then most recently ended Test Period; provided that, (1) the net cash proceeds of Indebtedness incurred under this clause (s)(i) at such time shall not be netted against the applicable amount of Consolidated Debt for purposes of such calculation of the Total Net Leverage Ratio at such time and (2) the incurrence of any Indebtedness pursuant to this clause (s)(i) shall be subject to the last paragraph of this Section 6.01 and (ii) any Permitted Refinancing Indebtedness in respect thereof;
(t) Indebtedness of Subsidiaries that are not Subsidiary Loan Parties in an aggregate principal amount outstanding that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(t), would not exceed the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness in respect thereof;
(u) Indebtedness incurred in the ordinary course of business in respect of obligations of the Borrower or any Subsidiary to pay the deferred purchase price of goods or services or progress payments in connection with such goods and services; provided , that such obligations are incurred in connection with open accounts extended by suppliers on customary trade terms in the ordinary course of business and not in connection with the borrowing of money or any Hedging Agreements.
(v) Indebtedness representing deferred compensation to employees, consultants or independent contractors of the Borrower (or, to the extent such work is done for the Borrower or its Subsidiaries, any direct or indirect parent thereof) or any Subsidiary incurred in the ordinary course of business;
(w) Indebtedness in connection with Permitted Receivables Financings;
(x) obligations in respect of Cash Management Agreements;
(y) Refinancing Notes and any Permitted Refinancing Indebtedness incurred in respect thereof;
(z) (i) Indebtedness in an aggregate principal amount outstanding not to exceed at the time of incurrence the Incremental Amount available at such time; provided , that (1) there shall be no obligor in respect of any such Indebtedness that is not a Loan Party and (2) the incurrence of any Indebtedness pursuant to this clause (z)(i) shall be subject to the last paragraph of this Section 6.01 and (ii) any Permitted Refinancing Indebtedness in respect thereof;
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(aa) Guarantees of Indebtedness under ordinary course customer financing lines or credit;
(bb) Indebtedness incurred on behalf of, or representing Guarantees of Indebtedness of, joint ventures in an aggregate principal amount that, immediately after giving effect to the incurrence thereof, together with the aggregate principal amount of any other Indebtedness outstanding pursuant to this Section 6.01(bb), would not exceed the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, and any Permitted Refinancing Indebtedness in respect thereof;
(cc) Indebtedness issued by the Borrower or any Subsidiary to current or former officers, directors and employees, their respective estates, spouses or former spouses to finance the purchase or redemption of Equity Interests of Holdings or any Parent Entity permitted by Section 6.06;
(dd) Indebtedness consisting of obligations of the Borrower or any Subsidiary under deferred compensation or other similar arrangements incurred by such person in connection with the Transactions and Permitted Business Acquisitions or any other Investment permitted hereunder;
(ee) Indebtedness of the Borrower or any Subsidiary to or on behalf of any joint venture (regardless of the form of legal entity) that is not a Subsidiary arising in the ordinary course of business in connection with the cash management operations (including with respect to intercompany self-insurance arrangements) of the Borrower and its Subsidiaries;
(ff) Indebtedness supported by a Letter of Credit, in a principal amount not in excess of the stated amount of such Letter of Credit; and
(gg) all premium (if any, including tender premiums) expenses, defeasance costs, interest (including post-petition interest), fees, expenses, charges and additional or contingent interest on obligations described in clauses (a) through (ff) above or refinancings thereof.
For purposes of determining compliance with this Section 6.01, the amount of any Indebtedness denominated in any currency other than Dollars shall be calculated based on customary currency exchange rates in effect, in the case of such Indebtedness incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness) on or prior to the Closing Date, on the Closing Date and, in the case of such Indebtedness incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness) after the Closing Date, on the date on which such Indebtedness was incurred (in respect of term Indebtedness) or committed (in respect of revolving Indebtedness); provided , that if such Indebtedness is incurred to refinance other Indebtedness denominated in a currency other than Dollars (or in a different currency from the Indebtedness being refinanced), and such refinancing would cause the applicable Dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such Dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (i) the outstanding or committed principal amount, as applicable, of such Indebtedness being refinanced plus (ii) the aggregate amount of fees, underwriting discounts, premiums (including tender premiums), defeasance costs and other costs and expenses incurred in connection with such refinancing.
Further, for purposes of determining compliance with this Section 6.01, (A) Indebtedness need not be permitted solely by reference to one category of permitted Indebtedness (or any portion thereof) described in Sections 6.01(a) through (gg) (including, for the avoidance of doubt, with respect to the clauses set forth in the definition of “ Incremental Amount ”) but may be permitted in part under any
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combination thereof, (B) in the event that an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Indebtedness (or any portion thereof) described in Sections 6.01(a) through (gg) (including, for the avoidance of doubt, with respect to the clauses set forth in the definition of “ Incremental Amount ”), the Borrower may, in its sole discretion, classify or reclassify, or later divide, classify or reclassify (as if incurred at such later time), such item of Indebtedness (or any portion thereof) in any manner that complies with this Section 6.01 and at the time of incurrence, classification or reclassification will be entitled to only include the amount and type of such item of Indebtedness (or any portion thereof) in one of the above clauses (or any portion thereof) and such item of Indebtedness (or any portion thereof) that is pursuant to a dollar denominated basket shall be treated as having been incurred or existing pursuant to only such clause or clauses (or any portion thereof) without giving pro forma effect to such item (or portion thereof) when calculating the amount of Indebtedness that may be incurred, classified or reclassified pursuant to any other clause (or portion thereof) that relates to any ratio based basket at such time; provided , that all Indebtedness outstanding on the Closing Date under this Agreement shall at all times be deemed to have been incurred pursuant to clause (b) of this Section 6.01 and (C) in connection with (1) the incurrence of revolving loan Indebtedness under this Section 6.01 or (2) any commitment relating to the incurrence of Indebtedness under this Section 6.01 and the granting of any Lien to secure such Indebtedness, the Borrower or applicable Subsidiary may designate the incurrence of such Indebtedness and the granting of such Lien therefor as having occurred on the date of first incurrence of such revolving loan Indebtedness or commitment (such date, the “ Deemed Date ”), and any related subsequent actual incurrence and the granting of such Lien therefor will be deemed for purposes of this Section 6.01 and Section 6.02 of this Agreement to have been incurred or granted on such Deemed Date, including, without limitation, for purposes of calculating usage of any baskets hereunder (if applicable), the Net First Lien Leverage Ratio, the Total Net Leverage Ratio and EBITDA (and all such calculations, without duplication, on the Deemed Date and on any subsequent date until such commitment is funded or terminated or such election is rescinded without the incurrence thereby shall be made on a Pro Forma Basis after giving effect to the deemed incurrence, the granting of any Lien therefor and related transactions in connection therewith). In addition, with respect to any Indebtedness that was permitted to be incurred hereunder on the date of such incurrence, any Increased Amount of such Indebtedness shall also be permitted hereunder after the date of such incurrence.
With respect to any term Indebtedness for borrowed money incurred under Section 6.01(h)(i) (to the extent set forth therein), 6.01(r)(i), 6.01(s)(i) or 6.01(z)(i), (A) the stated maturity date of such Indebtedness shall be no earlier than the Term B Facility Maturity Date as in effect at the time such Indebtedness is incurred and (B) the Weighted Average Life to Maturity of such Indebtedness shall be no shorter than the remaining Weighted Average Life to Maturity of the Term B Loans in effect at the time such Indebtedness is incurred.
Section 6.02 Liens . Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person) of the Borrower or any Subsidiary at the time owned by it or on any income or revenues or rights in respect of any thereof, except the following (collectively, “ Permitted Liens ”):
(a) Liens on property or assets of the Borrower and the Subsidiaries existing on the Closing Date (or created following the Closing Date pursuant to agreements in existence on the Closing Date requiring the creation of such Liens) and, to the extent securing Indebtedness in an aggregate principal amount in excess of $2,000,000, set forth on Schedule 6.02(a) and any modifications, replacements, renewals or extensions thereof; provided , that such Liens shall secure only those obligations that they secure on the Closing Date (and any Permitted Refinancing Indebtedness in respect of such obligations permitted by Section 6.01(a)) and shall not subsequently apply to any other property or assets of the Borrower or any Subsidiary other than (A) after-acquired property that is affixed or incorporated into the property covered by such Lien, and (B) proceeds and products thereof;
(b) any Lien created under the Loan Documents (including Liens created under the Security Documents securing obligations in respect of Secured Hedge Agreements and Secured Cash Management Agreements) or permitted in respect of any Mortgaged Property by the terms of the applicable Mortgage;
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(c) any Lien on any property or asset of the Borrower or any Subsidiary securing Indebtedness or Permitted Refinancing Indebtedness permitted by Section 6.01(h); provided , that (i) in the case of Liens that do not extend to the Collateral, such Lien does not apply to any other property or assets of the Borrower or any of the Subsidiaries not securing such Indebtedness at the date of the acquisition of such property or asset and accessions and additions thereto and proceeds and products thereof (other than after-acquired property required to be subjected to such Lien pursuant to the terms of such Indebtedness (and refinancings thereof), it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition), (ii) in the case of Liens on the Collateral that are (or are intended to be) junior in priority to the Liens securing the Term B Loans, such Liens shall be subject to a Permitted Junior Intercreditor Agreement and (iii) in the case of Liens on the Collateral that are (or are intended to be) pari passu with the Liens on the Collateral securing the Term B Loans, such Liens shall be subject to a Permitted Pari Passu Intercreditor Agreement;
(d) Liens for Taxes, assessments or other governmental charges or levies not yet delinquent by more than 30 days or that are being contested in compliance with Section 5.03;
(e) Liens imposed by law, such as landlord’s, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, supplier’s, construction or other like Liens, securing obligations that are not overdue by more than 30 days or that are being contested in good faith by appropriate proceedings and in respect of which, if applicable, the Borrower or any Subsidiary shall have set aside on its books reserves in accordance with GAAP;
(f) (i) pledges and deposits and other Liens made in the ordinary course of business in compliance with the Federal Employers Liability Act or any other workers’ compensation, unemployment insurance and other social security laws or regulations and deposits securing liability to insurance carriers under insurance or self-insurance arrangements in respect of such obligations and (ii) pledges and deposits and other Liens securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to the Borrower or any Subsidiary;
(g) deposits and other Liens incurred in the ordinary course of business to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capitalized Lease Obligations), statutory obligations, surety and appeal bonds, performance and return of money bonds, bids, leases, government contracts, trade contracts, agreements with utilities, and other obligations of a like nature (including letters of credit in lieu of any such bonds or to support the issuance thereof), in each case, incurred in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business;
(h) zoning restrictions, easements, survey exceptions, trackage rights, leases (other than Capitalized Lease Obligations), licenses, special assessments, rights-of-way, covenants, conditions, restrictions and declarations on or with respect to the use of Real Property, servicing agreements, development agreements, site plan agreements and other similar encumbrances incurred in the ordinary course of business and title defects or irregularities that are of a minor nature and that, in the aggregate, do not interfere in any material respect with the ordinary conduct of the business of the Borrower or any Subsidiary;
(i) Liens securing Indebtedness permitted by Section 6.01(i); provided , that such Liens do not apply to any property or assets of the Borrower or any Subsidiary other than the property or assets acquired, leased, constructed, replaced, repaired or improved with such Indebtedness (or the Indebtedness Refinanced thereby), and accessions and additions thereto, proceeds and products thereof and customary security deposits; provided , further , that individual
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financings provided by one lender may be cross-collateralized to other financings provided by such lender (and its Affiliates) (it being understood that with respect to any Liens on the Collateral being incurred under this clause (i) to secure Permitted Refinancing Indebtedness, if Liens on the Collateral securing the Indebtedness being Refinanced (if any) were secured on a basis junior to the Liens securing the Loan Obligations, then any Liens on such Collateral being incurred under this clause (i) to secure Permitted Refinancing Indebtedness shall also be secured on a basis junior to the Liens securing the Loan Obligations);
(j) Liens arising out of capitalized lease transactions permitted under Section 6.03, so long as such Liens attach only to the property sold and being leased in such transaction and any accessions and additions thereto or proceeds and products thereof and related property;
(k) Liens securing judgments that do not constitute an Event of Default under Section 7.01(j);
(l) Liens disclosed by the title insurance policies delivered on (with respect to all Mortgages delivered on the Closing Date) or subsequent to the Closing Date and pursuant to Section 5.10 or Schedule 5.10 and any replacement, extension or renewal of any such Lien; provided , that such replacement, extension or renewal Lien shall not cover any property other than the property that was subject to such Lien prior to such replacement, extension or renewal; provided , further , that the Indebtedness and other obligations secured by such replacement, extension or renewal Lien are permitted by this Agreement;
(m) any interest or title of a lessor or sublessor under any leases or subleases entered into by the Borrower or any Subsidiary in the ordinary course of business;
(n) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks and other financial institutions not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposits, sweep accounts, reserve accounts or similar accounts of the Borrower or any Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower or any Subsidiary, including with respect to credit card charge-backs and similar obligations, or (iii) relating to purchase orders and other agreements entered into with customers, suppliers or service providers of the Borrower or any Subsidiary in the ordinary course of business;
(o) Liens (i) arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business, (iii) encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to brokerage accounts incurred in the ordinary course of business and not for speculative purposes or (iv) in respect of Third Party Funds;
(p) Liens securing obligations in respect of trade-related letters of credit, bankers’ acceptances or similar obligations permitted under Section 6.01(f), (k) or (o) and covering the property (or the documents of title in respect of such property) financed by such letters of credit, bankers’ acceptances or similar obligations and the proceeds and products thereof;
(q) leases or subleases, licenses or sublicenses (including with respect to Intellectual Property) granted to others in the ordinary course of business not interfering in any material respect with the business of the Borrower and its Subsidiaries, taken as a whole;
(r) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
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(s) Liens solely on any cash earnest money deposits made by the Borrower or any of the Subsidiaries in connection with any letter of intent or purchase agreement in respect of any Investment permitted hereunder;
(t) (i) Liens with respect to property or assets of any Subsidiary that is not a Loan Party securing obligations of a Subsidiary that is not a Loan Party permitted under Section 6.01 and (ii) Liens with respect to property or assets of any person securing Indebtedness permitted under Section 6.01(bb) (it being understood that with respect to any Liens on the Collateral being incurred under this clause (t)(ii) to secure Permitted Refinancing Indebtedness, if Liens on the Collateral securing the Indebtedness being Refinanced (if any) were secured on a basis junior to the Liens securing the Term B Loans, then any Liens on such Collateral being incurred under this clause (t)(ii) to secure Permitted Refinancing Indebtedness shall also be secured on a basis junior to the Liens securing the Term B Loans);
(u) Liens on any amounts held by a trustee under any indenture or other debt agreement issued in escrow pursuant to customary escrow arrangements pending the release thereof, or under any indenture or other debt agreement pursuant to customary discharge, redemption or defeasance provisions;
(v) the prior rights of consignees and their lenders under consignment arrangements entered into in the ordinary course of business;
(w) agreements to subordinate any interest of the Borrower or any Subsidiary in any accounts receivable or other proceeds arising from inventory consigned by the Borrower or any of their Subsidiaries pursuant to an agreement entered into in the ordinary course of business;
(x) Liens arising from precautionary Uniform Commercial Code financing statements regarding operating leases or other obligations not constituting Indebtedness;
(y) Liens on Equity Interests in joint ventures (i) securing obligations of such joint venture or (ii) pursuant to the relevant joint venture agreement or arrangement;
(z) Liens on securities that are the subject of repurchase agreements constituting Permitted Investments under clause (c) of the definition thereof;
(aa) Liens in respect of Permitted Receivables Financings that extend only to the Receivables Assets subject thereto;
(bb) Liens securing insurance premiums financing arrangements; provided , that such Liens are limited to the applicable unearned insurance premiums;
(cc) in the case of Real Property that constitutes a leasehold interest, any Lien to which the fee simple interest (or any superior leasehold interest) is subject;
(dd) Liens securing Indebtedness or other obligation (i) of the Borrower or a Subsidiary in favor of the Borrower or any Subsidiary Loan Party and (ii) of any Subsidiary that is not Loan Party in favor of any Subsidiary that is not a Loan Party;
(ee) Liens on not more than $5,000,000 of deposits securing Hedging Agreements entered into for non-speculative purposes;
(ff) Liens on goods or inventory the purchase, shipment or storage price of which is financed by a documentary letter of credit, bank guarantee or bankers’ acceptance issued or created for the account of the Borrower or any Subsidiary in the ordinary course of business; provided , that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect of such letter of credit, bank guarantee or banker’s acceptance to the extent permitted under Section 6.01;
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(gg) Liens on Collateral that are junior to the Liens securing the Term B Loans, so long as such junior Liens are subject to a Permitted Junior Intercreditor Agreement;
(hh) Liens on Collateral that are pari passu with the Liens securing the Term B Loans, so long as (i) immediately after giving effect to the incurrence of the Indebtedness secured by such pari passu Liens and the use of proceeds thereof (but without netting any of the net cash proceeds of such Indebtedness incurred on such date against the applicable amount of Consolidated Debt for purposes of such calculation on such date), the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.25 to 1.00 and (ii) such pari passu Liens are subject to a Permitted Pari Passu Intercreditor Agreement; provided , that, if any pari passu Liens pursuant to this clause (hh) secure Indebtedness that is in the form of term loans (other than High Yield-Style Loans) (any such Indebtedness secured by such pari passu Liens, a “ Pari Term Loan ”), then such Pari Term Loans shall be subject to the last paragraph of this Section 6.02;
(ii) Liens on Collateral that are pari passu with the Liens securing the Term B Loans, so long as such pari passu Liens (i) secure Indebtedness permitted by Section 6.01(b), 6.01(h), 6.01(r), 6.01(y) or 6.01(z) and (ii) are subject to a Permitted Pari Passu Intercreditor Agreement; provided , that, if any pari passu Liens pursuant to this clause (ii) secure Indebtedness that is in the form of a Pari Term Loan incurred pursuant to Section 6.01(r) or Section 6.01(z), then such Pari Term Loans shall be subject to the last paragraph of this Section 6.02;
(jj) [Reserved];
(kk) Liens to secure any Indebtedness issued or incurred to Refinance (or successive Indebtedness issued or incurred for subsequent Refinancings) as a whole, or in part, any Indebtedness secured by any Lien permitted by this Section 6.02; provided , however , that (v) with respect to any Liens on the Collateral being incurred under this clause (kk), if Liens on the Collateral securing the Indebtedness being Refinanced (if any) were secured on a basis junior to the Liens securing the Term B Loans, then such Liens on such Collateral being incurred under this clause (kk) shall also be secured on a basis junior to the Liens securing the Term B Loans, (w) with respect to any Liens on the Collateral being incurred under this clause (kk), if Liens on the Collateral securing the Indebtedness being Refinanced (if any) were secured on a basis pari passu with the Liens securing the Term B Loans, then such Liens on such Collateral being incurred under this clause (kk) may also be secured on a basis pari passu with the Liens securing the Term B Loans, so long as such Liens are subject to a Permitted Pari Passu Intercreditor Agreement, (x) (other than Liens contemplated by the foregoing clauses (v) and (w)) such new Lien shall be limited to all or part of the same type of property that secured the original Lien ( plus improvements on and accessions to such property, proceeds and products thereof, customary security deposits and any other assets pursuant to after-acquired property clauses to the extent such assets secured (or would have secured) the Indebtedness being Refinanced), (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount (or accreted value, if applicable) or, if greater, committed amount of the applicable Indebtedness at the time the original Lien became a Lien permitted hereunder, (B) unpaid accrued interest and premium (including tender premiums) and (C) an amount necessary to pay any associated underwriting discounts, defeasance costs, fees, commissions and expenses, and (z) on the date of the incurrence of the Indebtedness secured by such Liens, the grantors of any such Liens shall be no different from the grantors of the Liens securing the Indebtedness being Refinanced or grantors that would have been obligated to secure such Indebtedness or a Loan Party;
(ll) other Liens with respect to property or assets of the Borrower or any Subsidiary securing obligations in an aggregate principal amount that at the time of, and after giving effect to, the incurrence of such Liens, would not exceed the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period; and
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(mm) Liens on property of, or on Equity Interests or Indebtedness of, any person existing at the time (A) such person becomes a Subsidiary of the Borrower or (B) such person or property is acquired by the Borrower or any Subsidiary; provided that (i) such Liens do not extend to any other assets of the Borrower or any Subsidiary (other than accessions and additions thereto and proceeds or products thereof and other than after-acquired property) and (ii) such Liens secure only those obligations which they secure on the date such person becomes a Subsidiary or the date of such acquisition (and any extensions, renewals, replacements or refinancings thereof).
For purposes of determining compliance with this Section 6.02, (A) a Lien securing an item of Indebtedness need not be permitted solely by reference to one category of permitted Liens (or any portion thereof) described in Sections 6.02(a) through (mm) but may be permitted in part under any combination thereof and (B) in the event that a Lien securing an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Liens (or any portion thereof) described in Sections 6.02(a) through (mm), the Borrower may, in its sole discretion, classify or reclassify, or later divide, classify or reclassify (as if incurred at such later time), such Lien securing such item of Indebtedness (or any portion thereof) in any manner that complies with this Section 6.02 and at the time of incurrence, classification or reclassification will be entitled to only include the amount and type of such Lien or such item of Indebtedness secured by such Lien (or any portion thereof) in one of the above clauses (or any portion thereof) and such Lien securing such item of Indebtedness (or any portion thereof) will be treated as being incurred or existing pursuant to only such clause or clauses (or any portion thereof) without giving pro forma effect to such item (or any portion thereof) when calculating the amount of Liens or Indebtedness that may be incurred, classified or reclassified pursuant to any other clause (or any portion thereof) at such time. In addition, with respect to any revolving loan Indebtedness or commitment to incur Indebtedness that is designated to be incurred on any Deemed Date pursuant to clause (C) of the third paragraph of Section 6.01, any Lien that does or that shall secure such Indebtedness may also be designated by the Borrower or any Subsidiary to be incurred on such Deemed Date and, in such event, any related subsequent actual incurrence of such Lien shall be deemed for purposes of Section 6.01 and 6.02 of this Agreement, without duplication, to be incurred on such prior date (and on any subsequent date until such commitment is funded or terminated or such election is rescinded), including for purposes of calculating usage of any Permitted Lien. In addition, with respect to any Lien securing Indebtedness that was permitted to secure such Indebtedness at the time of the incurrence of such Indebtedness, such Lien shall also be permitted to secure any Increased Amount of such Indebtedness.
With respect to any Pari Term Loans secured by Liens referred to in the proviso to Section 6.02(hh) or Section 6.02(ii), if the All-in Yield in respect of such Pari Term Loans exceeds the All-in Yield in respect of the Term B Loans on the Closing Date (such difference, the “ Pari Yield Differential ”) by more than 0.50%, then the Applicable Margin (or “LIBOR floor” as provided in the following proviso) applicable to the Term B Loans made on the Closing Date and the Effective Date shall be increased such that after giving effect to such increase, the Pari Yield Differential shall not exceed 0.50%; provided , that, to the extent any portion of the Pari Yield Differential is attributable to a higher “LIBOR floor” being applicable to such Pari Term Loans, such floor shall only be included in the calculation of the Pari Yield Differential to the extent such floor is greater than the Adjusted LIBO Rate in effect for an Interest Period of three months’ duration at such time, and, with respect to such excess, the “LIBOR floor” applicable to such outstanding Term B Loans shall be increased to an amount not to exceed the “LIBOR floor” applicable to such Pari Term Loans prior to any increase in the Applicable Margin applicable to such Term B Loans then outstanding.
Section 6.03 Sale and Lease-Back Transactions . Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter, as part of such transaction, rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred (a “ Sale and Lease-Back Transaction ”); provided , that a Sale and Lease-Back Transaction shall be permitted (a) with respect to (i) Excluded Property, (ii) property owned by
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the Borrower or any Subsidiary Loan Party that is acquired after the Closing Date so long as such Sale and Lease-Back Transaction is consummated within 180 days of the acquisition of such property or (iii) property owned by any Subsidiary that is not a Loan Party regardless of when such property was acquired, and (b) with respect to any other property owned by the Borrower or any Subsidiary Loan Party, (x) if at the time the lease in connection therewith is entered into, no Default or Event of Default shall have occurred and be continuing or would result therefrom and (y) with respect to any such Sale and Lease-Back Transaction pursuant to this clause (b) with aggregate Net Proceeds in excess of $5,000,000, the Borrower or the applicable Subsidiary Loan Party shall receive at least fair market value (as determined in good faith by the Borrower) or, if not for fair market value, the shortfall is permitted as an Investment under Section 6.04, and (z) the Net Proceeds therefrom are used to prepay the Term Loans to the extent required by Section 2.11(b).
Section 6.04 Investments, Loans and Advances . (i) Purchase or acquire (including pursuant to any merger with a person that is not a Wholly Owned Subsidiary immediately prior to such merger) any Equity Interests, evidences of Indebtedness or other securities of any other person, (ii) make any loans or advances to or Guarantees of the Indebtedness of any other person (other than loans or advances in respect of (A) intercompany current liabilities incurred in connection with the cash management operations of the Borrower and the Subsidiaries and (B) intercompany loans, advances or Indebtedness having a term not exceeding 364 days (inclusive of any roll-overs or extensions of terms) and made in the ordinary course of business or consistent with industry practices), or (iii) purchase or otherwise acquire, in one transaction or a series of related transactions, (x) all or substantially all of the property and assets or business of another person or (y) assets constituting a business unit, line of business or division of such person (each of the foregoing, an “ Investment ”), except:
(a) the Transactions;
(b) (i) Investments by the Borrower or any Subsidiary in the Equity Interests of the Borrower or any Subsidiary; (ii) intercompany loans from the Borrower or any Subsidiary to the Borrower or any Subsidiary; and (iii) Guarantees by the Borrower or any Subsidiary of Indebtedness otherwise permitted hereunder of the Borrower or any Subsidiary; provided , that as at any date of determination, the aggregate outstanding amount of (A) Investments (valued at the time of the making thereof and without giving effect to any write-downs or write-offs thereof) made after the Closing Date by the Loan Parties pursuant to subclause (i) in Subsidiaries that are not Subsidiary Loan Parties, plus (B) net outstanding intercompany loans made after the Closing Date by the Loan Parties to Subsidiaries that are not Subsidiary Loan Parties pursuant to subclause (ii), plus (C) outstanding Guarantees by the Loan Parties of Indebtedness after the Closing Date of Subsidiaries that are not Subsidiary Loan Parties pursuant to subclause (iii) shall not exceed the sum of (X) the greater of (1) $30,000,000 and (2) 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment;
(c) Permitted Investments and Investments that were Permitted Investments when made;
(d) Investments arising out of the receipt by the Borrower or any Subsidiary of non-cash consideration for the Disposition of assets permitted under Section 6.05;
(e) loans and advances to officers, directors, employees or consultants of the Borrower or any Subsidiary (i) in the ordinary course of business not to exceed the greater of $5,000,000 and 1.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period in the aggregate at any time outstanding (calculated without regard to write-downs or write-offs thereof), (ii) in respect of payroll payments and expenses in the ordinary course of business and (iii) in connection with such person’s purchase of Equity Interests of Holdings (or any Parent Entity) solely to the extent that the amount of such loans and advances shall be contributed to the Borrower in cash as common equity;
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(f) (i) accounts receivable, security deposits and prepayments arising, trade credit granted and Customer Development Agreements (and Customer Notes issued thereunder) (x) entered into in the ordinary course of business or (y) limited to an amount not to exceed $5,000,000 outstanding at any one time and (ii) any assets or securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss and any prepayments and other credits to suppliers made in the ordinary course of business;
(g) Hedging Agreements entered into for non-speculative purposes;
(h) Investments existing on, or contractually committed as of, the Closing Date consisting of intercompany loans or as set forth on Schedule 6.04 and any extensions, renewals or reinvestments thereof, so long as the aggregate amount of all Investments pursuant to this clause (h) is not increased at any time above the amount of such Investment existing or committed on the Closing Date (other than pursuant to an increase as required by the terms of any such Investment as in existence on the Closing Date);
(i) Investments resulting from pledges and deposits under Sections 6.02(f), (g), (o), (r), (s), (ee) and (ll);
(j) other Investments by the Borrower or any Subsidiary in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write-downs or write-offs thereof) not to exceed the sum of (X) the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, plus (Y) so long as no Event of Default shall have occurred and be continuing, any portion of the Cumulative Credit on the date of such election that the Borrower elects to apply to this Section 6.04(j)(Y) which such election shall (unless such Investment is made pursuant to clause (a) of the definition of “Cumulative Credit”) be set forth in a written notice of a Responsible Officer thereof, which notice shall set forth calculations in reasonable detail the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied, and plus (Z) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment pursuant to clause (X); provided , that if any Investment pursuant to this Section 6.04(j) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Borrower, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) (to the extent permitted by the proviso thereto in the case of any Subsidiary that is not a Loan Party) and not in reliance on this Section 6.04(j);
(k) Investments constituting Permitted Business Acquisitions;
(l) intercompany loans between Subsidiaries that are not Loan Parties and Guarantees by Subsidiaries that are not Loan Parties permitted by Section 6.01(m);
(m) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with or judgments against, customers and suppliers, in each case in the ordinary course of business or Investments acquired by the Borrower or a Subsidiary as a result of a foreclosure by the Borrower or any of the Subsidiaries with respect to any secured Investments or other transfer of title with respect to any secured Investment in default;
(n) Investments of a Subsidiary acquired after the Closing Date or of a person merged into the Borrower or merged into or consolidated with a Subsidiary after the Closing Date, in each case, (i) to the extent such acquisition, merger or consolidation is permitted under this Section 6.04, (ii) in the case of any acquisition, merger or consolidation, in accordance with Section 6.05 and (iii) to the extent that such Investments were not made in contemplation of or in connection with such acquisition, merger or consolidation and were in existence on the date of such acquisition, merger or consolidation;
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(o) acquisitions by the Borrower of obligations of one or more officers or other employees of Holdings, any Parent Entity, the Borrower or its Subsidiaries in connection with such officer’s or employee’s acquisition of Equity Interests of Holdings or any Parent Entity, so long as no cash is actually advanced by the Borrower or any of the Subsidiaries to such officers or employees in connection with the acquisition of any such obligations;
(p) Guarantees by the Borrower or any Subsidiary of operating leases (other than Capitalized Lease Obligations) or of other obligations that do not constitute Indebtedness, in each case entered into by the Borrower or any Subsidiary in the ordinary course of business;
(q) Investments to the extent that payment for such Investments is made with Equity Interests of the Borrower, Holdings or any Parent Entity; provided , that the issuance of such Equity Interests are not included in any determination of the Cumulative Credit;
(r) [Reserved];
(s) Investments consisting of Restricted Payments permitted under Section 6.06;
(t) Investments in the ordinary course of business consisting of Uniform Commercial Code Article 3 endorsements for collection or deposit and Uniform Commercial Code Article 4 customary trade arrangements with customers;
(u) Investments in Subsidiaries that are not Loan Parties after giving effect to the applicable Investments in an aggregate outstanding amount (valued at the time of the making thereof and without giving effect to any write-downs or write-offs thereof) not to exceed the sum of (x) the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period in the aggregate plus (y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of Investments theretofore made pursuant to this Section 6.04(u);
(v) Guarantees permitted under Section 6.01 (except to the extent such Guarantee is expressly subject to this Section 6.04);
(w) advances in the form of a prepayment of expenses, so long as such expenses are being paid in accordance with customary trade terms of the Borrower or such Subsidiary;
(x) Investments by the Borrower and its Subsidiaries, including loans to any direct or indirect parent of the Borrower, if the Borrower or any other Subsidiary would otherwise be permitted to make a Restricted Payment in such amount ( provided , that the amount of any such Investment shall also be deemed to be a Restricted Payment under the appropriate clause of Section 6.06 for all purposes of this Agreement);
(y) Investments consisting of Receivable Assets or arising as a result of Permitted Receivables Financings;
(z) Investments consisting of the licensing or contribution of Intellectual Property pursuant to joint marketing or other arrangements with other persons;
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(aa) to the extent constituting Investments, purchases and acquisitions of inventory, supplies, materials and equipment or purchases of contract rights or licenses or leases of Intellectual Property in each case in the ordinary course of business;
(bb) Investments received substantially contemporaneously in exchange for Equity Interests of the Borrower, Holdings or any Parent Entity; provided , that the issuance of such Equity Interests are not included in any determination of the Cumulative Credit;
(cc) Guarantees of Indebtedness in respect of ordinary course customer financing lines of credit;
(dd) Investments in joint ventures in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write downs or write offs thereof) not to exceed the sum of (X) the greater of $30,000,000 and 4.25% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment; provided , that if any Investment pursuant to this clause (dd) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Borrower, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) (to the extent permitted by the proviso thereto in the case of any Subsidiary that is not a Loan Party) and not in reliance on this Section 6.04(dd); and
(ee) Investments in Similar Businesses in an aggregate outstanding amount (valued at the time of the making thereof, and without giving effect to any write downs or write offs thereof) not to exceed the sum of (X) the greater of $30,000,000 and 5% of the Consolidated Total Assets as at the end of the then most recently ended Test Period plus (Y) an amount equal to any returns (including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts) actually received in respect of any such Investment; provided , that if any Investment pursuant to this clause (ee) is made in any person that was not a Subsidiary on the date on which such Investment was made but becomes a Subsidiary thereafter, then such Investment may, at the option of the Borrower, upon such person becoming a Subsidiary and so long as such person remains a Subsidiary, be deemed to have been made pursuant to Section 6.04(b) (to the extent permitted by the proviso thereto in the case of any Subsidiary that is not a Loan Party) and not in reliance on this Section 6.04(ee).
The amount of Investments that may be made at any time pursuant to Section 6.04(b), 6.04(j) or 6.04(ee) (such Sections, the “ Related Sections ”) may, at the election of the Borrower, be increased by the amount of Investments that could be made at such time under the other Related Section; provided , that the amount of each such increase in respect of one Related Section shall be treated as having been used under the other Related Section.
Any Investment in any person other than the Borrower or a Subsidiary Loan Party that is otherwise permitted by this Section 6.04 may be made through intermediate Investments in Subsidiaries that are not Loan Parties and such intermediate Investments shall be disregarded for purposes of determining the outstanding amount of Investments pursuant to any clause set forth above. The amount of any Investment made other than in the form of cash or cash equivalents shall be the fair market value thereof (as determined by the Borrower in good faith) valued at the time of the making thereof, and without giving effect to any subsequent write-downs or write-offs thereof.
Section 6.05 Mergers, Consolidations, Sales of Assets and Acquisitions . Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or Dispose of (in one transaction or in a series of related transactions) all or any part of its assets (whether now owned or hereafter acquired), or Dispose of any Equity Interests of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of related transactions) all of the assets of any other person or division or line of business of a person, except that this Section 6.05 shall not prohibit:
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(a) (i) the purchase and Disposition of inventory, or the sale of receivables pursuant to non-recourse factoring arrangements, or the Disposition of any Customer Notes, in each case in the ordinary course of business by the Borrower or any Subsidiary, (ii) the acquisition or lease (pursuant to an operating lease) of any other asset in the ordinary course of business by the Borrower or any Subsidiary or, with respect to operating leases, otherwise for fair market value on market terms (as determined in good faith by the Borrower), (iii) the Disposition of surplus, obsolete, damaged or worn out equipment or other property in the ordinary course of business by the Borrower or any Subsidiary or (iv) the Disposition of Permitted Investments in the ordinary course of business;
(b) if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing or would result therefrom, (i) the merger or consolidation of any Subsidiary with or into the Borrower in a transaction in which the Borrower is the survivor, (ii) the merger or consolidation of any Subsidiary with or into any Subsidiary Loan Party in a transaction in which the surviving or resulting entity is or becomes a Subsidiary Loan Party and, in the case of each of clauses (i) and (ii), no person other than the Borrower or a Subsidiary Loan Party receives any consideration (unless otherwise permitted by Section 6.04), (iii) the merger or consolidation of any Subsidiary that is not a Subsidiary Loan Party with or into any other Subsidiary that is not a Subsidiary Loan Party, (iv) the liquidation or dissolution or change in form of entity of any Subsidiary if the Borrower determines in good faith that such liquidation, dissolution or change in form is in the best interests of the Borrower and is not materially disadvantageous to the Lenders or (v) any Subsidiary may merge or consolidate with any other person in order to effect an Investment permitted pursuant to Section 6.04 so long as the continuing or surviving person shall be a Subsidiary (unless otherwise permitted by Section 6.04), which shall be a Loan Party if the merging or consolidating Subsidiary was a Loan Party and which together with each of its Subsidiaries shall have complied with the requirements of Section 5.10;
(c) Dispositions to the Borrower or a Subsidiary (upon voluntary liquidation or otherwise); provided , that any Dispositions by a Loan Party to a Subsidiary that is not a Subsidiary Loan Party in reliance on this clause (c) shall be made in compliance with Section 6.07;
(d) Sale and Lease-Back Transactions permitted by Section 6.03;
(e) Investments permitted by Section 6.04, Permitted Liens, and Restricted Payments permitted by Section 6.06;
(f) Dispositions of defaulted receivables in the ordinary course of business and not as part of an accounts receivables financing transaction;
(g) other Dispositions of assets; provided , that the Net Proceeds thereof, if any, are applied in accordance with Section 2.11(b);
(h) Permitted Business Acquisitions (including any merger, consolidation or amalgamation in order to effect a Permitted Business Acquisition); provided , that following any such merger, consolidation or amalgamation involving the Borrower, the Borrower is the surviving corporation;
(i) leases, licenses or subleases or sublicenses any real or personal property in the ordinary course of business;
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(j) Dispositions of inventory or Dispositions or abandonment of Intellectual Property of the Borrower and its Subsidiaries determined in good faith business judgment of the management of the Borrower to be no longer useful or necessary in the operation of the business of the Borrower or any of the Subsidiaries;
(k) acquisitions and purchases made with the proceeds of any Asset Sale pursuant to the first proviso of clause (a) of the definition of “Net Proceeds”;
(l) the purchase and Disposition (including by capital contribution) of Receivables Assets including pursuant to Permitted Receivables Financings; and
(m) any exchange of assets for services and/or other assets of comparable or greater value; provided , that (i) at least 90% of the consideration received by the transferor consists of assets that will be used in a business or business activity permitted hereunder and (ii) in the event of a swap with a fair market value (as determined in good faith by the Borrower) in excess of $5,000,000, the Administrative Agent shall have received a certificate from a Responsible Officer of the Borrower with respect to such fair market value; provided , further , that (A) the aggregate gross consideration (including exchange assets, other non-cash consideration and cash proceeds) of any or all assets exchanged in reliance upon this clause (m) shall not exceed, in any fiscal year of the Borrower, the greater of $20,000,000 and 3% of the Consolidated Total Assets as at the end of the then most recently ended Test Period, (B) no Default or Event of Default exists or would result therefrom, and (C) the Net Proceeds, if any, thereof are applied in accordance with Section 2.11(b).
Notwithstanding anything to the contrary contained in Section 6.05 above, (i) no Disposition of assets under Section 6.05(d) (to the extent required under Section 6.03(b)) or Section 6.05(g) shall be permitted unless such Disposition is for fair market value (as determined in good faith by the Borrower), or if not for fair market value, the shortfall is permitted as an Investment under Section 6.04, and (ii) no Disposition of assets under Section 6.05(g) or Section 6.05(d) (to the extent required under Section 6.03(b)) shall be permitted unless such Disposition (except to Loan Parties) is for at least 75% cash consideration; provided , that the provisions of this clause (ii) shall not apply to any individual transaction or series of related transactions involving assets with a fair market value (as determined in good faith by the Borrower) of less than $5,000,000; provided , further , that for purposes of this clause (ii), each of the following shall be deemed to be cash: (a) the amount of any liabilities (as shown on the Borrower’s or such Subsidiary’s most recent balance sheet or in the notes thereto) that are assumed by the transferee of any such assets or are otherwise cancelled in connection with such transaction, (b) any notes or other obligations or other securities or assets received by the Borrower or such Subsidiary from the transferee that are converted by the Borrower or such Subsidiary into cash within 180 days after receipt thereof (to the extent of the cash received) and (c) any Designated Non-Cash Consideration received by the Borrower or any of its Subsidiaries in such Disposition having an aggregate fair market value (as determined in good faith by the Borrower), taken together with all other Designated Non-Cash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed the greater of $30,000,000 and 4.25% of Consolidated Total Assets as at the end of the Test Period ended immediately prior to the receipt of such Designated Non-Cash Consideration (with the fair market value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value).
Section 6.06 Dividends and Distributions . Declare or pay any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any of its Equity Interests (other than dividends and distributions on Equity Interests payable solely by the issuance of additional Equity Interests (other than Disqualified Stock) of the person paying such dividends or distributions) or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any of the Borrower’s Equity Interests or set aside any amount for any such purpose (other than through the issuance of additional Equity Interests (other than Disqualified Stock) of the person redeeming, purchasing, retiring or acquiring such shares) (all of the foregoing, “ Restricted Payments ”); provided , however , that:
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(a) Restricted Payments may be made to the Borrower or any Wholly Owned Subsidiary of the Borrower (or, in the case of non-Wholly Owned Subsidiaries, to the Borrower or any Subsidiary that is a direct or indirect parent of such Subsidiary and to each other owner of Equity Interests of such Subsidiary on a pro rata basis (or more favorable basis from the perspective of the Borrower or such Subsidiary) based on their relative ownership interests);
(b) Restricted Payments may be made in respect of (i) overhead, legal, accounting and other professional fees and expenses of Holdings or any Parent Entity, (ii) fees and expenses related to any public offering or private placement of Equity Interests or debt securities of Holdings or any Parent Entity whether or not consummated, (iii) franchise and similar taxes and other fees and expenses in connection with the maintenance of its (and any Parent Entity’s) existence and its (or any Parent Entity’s indirect) ownership of the Borrower, (iv) payments permitted by Section 6.07(b) (other than Section 6.07(b)(vii)), (v) in respect of any taxable period for which the Borrower and/or any of its Subsidiaries are members of a consolidated, combined, affiliated, unitary or similar tax group for U.S. federal and/or applicable state, local or foreign tax purposes of which a direct or indirect parent of the Borrower is the common parent, or for which the Borrower is a disregarded entity for U.S. federal income tax purposes that is wholly owned (directly or indirectly) by a C corporation for U.S. federal and/or applicable state or local income tax purposes, distributions to any direct or indirect parent of the Borrower in an amount not to exceed the amount of any U.S. federal, state, local or foreign taxes that the Borrower and/or its Subsidiaries, as applicable, would have paid for such taxable period had the Borrower and/or its Subsidiaries, as applicable, been a stand-alone corporate taxpayer or a stand-alone corporate group, and (vi) customary salary, bonus and other benefits payable to, and indemnities provided on behalf of, officers, directors and employees of Holdings or any Parent Entity, in each case in order to permit Holdings or any Parent Entity to make such payments; provided , that in the case of sub-clauses (i) and (iii), the amount of such Restricted Payments shall not exceed the portion of any amounts referred to in such sub-clauses (i) and (iii) that are allocable to the Borrower and its Subsidiaries (which shall be 100% at any time that, as the case may be, (x) Holdings owns no material assets other than the Equity Interests in the Borrower and assets incidental to such equity ownership or (y) any Parent Entity owns directly or indirectly no material assets other than Equity Interests in Holdings and any Parent Entity and assets incidental to such equity ownership);
(c) Restricted Payments may be made to Holdings, the proceeds of which are used to purchase or redeem the Equity Interests of Holdings or any Parent Entity (including related stock appreciation rights or similar securities) held by then present or former directors, consultants, officers or employees of any Parent Entity, Holdings, the Borrower or any of the Subsidiaries or by any Plan or any shareholders’ agreement then in effect upon such person’s death, disability, retirement or termination of employment or under the terms of any such Plan or any other agreement under which such shares of stock or related rights were issued; provided , that the aggregate amount of such purchases or redemptions under this clause (c) shall not exceed in any fiscal year $4,000,000 (which shall increase to $8,000,000 subsequent to a Qualified IPO) (plus (x) the amount of net proceeds contributed to the Borrower that were (x) received by Holdings or any Parent Entity during such calendar year from sales of Equity Interests of Holdings or any Parent Entity to directors, consultants, officers or employees of Holdings, any Parent Entity, the Borrower or any Subsidiary in connection with permitted employee compensation and incentive arrangements; provided , that such proceeds are not included in any determination of the Cumulative Credit, (y) the amount of net proceeds of any key-man life insurance policies received during such calendar year, and (z) the amount of any cash bonuses otherwise payable to members of management, directors or consultants of Holdings, any Parent Entity, the Borrower or the Subsidiaries in connection with the Transactions that are foregone in return for the receipt of Equity Interests), which, if not used in any year, may be carried forward to any subsequent calendar year; and provided , further , that cancellation of Indebtedness owing to the Borrower or any Subsidiary from members of management of Holdings, any Parent Entity, the Borrower or its Subsidiaries in connection with a repurchase of Equity Interests of Holdings or any Parent Entity will not be deemed to constitute a Restricted Payment for purposes of this Section 6.06;
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(d) any person may make non-cash repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options;
(e) Restricted Payments may be made in an aggregate amount equal to a portion of the Cumulative Credit on the date of such election that the Borrower elects to apply to this Section 6.06(e), which such election shall (unless such Restricted Payment is made pursuant to clause (a) of the definition of “Cumulative Credit”) be set forth in a written notice of a Responsible Officer of the Borrower, which notice shall set forth calculations in reasonable detail the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied; provided , that no Event of Default shall have occurred and be continuing or would result therefrom and, immediately after giving effect thereto, the Net First Lien Leverage Ratio on a Pro Forma Basis shall not be greater than 4.25 to 1.00;
(f) Restricted Payments in connection with the consummation of the Transactions;
(g) Restricted Payments may be made to pay, or to allow Holdings or any Parent Entity to make payments, in cash, in lieu of the issuance of fractional shares, upon the exercise of warrants or upon the conversion or exchange of Equity Interests of any such person;
(h) after a Qualified IPO, Restricted Payments may be made to pay, or to allow Holding or any Parent Entity to pay, dividends and make distributions to, or repurchase or redeem shares from, its equity holders in an amount equal to 6.0% per annum of the net proceeds received by the Borrower from any public offering of Equity Interests of the Borrower or any direct or indirect parent of the Borrower;
(i) Restricted Payments may be made to Holdings or any Parent Entity to finance any Investment that if made by the Borrower or any Subsidiary directly would be permitted to be made pursuant to Section 6.04; provided , that (A) such Restricted Payments shall be made substantially concurrently with the closing of such Investment and (B) such parent shall, immediately following the closing thereof, cause (1) all property acquired (whether assets or Equity Interests) to be contributed to the Borrower or a Subsidiary or (2) the merger, consolidation or amalgamation (to the extent permitted in Section 6.05) of the person formed or acquired into the Borrower or a Subsidiary in order to consummate such Permitted Business Acquisition or Investment, in each case, in accordance with the requirements of Section 5.10;
(j) other Restricted Payments, when taken together with any payments or distributions made pursuant to Section 6.09(b)(i)(F), may be made in an aggregate amount not to exceed $30,000,000;
(k) [reserved]; or
(l) Restricted Payments made with Excluded Contributions.
Notwithstanding anything herein to the contrary, the foregoing provisions of Section 6.06 will not prohibit the payment of any Restricted Payment or the consummation of any redemption, purchase, defeasance or other payment within 60 days after the date of declaration thereof or the giving of notice, as applicable, if at the date of declaration or the giving of such notice such payment would have complied with the provisions of this Agreement.
Section 6.07 Transactions with Affiliates .
(a) Sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transaction with, any of its Affiliates (other than the Borrower, Holdings, and the Subsidiaries or any person that becomes a Subsidiary as a result of such transaction) in a
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transaction (or series of related transactions) involving aggregate consideration in excess of $5,000,000, unless such transaction is (i) otherwise permitted (or required) under this Agreement or (ii) upon terms that are substantially no less favorable to the Borrower or such Subsidiary, as applicable, than would be obtained in a comparable arm’s-length transaction with a person that is not an Affiliate, as determined by the Board of Directors of the Borrower or such Subsidiary in good faith.
(b) The foregoing clause (a) shall not prohibit, to the extent otherwise permitted under this Agreement,
(i) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, equity purchase agreements, stock options and stock ownership plans approved by the board of directors of Holdings or of the Borrower,
(ii) loans or advances to employees or consultants of Holdings (or any Parent Entity), the Borrower or any of the Subsidiaries in accordance with Section 6.04(e),
(iii) transactions among the Borrower or any Subsidiary or any entity that becomes a Subsidiary as a result of such transaction (including via merger, consolidation or amalgamation in which the Borrower or a Subsidiary is the surviving entity),
(iv) the payment of fees, reasonable out-of-pocket costs and indemnities to directors, officers, consultants and employees of Holdings, any Parent Entity, the Borrower and the Subsidiaries in the ordinary course of business (limited, in the case of any Parent Entity, to the portion of such fees and expenses that are allocable to the Borrower and its Subsidiaries (which shall be 100% for so long as Holdings or such Parent Entity, as the case may be, owns no assets other than the Equity Interests in the Borrower, Holdings or any Parent Entity and assets incidental to the ownership of the Borrower and its Subsidiaries)),
(v) subject to the limitations set forth in Section 6.07(b)(xiv), if applicable, the Transactions and any transactions pursuant to the Loan Documents and permitted transactions, agreements and arrangements in existence on the Closing Date and, to the extent involving aggregate consideration in excess of $2,000,000, set forth on Schedule 6.07 or any amendment thereto or replacement thereof or similar arrangement to the extent such amendment, replacement or arrangement is not adverse to the Lenders when taken as a whole in any material respect (as determined by the Borrower in good faith),
(vi) (A) any employment agreements entered into by the Borrower or any of the Subsidiaries in the ordinary course of business, (B) any subscription agreement or similar agreement pertaining to the repurchase of Equity Interests pursuant to put/call rights or similar rights with employees, officers or directors, and (C) any employee compensation, benefit plan or arrangement, any health, disability or similar insurance plan which covers employees, and any reasonable employment contract and transactions pursuant thereto,
(vii) Restricted Payments permitted under Section 6.06, including payments to Holdings (and any Parent Entity), and Investments permitted under Section 6.04,
(viii) any purchase by Holdings of the Equity Interests of the Borrower; provided , that any Equity Interests of the Borrower purchased by Holdings shall be pledged to the Collateral Agent (and deliver the relevant certificates or other instruments (if any) representing such Equity Interests to the Collateral Agent) on behalf of the Lenders to the extent required by the Holdings Guarantee and Pledge Agreement,
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(ix) payments by the Borrower or any of the Subsidiaries to the Fund or any Fund Affiliate made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by the majority of the Board of Directors of the Borrower, or a majority of the Disinterested Directors of the Borrower, in good faith,
(x) transactions for the purchase or sale of goods, equipment, products, parts and services entered into in the ordinary course of business,
(xi) any transaction in respect of which the Borrower delivers to the Administrative Agent a letter addressed to the Board of Directors of the Borrower from an accounting, appraisal or investment banking firm, in each case of nationally recognized standing that is in the good faith determination of the Borrower qualified to render such letter, which letter states that (i) such transaction is on terms that are no less favorable to the Borrower or such Subsidiary, as applicable, than would be obtained in a comparable arm’s-length transaction with a person that is not an Affiliate or (ii) such transaction is fair to the Borrower or such Subsidiary, as applicable, from a financial point of view,
(xii) subject to subclause (xiv) below, if applicable, the payment of all fees, expenses, bonuses and awards related to the Transactions, including fees to the Fund or any Fund Affiliate,
(xiii) transactions with joint ventures for the purchase or sale of goods, equipment, products, parts and services entered into in the ordinary course of business,
(xiv) any agreement to pay, and the payment of, monitoring, consulting, management, transaction, advisory or similar fees payable to the Fund or any Fund Affiliate (A) in an aggregate amount in any fiscal year not to exceed the sum of (1) the greater of $1,000,000 and 3% of EBITDA for such fiscal year, plus reasonable out of pocket costs and expenses in connection therewith and unpaid amounts accrued for prior periods; plus (2) any deferred fees (to the extent such fees were within such amount in clause (A)(1) above originally), plus (B) 1% of the value of transactions with respect to which the Fund or any Fund Affiliate provides any transaction, advisory or other services, plus (C) so long as no Event of Default has occurred and is continuing, in the event of a Qualified IPO, the present value of all future amounts payable pursuant to any agreement referred to in clause (A)(1) above in connection with the termination of such agreement with the Fund and its Fund Affiliates; provided , that if any such payment pursuant to clause (C) is not permitted to be paid as a result of an Event of Default, such payment shall accrue and may be payable when no Events of Default are continuing to the extent that no further Event of Default would result therefrom,
(xv) the issuance, sale or transfer of Equity Interests of the Borrower, including in connection with capital contributions by Holdings (or any Parent Entity) to the Borrower,
(xvi) the issuance of Equity Interests to the management of Holdings, any Parent Entity, the Borrower or any Subsidiary in connection with the Transactions,
(xvii) payments by Holdings (and any Parent Entity), the Borrower and the Subsidiaries pursuant to a tax sharing agreement or arrangement (whether written or as a matter of practice) that complies with clause (v) of Section 6.06(b),
(xviii) transactions pursuant to any Permitted Receivables Financing,
(xix) payments, loans (or cancellation of loans) or advances to employees or consultants that are (i) approved by a majority of the Disinterested Directors of Holdings or the Borrower in good faith, (ii) made in compliance with applicable law and (iii) otherwise permitted under this Agreement,
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(xx) transactions with customers, clients or suppliers, purchasers or sellers of goods or services, in each case in the ordinary course of business or otherwise in compliance with the terms of this Agreement that are fair to the Borrower or the Subsidiaries,
(xxi) transactions between the Borrower or any of the Subsidiaries and any person, a director of which is also a director of the Borrower or any direct or indirect parent company of the Borrower; provided , however , that (A) such director abstains from voting as a director of the Borrower or such direct or indirect parent company, as the case may be, on any matter involving such other person and (B) such person is not an Affiliate of the Borrower for any reason other than such director’s acting in such capacity,
(xxii) transactions permitted by, and complying with, the provisions of Section 6.05,
(xxiii) intercompany transactions undertaken in good faith (as certified by a Responsible Officer of the Borrower) for the purpose of improving the consolidated tax efficiency of the Borrower and the Subsidiaries and not for the purpose of circumventing any covenant set forth herein, and
(xxiv) Investments by the Fund or a Fund Affiliate in securities of the Borrower or any of the Subsidiaries so long as (A) the Investment is being offered generally to other investors on the same or more favorable terms and (B) the Investment constitutes less than 5.0% of the outstanding issue amount of such class of securities.
Notwithstanding the foregoing, any portfolio company that is an Affiliate of the Fund or a Fund Affiliate shall not be considered an Affiliate of the Borrower or its Subsidiaries with respect to any transaction, so long as such transaction is in the ordinary course of business.
Section 6.08 Business of the Borrower and the Subsidiaries . Notwithstanding any other provisions hereof, engage at any time to any material respect in any business or business activity substantially different from any business or business activity conducted by any of them on the Closing Date or any Similar Business, and in the case of a Special Purpose Receivables Subsidiary, Permitted Receivables Financings.
Section 6.09 Limitation on Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc .
(a) Amend or modify in any manner materially adverse to the Lenders when taken as a whole (as determined in good faith by the Borrower), or grant any waiver or release under or terminate in any manner (if such granting or termination shall be materially adverse to the Lenders when taken as a whole (as determined in good faith by the Borrower)), the articles or certificate of incorporation, by-laws, limited liability company operating agreement, partnership agreement or other organizational documents of the Borrower or any of the Subsidiary Loan Parties.
(b) (i) Make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of, or in respect of, principal of or interest on any Indebtedness that is subordinated in right of payment to the Term B Loans (“ Junior Financing ”), or any payment or other distribution (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 in respect of any Junior Financing, except for:
(A) Refinancings with any Indebtedness permitted to be incurred under Section 6.01;
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(B) payments of regularly-scheduled interest and fees due thereunder, other non-principal payments thereunder, any mandatory prepayments of principal, interest and fees thereunder, scheduled payments thereon necessary to avoid the Junior Financing from constituting “applicable high yield discount obligations” within the meaning of Section 163(i)(l) of the Code, and, to the extent this Agreement is then in effect, principal on the scheduled maturity date of any Junior Financing (or within one year thereof);
(C) payments or distributions in respect of all or any portion of the Junior Financing with the proceeds contributed to the Borrower by Holdings from the issuance, sale or exchange by Holdings (or any Parent Entity) of Equity Interests that are not Disqualified Stock made within eighteen months prior thereto; provided , that such proceeds are not included in any determination of the Cumulative Credit;
(D) the conversion of any Junior Financing to Equity Interests of the Borrower, Holdings or any Parent Entity;
(E) so long as (1) no Event of Default has occurred and is continuing or would result therefrom and (2) after giving effect to such payments or distributions, the Net First Lien Leverage Ratio on a Pro Forma Basis is not greater than 4.25 to 1.00, payments or distributions in respect of Junior Financings prior to any scheduled maturity made, in an aggregate amount, not to exceed a portion of the Cumulative Credit on the date of such election that the Borrower elects to apply to this Section 6.09(b)(i)(E) in a written notice of a Responsible Officer thereof, which notice shall set forth calculations in reasonable detail of the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied; and
(F) other payments and distributions, when taken together with any payments or distributions made pursuant to Section 6.06(j), in an aggregate amount not to exceed $30,000,000; or
(ii) Amend or modify, or permit the amendment or modification of, any provision of any Junior Financing that constitutes Material Indebtedness, or any agreement, document or instrument evidencing or relating thereto, other than amendments or modifications that (A) are not materially adverse to Lenders when taken as a whole (as determined in good faith by the Borrower) and that do not affect the subordination or payment provisions thereof (if any) in a manner adverse to the Lenders when taken as a whole (as determined in good faith by the Borrower) or (B) otherwise comply with the definition of “Permitted Refinancing Indebtedness”.
(c) Permit any Material Subsidiary to enter into any agreement or instrument that by its terms restricts (i) the payment of dividends or distributions or the making of cash advances to the Borrower or any Subsidiary that is a direct or indirect parent of such Subsidiary or (ii) the granting of Liens by the Borrower or such Material Subsidiary that is a Loan Party pursuant to the Security Documents, in each case other than those arising under any Loan Document, except, in each case, restrictions existing by reason of:
(A) restrictions imposed by applicable law;
(B) contractual encumbrances or restrictions in effect on the Closing Date under Indebtedness existing on the Closing Date and set forth on Schedule 6.01 , any Refinancing Notes or any agreements related to any Permitted Refinancing Indebtedness in respect of any such Indebtedness that does not materially expand the scope of any such encumbrance or restriction (as determined in good faith by the Borrower);
(C) any restriction on a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of the Equity Interests or assets of a Subsidiary pending the closing of such sale or disposition;
(D) customary provisions in joint venture agreements and other similar agreements applicable to joint ventures entered into in the ordinary course of business;
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(E) any restrictions imposed by any agreement relating to secured Indebtedness permitted by this Agreement to the extent that such restrictions apply only to the specific property or assets securing such Indebtedness;
(F) any restrictions imposed by any agreement relating to Indebtedness incurred pursuant to Section 6.01 or Permitted Refinancing Indebtedness in respect thereof, to the extent such restrictions are not materially more restrictive, taken as a whole, than the restrictions contained in this Agreement (as determined in good faith by the Borrower);
(G) customary provisions contained in leases or licenses of Intellectual Property and other similar agreements entered into in the ordinary course of business;
(H) customary provisions restricting subletting or assignment of any lease governing a leasehold interest;
(I) customary provisions restricting assignment of any agreement entered into in the ordinary course of business;
(J) customary restrictions and conditions contained in any agreement relating to the sale, transfer, lease or other disposition of any asset permitted under Section 6.05 pending the consummation of such sale, transfer, lease or other disposition;
(K) customary restrictions and conditions contained in the document relating to any Lien, so long as (1) such Lien is a Permitted Lien and such restrictions or conditions relate only to the specific asset subject to such Lien, and (2) such restrictions and conditions are not created for the purpose of avoiding the restrictions imposed by this Section 6.09;
(L) customary net worth provisions contained in Real Property leases entered into by Subsidiaries, so long as the Borrower has determined in good faith that such net worth provisions would not reasonably be expected to impair the ability of the Borrower and its Subsidiaries to meet their ongoing obligations;
(M) any agreement in effect at the time such subsidiary becomes a Subsidiary, so long as such agreement was not entered into in contemplation of such person becoming a Subsidiary;
(N) restrictions in agreements representing Indebtedness permitted under Section 6.01 of a Subsidiary of the Borrower that is not a Subsidiary Loan Party;
(O) customary restrictions contained in leases, subleases, licenses or Equity Interests or asset sale agreements otherwise permitted hereby as long as such restrictions relate to the Equity Interests and assets subject thereto;
(P) restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business;
(Q) restrictions contained in any Permitted Receivables Document with respect to any Special Purpose Receivables Subsidiary; or
(R) any encumbrances or restrictions of the type referred to in Section 6.09(c)(i) and 6.09(c)(ii) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of or similar arrangements to the contracts, instruments or obligations referred to in clauses (A) through (Q) above; provided , that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or similar arrangements are, in the good faith judgment of the
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Borrower, no more restrictive with respect to such dividend, other payment and Lien restrictions than those contained in the dividend, other payment or Lien restrictions as contemplated by such provisions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement, refinancing or similar arrangement.
Section 6.10 Fiscal Year . In the case of the Borrower, permit its fiscal year to end on any date other than December 31 without prior notice to the Administrative Agent.
Section 6.11 Net First Lien Leverage Ratio . Permit the Net First Lien Leverage Ratio on the last day of any fiscal quarter (beginning with the fiscal quarter ended on June 30, 2017) to exceed 6.00 to 1.00.
ARTICLE VIA
Holdings Negative Covenants
Holdings (prior to a Qualified IPO) covenants and agrees with each Lender that, until the Termination Date, unless the Required Lenders shall otherwise consent in writing, (a) Holdings will not create, incur, assume or permit to exist any Lien other than (i) Liens created under the Loan Documents and (ii) Liens not prohibited by Section 6.02 on any of the Equity Interests issued by the Borrower held by Holdings, (b) Holdings shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence; provided , that so long as no Default has occurred and is continuing or would result therefrom, Holdings may merge with any other person (and if it is not the survivor of such merger, the survivor shall assume Holdings’ obligations, as applicable, under the Loan Documents) and (c) Holdings shall comply with clause (c) of the definition of “Change in Control.”
ARTICLE VII
Events of Default
Section 7.01 Events of Default . In case of the happening of any of the following events (each, an “ Event of Default ”):
(a) any representation or warranty made or deemed made by Holdings, the Borrower or any other Loan Party herein or in any other Loan Document or any certificate or document delivered pursuant hereto or thereto shall prove to have been false or misleading in any material respect when so made or deemed made; provided , that the failure of any representation or warranty made or deemed made by any Loan Party (other than the representations and warranties referred to in clause (i) of Section 4.01(b)) to be true and correct in any material respect on the Closing Date will not constitute an Event of Default hereunder;
(b) default shall be made in the payment of any principal of any Loan 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 by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Loan or the reimbursement with respect to any L/C Disbursement or in the payment of any Fee or any other amount (other than an amount referred to in clause (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five Business Days;
(d) default shall be made in the due observance or performance by the Borrower of any covenant, condition or agreement contained in, Section 5.01(a), 5.05(a) or 5.08 or in Article VI;
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(e) default shall be made in the due observance or performance by Holdings (prior to a Qualified IPO), the Borrower or any of the Subsidiary Loan Parties of any covenant, condition or agreement contained in any Loan Document (other than those specified in clauses (b), (c) and (d) above) and such default shall continue unremedied for a period of 30 days (or 60 days if such default results solely from the failure of a Subsidiary that is not a Loan Party to duly observe or perform any such covenant, condition or agreement) after notice thereof from the Administrative Agent to the Borrower;
(f) (i) any event or condition occurs that (A) results in any Material Indebtedness becoming due prior to its scheduled maturity or (B) enables or permits (with all applicable grace periods having expired) 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 prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; or (ii) the Borrower or any of the Subsidiaries shall fail to pay the principal of any Material Indebtedness at the stated final maturity thereof; provided , that this clause (f) shall not apply to any secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness;
(g) there shall have occurred a Change in Control;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any of the Material Subsidiaries, or of a substantial part of the property or assets of the Borrower or any Material Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of the Material Subsidiaries or for a substantial part of the property or assets of the Borrower or any of the Material Subsidiaries or (iii) the winding-up or liquidation of the Borrower or any Material Subsidiary (except in a transaction permitted hereunder); and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (h) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of the Material Subsidiaries or for a substantial part of the property or assets of the Borrower or any Material Subsidiary, (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) become unable or admit in writing its inability or fail generally to pay its debts as they become due;
(j) the failure by the Borrower or any Material Subsidiary to pay one or more final judgments aggregating in excess of $15,000,000 (to the extent not covered by insurance), which judgments are not discharged or effectively waived or stayed for a period of 45 consecutive days, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Material Subsidiary to enforce any such judgment;
(k) (i) an ERISA Event or ERISA Events shall have occurred, (ii) the PBGC shall institute proceedings (including giving notice of intent thereof) to terminate any Plan or Plans, (iii) the Borrower or any Subsidiary or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, or (iv) the Borrower or any Subsidiary shall
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engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan; and in each case in clauses (i) through (iv) above, such event or condition, together with all other such events or conditions, if any, would reasonably be expected to have a Material Adverse Effect; or
(l) (i) any Loan Document shall for any reason be asserted in writing by Holdings (prior to a Qualified IPO), the Borrower or any Subsidiary Loan Party not to be a legal, valid and binding obligation of any party thereto (other than in accordance with the terms thereof), (ii) any security interest purported to be created by any Security Document and to extend to assets that constitute a material portion of the Collateral shall cease to be, or shall be asserted in writing by the Borrower or any other Loan Party not to be (other than in accordance with the terms thereof), a valid and perfected security interest (perfected as or having the priority required by this Agreement or the relevant Security Document and subject to such limitations and restrictions as are set forth herein and therein) in the securities, assets or properties covered thereby, except to the extent that any such loss of perfection or priority results from the limitations of foreign laws, rules and regulations as they apply to pledges of Equity Interests in Foreign Subsidiaries or the application thereof, or from the failure of the Collateral Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Agreement and the Holdings Guarantee and Pledge Agreement or to file Uniform Commercial Code continuation statements or take the actions described on Schedule 3.04 and except to the extent that such loss is covered by a lender’s title insurance policy and the Collateral Agent shall be reasonably satisfied with the credit of such insurer, or (iii) a material portion of the Guarantees pursuant to the Security Documents by Holdings (prior to a Qualified IPO) or the Subsidiary Loan Parties guaranteeing the Obligations shall cease to be in full force and effect (other than in accordance with the terms thereof), or shall be asserted in writing by Holdings (prior to a Qualified IPO) or any Subsidiary Loan Party not to be in effect or not to be legal, valid and binding obligations (other than in accordance with the terms thereof); provided , that no Event of Default shall occur under this Section 7.01(l) if the Loan Parties cooperate with the Collateral Agent to replace or perfect such security interest and Lien, such security interest and Lien is replaced and the rights, powers and privileges of the Secured Parties are not materially adversely affected by such replacement;
then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) above), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate forthwith the Commitments, (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding and (iii) if the Loans have been declared due and payable pursuant to clause (ii) above, demand Cash Collateral pursuant to Section 2.05(j); and in any event with respect to the Borrower described in clause (h) or (i) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable and the Administrative Agent shall be deemed to have made a demand for Cash Collateral to the full extent permitted under Section 2.05(j), without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding.
For purposes of clauses (h) and (i) of this Section 7.01, “ Material Subsidiary ” shall mean any Subsidiary that would not be an Immaterial Subsidiary under clause (a) of the definition thereof.
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Section 7.02 Treatment of Certain Payments . Any amount received by the Administrative Agent or the Collateral Agent from any Loan Party (or from proceeds of any Collateral) following any acceleration of the Obligations under this Agreement or any Event of Default with respect to the Borrower under Section 7.01(h) or (i), in each case that is continuing, shall be applied: (i) first, to the payment of all reasonable and documented out-of-pocket costs and expenses and indemnification amounts then due to the Administrative Agent or the Collateral Agent from the Borrower and all fees owed to them in connection with the collection or sale or otherwise in connection with this Agreement or any other Loan Document, including all court costs and reasonable and documented fees and expenses of its agents and legal counsel, the repayment of all advances made by the Administrative Agent or the Collateral Agent under this Agreement or any other Loan Document on behalf of any Loan Party and any other reasonable and documented costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document in its capacity as such, (ii) second, towards payment in full of interest and fees then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, (iii) third, towards payment in full of principal of Swingline Loans and unreimbursed L/C Disbursements then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed L/C Disbursements then due to such parties, (iv) fourth, towards payment in full of other Obligations (including Obligations of the Loan Parties owing under or in respect of any Secured Cash Management Agreement or Secured Hedge Agreement) then due from the Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of such Obligations then due to such parties and (v) last, the balance, if any, after all of the Obligations have been paid in full, to the Borrower or as otherwise required by Requirements of Law.
Section 7.03 Right to Cure . Notwithstanding anything to the contrary contained in Section 7.01, in the event that the Borrower fails (or, but for the operation of this Section 7.03, would fail) to comply with the requirements of the Financial Covenant, from the last day of the applicable fiscal quarter until the expiration of the 10th Business Day subsequent to the date the certificate calculating such Financial Covenant is required to be delivered pursuant to Section 5.04(c), Holdings, the Borrower and any Parent Entity shall have the right to issue Permitted Cure Securities for cash or otherwise receive cash contributions to the capital of such entities, and in each case, to contribute any such cash to the capital of the Borrower (collectively, the “ Cure Right ”), and upon the receipt by the Borrower of such cash (the “ Cure Amount ”), pursuant to the exercise of the Cure Right, the Financial Covenant shall be recalculated giving effect to a pro forma adjustment by which EBITDA shall be increased with respect to such applicable quarter and any four-quarter period that contains such quarter, solely for the purpose of measuring the Financial Covenant and not for any other purpose under this Agreement, by an amount equal to the Cure Amount; provided , that (i) in each four consecutive fiscal quarter period there shall be at least two fiscal quarters in which a Cure Right is not exercised, (ii) a Cure Right shall not be exercised more than five times during the term of the Revolving Facility, (iii) for purposes of this Section 7.03, the Cure Amount shall be no greater than the amount required for purposes of complying with the Financial Covenant, (iv) there shall be no pro forma reduction in Indebtedness with the proceeds of the exercise of the Cure Right for determining compliance with the Financial Covenant for the fiscal quarter in respect of which such Cure Right is exercised (either directly through prepayment or indirectly as a result of the netting of unrestricted cash) and (v) the Cure Amount shall be disregarded for purposes of determining any financial ratio-based conditions, pricing or any baskets with respect to the covenants contained in this Agreement. If, after giving effect to the adjustments in this paragraph, the Borrower shall then be in compliance with the requirements of the Financial Covenant, the Borrower shall be deemed to have satisfied the requirements of the Financial Covenant as of the relevant date of determination with the same effect as though there had been no failure to comply therewith at such date, and the applicable breach or default of the Financial Covenant that had occurred shall be deemed cured for the purposes of this Agreement.
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ARTICLE VIII
The Agents
Section 8.01 Appointment .
(a) Each Lender (in its capacities as a Lender and the Swingline Lender (if applicable) and on behalf of itself and its Affiliates as potential counterparties to Secured Cash Management Agreements and Secured Hedge Agreements) and each Issuing Bank (in such capacities and on behalf of itself and its Affiliates as potential counterparties to Secured Cash Management Agreements and Secured Hedge Agreements) hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, including as the Collateral Agent for such Lender and the other Secured Parties under the Security Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. In addition, to the extent required under the laws of any jurisdiction other than the United States of America, each of the Lenders and the Issuing Banks hereby grants to the Administrative Agent any required powers of attorney to execute any Security Document governed by the laws of such jurisdiction on such Lender’s or Issuing Bank’s behalf. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent.
(b) In furtherance of the foregoing, each Lender (in its capacities as a Lender and the Swingline Lender (if applicable) and on behalf of itself and its Affiliates as potential counterparties to Secured Cash Management Agreements or Secured Hedge Agreements) and each Issuing Bank (in such capacities and on behalf of itself and its Affiliates as potential counterparties to Secured Cash Management Agreements and Secured Hedge Agreements) hereby appoints and authorizes the Collateral Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Collateral Agent (and any Subagents appointed by the Collateral Agent pursuant to Section 8.02 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Security Documents, or for exercising any rights or remedies thereunder at the direction of the Collateral Agent) shall be entitled to the benefits of this Article VIII (including, without limitation, Section 8.07) and Article IX (including, without limitation, Section 9.05) as though the Collateral Agent (and any such Subagents) were an “Agent” under the Loan Documents, as if set forth in full herein with respect thereto.
Section 8.02 Delegation of Duties . The Administrative Agent and the Collateral Agent may execute any of their respective duties under this Agreement and the other Loan Documents (including for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Each Agent may also from time to time, when it deems it to be necessary or desirable, appoint one or more trustees, co-trustees, collateral co-agents, collateral subagents or attorneys-in-fact (each, a “ Subagent ”) with respect to all or any part of the Collateral; provided , that no such Subagent shall be authorized to take any action with respect to any Collateral unless and except to the extent expressly authorized in writing by the Administrative Agent or the Collateral Agent. Should any instrument in writing from the Borrower or any other Loan Party be required by any Subagent so appointed by an Agent to more fully or certainly vest in and confirm to such Subagent such rights, powers, privileges and duties, the Borrower shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by such Agent. If any Subagent, or successor thereto, shall become incapable of acting, resign or be removed, all rights,
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powers, privileges and duties of such Subagent, to the extent permitted by law, shall automatically vest in and be exercised by the Administrative Agent or the Collateral Agent until the appointment of a new Subagent. No Agent shall be responsible for the negligence or misconduct of any agent, attorney-in-fact or Subagent that it selects with reasonable care.
Section 8.03 Exculpatory Provisions . None of the Agents, or their respective Affiliates or any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such person’s own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by any Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. No Agent shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. No Agent shall have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, (a) no Agent shall be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing, and (b) no Agent shall, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by such Agent or any of its Affiliates in any capacity. The Agents shall be deemed not to have knowledge of any Default or Event of Default unless and until written notice describing such Default or Event of Default is given to the Administrative Agent by the Borrower, a Lender or Issuing Bank. No Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Security Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. No Cash Management Bank or Hedge Bank that obtains the benefits of Section 7.02, any Guarantee or any Collateral by virtue of the provisions hereof or of any Guarantee or any Security 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. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements unless the Administrative Agent has received written notice of such Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Cash Management Bank or Hedge Bank, as the case may be.
Section 8.04 Reliance by Agents . Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) or conversation believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to any Credit Event, that by its
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terms must be fulfilled to the satisfaction of a Lender or any Issuing Bank, each Agent may presume that such condition is satisfactory to such Lender or Issuing Bank unless such Agent shall have received notice to the contrary from such Lender or Issuing Bank prior to such Credit Event. Each Agent may consult with legal counsel (including counsel to Holdings or the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Each Agent may deem and treat the Lender specified in the Register with respect to any amount owing hereunder as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with such Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all or other Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all or other Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.
Section 8.05 Notice of Default . Neither Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless such Agent has received written notice from a Lender, Holdings or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.” In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all or other Lenders); provided , that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.
Section 8.06 Non-Reliance on Agents and Other Lenders . Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender and Issuing Bank represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of, and investigation into the business, operations, property, financial and other condition and creditworthiness of, the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.
Section 8.07 Indemnification . The Lenders agree to indemnify each Agent and the Revolving Facility Lenders agree to indemnify each Issuing Bank, in each case in its capacity as such (to the extent not reimbursed by Holdings or the Borrower and without limiting the obligation of Holdings or the Borrower to do so), in the amount of its pro rata share (based on its aggregate Revolving Facility Credit Exposure and, in the case of the indemnification of each Agent, outstanding Term Loans and unused
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Commitments hereunder; provided , that the aggregate principal amount of Swingline Loans owing to the Swingline Lender and of L/C Disbursements owing to any Issuing Bank shall be considered to be owed to the Revolving Facility Lenders ratably in accordance with their respective Revolving Facility Credit Exposure) (determined at the time such indemnity is sought), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against such Agent or such Issuing Bank in any way relating to or arising out of the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent or such Issuing Bank under or in connection with any of the foregoing; provided , that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent’s or such Issuing Bank’s gross negligence or willful misconduct. The failure of any Lender to reimburse any Agent or any Issuing Bank, as the case may be, promptly upon demand for its ratable share of any amount required to be paid by the Lenders to such Agent or such Issuing Bank, as the case may be, as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse such Agent or such Issuing Bank, as the case may be, for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse such Agent or such Issuing Bank, as the case may be, for such other Lender’s ratable share of such amount. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.
Section 8.08 Agent in Its Individual Capacity . Each Agent and its affiliates may make loans to, accept deposits from, and generally engage in any kind of business with any Loan Party as though such Agent were not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued, or Letter of Credit or Swingline Loan participated in, by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms “Lender” and “Lenders” shall include each Agent in its individual capacity.
Section 8.09 Successor Administrative Agent . The Administrative Agent may resign as Administrative Agent and Collateral Agent upon 10 days’ notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent and Collateral Agent under this Agreement and the other Loan Documents, then the Required Lenders shall have the right, subject to the reasonable consent of the Borrower (so long as no Event of Default under Section 7.01(b), (c), (h) or (i) shall have occurred and be continuing), to appoint a successor which shall have an office in the United States, or an Affiliate of any such successor with an office in the United States, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent and Collateral Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective (except in the case of the Collateral Agent holding collateral security on behalf of such Secured Parties, the retiring Collateral Agent shall continue to hold such collateral security as nominee until such time as a successor Collateral Agent is appointed), and the Lenders shall assume and perform all of the duties of the Administrative Agent and Collateral Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this Section 8.09 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents.
Section 8.10 Arrangers and Co-Manager . Notwithstanding any other provision of this Agreement or any provision of any other Loan Document, each of the persons named on the cover page hereof as Joint Bookrunner, Joint Lead Arranger, or Co-Manager is named as such for recognition purposes
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only, and in its capacity as such shall have no rights, duties, responsibilities or liabilities with respect to this Agreement or any other Loan Document, except that each such person and its Affiliates shall be entitled to the rights expressly stated to be applicable to them in Sections 9.05 and 9.17 (subject to the applicable obligations and limitations as set forth therein).
Section 8.11 Security Documents, Collateral Agent and Collateral Agent . The Lenders and the other Secured Parties authorize the Collateral Agent to release any Collateral or Guarantors in accordance with Section 9.18 or if approved, authorized or ratified in accordance with Section 9.08.
The Lenders and the other Secured Parties hereby irrevocably authorize and instruct the Collateral Agent to, without any further consent of any Lender or any other Secured Party, enter into (or acknowledge and consent to) or amend, renew, extend, supplement, restate, replace, waive or otherwise modify any First Lien/First Lien Intercreditor Agreement, any First Lien/Second Lien Intercreditor Agreement, any other Permitted Junior Intercreditor Agreement, any other Permitted Pari Passu Intercreditor Agreement or any other intercreditor agreement with the collateral agent or other representatives of the holders of Indebtedness that is to be secured by a Lien on the Collateral that is not prohibited (including with respect to priority) under this Agreement and to subject the Liens on the Collateral securing the Obligations to the provisions thereof (any of the foregoing, an “ Intercreditor Agreement ”). The Lenders and the other Secured Parties irrevocably agree that (x) the Collateral Agent may rely exclusively on a certificate of a Responsible Officer of the Borrower as to whether any such other Liens are not prohibited and (y) any Intercreditor Agreement entered into by the Collateral Agent shall be binding on the Secured Parties, and each Lender and each other Secured Party hereby agrees that it will take no actions contrary to the provisions of, if entered into and if applicable, any Intercreditor Agreement. The foregoing provisions are intended as an inducement to any provider of any Indebtedness not prohibited by Section 6.01 hereof to extend credit to the Loan Parties and such persons are intended third-party beneficiaries of such provisions. Furthermore, the Lenders and the other Secured Parties hereby authorize the Administrative Agent and the Collateral Agent to release any Lien on any property granted to or held by the Administrative Agent or the Collateral Agent under any Loan Document (i) to the holder of any Lien on such property that is permitted by clauses (c), (i), (j), (aa) or (mm) of Section 6.02 or Section 6.02(a) (if the Liens thereunder are of a type that is contemplated by any of the foregoing clauses) in each case to the extent the contract or agreement pursuant to which such Lien is granted prohibits any other Liens on such property or (ii) that is or becomes Excluded Property; and the Administrative Agent and the Collateral Agent shall do so upon request of the Borrower; provided , that prior to any such request, the Borrower shall have in each case delivered to the Administrative Agent a certificate of a Responsible Officer of the Borrower certifying (x) that such Lien is permitted under this Agreement, (y) in the case of a request pursuant to clause (i) of this sentence, that the contract or agreement pursuant to which such Lien is granted prohibits any other Lien on such property and (z) in the case of a request pursuant to clause (ii) of this sentence, that (A) such property is or has become Excluded Property and (B) if such property has become Excluded Property as a result of a contractual restriction, such restriction does not violate Section 6.09(c).
Section 8.12 Right to Realize on Collateral and Enforce Guarantees . In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, (i) the Administrative Agent (irrespective of whether the principal of any Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise (A) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of any or all of the Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Banks and the Administrative Agent and any Subagents allowed in such judicial proceeding, and (B) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and (ii) any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and Issuing Bank to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders and the Issuing Banks, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any
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other amounts due the Administrative Agent under the Loan Documents. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or Issuing Bank or to authorize the Administrative Agent to vote in respect of the claim of any Lender or Issuing Bank in any such proceeding.
Anything contained in any of the Loan Documents to the contrary notwithstanding, the Borrower, the Administrative Agent, the Collateral Agent and each Secured Party hereby agree that (a) no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce the Guarantee, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by the Administrative Agent, on behalf of the Secured Parties in accordance with the terms hereof and all powers, rights and remedies under the Security Documents may be exercised solely by the Collateral Agent, and (b) in the event of a foreclosure by the Collateral Agent on any of the Collateral pursuant to a public or private sale or other disposition, any Agent or any Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition and the Collateral Agent, as agent for and representative of the Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless the Required Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by the Collateral Agent at such sale or other Disposition.
Section 8.13 Withholding Tax . To the extent required by any applicable Requirement of Law, the Administrative Agent may withhold from any payment to any Lender an amount equivalent to any applicable withholding Tax. If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold Tax from amounts paid to or for the account of any Lender for any reason (including because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from, or reduction of, withholding Tax ineffective), such Lender shall indemnify the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by any applicable Loan Party and without limiting the obligation of any applicable Loan Party to do so) fully for all amounts paid, directly or indirectly, by the Administrative Agent as Tax or otherwise, including penalties, fines, additions to Tax and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this Section 8.13.
ARTICLE IX
Miscellaneous
Section 9.01 Notices; Communications .
(a) Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in Section 9.01(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 telecopier or other electronic means as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i) if to any Loan Party, the Administrative Agent, or any Issuing Bank as of the Closing Date or the Swingline Lender to the address, telecopier number, electronic mail address or telephone number specified for such person on Schedule 9.01 ; and
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(ii) if to any other Lender or any other Issuing Bank, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.
(b) Notices and other communications to the Lenders and the Issuing Banks hereunder may be delivered or furnished by electronic communication (including e mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided , that the foregoing shall not apply to notices to any Lender or Issuing Bank pursuant to Article II if such Lender or Issuing Bank, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in their discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by them, provided, that approval of such procedures may be limited to particular notices or communications.
(c) Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received. Notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in Section 9.01(b) above shall be effective as provided in such Section 9.01(b).
(d) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.
(e) Documents required to be delivered pursuant to Section 5.04 may be delivered electronically (including as set forth in Section 9.17) and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 9.01 , or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided , that the Borrower shall notify the Administrative Agent (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Except for such certificates required by Section 5.04(c), the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Section 9.02 Survival of Agreement . All covenants, agreements, representations and warranties made by the Loan Parties herein, in the other Loan Documents and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and each Issuing Bank and shall survive the making by the Lenders of the Loans and the execution and delivery of the Loan Documents and the issuance of the Letters of Credit, regardless of any investigation made by such persons or on their behalf, and shall continue in full force and effect until the Termination Date. Without prejudice to the survival of any other agreements contained herein, indemnification and reimbursement obligations contained herein (including pursuant to Sections 2.15, 2.16, 2.17 and 9.05) shall survive the Termination Date.
Section 9.03 Binding Effect . This Agreement shall become effective when it shall have been executed by Holdings, the Borrower and the Administrative Agent and when the Administrative Agent shall have received copies 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 Holdings, the Borrower, the Administrative Agent, each Issuing Bank and each Lender and their respective permitted successors and assigns.
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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 an Issuing Bank that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower 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 9.04. 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 an Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in clause (c) of this Section 9.04), and, to the extent expressly contemplated hereby, the Related Parties of each of the Agents, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement or the other Loan Documents.
(b) (i) Subject to the conditions set forth in subclause (ii) below, any Lender may assign to one or more assignees (each, an “ Assignee ”) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:
(A) the Borrower, which consent, with respect to the assignment of a Term Loan, will be deemed to have been given if the Borrower has not responded within ten (10) Business Days after the delivery of any request for such consent; provided , that no consent of the Borrower shall be required for an assignment of a Term Loan to a Lender, an Affiliate of a Lender, an Approved Fund (as defined below), or in the case of assignments during the primary syndication of the Commitments and Loans to persons identified to and agreed by the Borrower in writing prior to the Closing Date, or for an assignment of a Revolving Facility Commitment or Revolving Facility Loan to a Revolving Facility Lender, an Affiliate of a Revolving Facility Lender or Approved Fund with respect to a Revolving Facility Lender, or, in each case, if an Event of Default under Section 7.01(b), (c), (h) or (i) has occurred and is continuing, any other person; and
(B) the Administrative Agent; provided , that no consent of the Administrative Agent shall be required for an assignment of all or any portion of a Term Loan to a Lender, an Affiliate of a Lender, an Approved Fund or an Affiliate of the Borrower made in accordance with Section 9.04(i) or Section 9.21; and
(C) the Issuing Banks and the Swingline Lender; provided , that no consent of the Issuing Banks and the Swingline Lender 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 Lender’s Commitments or Loans under any Facility, the amount of the Commitments or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than (x) $1,000,000 in the case of Term Loans and (y) $2,500,000 in the case of Revolving Facility Loans or Revolving Facility Commitments, unless each of the Borrower and the Administrative Agent otherwise consent; provided , that such amounts shall be aggregated in respect of each Lender and its Affiliates or Approved Funds (with simultaneous assignments to or by two or more Related Funds shall be treated as one assignment), if any;
(B) the parties to each assignment shall (1) execute and deliver to the Administrative Agent an Assignment and Acceptance via an electronic settlement system acceptable to the Administrative Agent or (2) if previously agreed with the Administrative Agent, manually execute and deliver to the Administrative Agent an Assignment and Acceptance, in each case together with a processing and recordation fee of $3,500 (which fee may be waived or reduced in the reasonable discretion of the Administrative Agent);
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(C) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire and any tax forms required to be delivered pursuant to Section 2.17; and
(D) the Assignee shall not be the Borrower or any of the Borrower’s Affiliates or Subsidiaries except in accordance with Section 9.04(i) or Section 9.21.
For the purposes of this Section 9.04, “ Approved Fund ” means any person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered 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. Notwithstanding the foregoing or anything to the contrary herein, no Lender shall be permitted to assign or transfer any portion of its rights and obligations under this Agreement to (A) any Ineligible Institution, (B) any Defaulting Lender or any of its Subsidiaries, or any person who, upon becoming a Lender hereunder, would constitute any of the foregoing persons described in this clause (B), or (C) a natural person. Notwithstanding the foregoing, each Loan Party and the Lenders acknowledge and agree that the Administrative Agent shall not have any responsibility or obligation to determine whether any Lender or potential Lender is an Ineligible Institution and the Administrative Agent shall have no liability with respect to any assignment made to an Ineligible Institution. Any assigning Lender shall, in connection with any potential assignment, provide to the Borrower a copy of its request (including the name of the prospective assignee) concurrently with its delivery of the same request to the Administrative Agent irrespective of whether or not an Event of Default under Section 7.01(b), (c), (h) or (i) has occurred and is continuing.
(iii) Subject to acceptance and recording thereof pursuant to subclause (v) below, from and after the effective date specified in each Assignment and Acceptance the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.05 (subject to the limitations and requirements of those Sections)); provided, that an Assignee shall not be entitled to receive any greater payment pursuant to Section 2.17 than the applicable Assignor would have been entitled to receive had no such assignment occurred. 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 clause (d) of this Section 9.04.
(iv) The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal and interest amounts of the Loans and Revolving L/C Exposure owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent, the Issuing Bank, the Swingline Lender and the Lenders shall treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Banks, the Swingline Lender and any Lender, at any reasonable time and from time to time upon reasonable prior notice; provided, that no Lender shall, in such capacity, have access to, or be otherwise permitted to review, any information in the Register other than information with respect to such Lender.
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(v) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an Assignee, the Assignee’s completed Administrative Questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in clause (b) of this Section, if applicable, and any written consent to such assignment required by clause (b) of this Section and any applicable tax forms, the Administrative Agent shall accept such Assignment and Acceptance and promptly record the information contained therein in the Register. No assignment, whether or not evidenced by a promissory note, shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this subclause (v).
(c) [Reserved].
(d) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations in Loans and Commitments to one or more banks or other entities other than (I) any Ineligible Institution (to the extent that the list of Ineligible Institutions has been made available to all Lenders; provided , that regardless of whether the list of Ineligible Institutions has been made available to all Lenders, no Lender may sell participations in Loans or Commitments to an Ineligible Institution without the consent of the Borrower if the list of Ineligible Institutions has been made available to such Lender) or (II) any Defaulting Lender or any of its Subsidiaries, or any person who, upon becoming a Lender hereunder, would constitute any of the foregoing persons described in this clause (II)) (a “ Participant ”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans owing to it); provided , that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and the other Loan Documents and to approve any amendment, modification or waiver of any provision of this Agreement and the other Loan Documents; provided , that (x) such agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver that both (1) requires the consent of each Lender directly affected thereby pursuant to clauses (i), (ii), (iii) or (vi) of the first proviso to Section 9.08(b) and (2) directly adversely affects such Participant (but, for the avoidance of doubt, not any waiver of any Default or Event of Default) and (y) no other agreement with respect to amendment, modification or waiver may exist between such Lender and such Participant. Subject to clause (d)(iii) of this Section 9.04, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the limitations and requirements of those Sections and Section 2.19) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to clause (b) of this Section 9.04. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.06 as though it were a Lender; provided , that such Participant shall be subject to Section 2.18(c) as though it were a Lender. Notwithstanding the foregoing, each Loan Party and the Lenders acknowledge and agree that the Administrative Agent shall not have any responsibility or obligation to determine whether any Participant or potential Participant is an Ineligible Institution and the Administrative Agent shall have no liability with respect to any participation made to an Ineligible Institution.
(ii) Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts and interest amounts of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “ Participant Register ”). The entries in the Participant Register shall be conclusive absent manifest error, and each party hereto shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. Without limitation of the requirements of Section 9.04(d), no Lender shall have any obligation to disclose all or any portion of a Participant Register to any person (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans or other Loan Obligations under any Loan Document), except to the extent that such disclosure is necessary to establish that such Commitment, Loan or other Loan Obligation is in registered form for U.S. federal income tax purposes or is otherwise required by applicable law. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
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(iii) A Participant shall not be entitled to receive any greater payment under Section 2.15, 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent (not to be unreasonably withheld or delayed), which consent shall state that it is being given pursuant to this Section 9.04(d)(iii); provided , that each potential Participant shall provide such information as is reasonably requested by the Borrower in order for the Borrower to determine whether to provide its consent.
(e) 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 in the case of any Lender that is an Approved Fund, any pledge or assignment to any holders of obligations owed, or securities issued, by such Lender, including to any trustee for, or any other representative of, such holders, and this Section 9.04 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.
(f) The Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in clause (e) above.
(g) Notwithstanding the foregoing, any Conduit Lender may assign any or all of the Loans it may have funded hereunder to its designating Lender without the consent of the Borrower or the Administrative Agent. Each of Holdings, the Borrower, each Lender and the Administrative Agent hereby confirms that it will not institute against a Conduit Lender or join any other person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided , however , that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto and each Loan Party for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance.
(h) If the Borrower wishes to replace the Loans or Commitments under any Facility with ones having different terms, it shall have the option, with the consent of the Administrative Agent and subject to at least three Business Days’ advance notice to the Lenders under such Facility, instead of prepaying the Loans or reducing or terminating the Commitments to be replaced, to (i) require the Lenders under such Facility to assign such Loans or Commitments to the Administrative Agent or its designees and (ii) amend the terms thereof in accordance with Section 9.08 (with such replacement, if applicable, being deemed to have been made pursuant to Section 9.08(d)). Pursuant to any such assignment, all Loans and Commitments to be replaced shall be purchased at par (allocated among the Lenders under such Facility in the same manner as would be required if such Loans were being optionally prepaid or such Commitments were being optionally reduced or terminated by the Borrower), accompanied by payment of any accrued interest and fees thereon and any amounts owing pursuant to Section 9.05(b). By receiving such purchase price, the Lenders under such Facility shall automatically be deemed to have assigned the Loans or Commitments under such Facility pursuant to the terms of the form of Assignment and Acceptance attached hereto as Exhibit A , and accordingly no other action by such Lenders shall be required in connection therewith. The provisions of this clause (h) are intended to facilitate the maintenance of the perfection and priority of existing security interests in the Collateral during any such replacement.
(i) Notwithstanding anything to the contrary in this Agreement, including Section 2.18(c) (which provisions shall not be applicable to clauses (i) or (j) of this Section 9.04), any of Holdings or its Subsidiaries, including the Borrower, may purchase by way of assignment and become an Assignee with respect to Term Loans at any time and from time to time from Lenders in accordance with Section 9.04(b) hereof (each, a “ Permitted Loan Purchase ”); provided , that, in respect of any Permitted Loan Purchase,
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(A) any such purchase occurs pursuant to Dutch auction procedures open to all Lenders of the relevant Class of Term Loans on a pro rata basis in accordance with customary procedures to be agreed between the Borrower and the Administrative Agent; provided , that any of Holdings or its Subsidiaries, including the Borrower shall be entitled to make open market purchases of the Term Loans without complying with such Dutch auction procedures so long as the aggregate principal amount (calculated on the par amount thereof) of all Term Loans purchased in open market purchases from the Closing Date does not exceed the Permitted Loan Purchase Amount, (B) no Permitted Loan Purchase shall be made from the proceeds of any extensions of credit under the Revolving Facility, (C) upon consummation of any such Permitted Loan Purchase, the Loans purchased pursuant thereto shall be deemed to be automatically and immediately cancelled and extinguished in accordance with Section 9.04(j), (D) in connection with any such Permitted Loan Purchase, any of Holdings or its Subsidiaries, including the Borrower, and such Lender that is the assignor (an “ Assignor ”) shall execute and deliver to the Administrative Agent a Permitted Loan Purchase Assignment and Acceptance (and for the avoidance of doubt, (x) shall make the representations and warranties set forth in the Permitted Loan Purchase Assignment and Acceptance and (y) shall not be required to execute and deliver an Assignment and Acceptance pursuant to Section 9.04(b)(ii)(B)) and shall otherwise comply with the conditions to assignments under this Section 9.04 and (E) no Default or Event of Default would exist after giving effect on a Pro Forma Basis to such Permitted Loan Purchase.
(j) Each Permitted Loan Purchase shall, for purposes of this Agreement be deemed to be an automatic and immediate cancellation and extinguishment of such Term Loans and the Borrower shall, upon consummation of any Permitted Loan Purchase, notify the Administrative Agent that the Register be updated to record such event as if it were a prepayment of such Loans.
(k) In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, each Issuing Bank or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swingline Loans in accordance with its Revolving Facility Percentage; provided , that notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
(l) Notwithstanding anything to the contrary herein, the rights of the Lenders to make assignments and grant participations shall be subject to the approval of any Gaming Authority, to the extent required by any applicable Gaming Laws.
Section 9.05 Expenses; Indemnity .
(a) The Borrower agrees to pay (i) all reasonable and documented out-of-pocket expenses (including Other Taxes) incurred by the Administrative Agent or the Collateral Agent in connection with the preparation of this Agreement and the other Loan Documents, or by the Administrative Agent or the Collateral Agent in connection with the administration of this Agreement and any amendments, modifications or waivers of the provisions hereof or thereof, including the reasonable fees, charges and disbursements of Cahill Gordon & Reindel LLP , counsel for the Administrative Agent, the Collateral Agent and the Arrangers and the Co-Manager and, if necessary, the reasonable fees, charges and disbursements of one local counsel per jurisdiction, and (ii) all reasonable and documented out-of-pocket expenses (including Other Taxes) incurred by the Agents, any Issuing Bank or any Lender in connection with the enforcement of their rights in connection with this Agreement and the other Loan Documents, in connection with the Loans made or the Letters of Credit issued hereunder, including the fees, charges and
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disbursements of a single counsel for all such persons, taken as a whole, and, if necessary, a single local counsel in each appropriate jurisdiction for all such persons, taken as a whole (and, in the case of an actual or perceived conflict of interest where such person affected by such conflict informs the Borrower of such conflict and thereafter retains its own counsel with the Borrower’s prior written consent (not to be unreasonably withheld), of another firm of counsel for such affected person).
(b) The Borrower agrees to indemnify the Administrative Agent, the Collateral Agent, the Arrangers, the Joint Bookrunners, the Co-Manager, each Issuing Bank, each Lender, each of their respective Affiliates, successors and assignors, and each of their respective directors, trustees, officers, employees, agents, trustees and advisors, (each such person being called an “ Indemnitee ”) against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements (excluding the allocated costs of in house counsel and limited to not more than one counsel for all such Indemnitees, taken as a whole, and, if necessary, a single local counsel in each appropriate jurisdiction for all such Indemnitees, taken as a whole (and, in the case of an actual or perceived conflict of interest where the Indemnitee affected by such conflict informs the Borrower of such conflict and thereafter retains its own counsel with the Borrower’s prior written consent (not to be unreasonably withheld), of another firm of counsel for such affected Indemnitee)), incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto and thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated hereby, (ii) the use of the proceeds of the Loans or the use of any Letter of Credit, (iii) any violation of or liability under Environmental Laws by, or of, the Borrower or any Subsidiary, (iv) any actual or alleged presence, Release or threatened Release of or exposure to Hazardous Materials at, under, on, from or to any property owned, leased or operated by the Borrower or any Subsidiary or (v) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto and regardless of whether such matter is initiated by a third party or by Holdings, the Borrower or any of their subsidiaries or Affiliates; provided , that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the gross negligence, bad faith or willful misconduct of such Indemnitee or any of its Related Parties, (y) arose from a material breach of such Indemnitee’s or any of its Related Parties’ obligations under any Loan Document (as determined by a court of competent jurisdiction in a final, non-appealable judgment) or (z) arose from any claim, actions, suits, inquiries, litigation, investigation or proceeding that does not involve an act or omission of the Borrower or any of its Affiliates and is brought by an Indemnitee against another Indemnitee (other than any claim, actions, suits, inquiries, litigation, investigation or proceeding against any Agent or an Arranger or the Co-Manager in its capacity as such). None of the Indemnitees (or any of their respective affiliates) shall be responsible or liable to the Fund, Holdings, the Borrower or any of their respective subsidiaries, Affiliates or stockholders or any other person or entity for any special, indirect, consequential or punitive damages, which may be alleged as a result of the Facilities or the Transactions. The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, any Issuing Bank or any Lender. All amounts due under this Section 9.05 shall be payable within fifteen (15) days of written demand therefor accompanied by reasonable documentation with respect to any reimbursement, indemnification or other amount requested.
(c) Except as expressly provided in Section 9.05(a) with respect to Other Taxes, which shall not be duplicative with any amounts paid pursuant to Section 2.17, this Section 9.05 shall not apply to any Taxes (other than Taxes that represent losses, claims, damages, liabilities and related expenses resulting from a non-Tax claim), which shall be governed exclusively by Section 2.17 and, to the extent set forth therein, Section 2.15.
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(d) To the fullest extent permitted by applicable law, Holdings and the Borrower shall not assert, and hereby waive, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e) The agreements in this Section 9.05 shall survive the resignation of the Administrative Agent, the Collateral Agent or any Issuing Bank, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all the other Obligations and the termination of this Agreement.
Section 9.06 Right of Set-off . If an Event of Default shall have occurred and be continuing, each Lender and each Issuing Bank 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) at any time held and other indebtedness at any time owing by such Lender or such Issuing Bank to or for the credit or the account of Holdings (prior to a Qualified IPO), the Borrower or any Subsidiary against any of and all the obligations of Holdings (prior to a Qualified IPO) or the Borrower now or hereafter existing under this Agreement or any other Loan Document held by such Lender or such Issuing Bank, irrespective of whether or not such Lender or such Issuing Bank shall have made any demand under this Agreement or such other Loan Document and although the obligations may be unmatured; provided , that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.22 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 and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender and each Issuing Bank under this Section 9.06 are in addition to other rights and remedies (including other rights of set-off) that such Lender or such Issuing Bank may have.
Section 9.07 Applicable Law . THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSES OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (OTHER THAN AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY PRINCIPLE OF CONFLICTS OF LAW THAT COULD REQUIRE THE APPLICATION OF ANY OTHER LAW.
Section 9.08 Waivers; Amendment .
(a) No failure or delay of the Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or 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 Administrative Agent, each Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by Holdings, the Borrower or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by clause (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on Holdings, the Borrower or any other Loan Party in any case shall entitle such person to any other or further notice or demand in similar or other circumstances.
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(b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (x) as provided in Section 2.21, (y) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Holdings (prior to a Qualified IPO), the Borrower and the Required Lenders (or, in respect of any waiver, amendment or modification of Section 4.01 after the Closing Date, solely as relates to the Revolving Facility Loans and Letters of Credit, the Required Revolving Facility Lenders voting as a single Class, rather than the Required Lenders), and (z) in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by each Loan Party party thereto and the Administrative Agent and consented to by the Required Lenders; provided , however , that no such agreement shall:
(i) decrease or forgive the principal amount of, or extend the final maturity of, or decrease the rate of interest on, any Loan or any L/C Disbursement, or extend the stated expiration of any Letter of Credit beyond the applicable Revolving Facility Maturity Date (except as provided in Section 2.05(c)), without the prior written consent of each Lender directly adversely affected thereby (which, notwithstanding the foregoing, such consent of such Lender directly adversely affected thereby shall be the only consent required hereunder to make such modification); provided , that any amendment to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest for purposes of this clause (i),
(ii) increase or extend the Commitment of any Lender, or decrease the Commitment Fees, L/C Participation Fees or any other Fees of any Lender without the prior written consent of such Lender (which, notwithstanding the foregoing, such consent of such Lender shall be the only consent required hereunder to make such modification); provided , that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the aggregate Commitments shall not constitute an increase of the Commitments of any Lender,
(iii) extend or waive any Term Loan Installment Date or reduce the amount due on any Term Loan Installment Date or extend any date on which payment of interest on any Loan or any L/C Disbursement or any Fees is due, without the prior written consent of each Lender directly adversely affected thereby (which, notwithstanding the foregoing, such consent of such Lender directly adversely affected thereby shall be the only consent required hereunder to make such modification),
(iv) amend the provisions of Section 2.18 or Section 7.02 in a manner that would by its terms alter the pro rata sharing of payments required thereby, without the prior written consent of each Lender adversely affected thereby (which, notwithstanding the foregoing, such consent of such Lender directly adversely affected thereby shall be the only consent required hereunder to make such modification),
(v) amend or modify the provisions of this Section 9.08 or the definition of the terms “Required Lenders,” “Majority Lenders” or 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 prior written consent of each Lender adversely affected thereby (it being understood that, with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Lenders on substantially the same basis as the Loans and Commitments are included on the Closing Date),
(vi) release all or substantially all of the Collateral or release all or substantially all of the Subsidiary Loan Parties from their respective Guarantees under the Subsidiary Guarantee Agreement, unless, in the case of a Subsidiary Loan Party, all or substantially all of the Equity Interests of such Subsidiary Loan Party is sold or otherwise disposed of in a transaction permitted by this Agreement or unless, in each case, such release is otherwise pursuant to the terms of the Collateral Agreement or the Subsidiary Guarantee Agreement, as applicable, without the prior written consent of each Lender;
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(vii) effect any waiver, amendment or modification that by its terms adversely affects the rights in respect of payments or collateral of Lenders participating in any Facility differently from those of Lenders participating in another Facility, without the consent of the Majority Lenders participating in the adversely affected Facility (it being agreed that the Required Lenders may waive, in whole or in part, any prepayment or Commitment reduction required by Section 2.11 so long as the application of any prepayment or Commitment reduction still required to be made is not changed);
provided , further , that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent, Swingline Lender or an Issuing Bank hereunder without the prior written consent of the Administrative Agent, the Collateral Agent, Swingline Lender or such Issuing Bank acting as such at the effective date of such agreement, as applicable. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section 9.08 and any consent by any Lender pursuant to this Section 9.08 shall bind any Assignee of such Lender.
(c) Without the consent of any Lender or Issuing Bank, the Loan Parties and the Administrative Agent and/or the Collateral Agent may (in their respective sole discretion, or shall, to the extent required by any Loan Document) enter into any amendment, modification or waiver of any Loan Document, or enter into any new agreement or instrument, to effect the granting, perfection, protection, expansion or enhancement of any security interest in any Collateral or additional property to become Collateral for the benefit of the Secured Parties, or as required by local law to give effect to, or protect any security interest for the benefit of the Secured Parties, in any property or so that the security interests therein comply with applicable law or this Agreement or in each case to otherwise enhance the rights or benefits of any Lender under any Loan Document.
(d) Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent, Holdings (prior to a Qualified IPO) and the Borrower (a) to permit additional extensions of credit to be outstanding hereunder from time to time and the accrued interest and fees and other obligations in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Term Loans and the Revolving Facility Loans and the accrued interest and fees and other obligations in respect thereof and (b) to include appropriately the holders of such extensions of credit in any determination of the requisite lenders required hereunder, including Required Lenders and the Required Revolving Facility Lenders.
(e) Notwithstanding the foregoing, technical and conforming modifications to the Loan Documents may be made with the consent of the Borrower and the Administrative Agent (but without the consent of any Lender) to the extent necessary (A) to cure any ambiguity, omission, defect or inconsistency or (B) to integrate any Incremental Term Loan Commitments or Incremental Revolving Facility Commitments in a manner consistent with Section 2.21, including, with respect to Other Revolving Loans or Other Term Loans, as may be necessary to establish such Incremental Term Loan Commitments or Incremental Revolving Facility Commitments as a separate Class or tranche from the existing Term Loans or Revolving Facility Commitments, as applicable, or (C) to cure any ambiguity, omission, defect or inconsistency.
(f) Each of the parties hereto hereby agrees that the Administrative Agent may take any and all action as may be necessary to ensure that all Term Loans established pursuant to Section 2.21 after the Closing Date that will be included in an existing Class of Term Loans outstanding on such date (an “ Applicable Date ”), when originally made, are included in each Borrowing of outstanding Term Loans of such Class (the “ Existing Class Loans ”), on a pro rata basis, and/or to ensure that, immediately after giving effect to such new Term Loans (the “ New Class Loans ” and, together with the Existing Class Loans, the “ Class Loans ”), each Lender holding Class Loans will be deemed to hold its Pro Rata Share of each Class Loan on the Applicable Date (but without changing the amount of any such Lender’s Term Loans), and each such Lender shall be deemed to have effectuated such assignments as shall be required to ensure the
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foregoing. The “ Pro Rata Share ” of any Lender on the Applicable Date is the ratio of (1) the sum of such Lender’s Existing Class Loans immediately prior to the Applicable Date plus the amount of New Class Loans made by such Lender on the Applicable Date over (2) the aggregate principal amount of all Class Loans on the Applicable Date.
(g) With respect to the incurrence of any secured or unsecured Indebtedness (including any intercreditor agreement relating thereto), the Borrower may elect (in its discretion, but shall not be obligated) to deliver to the Administrative Agent a certificate of a Responsible Officer at least three Business Days prior to the incurrence thereof (or such shorter time as the Administrative Agent may agree), together with either drafts of the material documentation relating to such Indebtedness or a description of such Indebtedness (including a description of the Liens intended to secure the same or the subordination provisions thereof, as applicable) in reasonably sufficient detail to be able to make the determinations referred to in this paragraph, which certificate shall either, at the Borrower’s election, (x) state that the Borrower has determined in good faith that such Indebtedness satisfies the requirements of the applicable provisions of Sections 6.01 and 6.02 (taking into account any other applicable provisions of this Section 9.08), in which case such certificate shall be conclusive evidence thereof, or (y) request the Administrative Agent to confirm, based on the information set forth in such certificate and any other information reasonably requested by the Administrative Agent, that such Indebtedness satisfies such requirements, in which case the Administrative Agent may determine whether, in its reasonable judgment, such requirements have been satisfied (in which case it shall deliver to the Borrower a written confirmation of the same), with any such determination of the Administrative Agent to be conclusive evidence thereof, and the Lenders hereby authorize the Administrative Agent to make such determinations.
(h) Notwithstanding the foregoing, this Agreement may be amended, waived or otherwise modified with the written consent of the Required Revolving Facility Lenders (and not the Required Lenders), the Administrative Agent, Holdings (prior to a Qualified IPO) and the Borrower with respect to the provisions of Section 4.01, solely as they relate to the Revolving Facility Loans and Letters of Credit.
Section 9.09 Interest Rate Limitation . Notwithstanding anything herein to the contrary, if at any time the applicable interest rate, together with all fees and charges that are treated as interest under applicable law (collectively, the “ Charges ”), as provided for herein or in any other document executed in connection herewith, or otherwise contracted for, charged, received, taken or reserved by any Lender or any Issuing Bank, shall exceed the maximum lawful rate (the “ Maximum Rate ”) that may be contracted for, charged, taken, received or reserved by such Lender in accordance with applicable law, the rate of interest payable hereunder, together with all Charges payable to such Lender or such Issuing Bank, shall be limited to the Maximum Rate; provided , that such excess amount shall be paid to such Lender or such Issuing Bank on subsequent payment dates to the extent not exceeding the legal limitation.
Section 9.10 Entire Agreement . This Agreement, the other Loan Documents and the agreements regarding certain Fees referred to herein constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among or representations from the parties or their Affiliates with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents.
Section 9.11 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS (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 AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
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Section 9.12 Severability . In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 9.13 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute but one contract, and shall become effective as provided in Section 9.03. Delivery of an executed counterpart to this Agreement by facsimile transmission (or other electronic transmission pursuant to procedures approved by the Administrative Agent) shall be as effective as delivery of a manually signed original.
Section 9.14 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 are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.
Section 9.15 Jurisdiction; Consent to Service of Process .
(a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York County, and of the United States District Court of the Southern District of New York sitting in New York County, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Loan Document shall affect any right that the Administrative Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or any other Loan Party or its properties in the courts of any jurisdiction.
(b) Each of the parties hereto 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 the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or federal court. 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.
(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement or any other Loan Document to serve process in any other manner permitted by law.
Section 9.16 Confidentiality . Each of the Lenders, each Issuing Bank and each of the Agents agrees that it shall maintain in confidence any information relating to Holdings, any Parent Entity, the Borrower and any Subsidiary furnished to it by or on behalf of Holdings, any Parent Entity, the Borrower or any Subsidiary (other than information that (a) has become generally available to the public other than as a result of a disclosure by such party, (b) has been independently developed by such Lender, such Issuing Bank or such Agent without violating this Section 9.16 or (c) was available to such Lender, such Issuing Bank or such Agent from a third party having, to such person’s knowledge, no obligations of confidentiality to Holdings, any Parent Entity, the Borrower or any other Loan Party) and shall not reveal
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the same other than to its directors, trustees, officers, employees and advisors with a need to know and any numbering, administration or settlement service providers or to any person that approves or administers the Loans on behalf of such Lender (so long as each such person shall have been instructed to keep the same confidential in accordance with this Section 9.16), except: (A) to the extent necessary to comply with law or any legal process or the requirements of any Governmental Authority, the National Association of Insurance Commissioners or of any securities exchange on which securities of the disclosing party or any Affiliate of the disclosing party are listed or traded, (B) as part of normal reporting or review procedures to, or examinations by, Governmental Authorities or self-regulatory authorities, including the National Association of Insurance Commissioners or the Financial Industry Regulatory Authority, Inc., (C) to its parent companies, Affiliates or auditors (so long as each such person shall have been instructed to keep the same confidential in accordance with this Section 9.16), (D) in order to enforce its rights under any Loan Document in a legal proceeding, (E) to any pledgee under Section 9.04(d) or any other prospective assignee of, or prospective Participant in, any of its rights under this Agreement (so long as such person shall have been instructed to keep the same confidential in accordance with this Section 9.16) and (F) to any direct or indirect contractual counterparty in Hedging Agreements or such contractual counterparty’s professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section 9.16).
Section 9.17 Platform; Borrower Materials . The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arrangers will make available to the Lenders and the Issuing Banks materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “ Borrower Materials ”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “ Platform ”), and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to Holdings, the Borrower or its Subsidiaries or any of their respective securities (or, if Holdings is not at the time a public reporting company, material information of a type that would not reasonably be expected to be publicly available if Holdings was a public reporting company)) (each, a “ Public Lender ”). The Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (i) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof, (ii) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have authorized the Administrative Agent, the Arrangers, the Co-Manager, the Issuing Banks and the Lenders to treat such Borrower Materials as solely containing information that is either (A) publicly available information or (B) not material (although it may be sensitive and proprietary) with respect to Holdings, the Borrower or its Subsidiaries or any of their respective securities for purposes of United States Federal and state securities laws ( provided , however , that such Borrower Materials shall be treated as set forth in Section 9.16, to the extent such Borrower Materials constitute information subject to the terms thereof), (iii) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (iv) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”
Section 9.18 Release of Liens and Guarantees .
(a) The Lenders, the Issuing Banks and other Secured Parties hereby irrevocably agree that the Liens granted to the Collateral Agent by the Loan Parties on any Collateral shall be automatically released: (i) in full upon the occurrence of the Termination Date as set forth in Section 9.18(d) below; (ii) upon the Disposition (other than a lease) of such Collateral by any Loan Party to a person that is not (and is not required to become) a Loan Party in a transaction not prohibited by this Agreement (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (iii) to the extent that such Collateral comprises property leased to a Loan Party by a person that is not a Loan Party, upon termination or expiration of such lease (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (iv) if the release of such Lien is approved, authorized or ratified in writing by the Required Lenders (or such other percentage of the Lenders whose consent may be required in accordance with Section 9.08), (v) to the extent that the property constituting
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such Collateral is owned by any Guarantor, upon the release of such Guarantor from its obligations under the Guarantee in accordance with the Holdings Guarantee and Pledge Agreement or the Subsidiary Guarantee, as applicable, or clause (b) below (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (vi) as provided in Section 8.11 (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), and (vii) as required by the Collateral Agent to effect any Disposition of Collateral in connection with any exercise of remedies of the Collateral Agent pursuant to the Security Documents. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those being released) upon (or obligations (other than those being released) of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any Disposition, all of which shall continue to constitute part of the Collateral except to the extent otherwise released in accordance with the provisions of the Loan Documents.
(b) In addition, (i) the Lenders, the Issuing Banks and other Secured Parties hereby irrevocably agree that the Subsidiary Loan Parties shall be released from the Guarantees upon consummation of any transaction not prohibited hereunder resulting in such Subsidiary ceasing to constitute a Subsidiary Loan Party or otherwise becoming an Excluded Subsidiary (and the Collateral Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry) and (ii) immediately prior to the consummation of a Qualified IPO of the Borrower, the Guarantee incurred by Holdings of the Obligations shall automatically terminate and Holdings shall be released from its obligations under the Loan Documents, shall cease to be a Loan Party and any Liens created by any Loan Documents on any assets or Equity Interests owned by Holdings shall automatically be released (unless the Borrower shall elect in its sole discretion that such release of Holdings shall not be effected).
(c) The Lenders, the Issuing Banks and other Secured Parties hereby authorize the Administrative Agent and the Collateral Agent, as applicable, to execute and deliver any instruments, documents, and agreements necessary or desirable to evidence and confirm the release of any Guarantor or Collateral pursuant to the foregoing provisions of this Section 9.18, all without the further consent or joinder of any Lender. Upon release pursuant to this Section 9.18, any representation, warranty or covenant contained in any Loan Document relating to any such Collateral or Guarantor shall no longer be deemed to be made. In connection with any release hereunder, the Administrative Agent and the Collateral Agent shall promptly (and the Secured Parties hereby authorize the Administrative Agent and the Collateral Agent to) take such action and execute any such documents as may be reasonably requested by the Borrower and at the Borrower’s expense in connection with the release of any Liens created by any Loan Document in respect of such Subsidiary, property or asset; provided , that the Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower containing such certifications as the Administrative Agent shall reasonably request.
(d) Notwithstanding anything to the contrary contained herein or any other Loan Document, on the Termination Date, all Liens granted to the Collateral Agent by the Loan Parties on any Collateral under the Loan Documents, and all obligations of the Borrower and the other Loan Parties under any Loan Documents (other than such obligations that expressly survive the Termination Date pursuant to the terms hereof) shall, in each case, be automatically released and, upon request of the Borrower, the Administrative Agent and/or the Collateral Agent, as applicable, shall (without notice to, or vote or consent of, any Secured Party) take such actions as shall be required to evidence the release its security interest in all Collateral granted to it pursuant to the Loan Documents (including returning to Holdings or the Borrower all possessory collateral (including share certificates (if any)) held by it pursuant to the Loan Documents in respect of any Collateral so released), and to evidence the release of all obligations under any Loan Document (other than such obligations that expressly survive the Termination Date pursuant to the terms hereof), whether or not on the date of such release there may be any (i) obligations in respect of any Secured Hedge Agreements or any Secured Cash Management Agreements and (ii) any contingent indemnification obligations or expense reimburse claims not then due; provided , that the Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower containing such certifications as the Administrative Agent shall reasonably request. Any such release of obligations shall
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be deemed subject to the provision that such obligations shall be reinstated if after such release any portion of any payment in respect of the obligations guaranteed thereby shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payment had not been made. The Borrower agrees to pay all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent or the Collateral Agent (and their respective representatives) in connection with taking such actions to release security interest in all Collateral and all obligations under the Loan Documents as contemplated by this Section 9.18(d).
(e) Obligations of the Borrower or any of its Subsidiaries under any Secured Cash Management Agreement or Secured Hedge Agreement (after giving effect to all netting arrangements relating to such Secured Hedge Agreements) shall be secured and guaranteed pursuant to the Security Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed. No person shall have any voting rights under any Loan Document solely as a result of the existence of obligations owed to it under any such Secured Hedge Agreement or Secured Cash Management Agreement. For the avoidance of doubt, no release of Collateral or Guarantors effected in the manner permitted by this Agreement shall require the consent of any holder of obligations under Secured Hedge Agreements or any Secured Cash Management Agreements.
Section 9.19 Judgment Currency . If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Borrower in respect of any such sum due from it to the Administrative Agent or the Lenders hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the “ Judgment Currency ”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “ Agreement Currency ”), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Administrative Agent from the Borrower in the Agreement Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or the person to whom such obligation was owing against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Administrative Agent in such currency, the Administrative Agent agrees to return the amount of any excess to the Borrower (or to any other person who may be entitled thereto under applicable law).
Section 9.20 USA PATRIOT Act Notice . Each Lender that is subject to the USA PATRIOT Act and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the USA PATRIOT Act.
Section 9.21 Affiliate Lenders .
(a) Each Lender who is an Affiliate of the Borrower, excluding (x) Holdings, the Borrower and their respective Subsidiaries and (y) any Debt Fund Affiliate Lender (each, an “ Affiliate Lender ”; it being understood that (x) neither Holdings, the Borrower, nor any of their Subsidiaries may be Affiliate Lenders and (y) Debt Fund Affiliate Lenders and Affiliate Lenders may be Lenders hereunder in accordance with Section 9.04, subject in the case of Affiliate Lenders, to this Section 9.21), in connection with any (i) consent (or decision not to consent) to any amendment, modification, waiver, consent or other action with respect to any of the terms of any Loan Document, (ii) other action on any matter related to any
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Loan Document or (iii) direction to the Administrative Agent, the Collateral Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under any Loan Document, agrees that, except with respect to any amendment, modification, waiver, consent or other action (1) described in clauses (i), (ii), (iii) or (iv) of the first proviso of Section 9.08(b) or (2) that affects such Affiliate Lender (in its capacity as a Lender) in a disproportionately adverse manner as compared to other Lenders, such Affiliate Lender shall be deemed to have voted its interest as a Lender without discretion in such proportion as the allocation of voting with respect to such matter by Lenders who are not Affiliate Lenders. Each Affiliate Lender hereby irrevocably appoints the Administrative Agent (such appointment being coupled with an interest) as such Affiliate Lender’s attorney-in-fact, with full authority in the place and stead of such Affiliate Lender and in the name of such Affiliate Lender, from time to time in the Administrative Agent’s discretion to take any action and to execute any instrument that the Administrative Agent may deem reasonably necessary to carry out the provisions of this clause (a).
(b) Notwithstanding anything to the contrary in this Agreement, no Affiliate Lender shall have any right to (a) attend (including by telephone) any meeting or discussions (or portion thereof) among the Administrative Agent or any Lender to which representatives of the Borrower are not then present, (b) receive any information or material prepared by Administrative Agent or any Lender or any communication by or among Administrative Agent and/or one or more Lenders, except to the extent such information or materials have been made available to the Borrower or its representatives, (c) make or bring (or participate in, other than as a passive participant in or recipient of its pro rata benefits of) any claim, in its capacity as a Lender, against Administrative Agent, the Collateral Agent or any other Lender with respect to any duties or obligations or alleged duties or obligations of such Agent or any other such Lender under the Loan Documents, (d) purchase any Term Loan if, after giving effect to such purchase, Affiliate Lenders in the aggregate would own Term Loans with an aggregate principal amount in excess of 25% of the aggregate principal amount of all Term Loans then outstanding or (e) purchase any Revolving Facility Loans or Revolving Facility Commitments. It shall be a condition precedent to each assignment to an Affiliate Lender that such Affiliate Lender shall have (x) represented to the assigning Lender in the applicable Assignment and Acceptance, and notified the Administrative Agent, that it is (or will be, following the consummation of such assignment) an Affiliate Lender and that the aggregate amount of Term Loans held by it giving effect to such assignments shall not exceed the amount permitted by clause (d) of the preceding sentence and (y) represented in the applicable Assignment and Acceptance that it is not in possession of material non-public information (within the meaning of United States federal and state securities laws) with respect to Holdings, the Borrower, its Subsidiaries or their respective securities (or, if Holdings is not at the time a public reporting company, material information of a type that would not be reasonably expected to be publicly available if Holdings were a public reporting company) that (A) has not been disclosed to the assigning Lender or the Lenders generally (other than because any such Lender does not wish to receive material non-public information with respect to Holdings, the Borrower or its Subsidiaries) and (B) could reasonably be expected to have a material effect upon, or otherwise be material to, the assigning Lender’s decision make such assignment.
Section 9.22 Agency of the Borrower for the Loan Parties . Each of the other Loan Parties hereby appoints the Borrower as its agent for all purposes relevant to this Agreement and the other Loan Documents, including the giving and receipt of notices and the execution and delivery of all documents, instruments and certificates contemplated herein and therein and all modifications hereto and thereto.
Section 9.23 No Liability of the Issuing Banks . The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither any Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not
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consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) such Issuing Bank’s willful misconduct or gross negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) such Issuing Bank’s willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, such Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.
Section 9.24 Application of Gaming Laws .
(a) This Agreement and the other Loan Documents are subject to Gaming Laws. Without limiting the foregoing and notwithstanding anything herein or in any other Loan Document to the contrary, the Lenders, Agents and Secured Parties acknowledge that (i) they are subject to the jurisdiction of the Gaming Authorities, in their discretion, for licensing, qualification or findings of suitability or to file or provide other information, and (ii) all rights, remedies and powers in or under this Agreement and the other Loan Documents, including with respect to the Collateral (including the pledge and delivery of the Pledged Collateral (as defined in the applicable Security Documents)), any Mortgaged Property and the ownership and operation of facilities, are, in each case, subject to the jurisdiction of the Gaming Authorities, and may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of the Gaming Laws and only to the extent that required approvals (including prior approvals) are obtained from the relevant Gaming Authorities.
(b) The Lenders, Agents and Secured Parties agree to cooperate with all Gaming Authorities in connection with the provision in a timely manner of such documents or other information as may be requested by such Gaming Authorities relating to the Loan or Loan Documents. The Borrower shall bear all costs and expenses of any such Lenders, Agents and Secured Parties incurred in connection with such parties’ cooperation with any requests of such Gaming Authorities including, without limitation, any costs and expenses incurred by any Lenders, Agents and Secured Parties incurred in connection with such cooperation.
(c) The Lenders acknowledge and agree that if the Borrower receives a notice from any applicable Gaming Authority that any Lender is a Disqualified holder (and such Lender is notified by the Borrower in writing of such Disqualification), the Borrower shall, following any available appeal of such determination by such Gaming Authority (unless the rules of the applicable Gaming Authority do not permit such Lender to retain its Loans or Commitments pending appeal of such determination), have the right to (i) cause such Disqualified holder to transfer and assign, without recourse all of its interests, rights and obligations in its Loans and Commitments or (ii) in the event that (A) the Borrower is unable to assign such Loan or Commitments after using its best efforts to cause such an assignment and (B) no Default or Event of Default has occurred and is continuing, prepay such Disqualified holder’s Loan and terminate such Disqualified holder’s Commitments, as applicable. Notice to such Disqualified holder shall be given ten days prior to the required date of assignment or prepayment, as the case may be, and shall be accompanied by evidence demonstrating that such transfer or prepayment is required pursuant to Gaming Laws. If reasonably requested by any Disqualified holder, the Borrower will use commercially reasonable efforts to cooperate with any such holder that is seeking to appeal such determination and to afford such holder an opportunity to participate in any proceedings relating thereto. Notwithstanding anything herein to the contrary, any prepayment of a Loan shall be at a price that, unless otherwise directed by a Gaming Authority, shall be equal to the sum of the principal amount of such Loan and interest to the date on which such Lender or holder became a Disqualified holder (plus any fees and other amounts accrued for the account of such Disqualified holder to the date such Lender or holder became a Disqualified holder).
(d) If during the existence of an Event of Default hereunder or any of the other Loan Documents, it shall become necessary or, in the opinion of the Administrative Agent, advisable for an agent, supervisor, receiver or other representative of the Lenders to become licensed or found qualified under any Gaming Law as a condition to receiving the benefit of any Collateral encumbered by the Loan Documents or to otherwise enforce the rights of the Agents, Secured Parties and the Lenders under the Loan Documents, the Borrower hereby agrees to consent to the application for such license or qualification and to execute such further documents as may be required in connection with the evidencing of such consent.
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Section 9.25 Acknowledgment and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
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Exhibit 10.4
Execution Version
CONFIDENTIAL
COLLATERAL AGREEMENT
dated and effective as of
June 6, 2017
among
AP GAMING I, LLC,
each Subsidiary Party party hereto
and
JEFFERIES FINANCE LLC,
as Collateral Agent
TABLE OF CONTENTS | ||||||
Page | ||||||
ARTICLE I. | ||||||
DEFINITIONS | ||||||
SECTION 1.01. | Credit Agreement | 1 | ||||
SECTION 1.02. | Other Defined Terms | 1 | ||||
ARTICLE II. | ||||||
[INTENTIONALLY OMITTED] | ||||||
ARTICLE III. | ||||||
PLEDGE OF SECURITIES | ||||||
SECTION 3.01. | Pledge | 7 | ||||
SECTION 3.02. | Delivery of the Pledged Collateral | 9 | ||||
SECTION 3.03. | Representations, Warranties and Covenants | 10 | ||||
SECTION 3.04. | Certification of Limited Liability Company and Limited Partnership Interests | 11 | ||||
SECTION 3.05. | Registration in Nominee Name; Denominations | 12 | ||||
SECTION 3.06. | Voting Rights; Dividends and Interest, Etc | 12 | ||||
SECTION 3.07. | Unlimited Liability Corporations | 14 | ||||
ARTICLE IV. | ||||||
SECURITY INTERESTS IN PERSONAL PROPERTY | ||||||
SECTION 4.01. | Security Interest | 15 | ||||
SECTION 4.02. | Representations and Warranties | 17 | ||||
SECTION 4.03. | Covenants | 19 | ||||
SECTION 4.04. | Other Actions | 21 | ||||
SECTION 4.05. | Covenants Regarding Patent, Trademark and Copyright Collateral | 22 | ||||
ARTICLE V. | ||||||
REMEDIES | ||||||
SECTION 5.01. | Remedies Upon Default | 23 | ||||
SECTION 5.02. | Application of Proceeds | 25 | ||||
SECTION 5.03. | Grant of License to Use Intellectual Property | 26 | ||||
SECTION 5.04. | Securities Act, Etc | 27 |
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Page | ||||||
ARTICLE VI. | ||||||
MISCELLANEOUS | ||||||
SECTION 6.01. | Notices | 27 | ||||
SECTION 6.02. | Security Interest Absolute | 28 | ||||
SECTION 6.03. | Limitation By Law | 28 | ||||
SECTION 6.04. | Binding Effect; Several Agreement | 28 | ||||
SECTION 6.05. | Successors and Assigns | 28 | ||||
SECTION 6.06. | Agent’s Fees and Expenses | 28 | ||||
SECTION 6.07. | Agent Appointed Attorney-in-Fact | 29 | ||||
SECTION 6.08. | GOVERNING LAW | 30 | ||||
SECTION 6.09. | Waivers; Amendment | 30 | ||||
SECTION 6.10. | WAIVER OF JURY TRIAL | 31 | ||||
SECTION 6.11. | Severability | 31 | ||||
SECTION 6.12. | Counterparts | 31 | ||||
SECTION 6.13. | Headings | 31 | ||||
SECTION 6.14. | Jurisdiction; Consent to Service of Process | 31 | ||||
SECTION 6.15. | Termination or Release | 32 | ||||
SECTION 6.16. | Additional Subsidiaries | 33 | ||||
SECTION 6.17. | Compliance with Gaming Laws | 34 | ||||
SECTION 6.18. | Subject to Any Applicable Intercreditor Agreement | 35 | ||||
SECTION 6.19. | Other First Lien Obligations | 35 | ||||
SECTION 6.20. | Person Serving as Agent | 36 | ||||
SECTION 6.21. | General Authority of the Agent | 37 | ||||
SECTION 6.22. | Application of Gaming Laws | 37 |
Schedules |
||
Schedule I | Subsidiary Parties | |
Schedule II | Commercial Tort Claims | |
Schedule III | Pledged Stock; Pledged Debt | |
Schedule IV | Intellectual Property | |
Exhibits | ||
Exhibit I | Form of Supplement to the Collateral Agreement | |
Exhibit II | Form of Perfection Certificate | |
Exhibit III | Form of Other First Lien Secured Party Consent | |
Exhibit IV | Form of Intellectual Property Security Agreement |
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COLLATERAL AGREEMENT dated and effective as of June 6, 2017 (this “ Agreement ”), among AP GAMING I, LLC, a Delaware limited liability company (the “ Borrower ”), each Subsidiary of the Borrower listed on Schedule I hereto and each Subsidiary of the Borrower that becomes a party hereto (each, a “ Subsidiary Party ”) and JEFFERIES FINANCE LLC, as Collateral Agent (together with its successors and permitted assigns in such capacity, the “ Agent ”) for the Secured Parties (as defined below).
Reference is made to the First Lien Credit Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, AP Gaming Holdings, LLC, a Delaware limited liability company, the Lenders party thereto from time to time, the Agent, as administrative agent (together with its successors and assigns in such capacity, the “ Credit Agreement Agent ”), and the other parties party thereto.
The Lenders and the Issuing Banks have agreed to extend credit to the Borrower subject to the terms and conditions set forth in the Credit Agreement. The obligations of the Lenders and the Issuing Banks to extend such credit are conditioned upon, among other things, the execution and delivery of this Agreement. The Subsidiary Parties, as affiliates of the Borrower, will derive substantial benefits from the extension of credit to the Borrower pursuant to the Credit Agreement. The Subsidiary Parties are willing to execute and deliver this Agreement in order to induce the Lenders and the Issuing Banks to extend such credit under the Credit Agreement and to induce the holders of any other Other First Lien Obligations to make extensions of credit under the applicable Other First Lien Agreements, as applicable. Accordingly, the parties hereto agree as follows:
ARTICLE I.
Definitions
SECTION 1.01. Credit Agreement .
(a) Capitalized terms used in this Agreement and not otherwise defined herein have the respective meanings assigned thereto in the Credit Agreement. All terms defined in Article 9 of the New York UCC (as defined herein) and not defined in this Agreement or the Credit Agreement have the meanings specified therein. The term “instrument” shall have the meaning specified in Article 9 of the New York UCC.
(b) The rules of construction specified in Section 1.02 of the Credit Agreement also apply to this Agreement.
SECTION 1.02. Other Defined Terms . As used in this Agreement, the following terms have the meanings specified below:
“ Account Debtor ” means any person who is or who may become obligated to any Pledgor under, with respect to or on account of an Account.
“ Agreement ” has the meaning assigned to such term in the introductory paragraph of this agreement, as amended, restated, supplemented or otherwise modified from time to time.
“ Applicable First Lien Representative ” means the “Applicable Authorized Representative” as defined in the First Lien Intercreditor Agreement upon and during the effectiveness thereof. The Applicable First Lien Representative shall be the Credit Agreement Agent unless and until another person is designated as the Applicable First Lien Representative pursuant to the First Lien Intercreditor Agreement.
“ Article 9 Collatera l” has the meaning assigned to such term in Section 4.01.
“ Authorized Representative ” means (i) the Credit Agreement Agent with respect to the Credit Agreement and (ii) with respect to any Series of Other First Lien Obligations, the duly authorized representative of the Secured Parties of such Series of Other First Lien Obligations designated as “Authorized Representative” for such Secured Parties in the related Other First Lien Secured Party Consent delivered to the Agent.
“ Borrower ” has the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Collateral ” means Article 9 Collateral and Pledged Collateral. For the avoidance of doubt, the term Collateral does not include any Excluded Property.
“ Copyright License ” means any written agreement, now or hereafter in effect, granting any right to any Pledgor under any copyright (whether applied for or registered) now or hereafter owned by a third party, and all rights of any Pledgor under any such agreement (including any such rights that such Pledgor has the right to license).
“ Copyrights ” means all of the following now owned or hereafter acquired by any Pledgor (or, as required in the context of the definition of “Copyright License,” any third party licensor): (a) all copyright rights in any work subject to the copyright laws of the United States or any other country; and (b) all registrations and applications for registration of any such Copyright in the United States or any other country, including registrations, supplemental registrations and pending applications for registration in the United States Copyright Office, including those listed on Schedule IV .
“ Credit Agreement ” has the meaning assigned to such term in the preliminary statement of this Agreement.
“ Credit Agreement Agent ” has the meaning assigned to such term in the preliminary statement of this Agreement.
“ Credit Agreement Loan Obligations ” means the “Loan Obligations” as defined in the Credit Agreement.
“ Credit Agreement Secured Obligations ” means the “Obligations” as defined in the Credit Agreement.
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“ Credit Agreement Secured Parties ” means the “Secured Parties” as defined in the Credit Agreement.
“ Event of Default ” means an “Event of Default” under and as defined in the Credit Agreement or any Other First Lien Agreement.
“ Federal Securities Laws ” has the meaning assigned to such term in Section 5.04.
“ First Lien Intercreditor Agreement ” means a “Permitted Pari Passu Intercreditor Agreement” as defined in the Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time).
“ General Intangibles ” means all “general intangibles” as defined in the New York UCC, including all choses in action and causes of action and all other intangible personal property of any Pledgor of every kind and nature (other than Accounts) now owned or hereafter acquired by any Pledgor, including corporate or other business records, indemnification claims, contract rights (including rights under leases, whether entered into as lessor or lessee, swap agreements and other agreements), Intellectual Property, goodwill, registrations, franchises, tax refund claims and any letter of credit rights, guarantee, claim, security interest or other security held by or granted to any Pledgor to secure payment by an Account Debtor of any of the Accounts.
“ Intellectual Property ” means all intellectual property of every kind and nature of any Pledgor, whether now owned or hereafter acquired by any Pledgor, including inventions, designs, Patents, Copyrights, Trademarks, Patent Licenses, Copyright Licenses, Trademark Licenses, trade secrets, domain names, confidential or proprietary technical and business information, know-how, show-how or other data or information and all related documentation.
“ Intellectual Property Collateral ” means any Article 9 Collateral consisting of Intellectual Property.
“ Intercreditor Agreement ” means a First Lien Intercreditor Agreement (upon and during the effectiveness thereof) or a Permitted Junior Intercreditor Agreement (upon and during the effectiveness thereof), as the case may be.
“ IP Security Agreement ” means those certain intellectual property security agreements executed in connection with this Agreement substantially in the form attached to this Agreement as Exhibit IV or such other form as shall be reasonably acceptable to the Agent, in each case, as may be from time to time modified, amended, restated and or supplemented.
“ Loan Documents ” means (a) the Credit Agreement, (b) all Other First Lien Agreements, (c) the Security Documents and (d) for purposes of Section 5.02 and Section 6.06 only, the First Lien Intercreditor Agreement (upon and during the effectiveness thereof).
“ Mississippi Gaming Authorities ” has the meaning assigned to such term in Section 6.17(a).
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“ Mississippi Gaming Laws ” has the meaning assigned to such term in Section 6.17(a).
“ Mississippi Licensee ” has the meaning assigned to such term in Section 6.17(a).
“ Mortgaged Property ” means each Material Real Property encumbered by one or more Mortgages to secure the Secured Obligations.
“ Mortgages ” means, collectively, the mortgages, trust deeds, deeds of trust, deeds to secure debt, assignment of leases and rents, and other security documents delivered from time to time with respect to the Mortgaged Properties, as amended, supplemented or otherwise modified from time to time.
“ Nevada Gaming Authority ” has the meaning assigned to such term in Section 6.17(a).
“ Nevada Gaming Laws ” has the meaning assigned to such term in Section 6.17(a).
“ Nevada Licensee ” has the meaning assigned to such term in Section 6.17(a).
“ New York UCC ” means the Uniform Commercial Code as from time to time in effect in the State of New York.
“ Other First Lien Agreement ” means any indenture, credit agreement (excluding the Credit Agreement) or other agreement, document or instrument, pursuant to which any Pledgor has or will incur Other First Lien Obligations; provided that, in each case, the Indebtedness thereunder has been designated as Other First Lien Obligations pursuant to and in accordance with Section 6.19.
“ Other First Lien Obligations ” means (a) the due and punctual payment by any Pledgor of (i) the unpaid principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding) on Indebtedness under any Other First Lien Agreement, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other monetary obligations of such Pledgor to any Secured Party under any Other First Lien Agreement, including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding), (b) the due and punctual performance of all other obligations of such Pledgor under or pursuant to any Other First Lien Agreement and (c) the due and punctual payment and performance of all the obligations of each other Pledgor under or pursuant to any Other First Lien Agreement.
“ Other First Lien Secured Parties ” means, collectively, the holders of Other First Lien Obligations and any Authorized Representative with respect thereto.
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“ Other First Lien Secured Party Consent ” means a consent substantially in the form of Exhibit III to this Agreement (or such other form as the Agent may agree) executed by the Authorized Representative of any holders of Other First Lien Obligations pursuant to Section 6.19.
“ Other State Gaming Authorities ” has the meaning assigned to such term in Section 6.17(a).
“ Other State Licensee ” has the meaning assigned to such term in Section 6.17(a).
“ Patent License ” means any written agreement, now or hereafter in effect, granting to any Pledgor any right to make, use or sell any invention covered by a letters patent or patent application now or hereafter owned by a third party (including any such rights that such Pledgor has the right to license).
“ Patents ” means all of the following now owned or hereafter acquired by any Pledgor (or, as required in the context of the definition of “Patent License,” any third party licensor): (a) all letters patent of the United States or the equivalent thereof in any other country, and all applications for letters patent of the United States or the equivalent thereof in any other country, including those listed on Schedule IV , and (b) all reissues, continuations, divisions, continuations-in-part or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein.
“ Perfection Certificate ” means a certificate substantially in the form of Exhibit II, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Responsible Officer of the Borrower.
“ Permitted Liens ” means Liens that are (a) permitted by Section 6.02 of the Credit Agreement and (b) not prohibited by any Other First Lien Agreement.
“ Pledged Collateral ” has the meaning assigned to such term in Section 3.01.
“ Pledged Debt ” has the meaning assigned to such term in Section 3.01.
“ Pledged Securities ” means any promissory notes, stock certificates or other certificated securities now or hereafter included in the Pledged Collateral, including all certificates, instruments or other documents representing or evidencing any Pledged Collateral.
“ Pledged Stock ” has the meaning assigned to such term in Section 3.01.
“ Pledgor ” means (i) with respect to the Credit Agreement Secured Obligations, the Borrower and each Subsidiary Party; and (ii) with respect to any Series of Other First Lien Obligations, the Borrower and each Subsidiary Party, excluding any of the foregoing if such person or persons are not intended to provide collateral with respect to such Series pursuant to the terms of the Other First Lien Agreement governing such Series.
“ Prior Agent ” has the meaning assigned to such term in Section 6.21.
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“ Real Property ” means, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned in fee or leased by any Pledgor, together with, in each case, all easements, hereditaments and appurtenances relating thereto, and all improvements situated, placed or constructed upon, or fixed to or incorporated into, or which becomes a component part of such real property, and appurtenant fixtures incidental to the ownership or lease thereof.
“ Regulation S-X Excluded Collateral ” has the meaning assigned to such term in Section 3.01.
“ Requirement of Law ” means, as to any person, any law, treaty, rule, regulation, statute, order, ordinance, decree, judgment, consent decree, writ, injunction, settlement agreement or governmental requirement enacted, promulgated or imposed or entered into or agreed by any Governmental Authority or Gaming Authority (including Gaming Laws), in each case applicable to or binding upon such person or any of its property or assets or to which such person or any of its property or assets is subject.
“ Rule 3-10 ” has the meaning assigned to such term in Section 3.01.
“ Rule 3-16 ” has the meaning assigned to such term in Section 3.01.
“ SEC ” has the meaning assigned to such term in Section 3.01
“ Secured Obligations ” means, collectively, the Credit Agreement Secured Obligations and any Other First Lien Obligations, or any of the foregoing.
“ Secured Parties ” means the persons holding any Secured Obligations and in any event including (i) all Credit Agreement Secured Parties and (ii) all Other First Lien Secured Parties.
“ Security Documents ” has the meaning assigned to such term in the Credit Agreement and any analogous term in any Other First Lien Agreement (but, with respect to the Secured Obligations of any Series, the term Security Documents shall not include any document which by its terms is solely for the benefit of the holders of one or more other Series of Secured Obligations and not such Series of Secured Obligations).
“ Security Interest ” has the meaning assigned to such term in Section 4.01.
“ Series ” means (a) with respect to the Secured Parties, each of (i) the Credit Agreement Secured Parties (in their capacities as such) and (ii) the Other First Lien Secured Parties that become subject to this Agreement and the First Lien Intercreditor Agreement after the date hereof that are represented by a common Authorized Representative (in its capacity as such for such Other First Lien Secured Parties) and (b) with respect to any Secured Obligations, each of (i) the Credit Agreement Secured Obligations and (ii) the Other First Lien Obligations incurred pursuant to any Other First Lien Agreement, which pursuant to any Other First Lien Secured Party Consent, are to be represented hereunder by a common Authorized Representative (in its capacity as such for such Other First Lien Obligations).
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“ Specified Excluded Collateral ” means, solely with respect to any Series of Other First Lien Obligations, any asset that is not intended to be collateral with respect to such Series pursuant to the terms of the Other First Lien Agreement governing such Series (including the Regulation S-X Excluded Collateral to the extent applicable to such Series in accordance with the last paragraph of Section 3.01).
“ Subsidiary Party ” has the meaning assigned to such term in the preliminary statement of this Agreement.
“ Successor Agent ” has the meaning assigned to such term in Section 6.21.
“ Termination Date ” means the “Termination Date” as defined in the Credit Agreement.
“ Trademark License ” means any written agreement, now or hereafter in effect, granting to any Pledgor any right to use any trademark, service mark or general intangibles of like nature now or hereafter owned by a third party (including any such rights that such Pledgor has the right to license).
“ Trademarks ” means all of the following now owned or hereafter acquired by any Pledgor (or, as required in the context of the definition of “Trademark License,” any third party licensor): (a) all trademarks, service marks, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations thereof (if any), and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office or any similar offices in any State of the United States or any other country or any political subdivision thereof, and all renewals thereof, including those listed on Schedule IV and (b) all goodwill associated with or symbolized by the foregoing.
“ ULC ” has the meaning assigned to such term in Section 3.07.
“ ULC Interests ” has the meaning assigned to such term in Section 3.07.
“ ULC Laws ” means the Companies Act (Nova Scotia), the Business Corporations Act (Alberta) and the Business Corporations Act (British Columbia).
ARTICLE II.
[Intentionally Omitted]
ARTICLE III.
Pledge of Securities
SECTION 3.01. Pledge . As security for the payment or performance, as the case may be, in full of the Secured Obligations, each Pledgor hereby assigns and pledges to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby
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grants to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in all of such Pledgor’s right, title and interest in, to and under:
(a) the Equity Interests directly owned by it (which such Equity Interests constituting Pledged Stock on the date hereof shall be listed on Schedule III ) and any other Equity Interests obtained in the future by such Pledgor and any certificates representing all such Equity Interests (the “ Pledged Stock ”); provided that the Pledged Stock shall not include any Excluded Property;
(b) (i) the debt securities currently issued to any Pledgor (which debt securities constituting Pledged Debt shall be listed on Schedule III ), (ii) any debt securities in the future issued to such Pledgor and (iii) the promissory notes and any other instruments, if any, evidencing such debt securities (the items referred to in subclauses (i) through (iii), collectively, the “ Pledged Debt ”); provided that the Pledged Debt shall not include any Excluded Property;
(c) subject to Section 3.06, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of, and all other proceeds received in respect of, the Pledged Stock and the Pledged Debt;
(d) subject to Section 3.06, all rights and privileges of such Pledgor with respect to the Pledged Stock and the Pledged Debt and other property referred to in clause (c) above; and
(e) all proceeds of any of the foregoing (the items referred to in clauses (a) through this clause (e) being collectively referred to as the “ Pledged Collateral ”); provided , that the Pledged Collateral shall not include any Excluded Property.
TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, forever; subject , however , to the terms, covenants and conditions hereinafter set forth.
Notwithstanding anything else to the contrary, in the event that Rule 3-10 (“ Rule 3-10 ”) or Rule 3-16 (“ Rule 3-16 ”) of Regulation S-X under the Securities Act of 1933, as amended, as amended, modified or interpreted by the Securities Exchange Commission (“ SEC ”), would require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other Governmental Authority) of separate financial statements of the Borrower or any Subsidiary of the Borrower due to the fact that such person’s Equity Interests secure any Series of the Other First Lien Obligations affected thereby, then the Equity Interests of such person (the “ Regulation S-X Excluded Collateral ”) will automatically be deemed not to be part of the Collateral securing such Series of Other First Lien Obligations affected thereby, but only to the extent necessary to not be subject to such requirement and only for so long as required to not be subject to such requirement. In such event, this Agreement may be amended or modified, without the consent of any Secured Party, to the extent necessary to release the Lien on the Regulation S-X Excluded Collateral in favor of the Agent with respect only to the relevant Series of Other First Lien Obligations. In the event
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that Rule 3-10 or Rule 3-16 is amended, modified or interpreted by the SEC to permit (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would permit) any Regulation S-X Excluded Collateral to secure the Other First Lien Obligations in excess of the amount then pledged without the filing with the SEC (or any other Governmental Authority) of separate financial statements of such person, then the Equity Interests of such person will automatically be deemed to be a part of the Collateral for the relevant Series of Other First Lien Obligations. For the avoidance of doubt and notwithstanding anything to the contrary in this Agreement, nothing in this paragraph shall limit the pledge of such Equity Interests and other securities from securing the Secured Obligations (other than the relevant Series of Other First Lien Obligations) at all relevant times or from securing any Other First Lien Obligations that are not in respect of securities subject to regulation by the SEC. To the extent any proceeds of any collection or sale of Equity Interests deemed by this paragraph to no longer constitute part of the Collateral for the relevant Series of Other First Lien Obligations are to be applied by the Agent in accordance with Section 5.02 hereof, such proceeds shall, notwithstanding the terms of Section 5.02 and the First Lien Intercreditor Agreement, not be applied to the payment of such Series of Other First Lien Obligations.
SECTION 3.02. Delivery of the Pledged Collateral .
(a) Subject to the provisions of Section 6.17, each Pledgor agrees promptly (and in any event within 45 days after the acquisition (or such longer time as the Applicable First Lien Representative shall permit in its reasonable discretion)) to deliver or cause to be delivered to the Agent, for the benefit of the Secured Parties, any and all Pledged Securities to the extent such Pledged Securities are either (i) Equity Interests that constitute Pledged Stock or (ii) in the case of promissory notes or other instruments evidencing Indebtedness, are required to be delivered pursuant to paragraph (b) of this Section 3.02.
(b) Each Pledgor will cause any Indebtedness for borrowed money (other than Excluded Property) (i) having, in each case, an aggregate principal amount in excess of $2,000,000 or (ii) payable by the Borrower or any Subsidiary owed to such Pledgor by any person to be evidenced by a duly executed promissory note that is pledged and delivered to the Agent, for the benefit of the Secured Parties, pursuant to the terms hereof (including clause (a) above). To the extent any such promissory note is a demand note, each Pledgor party thereto agrees, if requested by the Agent, to immediately demand payment thereunder upon an Event of Default specified under Section 7.01(b), (c), (h) or (i) of the Credit Agreement or under any equivalent provision of any Other First Lien Agreement, unless such demand would not be commercially reasonable or would otherwise expose such Pledgor to liability to the maker.
(c) Subject to the provisions of Section 6.17, upon delivery to the Agent, (i) any Pledged Securities required to be delivered pursuant to the foregoing paragraphs (a) and (b) of this Section 3.02 shall be accompanied by stock powers or note powers, as applicable, duly executed in blank or other instruments of transfer reasonably satisfactory to the Agent and by such other instruments and documents as the Agent may reasonably request and (ii) all other property comprising part of the Pledged Collateral delivered pursuant to the terms of this Agreement shall be accompanied to the extent necessary to perfect the security interest in or allow realization on the Pledged Collateral by proper instruments of assignment duly executed by the applicable Pledgor and such other instruments or documents as the Agent may reasonably
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request. Each delivery of Pledged Securities shall be accompanied by a schedule describing the securities, which schedule shall be attached hereto as Schedule III (or a supplement to Schedule III , as applicable) and made a part hereof; provided that failure to attach any such schedule hereto shall not affect the validity of such pledge of such Pledged Securities. Each schedule so delivered shall supplement any prior schedules so delivered.
SECTION 3.03. Representations, Warranties and Covenants . The Pledgors, jointly and severally, represent, warrant and covenant to and with the Agent, for the benefit of the Secured Parties, that:
(a) Schedule III (as supplemented after the date hereof from time to time, as applicable) correctly sets forth (and, with respect to any Pledged Stock issued by an issuer that is not a subsidiary of the Borrower, correctly sets forth, to the knowledge of the relevant Pledgor), as of the date of such Schedule (or supplement, as applicable), the percentage of the issued and outstanding Equity Interests of the issuer thereof represented by such Pledged Stock and includes (i) all Equity Interests required to be pledged hereunder and (ii) all debt securities and promissory notes or instruments evidencing Indebtedness, in each case of this clause (ii), required to be pledged hereunder (and, in each case, to otherwise satisfy the Collateral and Guarantee Requirement);
(b) the Pledged Stock (and, with respect to any Pledged Stock issued by an issuer that is not a subsidiary of the Borrower, to the knowledge of the relevant Pledgor) have been duly and validly authorized and issued by the issuers thereof and are fully paid and, with respect to Equity Interests constituting capital stock of a corporation, nonassessable (subject to the assessability of the shares of a ULC under the ULC Laws);
(c) except for the security interests granted hereunder (or otherwise not prohibited by the Loan Documents and each Other First Lien Agreement then in effect), each Pledgor (i) is and, subject to any transfers made not in violation of the Credit Agreement and each Other First Lien Agreement, will continue to be, the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule III as owned by such Pledgor, (ii) holds the same free and clear of all Liens, other than Permitted Liens, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than pursuant to a transaction not prohibited by the Credit Agreement and each Other First Lien Agreement and other than Permitted Liens, and (iv) subject to the rights of such Pledgor under the Loan Documents and each Other First Lien Agreement then in effect to Dispose of Pledged Collateral, will use commercially reasonable efforts to defend its title or interest thereto or therein against any and all Liens (other than Permitted Liens), however arising, of all persons;
(d) other than as set forth in the Credit Agreement or the schedules thereto or, after the termination of the Credit Agreement, in any Other First Lien Agreement, and except for restrictions and limitations imposed by the Loan Documents, any Other First Lien Agreement, Gaming Laws or securities laws generally or otherwise not prohibited by the Credit Agreement and each Other First Lien Agreement (or, in the case of shares of a ULC, any requirement under the ULC Laws that transfers of such shares be approved by the directors of the ULC), the Pledged Stock (other than partnership interest) is and will continue to be freely transferable and
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assignable, and none of the Pledged Stock is or will be subject to any option, right of first refusal, shareholders agreement, charter, by-law, memorandum of association or articles of association provisions or contractual restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Collateral hereunder, the Disposition thereof pursuant hereto or the exercise by the Agent of rights and remedies hereunder other than under applicable Requirements of Law (including Gaming Laws);
(e) each Pledgor has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;
(f) other than as set forth in the Credit Agreement or the schedules thereto or as required under Gaming Laws, as of the date hereof, no consent or approval of any Governmental Authority, any securities exchange or any other person was or is necessary to or for the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect);
(g) by virtue of the execution and delivery by the Pledgors of this Agreement, when any Pledged Securities are delivered to the Agent, for the benefit of the Secured Parties, in accordance with this Agreement and a financing statement naming the Agent as the secured party and covering the Pledged Collateral to which such Pledged Securities relate is filed in the appropriate filing office pursuant to Section 4.02(b), the Agent will obtain, for the benefit of the Secured Parties, a legal, valid and perfected lien upon and security interest in such Pledged Collateral under the applicable Uniform Commercial Code, subject only to Permitted Liens, as security for the payment and performance of the Secured Obligations to the extent such perfection is governed by the applicable Uniform Commercial Code; and
(h) Except as set forth in Section 6.17, the pledge effected hereby is effective to vest in the Agent, for the benefit of the Secured Parties, the rights of the Agent in the Pledged Collateral as set forth herein.
SECTION 3.04. Certification of Limited Liability Company and Limited Partnership Interests .
(a) In respect of each interest in any limited liability company or limited partnership Controlled by any Pledgor, pledged hereunder and that is a “security” (within the meaning of Section 8-103 of the New York UCC or the corresponding code or statute of any other applicable jurisdiction), such interest shall at all times be a “security” governed by Article 8 of the New York UCC or the corresponding code or statute of any other applicable jurisdiction and at all times be evidenced by a certificate delivered to the Agent pursuant to the terms hereof, unless promptly thereafter (and in any event within 30 days or such longer period as the Agent may permit in its reasonable discretion), such Pledgor provides notification to the Agent of the election to have such interest no longer constitute a “security” (within the meaning of Section 8-103 of the New York UCC or the corresponding code or statute of any other applicable jurisdiction), and thereafter complies with the following clause (b).
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(b) In respect of each interest in any limited liability company or limited partnership Controlled by a Pledgor, pledged hereunder and that is not a “security” (within the meaning of Section 8-103 of the New York UCC or the corresponding code or statute of any other applicable jurisdiction), such Pledgor shall at no time elect to treat such interest as a “security” within the meaning of Article 8 of the New York UCC or issue any certificate representing such interest, unless promptly thereafter (and in any event within 30 days or such longer period as the Agent may permit in its reasonable discretion), such Pledgor provides notification to the Agent of such election and delivers any such certificate to the Agent pursuant to the terms hereof.
SECTION 3.05. Registration in Nominee Name; Denominations . The Agent, on behalf of the Secured Parties, shall have the right (in its sole and absolute discretion) to hold the Pledged Securities (other than Pledged Securities that are ULC Interests) in the name of the applicable Pledgor, endorsed or assigned in blank or in favor of the Agent or, if an Event of Default shall have occurred and be continuing, in its own name as pledgee or the name of its nominee (as pledgee or as sub-agent). Following the occurrence and during the continuance of an Event of Default, each Pledgor will promptly give to the Agent copies of any notices or other communications received by it with respect to Pledged Securities registered in the name of such Pledgor. If an Event of Default shall have occurred and be continuing, the Agent shall have the right to exchange the certificates representing Pledged Securities (other than Pledged Securities that are ULC Interests) for certificates of smaller or larger denominations for any purpose consistent with this Agreement. With respect to Pledged Securities that are ULC Interests, at any time at which an Event of Default has occurred and is continuing, the Agent shall have the right to require the Pledgors to cause the ULC Interests to be transferred and registered as the Agent may direct and each applicable Pledgor covenants that, at the time of any such transfer, it will provide all required consents and approvals. Each Pledgor shall use its commercially reasonable efforts to cause any Subsidiary of the Borrower that is not a party to this Agreement to comply with a request by the Agent, pursuant to this Section 3.05, to exchange certificates representing Pledged Securities of such Subsidiary for certificates of smaller or larger denominations.
SECTION 3.06. Voting Rights; Dividends and Interest, Etc .
(a) Unless and until an Event of Default shall have occurred and be continuing and the Agent shall have given written notice to the relevant Pledgors of the Agent’s intention to exercise its rights hereunder:
(i) Each Pledgor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Collateral or any part thereof for any purpose not prohibited by the terms of this Agreement, the Credit Agreement and each Other First Lien Agreement then in effect; provided that, except as not prohibited by the Credit Agreement, any other Loan Documents and each Other First Lien Agreement then in effect, such rights and powers shall not be exercised in any manner that could materially and adversely affect the rights and remedies of any of the Agent or the other Secured Parties under this Agreement, the Credit Agreement, any other Loan Documents or any Other First Lien Agreement or the ability of the Secured Parties to exercise the same.
(ii) The Agent shall promptly execute and deliver to each Pledgor, or cause to be executed and delivered to such Pledgor, all such proxies, powers of attorney and other instruments as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.
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(iii) Each Pledgor shall be entitled to receive and retain any and all dividends, interest, principal and other distributions paid on or distributed in respect of the Pledged Collateral to the extent and only to the extent that such dividends, interest, principal and other distributions are not prohibited by, and otherwise paid or distributed in accordance with, the terms and conditions of the Credit Agreement, any other Loan Documents and each Other First Lien Agreement then in effect and applicable laws; provided that any noncash dividends, interest, principal or other distributions that would constitute Pledged Securities, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Securities, received in exchange for Pledged Securities or any part thereof, or in redemption thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Pledgor, shall be promptly (and in any event within 45 days following their receipt (or such longer time as the Applicable First Lien Representative shall permit in its reasonable discretion)) delivered to the Agent, for the benefit of the Secured Parties, in the same form as so received (endorsed in a manner reasonably satisfactory to the Agent).
(b) Upon the occurrence and during the continuance of an Event of Default and upon written notice by the Agent to the relevant Pledgors of the Agent’s intention to exercise its rights hereunder subject to applicable Gaming Laws, all rights of any Pledgor to receive dividends, interest, principal or other distributions with respect to the Pledged Securities that are not ULC Interests that such Pledgor is authorized to receive pursuant to paragraph (a)(iii) of this Section 3.06 shall cease, and all such rights shall thereupon become vested, for the benefit of the Secured Parties, in the Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends, interest, principal or other distributions; provided , that notwithstanding the occurrence and continuation of an Event of Default, any Pledgor may continue to exercise dividend and distribution rights solely to the extent permitted under subclause (i), subclause (iii) and subclause (v) of Section 6.06(b) of the Credit Agreement. All dividends, interest, principal or other distributions received by any Pledgor contrary to the provisions of this Section 3.06 shall not be commingled by such Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Agent, for the benefit of the Secured Parties, and shall be forthwith delivered to the Agent, for the benefit of the Secured Parties, in the same form as so received (endorsed in a manner reasonably satisfactory to the Agent). Any and all money and other property paid over to or received by the Agent pursuant to the provisions of this paragraph (b) shall be retained by the Agent in an account to be established by the Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 5.02. After all Events of Default have been cured or waived and the Borrower has delivered to the Agent a certificate to that effect, the Agent shall promptly repay to each Pledgor (without interest) all dividends, interest, principal or other distributions that such Pledgor would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 3.06 and that remain in such account. With respect to Pledged Securities that are ULC Interests, all rights of any Pledgor to receive dividends, interest, principal or other distributions (except for any dividend or distribution comprised of Pledged Securities that
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are certificated, which shall be delivered to the Agent to hold hereunder in accordance with the terms herein) that such Pledgor is authorized to receive pursuant to paragraph (a)(iii) of this Section 3.06 shall continue and not become vested or held in trust for or on behalf of the Agent until such time as such ULC Interests are effectively transferred into the name of the Agent, any other Secured Party or any other Person on the books and records of the applicable ULC.
(c) Upon the occurrence and during the continuance of an Event of Default and after written notice by the Agent to the Borrower of the Agent’s intention to exercise its rights hereunder, subject to applicable Gaming Laws, all rights of any Pledgor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 3.06 with respect to Pledged Securities that are not ULC Interests, and the obligations of the Agent under paragraph (a)(ii) of this Section 3.06, shall cease, and all such rights shall thereupon become vested in the Agent, for the benefit of the Secured Parties, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that, unless otherwise directed by the Applicable First Lien Representative, the Agent shall have the right from time to time following and during the continuance of an Event of Default to permit the Pledgors to exercise such rights. After all Events of Default have been cured or waived and the Borrower has delivered to the Agent a certificate to that effect, all rights of any Pledgor to exercise the voting and/or other consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 3.06 shall continue and all such rights shall no longer be vested in the Agent for the benefit of the Secured Parties, and the obligations of the Agent under paragraph (a)(ii) of this Section 3.06 shall be reinstated. With respect to Pledged Securities that are ULC Interests, all rights of any Pledgor to exercise the voting and/or other consensual rights and powers that such Pledgor is authorized to exercise pursuant to paragraph (a)(i) of this Section 3.06 shall continue and all such rights shall not become vested in the Agent or the Agent for the benefit of the Secured Parties until such time as such ULC Interests are effectively transferred into the name of the Agent, any other Secured Party or any other Person on the books and records of the applicable ULC.
(d) Any notice given by the Agent to the Borrower suspending any Pledgor’s rights under paragraph (a)(i) of this Section 3.06 may be given by telephone if promptly confirmed in writing and (ii) may suspend the rights of the Pledgors under paragraph (a)(i) or paragraph (a)(iii) of this Section 3.06 in part without suspending all such rights (as specified by the Agent in its sole and absolute discretion) and without waiving or otherwise affecting the Agent’s rights to give additional notices from time to time suspending other rights so long as an Event of Default has occurred and is continuing.
SECTION 3.07. Unlimited Liability Corporations . Notwithstanding the grant of security interest made by a Pledgor in favor of the Agent, its successor and assigns, for the benefit of the Secured Parties, of all of its Pledged Securities, any Pledgor that owns any shares or other Equity Interests in the capital stock (for the purposes of this Article III, “ ULC Interests ”) in any unlimited liability corporation (for the purposes of this Article III, a “ ULC ”) pledged hereunder shall remain registered as the sole registered and beneficial owner of such ULC Interests and will remain as registered and beneficial owner until such time as such ULC Interests are effectively transferred into the name of the Agent, any other Secured Party or any other person on the books and records of such ULC. Nothing in this Agreement is intended to or shall constitute the Agent, any other Secured Party or any person as a shareholder of any ULC until such time as
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notice is given to such ULC and further steps are taken thereunder so as to register the Agent, any other Secured Party or any other person as the holder of the ULC Interests of such ULC. To the extent any provision hereof would have the effect of constituting the Agent, any other Secured Party or any other person as a shareholder of a ULC prior to such time, such provision shall be severed therefrom and ineffective with respect to the ULC Interests of such ULC without otherwise invalidating or rendering unenforceable this Agreement or invalidating or rendering unenforceable such provision insofar as it relates to Pledged Securities which are not ULC Interests. Except upon the exercise of rights to sell or otherwise dispose of ULC Interests following the occurrence and during the continuance of an Event of Default hereunder, no Pledgor shall cause or permit, or enable any ULC in which it holds ULC Interests to cause or permit, the Agent, or any other Secured Party to: (a) be registered as shareholders of such ULC; (b) have any notation entered in its favor in the share register of such ULC; (c) be held out as a shareholder of such ULC; (d) receive, directly or indirectly, any dividends, property or other distributions from such ULC by reason of the Agent holding a security interest in such ULC; or (e) act as a shareholder of such ULC, or exercise any rights of a shareholder of such ULC including the right to attend a meeting of, or to vote the ULC Interests of, such ULC.
ARTICLE IV.
Security Interests in Personal Property
SECTION 4.01. Security Interest .
(a) As security for the payment or performance, as the case may be, in full of the Secured Obligations, each Pledgor hereby assigns and pledges to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest (the “ Security Interest ”) in all right, title and interest in or to any and all of the following assets and properties now owned or at any time hereafter acquired by such Pledgor or in which such Pledgor now has or at any time in the future may acquire any right, title or interest (collectively, the “ Article 9 Collateral ”):
(i) | all Accounts; |
(ii) | all Chattel Paper; |
(iii) | all cash and Deposit Accounts; |
(iv) | all Documents; |
(v) | all Equipment; |
(vi) | all Fixtures; |
(vii) | all General Intangibles; |
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(viii) Goods;
(ix) all Instruments other than to the extent constituting Pledged Debt, which are governed by Article II;
(x) all Intellectual Property;
(xi) all Inventory;
(xii) all Investment Property (other than to the extent constituting Pledged Collateral, which are governed by Article II);
(xiii) all Letter of Credit Rights;
(xiv) all Commercial Tort Claims described on Schedule II hereto (as may be supplemented from time to time pursuant to Section 4.04);
(xv) all books and records pertaining to the Article 9 Collateral; and
(xvi) to the extent not otherwise included, all proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any person with respect to any of the foregoing;
Notwithstanding anything to the contrary in this Agreement, any other Loan Document or any Other First Lien Agreement, this Agreement shall not constitute a grant of a security interest in (and the Article 9 Collateral shall not include), and the other provisions of the Loan Documents and any Other First Lien Agreement with respect to Collateral need not be satisfied with respect to, the Excluded Property. In addition, for the avoidance of doubt, the provisions of Section 9.24 (Application of Gaming Laws) of the Credit Agreement and Section 6.22 (Gaming Laws) of this Agreement shall apply to all the terms and provisions of this Agreement.
(b) Each Pledgor hereby irrevocably authorizes the Agent at any time and from time to time to file in any relevant jurisdiction any initial financing statements (including fixture filings with respect to the Mortgaged Properties) with respect to the Article 9 Collateral or any part thereof and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment, including (i) whether such Pledgor is an organization, the type of organization and any organizational identification number issued to such Pledgor, (ii) in the case of a financing statement filed as a fixture filing, a sufficient description of the real property to which such Article 9 Collateral relates and (iii) a description of collateral that describes such property in any other manner as the Agent may reasonably determine is necessary or advisable to ensure the perfection of the security interest in the Article 9 Collateral granted under this Agreement, including describing such property as “all assets” or “all personal property” or words of similar effect. Each Pledgor agrees to provide such information to the Agent promptly upon request.
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The Agent is further authorized to file with the United States Patent and Trademark Office or United States Copyright Office such documents as may be reasonably necessary or advisable for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest granted by each Pledgor in such Pledgor’s Patents, Trademarks and Copyrights, without the signature of such Pledgor, and naming such Pledgor or the Pledgors as debtors and the Agent as secured party. Notwithstanding anything to the contrary herein, no Pledgor shall be required to take any action under the laws of any jurisdiction other than the United States of America (or any political subdivision thereof) for the purpose of perfecting the Security Interest in any Article 9 Collateral of such Pledgor constituting Patents, Trademarks or Copyrights or any other assets.
(c) The Security Interest is granted as security only and shall not subject the Agent or any other Secured Party to, or in any way alter or modify, any obligation or liability of any Pledgor with respect to or arising out of the Article 9 Collateral.
(d) Notwithstanding anything to the contrary in this Agreement, none of the Pledgors shall be required to enter into any control agreements or control, lockbox or similar arrangements with respect to any Deposit Accounts, Securities Accounts, Commodities Accounts or any other assets (other than the delivery of Pledged Securities to the Agent to the extent required by Article III).
SECTION 4.02. Representations and Warranties . The Pledgors jointly and severally represent and warrant to the Agent, for the benefit of the Secured Parties that:
(a) Each Pledgor has good and valid rights in and title to the Article 9 Collateral with respect to which it has purported to grant a Security Interest hereunder, except where the failure to have such rights and title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and has full power and authority to grant to the Agent the Security Interest in such Article 9 Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other person as of the date hereof other than any consent or approval that has been obtained and is in full force and effect or has otherwise been disclosed herein or in the Credit Agreement and the schedules thereto or, after the termination of the Credit Agreement, in any Other First Lien Agreement.
(b) The Perfection Certificate attached hereto as Exhibit II has been duly prepared, completed and executed and the information set forth therein, including the exact legal name of each Pledgor, is correct and complete, in all material respects, as of the Closing Date. Except as provided in Section 5.10 of the Credit Agreement, the Uniform Commercial Code financing statements or other appropriate filings, recordings or registrations containing a description of the Article 9 Collateral have been prepared by the Agent based upon the information provided to the Agent in the Perfection Certificate for filing in each governmental, municipal or other office specified in Schedule 4 to the Perfection Certificate (or specified by notice from the Borrower to the Agent after the Closing Date in the case of filings, recordings or registrations required by Section 5.10 of the Credit Agreement or, after the termination of the Credit Agreement, any equivalent provision of each Other First Lien Agreement), and constitute all the filings, recordings and registrations (other than filings required to be made in the United States Patent and Trademark Office and the United States Copyright Office in order to perfect the Security Interest in Article 9 Collateral consisting of United States issued Patents, United States registered
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Trademarks and United States registered Copyrights) that are necessary as of the Closing Date to publish notice of and protect the validity of and to establish a legal, valid and perfected security interest in favor of the Agent (for the benefit of the Secured Parties) in respect of all Article 9 Collateral in which the Security Interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements or amendments. Except as provided in Section 5.10 of the Credit Agreement, each Pledgor represents and warrants that IP Security Agreements executed by the applicable Pledgors containing a description of all Article 9 Collateral consisting of Intellectual Property that are United States issued Patents (and Patents for which U.S. registration applications are pending) and United States registered Trademarks (and Trademarks for which U.S. registration applications are pending) have been delivered to the Agent for recording with the United States Patent and Trademark Office and the United States Copyright Office pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C. § 205 and the regulations thereunder, as applicable, to protect the validity of and to establish a legal, valid and perfected security interest (or, in the case of Patents and Trademarks, notice thereof) in favor of the Agent, for the benefit of the Secured Parties, in respect of all Article 9 Collateral consisting of such Intellectual Property in which a security interest may be perfected by recording with the United States Patent and Trademark Office and the United States Copyright Office, as applicable, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary (other than (x) the Uniform Commercial Code financing statements and (y) such actions as are necessary to perfect the Security Interest with respect to any Article 9 Collateral consisting of Patents, Trademarks and Copyrights (or registration or application for registration thereof) acquired or developed after the Closing Date).
(c) The Security Interest constitutes (i) a legal and valid security interest in all the Article 9 Collateral securing the payment and performance of the Secured Obligations, and (ii) subject to the filings described in Section 4.02(b) and filings required to be made under the Loan Documents after the Closing Date, as applicable, a perfected security interest in all Article 9 Collateral in which a security interest may be perfected by filing, recording or registering a Uniform Commercial Code financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code or other applicable law in such jurisdictions and (iii) subject to Section 4.02(b), a security interest that shall be perfected in all Article 9 Collateral in which a security interest may be perfected upon the receipt and recording of the IP Security Agreement with the United States Patent and Trademark Office and the United States Copyright Office, as applicable. The Security Interest is and shall be prior to any other Lien on any of the Article 9 Collateral other than Permitted Liens.
(d) The Article 9 Collateral is owned by the Pledgors free and clear of any Lien, other than Permitted Liens. None of the Pledgors has filed or consented to the filing of (i) any financing statement or analogous document under the Uniform Commercial Code or any other applicable laws covering any Article 9 Collateral, (ii) any assignment in which any Pledgor assigns any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with the United States Patent and Trademark Office or the United States Copyright
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Office or (iii) any assignment in which any Pledgor assigns any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, for Permitted Liens.
(e) None of the Pledgors holds any Commercial Tort Claim reasonably estimated to exceed $3,000,000 individually as of the Closing Date except as indicated on Schedule II to this Agreement.
SECTION 4.03. Covenants .
(a) Each Pledgor agrees to furnish to the Agent prompt written notice of any change (i) in any Pledgor’s corporate or organization name, (ii) in any Pledgor’s identity or organizational structure, (ii) in any Pledgor’s organizational identification number, (iv) in any Pledgor’s jurisdiction of organization or (v) in the location of the chief executive office of any Pledgor that is not a registered organization; provided that such Pledgor agrees not to effect or permit any such change unless all filings have been made, or will have been made within any applicable statutory period following such change, under the Uniform Commercial Code or otherwise that are required in order for the Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Article 9 Collateral in which a security interest may be perfected by such filing, for the benefit of the Secured Parties. Each Pledgor agrees promptly to notify the Agent if any material portion of the Article 9 Collateral is damaged or destroyed.
(b) Subject to the rights of such Pledgor under the Loan Documents and each Other First Lien Agreement then in effect to Dispose of Collateral, each Pledgor shall, at its own expense, use commercially reasonable efforts to defend title to the Article 9 Collateral against all persons and to defend the Security Interest of the Agent, for the benefit of the Secured Parties, in the Article 9 Collateral and the priority thereof against any Lien that is not a Permitted Lien.
(c) Each Pledgor agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Agent may from time to time reasonably request to better assure, preserve, protect and perfect the Security Interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement and the granting of the Security Interest and the filing of any Uniform Commercial Code financing statements (including fixture filings with respect to any Mortgaged Properties) or other documents in connection herewith or therewith, all in accordance with the terms hereof and the terms of the Credit Agreement and each Other First Lien Agreement then in effect.
Without limiting the generality of the foregoing, each Pledgor hereby authorizes the Agent, with prompt notice thereof to the Pledgors, to supplement this Agreement by supplementing Schedule IV or adding additional schedules hereto to specifically identify any asset or item that may constitute Copyrights, Patents or Trademarks; provided that any Pledgor shall have the right, exercisable within 90 days after the Borrower has been notified by the Agent of the specific identification of such Article 9 Collateral (or such later date as the Agent may agree), to
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advise the Agent in writing of any inaccuracy of the representations and warranties made by such Pledgor hereunder with respect to such Collateral. Each Pledgor agrees that it will use its commercially reasonable efforts to take such action as shall be necessary in order that all representations and warranties hereunder shall be true and correct with respect to such Article 9 Collateral within 90 days after the date on which the Borrower has been notified by the Agent of the specific identification of such Article 9 Collateral (or such later date as the Agent may agree).
(d) After the occurrence of an Event of Default and during the continuance thereof, the Agent shall have the right to verify under reasonable procedures the validity, amount, quality, quantity, value, condition and status of, or any other matter relating to, the Article 9 Collateral, including, in the case of Accounts or Article 9 Collateral in the possession of any third person, by contacting Account Debtors or the third person possessing such Article 9 Collateral for the purpose of making such a verification. The Agent shall have the right to share any information it gains from such inspection or verification with any Secured Party, subject to Section 9.16 (Confidentiality) of the Credit Agreement and any equivalent provision of any Other First Lien Agreement.
(e) At its option, the Agent may discharge any past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Article 9 Collateral and that is not a Permitted Lien, and may pay for the maintenance and preservation of the Article 9 Collateral to the extent any Pledgor fails to do so as required by the Credit Agreement, each Other First Lien Agreement or this Agreement, and each Pledgor jointly and severally agrees to reimburse the Agent on demand for any reasonable and documented payment made or any reasonable and documented out-of-pocket expense incurred by the Agent pursuant to the foregoing authorization; provided , however , that nothing in this Section 4.03(e) shall be interpreted as excusing any Pledgor from the performance of, or imposing any obligation on the Agent or any Secured Party to cure or perform, any covenants or other promises of any Pledgor with respect to taxes, assessments, charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents or any Other First Lien Agreement.
(f) Each Pledgor (rather than the Agent or any Secured Party) shall remain liable for the observance and performance of all the conditions and obligations to be observed and performed by it under each contract, agreement or instrument relating to the Article 9 Collateral and each Pledgor jointly and severally agrees to indemnify and hold harmless the Agent and the other Secured Parties from and against any and all liability for such performance.
(g) None of the Pledgors shall make or permit to be made an assignment, pledge or hypothecation of the Article 9 Collateral or shall grant any other Lien in respect of the Article 9 Collateral, except as not prohibited by the Credit Agreement and any Other First Lien Agreement. None of the Pledgors shall make or permit to be made any transfer of the Article 9 Collateral and each Pledgor shall remain at all times in possession of the Article 9 Collateral owned by it, except as not prohibited by the Credit Agreement and any Other First Lien Agreement. Notwithstanding the foregoing, if the Agent shall have notified the Pledgors in writing that an Event of Default under clause (b), (c), (h) or (i) of Section 7.01 of the Credit Agreement or the equivalent provisions of any Other First Lien Agreement shall have occurred and be continuing, and during the continuance thereof, the Pledgors shall not Dispose of any Article 9 Collateral
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to the extent requested by the Agent in writing, unless such Disposition is not otherwise prohibited by the Credit Agreement and each Other First Lien Agreement then in effect during an Event of Default under clause (b), (c), (h) or (i) of Section 7.01 of the Credit Agreement or the equivalent provisions of such Other First Lien Agreements.
(h) None of the Pledgors will, without the Agent’s prior written consent (which consent shall not be unreasonably withheld), grant any extension of the time of payment of any Accounts included in the Article 9 Collateral, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof or allow any credit or discount whatsoever thereon, other than extensions, credits, discounts, compromises or settlements granted or made in the ordinary course of business and consistent with prudent business practices, except as not prohibited by the Credit Agreement and any Other First Lien Agreement.
(i) Each Pledgor irrevocably makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent) as such Pledgor’s true and lawful agent (and attorney-in-fact) for the purpose, during the continuance of an Event of Default, of making, settling and adjusting claims in respect of Article 9 Collateral under policies of insurance, endorsing the name of such Pledgor on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect thereto. In the event that any Pledgor at any time or times shall fail to obtain or maintain any of the policies of insurance required by the Loan Documents or any Other First Lien Agreement, or to pay any premium in whole or part relating thereto, the Agent may, without waiving or releasing any obligation or liability of the Pledgors hereunder or any Event of Default, in its sole discretion, obtain and maintain such policies of insurance and pay such premium and take any other actions with respect thereto as the Agent reasonably deems advisable. All sums disbursed by the Agent in connection with this Section 4.03(i), including reasonable and documented attorneys’ fees, court costs, expenses and other charges relating thereto, shall be payable, upon demand, by the Pledgors to the Agent and shall be additional Secured Obligations secured hereby.
SECTION 4.04. Other Actions . In order to further ensure the attachment, perfection and priority of, and the ability of the Agent to enforce, for the benefit of the Secured Parties, the Agent’s security interest in the Article 9 Collateral, each Pledgor agrees, in each case at such Pledgor’s own expense, to take the following actions with respect to the following Article 9 Collateral:
(a) Instruments and Tangible Chattel Paper . If any Pledgor shall at any time own or acquire any Instruments (other than any Instruments constituting Pledged Debt, which are governed by Article II, and other than Excluded Securities or checks received and processed in the ordinary course of business) or Tangible Chattel Paper evidencing an amount in excess of $3,000,000, such Pledgor shall promptly (and in any event within 30 days of its acquisition or such longer period as the Agent may permit in its reasonable discretion) notify the Agent and promptly (and in any event within 5 days following such notice or such longer period as the Agent may permit in its reasonable discretion) endorse, assign and deliver the same to the Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Agent may from time to time reasonably request.
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(b) Commercial Tort Claims . If any Pledgor shall at any time hold or acquire a Commercial Tort Claim in an amount reasonably estimated to exceed $3,000,000, such Pledgor shall promptly notify the Agent thereof in a writing signed by such Pledgor, including a summary description of such claim, and deliver to the Agent in writing a supplement to Schedule II including such description.
SECTION 4.05. Covenants Regarding Patent, Trademark and Copyright Collateral . Except as not prohibited by the Loan Documents or, after the termination of the Credit Agreement, each Other First Lien Agreement:
(a) Each Pledgor agrees that it will not knowingly do any act or omit to do any act (and will exercise commercially reasonable efforts to prevent its licensees from doing any act or omitting to do any act) whereby any Patent material to the normal conduct of such Pledgor’s business may become prematurely invalidated or dedicated to the public, and agrees that it shall take commercially reasonable steps with respect to any material products covered by any such Patent as necessary and sufficient to establish and preserve its rights under applicable patent laws.
(b) Each Pledgor will, and will use its commercially reasonable efforts to cause its licensees or its sublicensees to, for each Trademark material to the normal conduct of such Pledgor’s business, (i) maintain such Trademark in full force free from any adjudication of abandonment or invalidity for non-use, (ii) maintain the quality of products and services offered under such Trademark, (iii) display such Trademark with notice of federal or foreign registration or claim of trademark or service mark as required under applicable law and (iv) not knowingly use or knowingly permit its licensees’ use of such Trademark in violation of any third-party rights.
(c) Each Pledgor will, and will use its commercially reasonable efforts to cause its licensees or its sublicensees to, for each work covered by a material Copyright necessary to the normal conduct of such Pledgor’s business that it publishes, displays and distributes, use copyright notice as required under applicable copyright laws.
(d) Each Pledgor shall notify the Agent promptly if it knows that any Patent, Trademark or Copyright material to the normal conduct of such Pledgor’s business may imminently become prematurely abandoned, lapsed or dedicated to the public, or of any materially adverse determination or development, excluding office actions and similar determinations or developments in the United States Patent and Trademark Office, United States Copyright Office or any court, regarding such Pledgor’s ownership of any such material Patent, Trademark or Copyright or its right to register or to maintain the same.
(e) Each Pledgor, either itself or through any agent, employee, licensee or designee, shall (i) inform the Agent on an annual basis at or about the time of delivery of financial statements for such year (commencing with the financial statements for the fiscal year ended December 31, 2014) of each application for, or registration or issuance of, any Patent or Trademark with the United States Patent and Trademark Office and each registration of any Copyright with the United States Copyright Office, in each case, filed by or on behalf of, or issued to or acquired by, any Pledgor during the preceding twelve-month period, and (ii) upon the reasonable request
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of the Agent, execute and deliver any and all agreements, instruments, documents and papers as the Agent may reasonably request to evidence the Agent’s security interest in such Patent, Trademark or Copyright; provided , that the provisions hereof shall automatically apply to any such Patent, Trademark or Copyright and any such Patent, Trademark or Copyright shall automatically constitute Collateral as if such would have constituted Collateral at the time of execution hereof and be subject to the Lien and Security Interest created by this Agreement without further action by any party.
(f) Each Pledgor shall exercise its reasonable business judgment consistent with its practice in any proceeding before the United States Patent and Trademark Office or the United States Copyright Office with respect to maintaining and pursuing each material application relating to any Patent, Trademark and/or Copyright (and obtaining the relevant grant or registration) material to the normal conduct of such Pledgor’s business and to maintain (i) each issued Patent and (ii) the registrations of each Trademark and each Copyright, which in each case is material to the normal conduct of such Pledgor’s business, including, when applicable and necessary in such Pledgor’s reasonable business judgment, timely filings of applications for renewal, affidavits of use, affidavits of incontestability and payment of maintenance fees, and, if any Pledgor believes necessary in its reasonable business judgment, to initiate opposition, interference and cancellation proceedings against third parties.
(g) In the event that any Pledgor knows or has reason to know that any Article 9 Collateral consisting of a Patent, Trademark or Copyright material to the normal conduct of its business has been materially infringed, misappropriated or diluted by a third party, such Pledgor shall promptly notify the Agent and shall, if such Pledgor deems it necessary in its reasonable business judgment, promptly sue and recover any and all damages, and take such other actions as are reasonably appropriate under the circumstances.
(h) Upon and during the continuance of an Event of Default, at the request of the Agent, each Pledgor shall use commercially reasonable efforts to obtain all requisite consents or approvals from the licensor under each Copyright License, Patent License or Trademark License to effect the assignment of all such Pledgor’s right, title and interest thereunder to (in the Agent’s sole discretion) the designee of the Agent or the Agent.
ARTICLE V.
Remedies
SECTION 5.01. Remedies Upon Default . In accordance with, and to the extent consistent with, the terms of any applicable Intercreditor Agreement and applicable Requirements of Law (including Gaming Laws), the Agent may take any action specified in this Section 5.01. Upon the occurrence and during the continuance of an Event of Default, each Pledgor agrees to deliver each item of Collateral to the Agent on demand, and it is agreed that the Agent shall have the right to take any of or all the following actions at the same or different times: (a) with respect to any Article 9 Collateral consisting of Intellectual Property, on demand, to cause the Security Interest to become an assignment, transfer and conveyance of any of or all such Article 9 Collateral by the applicable Pledgors to the Agent or to license or sublicense (subject to any such licensee’s obligation to maintain the quality of goods and services provided under
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any Trademark consistent with the quality of such goods and services provided by the Pledgors immediately prior to such Event of Default), whether general, special or otherwise, and whether on an exclusive or a nonexclusive basis, any such Article 9 Collateral throughout the world on such terms and conditions and in such manner as the Agent shall determine (other than in violation of any then-existing licensing arrangements to the extent that waivers thereunder cannot be obtained) and (b) with or without legal process and with or without prior notice or demand for performance, to take possession of the Article 9 Collateral and without liability for trespass to the applicable Pledgor to enter any premises where the Article 9 Collateral may be located for the purpose of taking possession of or removing the Article 9 Collateral and, generally, to exercise any and all rights afforded to a secured party under the applicable Uniform Commercial Code or other applicable law. Without limiting the generality of the foregoing, each Pledgor agrees that the Agent shall have the right, subject to the requirements of applicable law, to sell or otherwise dispose of all or any part of the Collateral at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Agent shall deem appropriate. The Agent shall be authorized in connection with any sale of a security (if it deems it advisable to do so) pursuant to the foregoing to restrict the prospective bidders or purchasers to persons who represent and agree that they are purchasing such security for their own account, for investment, and not with a view to the distribution or sale thereof. Upon consummation of any such Disposition of Collateral pursuant to this Section 5.01, the Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such Disposition shall hold the property sold absolutely, free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives and releases (to the extent permitted by law) all rights of redemption, stay, valuation and appraisal that such Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.
The Agent shall give the applicable Pledgors 10 days’ written notice (which each Pledgor agrees is reasonable notice within the meaning of Section 9-611 of the New York UCC or its equivalent in other jurisdictions) of the Agent’s intention to make any Disposition of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or the portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Agent may (in its sole and absolute discretion) determine. The Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In the case of any sale of all or any part of the Collateral made on credit or for future delivery, the Collateral so sold may be retained by the Agent until the sale price is paid by the purchaser or purchasers thereof, but the Agent shall not incur any liability in the event that any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may be sold again
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upon notice given in accordance with provisions above. At any public (or, to the extent permitted by law, private) sale made pursuant to this Section 5.01, any Secured Party may bid for or purchase for cash, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of any Pledgor (all such rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and such Secured Party may, upon compliance with the terms of sale, hold, retain and Dispose of such property in accordance with Section 5.02 without further accountability to any Pledgor therefor. For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof; the Agent shall be free to carry out such sale pursuant to such agreement and no Pledgor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Secured Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Agent may proceed by a suit or suits at law or in equity to foreclose under this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. To the extent provided in this Section 5.01, any Disposition pursuant to the provisions of this Section 5.01 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the New York UCC or its equivalent in other jurisdictions.
SECTION 5.02. Application of Proceeds . The Agent shall, subject to any applicable Intercreditor Agreement, promptly apply the proceeds, moneys or balances of any collection or sale of Collateral realized through the exercise by the Agent of its remedies hereunder, as well as any Collateral consisting of cash at any time when remedies are being exercised hereunder, as follows:
FIRST, to the payment of all out-of-pocket costs and expenses incurred by the Agent in connection with such collection or sale or otherwise in connection with this Agreement, any other Loan Document, any Other First Lien Agreement or any of the Secured Obligations, including all court costs and the fees and expenses of its agents and legal counsel, the repayment of all advances made by the Agent hereunder or under any other Loan Document or any Other First Lien Agreement on behalf of any Pledgor, any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document or any Other First Lien Agreement, and other fees, indemnities and other amounts owing or reimbursable to the Agent under any Loan Document or any Other First Lien Agreement in its capacity as such;
SECOND, to the payment in full of the Secured Obligations secured by such Collateral (the amounts so applied to be distributed among the Series of Secured Obligations pro rata based on the respective amounts of such Secured Obligations owed to the applicable Secured Parties in respect of each Series on the date of any such distribution (or in accordance with such other method of distribution as may be set forth in any applicable Intercreditor Agreement), with (x) the portion thereof distributed to the Credit Agreement Secured Parties to be further distributed in accordance with the order of priority set forth in Section 7.02 of the Credit Agreement and (y) the portion thereof distributed to the Secured Parties of any other Series to be further distributed in accordance with the applicable provisions of the Other First Lien Agreements governing such Series); and
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THIRD, to the Pledgors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct;
provided , that in no event shall the proceeds of any collection or sale of any Specified Excluded Collateral be applied to the relevant Series of Secured Obligations under any Other First Lien Agreement.
The Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon the request of the Agent prior to any distribution under this Section 5.02, each Authorized Representative shall provide to the Agent certificates, in form and substance reasonably satisfactory to the Agent, setting forth the respective amounts referred to in this Section 5.02 that each applicable Secured Party or its Authorized Representative believes it is entitled to receive, and the Agent shall be fully entitled to rely on such certificates. Upon any sale of Collateral by the Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the purchase money by the Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Agent or such officer or be answerable in any way for the misapplication thereof.
SECTION 5.03. Grant of License to Use Intellectual Property . For the purpose of enabling the Agent to exercise rights and remedies under this Agreement at such time as the Agent shall be lawfully entitled to exercise such rights and remedies, each Pledgor grants (such grant effective solely after the occurrence and during the continuance of an Event of Default) to (in the Agent’s sole discretion) a designee of the Agent or the Agent, for the benefit of the Secured Parties, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to any Pledgor) to use, license or sublicense any of the Article 9 Collateral consisting of Intellectual Property now owned or hereafter acquired by such Pledgor, wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof, the right to prosecute and maintain all Intellectual Property and the right to sue for past infringement of the Intellectual Property; provided , however , that nothing in this Section 5.03 shall require Pledgors to grant any license that is prohibited by any rule of law, statute or regulation, or is prohibited by, or constitutes a breach or default under or results in the termination of, any contract, license, instrument or other agreement with an unaffiliated third party, to the extent not prohibited by the Loan Documents and each Other First Lien Agreement, with respect to such Intellectual Property Collateral; and, provided , further , that such licenses to be granted hereunder shall be subject to (i) the maintenance of quality standards with respect to the goods and services on which Trademarks are used sufficient to preserve the validity of such Trademarks and (ii) those exclusive Copyright Licenses, Patent Licenses and Trademark Licenses granted by the Pledgors in effect on the date hereof and those granted by any Pledgor hereafter, as permitted under the Loan Documents and any Other First Lien Agreement, to the extent conflicting. The use of such license by the Agent may be exercised solely upon the occurrence and during the continuation of an Event of Default and subject to any Intercreditor Agreement; provided that any license, sublicense or other transaction entered into by the Agent in accordance herewith shall be binding upon the Pledgors notwithstanding any subsequent cure of an Event of Default. Furthermore, each Pledgor hereby grants to the Agent
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an absolute power of attorney to sign, upon the occurrence and during the continuance of any Event of Default, any document which may be required by the United States Copyright Office or the United States Patent and Trademark Office or any state office in order to effect the potential license granted herein and record the same.
SECTION 5.04. Securities Act, Etc . In view of the position of the Pledgors in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar federal statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “ Federal Securities Laws ”) with respect to any Disposition of the Pledged Collateral permitted hereunder. Each Pledgor understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Agent if the Agent were to attempt to Dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could Dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Agent in any attempt to Dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. Each Pledgor acknowledges and agrees that in light of such restrictions and limitations, the Agent, subject to any applicable Intercreditor Agreement, in its sole and absolute discretion, (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws or, to the extent applicable, Blue Sky or other state securities laws and (b) may approach and negotiate with a single potential purchaser to effect such sale. Each Pledgor acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, the Agent shall incur no responsibility or liability for selling all or any part of the Pledged Collateral at a price that the Agent, subject to any applicable Intercreditor Agreement, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached. The provisions of this Section 5.04 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Agent sells.
ARTICLE VI.
Miscellaneous
SECTION 6.01. Notices . All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 9.01 of the Credit Agreement (whether or not then in effect), and all notices to any holder of obligations under any Other First Lien Agreements shall be given at its address set forth in the Other First Lien Secured Party Consent or in the First Lien Intercreditor Agreement (upon and during the effectiveness thereof), in each case of the foregoing, as such address may be changed by written notice to the Agent and the Borrower. All communications and notices hereunder to any Pledgor shall be given to it in care of the Borrower, with such notice to be given as provided in Section 9.01 of the Credit Agreement (whether or not then in effect).
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SECTION 6.02. Security Interest Absolute . To the extent not prohibited by applicable law, all rights of the Agent hereunder, the Security Interest, the security interest in the Pledged Collateral and all obligations of each Pledgor hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any Loan Document, any other agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Secured Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Pledgor in respect of the Secured Obligations or this Agreement (other than a defense of payment or performance).
SECTION 6.03. Limitation By Law . All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law or regulation (including any Gaming Law), and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law or regulation (including any Gaming Law) that may be controlling and to be limited to the extent necessary so that they shall not render this Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law or regulation (including any Gaming Law).
SECTION 6.04. Binding Effect; Several Agreement . This Agreement shall become effective as to any party to this Agreement when a counterpart hereof executed on behalf of such party shall have been delivered to the Agent and a counterpart hereof shall have been executed on behalf of the Agent, and thereafter shall be binding upon such party and the Agent and their respective permitted successors and assigns, and shall inure to the benefit of such party, the Agent and the other Secured Parties and their respective permitted successors and assigns, except that no party shall have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as not prohibited by this Agreement or the Credit Agreement or, after the termination of the Credit Agreement, any Other First Lien Agreement. This Agreement shall be construed as a separate agreement with respect to each party and may be amended, modified, supplemented, waived or released in accordance with Section 6.09 or 6.15, as applicable.
SECTION 6.05. Successors and Assigns . Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Pledgor or the Agent that are contained in this Agreement shall bind and inure to the benefit of their respective permitted successors and assigns.
SECTION 6.06. Agent’s Fees and Expenses .
(a) The parties hereto agree that the Agent shall be entitled to reimbursement of its expenses incurred hereunder by the Pledgors, and the Agent and other Indemnitees shall be indemnified by the Pledgors, in each case of this clause (a), mutatis mutandis , as provided in Section 9.05 of the Credit Agreement and the equivalent provision of any Other First Lien Agreement.
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(b) Any such amounts payable as provided hereunder shall be additional Secured Obligations secured hereby and by the other Security Documents. The provisions of this Section 6.06 shall remain operative and in full force and effect regardless of the termination of this Agreement, any other Loan Document or any Other First Lien Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Secured Obligations, the invalidity or unenforceability of any term or provision of this Agreement, any other Loan Document or any Other First Lien Agreement, or any investigation made by or on behalf of the Agent or any other Secured Party. All amounts due under this Section 6.06 shall be payable within fifteen days (or such longer period as the Agent may agree) of written demand therefor, accompanied by reasonable documentation with respect to any reimbursement, indemnification or other amount requested.
(c) The agreements in this Section 6.06 shall survive the resignation of the Agent and the termination of this Agreement.
SECTION 6.07. Agent Appointed Attorney-in-Fact . Each Pledgor hereby appoints the Agent the attorney-in-fact of such Pledgor for the purpose of carrying out the provisions of this Agreement and, upon the occurrence and during the continuance of an Event of Default, taking any action and executing any instrument that the Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, subject to any applicable Requirements of Law (including Gaming Laws) and any applicable Intercreditor Agreement, the Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Agent’s name or in the name of such Pledgor, (a) to receive, endorse, assign or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral; (c) to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due under and by virtue of any Collateral; (d) to sign the name of any Pledgor on any invoice or bill of lading relating to any of the Collateral; (e) to send verifications of Accounts to any Account Debtor; (f) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral; (g) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Collateral; (h) to notify, or to require any Pledgor to notify, Account Debtors to make payment directly to the Agent; and (i) to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Agent were the absolute owner of the Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Agent, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Agent and the other Secured Parties shall be accountable only for amounts actually received
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as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Pledgor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
SECTION 6.08. GOVERNING LAW . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6.09. Waivers; Amendment; Extension of Time .
(a) No failure or delay by the Agent, any Issuing Bank, any Lender or any other Secured Party in exercising any right, power or remedy hereunder or under any other Loan Document or any Other First Lien Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy, or any abandonment or discontinuance of steps to enforce such a right, power or remedy, preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies of the Agent, any Issuing Bank, the Lenders or any other Secured Party hereunder and under the other Loan Documents and any Other First Lien Agreement are cumulative and are not exclusive of any rights, powers or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Pledgor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 6.09, 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, the increase of any Other First Lien Obligations or the issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Agent, any Lender, any Issuing Bank or any other Secured Party may have had notice or knowledge of such Default or Event of Default at the time. No notice or demand on any Pledgor in any case shall entitle any Pledgor to any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Agent and the Pledgor or Pledgors with respect to which such waiver, amendment or modification is to apply, subject to any consent required in accordance with Section 9.08 of the Credit Agreement and any equivalent provision in each applicable Other First Lien Agreement and, by each other Authorized Representative to the extent required by (and in accordance with) such applicable Other First Lien Agreement, or, in each case, as otherwise provided in any applicable Intercreditor Agreement. The Agent may conclusively rely on a certificate of an officer of the Borrower as to whether any amendment contemplated by this Section 6.09(b) is permitted.
(c) Notwithstanding anything to the contrary contained herein, the Agent may grant extensions of time or waivers of the requirement for the creation or perfection of security interests in or the obtaining of insurance (including title insurance) or surveys with respect to particular assets (including extensions beyond the Closing Date for the perfection of security interests in the assets of the Pledgors on such date) where it reasonably determines, in consultation with the Borrower, that perfection or obtaining of such items cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required by this Agreement, any other Loan Documents or any Other First Lien Agreement.
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SECTION 6.10. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER LOAN DOCUMENTS OR ANY OTHER FIRST LIEN AGREEMENT. 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 6.10.
SECTION 6.11. Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 6.12. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 6.04. Delivery of an executed counterpart to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed original.
SECTION 6.13. 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 are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.
SECTION 6.14. Jurisdiction; Consent to Service of Process .
(a) Subject to the final sentence of this clause (a), each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, any other Loan Document, any Other First Lien Agreement or the transactions relating hereto or thereto, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation
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or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement, any other Loan Document or any Other First Lien Agreement shall affect any right that the Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement, any other Loan Document or any Other First Lien Agreement against any Pledgor or its properties in the courts of any jurisdiction.
(b) Each party to this Agreement 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 the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, any other Loan Document or any Other First Lien Agreement in any New York State or federal court of the United States of America sitting in New York County, and any appellate court from any thereof. 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.
(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 6.01. Nothing in this Agreement, any other Loan Document or any Other First Lien Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 6.15. Termination or Release .
(a) This Agreement and the pledges made by the Pledgors herein and all other security interests granted by the Pledgors hereby shall automatically terminate and be released upon the occurrence of the Termination Date or, if any Other First Lien Obligations are outstanding on the Termination Date, the date after the Termination Date when all such Other First Lien Obligations (other than contingent or unliquidated obligations or liabilities not then due and any other obligations that, by the terms of any Other First Lien Agreements, are not required to be paid in full prior to termination and release of the Collateral) have been paid in full and the Secured Parties have no further commitment to extend credit under any Other First Lien Agreement.
(b) A Subsidiary Party shall automatically be released from its obligations hereunder and the security interests in the Collateral of such Subsidiary Party shall be automatically released upon the consummation of any transaction not prohibited by the Credit Agreement and each Other First Lien Agreement then in effect as a result of which such Subsidiary Party ceases to be a Subsidiary of the Borrower or otherwise becomes an Excluded Subsidiary or ceases to be a Guarantor or is otherwise released from its obligations under the Subsidiary Guarantee Agreement, all without delivery of any instrument or performance of any act by any party, and all rights to the applicable portions of the Collateral shall revert to such Subsidiary Party.
(c) The security interest in such Collateral shall be automatically released, all without delivery of any instrument or performance of any act by any party, (i) upon any sale or other transfer by any Pledgor of any Collateral that is not prohibited by the Credit Agreement and each Other First Lien Agreement to any person that is not a Pledgor, (ii) upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 9.08 of the Credit Agreement and any equivalent provision of each applicable Other First Lien Agreement (in each case, to the extent required thereby), or (iii) as otherwise may be provided in any applicable Intercreditor Agreements.
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(d) Solely with respect to the Credit Agreement Secured Obligations, a Pledgor shall automatically be released from its obligations hereunder and/or the security interests in any Collateral securing Credit Agreement Secured Obligations shall in each case be automatically released upon the occurrence of any of the circumstances set forth in Section 9.18 of the Credit Agreement without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to any applicable Pledgor.
(e) Solely with respect to any Series of Other First Lien Obligations, a Pledgor shall automatically be released from its obligations hereunder and/or the security interests in any Collateral securing such Series of Other First Lien Obligations shall in each case be automatically released upon the occurrence of any of the circumstances set forth in any provision governing release of collateral in the applicable Other First Lien Agreement governing such Series of Other First Lien Obligations, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to any applicable Pledgor.
(f) If any Collateral shall become subject to the automatic release provisions set forth in the First Lien Intercreditor Agreement (upon and during the effectiveness thereof), the lien created hereunder on such Collateral shall be automatically released to the extent (and only to the extent) provided therein.
(g) In connection with any termination or release pursuant to this Section 6.15, the Agent shall execute and deliver to any Pledgor, at such Pledgor’s expense, all documents (forms of which shall be reasonably acceptable to the Agent), that such Pledgor shall reasonably request to evidence such termination or release (including Uniform Commercial Code termination statements), and will duly assign and transfer to such Pledgor, such of the Pledged Collateral that may be in the possession of the Agent and has not theretofore been sold or otherwise applied or released pursuant to this Agreement. Any execution and delivery of documents pursuant to this Section 6.15 shall be without recourse to or warranty by the Agent. In connection with any release pursuant to this Section 6.15, the Pledgors shall be permitted to take any action in connection therewith consistent with such release including, without limitation, the filing of Uniform Commercial Code termination statements. Upon the receipt of any necessary or proper instruments of termination, satisfaction or release prepared by the Borrower pursuant to this Section 6.15, the Agent shall execute, deliver or acknowledge such instruments or releases (forms of which shall be reasonably acceptable to the Agent), to evidence the release of any Collateral permitted to be released pursuant to this Agreement. The Pledgors agree to pay all reasonable and documented out-of-pocket expenses incurred by the Agent (and its representatives and counsel) in connection with the execution and delivery of such release documents or instruments.
SECTION 6.16. Additional Subsidiaries . Upon execution and delivery by any Subsidiary that is required or permitted to become a party hereto by Section 5.10 or the Collateral and Guarantee Requirement of the Credit Agreement or by any Other First Lien Agreement of an instrument substantially in the form of Exhibit I hereto (or another instrument reasonably satisfactory to the Agent and the Borrower), subject to applicable Requirements of Law (including
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Gaming Laws), such Subsidiary shall become a Subsidiary Party hereunder with the same force and effect as if originally named as a Subsidiary Party herein. The execution and delivery of any such instrument shall not require the consent of any other party to this Agreement. The rights and obligations of each party to this Agreement shall remain in full force and effect notwithstanding the addition of any new party to this Agreement.
SECTION 6.17. Compliance with Gaming Laws . Notwithstanding anything to the contrary set forth in this Agreement, any other Loan Document or any Other First Lien Agreement, the Agent, on behalf of the Secured Parties, acknowledges and agrees that:
(a) the pledge of the Pledged Stock of any Pledgor that is a licensee or registered holding company under the Gaming Laws applicable in the State of Nevada (“ Nevada Gaming Laws ”) (any such entity, a “ Nevada Licensee ”) or the Gaming Laws applicable in the State of Mississippi (“ Mississippi Gaming Laws ”) (any such entity, a “ Mississippi Licensee ”), or under the Gaming Laws of any other state (any such entity, an “ Other State Licensee ”) pursuant to this Agreement, any other Loan Document or any Other First Lien Agreement, will not be effective without the prior approval of the Gaming Authorities having jurisdiction in Nevada (the “ Nevada Gaming Authorities ”), the Gaming Authorities having jurisdiction in Mississippi (the “ Mississippi Gaming Authorities ”), and any other Gaming Authorities having jurisdiction over any Other State Licensee (“ Other State Gaming Authorities ”) and no certificates evidencing any such Pledged Stock may be delivered to the Agent until such approval has been obtained. Furthermore, no amendment of this Agreement shall be effective until any approvals required from the Nevada Gaming Authorities under the Nevada Gaming Laws, the Mississippi Gaming Authorities under the Mississippi Gaming Laws and any Other State Gaming Authorities under their applicable Gaming Laws have been obtained;
(b) in the event that Agent exercises one or more of the remedies set forth in this Agreement with respect to the Pledged Stock of any Nevada Licensee, any Mississippi Licensee or any Other State Licensee, including, without limitation, the foreclosure, transfer, sale, distribution or other disposition of any interest therein (except back to the applicable Pledgor), the exercise of voting and consensual rights, and any other resort to or enforcement of the security interest in such Pledged Stock, such action will require the separate and prior approval of the Nevada Gaming Authorities and/or the Mississippi Gaming Authorities and/or any Other State Gaming Authorities, as applicable, or the licensing or finding of suitability of the Agent or any transferee thereof unless such licensing or suitability requirement is waived thereby;
(c) the Agent, and any custodial agent of Agent in the State of Nevada, will be required to comply with the conditions, if any, imposed by the Nevada Gaming Authorities in connection with their approval of the pledge granted hereunder, including, without limitation, requirements that the Agent or its custodial agent maintain the certificates evidencing the Pledged Stock of Nevada Licensees at a location in Nevada (notice of which the Agent or its custodial agent shall provide to the Nevada Gaming Authorities), and that the Agent or its custodial agent permit agents or employees of the Nevada Gaming Authorities to inspect such certificates upon request;
(d) neither the Agent nor any custodial agent of the Agent will be permitted to surrender possession of any Pledged Stock of Nevada Licensees to any person other than the applicable Pledgor thereof without the prior approval of the Nevada Gaming Authorities or as otherwise permitted by the Gaming Laws;
34
(e) any approval of the Nevada Gaming Authorities, the Mississippi Gaming Authorities or the Other State Gaming Authorities of this Agreement, or any amendment hereto, does not constitute approval, either express or implied, of the Agent to take any actions provided for in this Agreement, for which separate approval by the Nevada Gaming Authorities, the Mississippi Gaming Authorities or the Other State Gaming Authorities may be required by the Gaming Laws;
(f) the Agent, the Secured Parties and their respective successors and assigns are subject to being called forward by the Nevada Gaming Authorities and/or the Mississippi Gaming Authorities and/or any Other State Gaming Authorities in their sole and absolute discretion, for licensing or a finding of suitability in order to remain entitled to the benefits of this Agreement, any other Loan Documents and any Other First Lien Agreement; and
(g) in the event the Agent, on behalf of the Secured Parties, exercises one or more of the remedies set forth in this Agreement with respect to Article 9 Collateral consisting of gaming devices, mobile gaming systems, interactive gaming systems, cashless wagering systems and associated equipment (as those terms are defined in the Gaming Laws), including, but not limited to, the foreclosure, transfer, sale, distribution or other disposition of such Collateral, such exercise of remedies may require the separate and prior approval of the Nevada Gaming Authorities and/or the Mississippi Gaming Authorities and/or any Other State Gaming Authorities or the licensing of the Agent or any transferee thereof pursuant to the Gaming Laws.
SECTION 6.18. Subject to Any Applicable Intercreditor Agreement . Notwithstanding anything herein to the contrary, (i) the Liens and security interests granted to the Agent for the benefit of the Secured Parties pursuant to this Agreement are expressly subject to any applicable Intercreditor Agreement to the extent provided therein and (ii) the exercise of any right or remedy by the Agent hereunder or the application of proceeds (including insurance and condemnation proceeds) of any Collateral are subject to any applicable Intercreditor Agreement to the extent provided therein. In the event of any conflict between the terms of such applicable Intercreditor Agreement and the terms of this Agreement, the terms of such applicable Intercreditor Agreement shall govern.
SECTION 6.19. Other First Lien Obligations . On or after the date hereof and so long as such obligations are not prohibited to be incurred under the Credit Agreement and any Other First Lien Agreement then in effect, the Borrower may from time to time designate obligations in respect of Indebtedness to be secured (except with respect to any applicable Specified Excluded Collateral) on a pari passu basis with the then outstanding Secured Obligations as Other First Lien Obligations hereunder by delivering to the Agent and each Authorized Representative (a) a certificate signed by a Responsible Officer of the Borrower, (i) identifying the obligations so designated and the initial aggregate principal amount or face amount thereof, (ii) stating that such obligations are designated as Other First Lien Obligations for purposes hereof, (iii) representing that such designation of such obligations as Other First Lien Obligations are not prohibited by the terms of the Credit Agreement and any Other First Lien Agreement then in effect and (iv) specifying the name and address of the Authorized Representative for such obligations,
35
(b) a fully executed Other First Lien Secured Party Consent and (c) if not already in effect, execute and deliver the First Lien Intercreditor Agreement (or a joinder thereto in the form (and to the extent, if any) required thereby to the extent such First Lien Intercreditor Agreement is then in effect). The Agent and each Authorized Representative agree that upon the satisfaction of all conditions set forth in the preceding sentence, (x) the Agent shall act as agent under and subject to the terms of the Security Documents for the benefit of all Secured Parties, including without limitation, any Secured Parties that hold any such Other First Lien Obligations, and (y) the Agent and each Authorized Representative agree to the appointment, and acceptance of the appointment, of the Agent as agent for the holders of such Other First Lien Obligations as set forth in each Other First Lien Secured Party Consent and agree, on behalf of itself and each Secured Party it represents, to be bound by this Agreement and the First Lien Intercreditor Agreement. The rights and obligations of each party to this Agreement shall remain in full force and effect notwithstanding the addition of any new Secured Obligations to this Agreement.
SECTION 6.20. Person Serving as Agent
On the Closing Date, the Agent hereunder is the same person that is the Administrative Agent under (and as defined in) the Credit Agreement. Written notice of resignation by the Administrative Agent under (and as defined in) the Credit Agreement pursuant to the Credit Agreement shall also constitute notice of resignation as the Agent under this Agreement. Upon the acceptance of any appointment as the Administrative Agent under (and as defined in) the Credit Agreement by a successor, that successor shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent pursuant hereto. Immediately upon the occurrence of the Discharge (as such term or equivalent term is defined in the First Lien Intercreditor Agreement) of Credit Agreement Loan Obligations, if any other Series of Secured Obligations is then outstanding, the Authorized Representative of such Series (or, if more than one such Series is outstanding, the applicable Authorized Representative determined pursuant to the terms of (and as defined in) the applicable Intercreditor Agreement) shall be deemed the Agent for all purposes under this Agreement. The Agent immediately prior to any change in Agent pursuant to this Section 6.20 (the “ Prior Agent ”) shall be deemed to have assigned all of its rights, powers and duties hereunder to the successor Agent determined in accordance with this Section 6.20 (the “ Successor Agent ”) and the Successor Agent shall be deemed to have accepted, assumed and succeeded to such rights, powers and duties. The Prior Agent shall cooperate with the Pledgors and such Successor Agent to ensure that all actions are taken that are necessary or reasonably requested by the Successor Agent to vest in such Successor Agent the rights granted to the Prior Agent hereunder with respect to the Collateral, including (a) the filing of amended financing statements in the appropriate filing offices, (b) to the extent that the Prior Agent holds, or a third party holds on its behalf, physical possession of or “control” (as defined in the New York UCC or the Uniform Commercial Code of any other applicable jurisdiction) over Collateral pursuant to this Agreement or any other Security Document, the delivery to the Successor Agent of the Collateral in its possession or control together with any necessary endorsements to the extent required by this Agreement, and (c) the execution and delivery of any further documents, financing statements or agreements and the taking of all such further action that may be required under any applicable law, or that the Successor Agent may reasonably request, all without recourse to, or representation or warranty by, the Agent, and at the sole cost and expense of the Pledgors. In addition, the Agent hereunder shall at all times be the same
36
person that is the “Collateral Agent” under the First Lien Intercreditor Agreement. Written notice of resignation by the “Collateral Agent” pursuant to the First Lien Intercreditor Agreement shall also constitute notice of resignation as the Agent under this Agreement. Upon the acceptance of any appointment as the “Collateral Agent” under the First Lien Intercreditor Agreement by a successor “Collateral Agent,” that successor “Collateral Agent” shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent pursuant hereto.
SECTION 6.21. General Authority of the Agent
(a) By acceptance of the benefits of this Agreement and any other Security Documents, each Secured Party (whether or not a signatory hereto) shall be deemed irrevocably (i) to consent to the appointment of the Agent as its agent hereunder and under such other Security Documents, (ii) to confirm that the Agent shall have the authority to act as the exclusive agent of such Secured Party for the enforcement of any provision of this Agreement and such other Security Documents against any Pledgor, the exercise of remedies hereunder or thereunder and the giving or withholding of any consent or approval hereunder thereunder relating to any Collateral or any Pledgor’s obligations with respect thereto, (iii) to agree that it shall not take any action to enforce any provisions of this Agreement or any other Security Document against any Pledgor, to exercise any remedy hereunder or thereunder or to give any consents or approvals hereunder or thereunder except as expressly provided in this Agreement or any other Security Document and (iv) to agree to be bound by the terms of this Agreement, any other Security Documents and any Intercreditor Agreement then in effect.
(b) Each Pledgor acknowledges that the rights and responsibilities of the Agent under this Agreement with respect to any action taken by the Agent or the exercise or non-exercise by the Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Agent and the Secured Parties, be governed by the Credit Agreement, any Other First Lien Agreement and such other agreements with respect thereto as may exist from time to time among them, but, as between the Agent and the Pledgors, the Agent shall be conclusively presumed to be acting as agent for the applicable Secured Parties with full and valid authority so to act or refrain from acting, and no Pledgor shall be under any obligation, or entitlement, to make any inquiry respecting such authority.
SECTION 6.22. Application of Gaming Laws . Notwithstanding anything herein to the contrary, this Agreement and any Other First Lien Agreement are subject to the applicable Gaming Laws. Without limiting the foregoing, the Secured Parties acknowledge that (i) they are subject to the jurisdiction of the Gaming Authorities, in their discretion, for licensing, qualification or findings of suitability or to file or provide other information, and (ii) all rights, remedies and powers in or under this Agreement and the Other First Lien Agreements, including with respect to the Collateral (including the pledge and delivery of the Pledged Collateral), the Mortgaged Properties and the transportation, ownership and operation of gaming machines and/or facilities may be subject to the jurisdiction of the Gaming Authorities, and may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of the Gaming Laws and only to the extent that required approvals (including prior approvals), if any, are obtained from the relevant Gaming Authorities.
37
[Signature Pages Follow]
38
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
AP GAMING I, LLC, as Borrower |
||
By: |
/s/ David Lopez |
|
Name: | David Lopez | |
Title: | Authorized Signatory |
[Signature Page to Collateral Agreement]
AP GAMING II, INC., | ||
AP GAMING ACQUISITION, LLC | ||
AGS CAPITAL, LLC, | ||
AGS LLC, | ||
AGS PARTNERS, LLC, | ||
AGS ILLINOIS, LLLP, | ||
AGS CJ CORPORATION | ||
AGS CJ HOLDINGS CORPORATION | ||
CADILLAC JACK, INC., each as a Subsidiary Party | ||
By: |
/s/ David Lopez |
|
Name: | David Lopez | |
Title: | Authorized Signatory |
[Signature Page to Collateral Agreement]
JEFFERIES FINANCE, LLC, as Agent |
By: |
/s/ John Koehler |
|
Name: | John Koehler | |
Title: | Senior Vice President |
[Signature Page to Collateral Agreement]
Exhibit I
to the Collateral Agreement
SUPPLEMENT NO. dated as of (this “ Supplement ”), to the Collateral Agreement dated as of June 6, 2017 (as heretofore amended and/or supplemented, the “ Collateral Agreement ”), among (a) AP GAMING I, LLC (the “ Borrower ”), each Subsidiary Loan Party (as defined in the Credit Agreement (as defined below)) listed on Schedule I to the Collateral Agreement and each Subsidiary of the Borrower that becomes a party hereto (each, a “ Subsidiary Party ”) and JEFFERIES FINANCE LLC, as Collateral Agent (in such capacity, the “ Agent ”) for the Secured Parties (as defined therein).
A. Reference is made to the First Lien Credit Agreement, dated as of June 6, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Lenders party thereto from time to time, the Agent, as administrative agent (together with its successors and assigns in such capacity, the “ Credit Agreement Agent ”), and the other parties party thereto.
B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement or the Collateral Agreement, as applicable.
C. The Pledgors have entered into the Collateral Agreement in order to induce the Lenders to make Loans, each Issuing Bank to issue Letters of Credit and the holders of any other Other First Lien Obligations to make extensions of credit under the applicable Other First Lien Agreements, as applicable. Section 6.16 of the Collateral Agreement provides that additional Subsidiaries of the Borrower may become Subsidiary Parties under the Collateral Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary (the “ New Subsidiary ”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Party under the Collateral Agreement.
Accordingly, the New Subsidiary agrees as follows:
SECTION 1. In accordance with Section 6.16 of the Collateral Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party and a Pledgor under the Collateral Agreement with the same force and effect as if originally named therein as a Subsidiary Party and a Pledgor, and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Collateral Agreement applicable to it as a Subsidiary Party and a Pledgor thereunder and (b) represents and warrants that the representations and warranties made by it as a Pledgor thereunder are true and correct in all material respects on and as of the date hereof. In furtherance of the foregoing, subject to any approvals required under Gaming Laws, the New Subsidiary, as security for the payment and performance in full of the Secured Obligations, does hereby create and grant to the Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and Lien on all of the New Subsidiary’s right, title and interest in and to the Collateral (as defined in the Collateral Agreement) of the New Subsidiary. Each reference to a “Subsidiary Party” or a “Pledgor” in the Collateral Agreement shall be
Exhibit I - 1
deemed to include the New Subsidiary (except as otherwise provided in clause (iii) of the definition of Pledgor to the extent applicable). The Collateral Agreement is hereby incorporated herein by reference.
SECTION 2. The New Subsidiary represents and warrants to the Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors’ rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) implied covenants of good faith and fair dealing.
SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. This Supplement shall become effective when the Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary. Delivery of an executed signature page to this Supplement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.
SECTION 4. The New Subsidiary hereby represents and warrants that, as of the date hereof, (a) set forth on Schedule I attached hereto is a true and correct schedule of all the Pledged Stock and Pledged Debt of the New Subsidiary, (b) set forth on Schedule II attached hereto is a true and correct schedule of all Intellectual Property now owned by the New Subsidiary constituting United States registered Trademarks, Patents and Copyrights, (c) set forth on Schedule III attached hereto is a true and correct schedule of all Commercial Tort Claims in excess of $3,000,000 held by the New Subsidiary and (d) set forth under its signature hereto, is the true and correct legal name of the New Subsidiary, its jurisdiction of organization and organizational identification number.
SECTION 5. Except as expressly supplemented hereby, the Collateral Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE NEW SUBSIDIARY UNDER THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In the event any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Collateral Agreement shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Exhibit I - 2
SECTION 8. All communications and notices hereunder shall (except as otherwise expressly permitted by the Collateral Agreement) be in writing and given as provided in Section 6.01 of the Collateral Agreement.
SECTION 9. The New Subsidiary agrees to reimburse the Agent for its reasonable and documented out-of-pocket expenses in connection with this Supplement, including the reasonable and documented fees, disbursements and other charges of counsel for the Agent.
[Signature Page Follows.]
Exhibit I - 3
IN WITNESS WHEREOF, the New Subsidiary and the Agent have duly executed this Supplement to the Collateral Agreement as of the date first above written.
[Name of New Subsidiary] |
By: |
|
|
Name: | ||
Title: |
Legal Name: | ||
Jurisdiction of Formation: |
Schedule I
to Supplement No. to the
Collateral Agreement
Pledged Collateral of the New Subsidiary
PLEDGED STOCK
Number of Issuer Certificate |
Registered Owner |
Number and Class of
Equity Interests |
Percentage of
Equity Interests |
|||
PLEDGED DEBT
Issuer |
Principal Amount | Date of Note | Maturity Date | |||
OTHER PROPERTY
Schedule II
to Supplement No. to the
Collateral Agreement
Intellectual Property of the New Subsidiary
Exhibit II
to the Collateral Agreement
Form of Perfection Certificate
See Attached
Exhibit II-1
Exhibit III
to Collateral Agreement
[Form of]
OTHER FIRST LIEN SECURED PARTY CONSENT
[Name of Authorized Representative for the New Secured Parties]
[Address of Authorized Representative]
[Date]
[Name of Agent]
[Address of Agent]
The undersigned is the Authorized Representative for persons wishing to become Secured Parties (the “ New Secured Parties ”) under the Collateral Agreement dated as of June 6, 2017 (as heretofore amended and/or supplemented, the “ Collateral Agreement ” (terms used without definition herein have the meanings assigned to such term by the Collateral Agreement)) among (a) AP GAMING I, LLC (the “ Borrower ”), each Subsidiary Party thereto (each, a “ Subsidiary Party ”) and JEFFERIES FINANCE, LLC, as Collateral Agent (in such capacity, the “ Agent ”) for the Secured Parties (as defined therein).
In consideration of the foregoing, the undersigned hereby:
(i) represents that the Authorized Representative has been duly authorized by the New Secured Parties to become a party to the Collateral Agreement, each other Security Document and the First Lien Intercreditor Agreement on behalf of the New Secured Parties under that [DESCRIBE OPERATIVE AGREEMENT] (the “New Secured Obligation”) and to act as the Authorized Representative for the New Secured Parties;
(ii) acknowledges that the Authorized Representative received a copy of the Security Documents and each Intercreditor Agreement;
(iii) appoints and authorizes the Agent to take such action as agent on its behalf and on behalf of all other Secured Parties and to exercise such powers under the Security Documents and First Lien Intercreditor Agreement as are delegated to the Agent by the terms thereof, together with all such powers as are reasonably incidental thereto;
(iv) accepts and acknowledges the terms of the First Lien Intercreditor Agreement applicable to it and the New Secured Parties and agrees to serve as Authorized Representative for the New Secured Parties with respect to the New Secured Obligations and agrees on its own behalf and on behalf of the New Secured Parties to be bound by the terms thereof applicable to holders of Other First Lien Obligations, with all the rights and
Exhibit III-1
obligations of a Secured Party thereunder and bound by all the provisions thereof (including, without limitation, Section 2.02(b) thereof) as fully as if it had been a Secured Party on the effective date of the Collateral Agreement and each Intercreditor Agreement and agrees that its address for receiving notices pursuant to the Security Documents and each applicable Intercreditor Agreement shall be as follows:
[Address]
(v) confirms the authority of the Agent to enter into such agreements on its behalf and on behalf of the New Secured Parties and agrees on its own behalf and on behalf of the New Secured Parties to be bound by the terms thereof applicable to it and the New Secured Parties as fully as if it had been a party to each such agreement on behalf of itself and the New Secured Parties.
The Agent, by acknowledging and agreeing to this Other First Lien Secured Party Consent, accepts the appointment set forth in clause (iii) above.
THIS OTHER FIRST LIEN SECURED PARTY CONSENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[Signature Pages Follow.]
Exhibit III - 2
IN WITNESS WHEREOF, the undersigned has caused this Other First Lien Secured Party Consent to be duly executed by its authorized officer as of the date first above written.
[AUTHORIZED REPRESENTATIVE] |
By: |
|
|
Name: | ||
Title: |
Acknowledged and Agreed:
[AGENT] |
By: |
|
|
Name: | ||
Title: |
Acknowledged and Agreed:
[BORROWER], for itself and on behalf of the other Pledgors |
By: |
|
|
Name: | ||
Title: |
Exhibit IV
to the Collateral Agreement
Form of Intellectual Property Security Agreement
See Attached
Exhibit IV - 1
Form of Intellectual Property Security Agreement
[FORM OF] [COPYRIGHT] [PATENT] [TRADEMARK] SECURITY AGREEMENT dated as of [DATE] (this “ Agreement ”), made by [●], a [●] [●] (the “ Pledgor ”), in favor of JEFFERIES FINANCE, LLC, as Collateral Agent (as defined below).
Reference is made to the Collateral Agreement dated as of December 20, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the “ Collateral Agreement ”), among AP GAMING I, LLC (the “ Borrower ”), each subsidiary of the Borrower identified therein and JEFFERIES FINANCE, LLC, as collateral agent (together with its successors and assigns in such capacity, the “ Agent ”) for the Secured Parties (as defined therein). The parties hereto agree as follows:
SECTION 1. Terms . Capitalized terms used in this Agreement and not otherwise defined herein have the meanings specified in the Collateral Agreement. The rules of construction specified in Section 1.01(b) of the Collateral Agreement also apply to this Agreement.
SECTION 2. Grant of Security Interest . As security for the payment and performance when due, as the case may be, in full of the Secured Obligations, the Pledgor pursuant to the Collateral Agreement did, and hereby does, grant to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in all of such Pledgor’s right, title and interest in or to any and all of the following assets now owned or at any time hereafter acquired by such Pledgor or in which such Pledgor now has or at any time in the future may acquire any right, title or interest (collectively, but excluding any Excluded Property, the “ IP Collateral ”):
[(i) all Patents of the United States, including those listed on Schedule I ;]
[(ii) all Copyrights of the United States, including those listed on Schedule II ;]
[(iii) all Trademarks of the United States, including those listed on Schedule III ;
provided , however , that the foregoing pledge, assignment and grant of security interest will not cover any “intent-to-use” applications for trademark or service mark registrations filed pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. § 1051, unless and until an Amendment to Allege Use or a Statement of Use under Sections 1(c) or 1(d) of the Lanham Act has been filed, to the extent, if any, that any assignment of an “intent-to-use” application prior to such filing would violate the Lanham Act.]
SECTION 3. Collateral Agreement . The security interests granted to the Agent herein are granted in furtherance, and not in limitation of, the security interests granted to the Agent pursuant to the Collateral Agreement. Each Pledgor hereby acknowledges and affirms that the rights and remedies of the Agent with respect to the IP Collateral are more fully set forth in the Collateral Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein. In the event of any conflict between the terms of this Agreement and the Collateral Agreement, the terms of the Collateral Agreement shall govern.
Exhibit IV - 2
SECTION 4. Counterparts . This Agreement may be executed in two or more counterparts, including by facsimile or other electronic means, each of which shall constitute an original and all of which shall together constitute one and the same document.
SECTION 5. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
[Signature Pages Follow]
Exhibit IV - 3
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
[Name of Pledgor] |
By: |
|
Name: |
||
Title: |
Exhibit IV - 4
JEFFERIES FINANCE, LLC, as Collateral Agent |
By: |
|
Name: |
||
Title: |
By: |
|
Name: |
||
Title: |
Exhibit IV - 5
Exhibit 10.5
E XECUTION V ERSION
HOLDINGS GUARANTEE AND PLEDGE AGREEMENT
dated and effective as of
June 6, 2017
between
AP GAMING HOLDINGS, LLC,
as Holdings
and
JEFFERIES FINANCE LLC,
as Agent
TABLE OF CONTENTS | ||||||
Page | ||||||
ARTICLE I DEFINITIONS |
1 | |||||
SECTION 1.01. |
Credit Agreement |
1 | ||||
SECTION 1.02. |
Other Defined Terms |
1 | ||||
ARTICLE II GUARANTEE |
5 | |||||
SECTION 2.01. |
The Guarantee |
5 | ||||
ARTICLE III PLEDGE OF EQUITY INTERESTS |
8 | |||||
SECTION 3.01. |
Pledge |
8 | ||||
SECTION 3.02. |
Delivery of Pledged Collateral |
9 | ||||
SECTION 3.03. |
Representations and Warranties |
10 | ||||
SECTION 3.04. |
Covenants |
11 | ||||
SECTION 3.05. |
Registration in Nominee Name; Denominations |
11 | ||||
SECTION 3.06. |
Financing Statements |
12 | ||||
SECTION 3.07. |
Certification of Pledged Borrower Stock |
12 | ||||
SECTION 3.08. |
Voting Rights; Dividends and Interest, Etc. |
12 | ||||
SECTION 3.09. |
Powers Coupled with an Interest |
14 | ||||
ARTICLE IV [RESERVED] |
14 | |||||
ARTICLE V REMEDIES |
14 | |||||
SECTION 5.01. |
Remedies Upon Default |
14 | ||||
SECTION 5.02. |
Application of Proceeds |
15 | ||||
SECTION 5.03. |
Securities Act, Etc. |
16 | ||||
ARTICLE VI MISCELLANEOUS |
17 | |||||
SECTION 6.01. |
Notices |
17 | ||||
SECTION 6.02. |
Security Interest Absolute |
17 | ||||
SECTION 6.03. |
Limitation by Law |
17 | ||||
SECTION 6.04. |
Binding Effect; Several Agreement |
17 | ||||
SECTION 6.05. |
Successors and Assigns |
18 | ||||
SECTION 6.06. |
Agent’s Fees and Expenses |
18 | ||||
SECTION 6.07. |
Agent Appointed Attorney-in-Fact |
18 | ||||
SECTION 6.08. |
GOVERNING LAW |
19 | ||||
SECTION 6.09. |
Waivers; Amendment; Extension of Time |
19 | ||||
SECTION 6.10. |
WAIVER OF JURY TRIAL |
20 | ||||
SECTION 6.11. |
Severability |
20 | ||||
SECTION 6.12. |
Counterparts |
20 | ||||
SECTION 6.13. |
Headings |
21 | ||||
SECTION 6.14. |
Jurisdiction; Consent to Service of Process |
21 | ||||
SECTION 6.15. |
Termination or Release |
21 | ||||
SECTION 6.16. |
Compliance with Gaming Laws |
22 | ||||
SECTION 6.17. |
Subject to Any Applicable Intercreditor Agreement |
24 |
i
TABLE OF CONTENTS
(Continued)
Page | ||||||
SECTION 6.18. |
Other First Lien Obligations |
24 | ||||
SECTION 6.19. |
Person Serving as Agent |
24 | ||||
SECTION 6.20. |
General Authority of the Agent |
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SECTION 6.21. |
Application of Gaming Laws |
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Schedules
Schedule I Description of Pledged Borrower Stock
Exhibits
Exhibit I Form of Other First Lien Secured Party Consent
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This HOLDINGS GUARANTEE AND PLEDGE AGREEMENT, dated and effective as of June 6, 2017, is between AP GAMING HOLDINGS, LLC, a Delaware limited liability company (“ Holdings ”), and JEFFERIES FINANCE LLC, as collateral agent (together with its successors and permitted assigns in such capacity, the “ Agent ”) for the benefit of the Secured Parties (as defined below).
W I T N E S S E T H :
WHEREAS, pursuant to the First Lien Credit Agreement, dated as of the date hereof (as amended, restated, supplemented, waived or otherwise modified from time to time, the “ Credit Agreement ”), among Holdings, AP Gaming I, LLC, a Delaware limited liability company and a Subsidiary of Holdings (together with its successors, the “ Borrower ”), the Lenders party thereto from time to time, Jefferies Finance LLC, as administrative agent (together with its successors and assigns in such capacity, the “ Credit Agreement Agent ”), and the other parties thereto, the Lenders and the Issuing Banks have agreed to extend credit to the Borrower upon the terms and subject to the conditions set forth therein, including the execution and delivery of this Agreement;
WHEREAS, Holdings is the legal and beneficial owner of the Pledged Collateral (as hereinafter defined) issued by the Borrower and will derive substantial benefits from the extension of credit to the Borrower pursuant to the Credit Agreement; and
WHEREAS, Holdings is willing to execute and deliver this Agreement in order to induce the Lenders and the Issuing Banks to extend such credit under the Credit Agreement and to induce the holders of any other Other First Lien Obligations to make extensions of credit under the applicable Other First Lien Agreements, as applicable.
Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Credit Agreement .
(a) Capitalized terms used in this Agreement and not otherwise defined herein have the respective meanings assigned thereto in the Credit Agreement. All terms referred to herein that are defined in Article 9 of the New York UCC (as defined herein) and not defined in this Agreement or the Credit Agreement have the meanings specified in Article 9 of the New York UCC. The term “instrument” shall have the meaning specified in Article 9 of the New York UCC.
(b) The rules of construction specified in Section 1.02 of the Credit Agreement also apply to this Agreement.
SECTION 1.02. Other Defined Terms . As used in this Agreement, the following terms have the meanings specified below:
“ Agent ” has the meaning assigned to such term in the introductory paragraph of this Agreement.
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“ Agreement ” means this Holdings and Guarantee and Pledge Agreement, as amended, restated, supplemented, waived or otherwise modified from time to time.
“ Applicable First Lien Representative ” means the “Applicable Authorized Representative” as defined in the First Lien Intercreditor Agreement upon and during the effectiveness thereof. The Applicable First Lien Representative shall be the Credit Agreement Agent unless and until another person is designated as the Applicable First Lien Representative pursuant to the First Lien Intercreditor Agreement.
“ Authorized Representative ” means (i) the Credit Agreement Agent with respect to the Credit Agreement and (ii) with respect to any Series of Other First Lien Obligations, the duly authorized representative of the Secured Parties of such Series of Other First Lien Obligations designated as “Authorized Representative” for such Secured Parties in the related Other First Lien Secured Party Consent delivered to the Agent.
“ Borrower ” has the meaning assigned to such term in the recitals of this Agreement.
“ Credit Agreement ” has the meaning assigned to such term in the recitals of this Agreement.
“ Credit Agreement Agent ” has the meaning assigned to such term in the recitals of this Agreement.
“ Credit Agreement Loan Obligations ” means the “Loan Obligations” as defined in the Credit Agreement.
“ Credit Agreement Secured Obligations ” means the “Obligations” as defined in the Credit Agreement.
“ Credit Agreement Secured Parties ” means the “Secured Parties” as defined in the Credit Agreement.
“ Event of Default ” means an “Event of Default” under and as defined in the Credit Agreement or any Other First Lien Agreement.
“ Federal Securities Laws ” has the meaning assigned to such term in Section 5.03.
“ First Lien Intercreditor Agreement ” means a “Permitted Pari Passu Intercreditor Agreement” as defined in the Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time).
“ Guaranteed Obligations ” has the meaning assigned to such term in Section 2.01.
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“ Holdings ” has the meaning assigned to such term in the introductory paragraph of this Agreement.
“ Intercreditor Agreement ” means a First Lien Intercreditor Agreement (upon and during the effectiveness thereof) or a Permitted Junior Intercreditor Agreement (upon and during the effectiveness thereof), as the case may be.
“ Loan Documents ” means (a) the Credit Agreement, (b) all Other First Lien Agreements, (c) the Security Documents and (d) for purposes of Section 5.02 and Section 6.06 only, the First Lien Intercreditor Agreement (upon and during the effectiveness thereof).
“ Mississippi Gaming Authorities ” has the meaning assigned to such term in Section 6.16(a).
“ Mississippi Gaming Laws ” has the meaning assigned to such term in Section 6.16(a).
“ Mississippi Licensee ” has the meaning assigned to such term in Section 6.16(a).
“ Nevada Gaming Authority ” has the meaning assigned to such term in Section 6.16(a).
“ Nevada Gaming Laws ” has the meaning assigned to such term in Section 6.16(a).
“ New York UCC ” means the Uniform Commercial Code as from time to time in effect in the State of New York.
“ Other First Lien Agreement ” means any indenture, credit agreement (excluding the Credit Agreement) or other agreement, document or instrument, pursuant to which any Loan Party has or will incur Other First Lien Obligations; provided that, in each case, the Indebtedness thereunder has been designated as Other First Lien Obligations pursuant to and in accordance with Section 6.18.
“ Other First Lien Obligations ” means (a) the due and punctual payment by any Loan Party of (i) the unpaid principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding) on Indebtedness under any Other First Lien Agreement, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other monetary obligations of such Loan Party to any Secured Party under any Other First Lien Agreement, including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable as a claim in such proceeding), (b) the due and punctual performance of all other obligations of such Loan Party under or pursuant to any Other First Lien Agreement and (c) the due and punctual payment and performance of all the obligations of each other Loan Party under or pursuant to any Other First Lien Agreement.
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“ Other First Lien Secured Parties ” means, collectively, the holders of Other First Lien Obligations and any Authorized Representative with respect thereto.
“ Other First Lien Secured Party Consent ” means a consent substantially in the form of Exhibit I to this Agreement (or such other form as the Agent may agree) executed by the Authorized Representative of any holders of Other First Lien Obligations pursuant to Section 6.18.
“ Other State Licensee ” has the meaning assigned to such term in Section 6.16(a).
“ Other State Gaming Authorities ” has the meaning assigned to such term in Section 6.16(a).
“ Permitted Liens ” means Liens that are (a) permitted by Article VIA of the Credit Agreement and (b) not prohibited by any Other First Lien Agreement.
“ Pledged Borrower Stock ” has the meaning assigned to such term in Section 3.01.
“ Pledged Collateral ” has the meaning assigned to such term in Section 3.01.
“ Pledged Securities ” means any promissory notes, stock certificates or other certificated securities now or hereafter included in the Pledged Collateral, including all certificates, instruments or other documents representing or evidencing any Pledged Collateral.
“ Prior Agent ” has the meaning assigned to such term in Section 6.19.
“ Regulation S-X Excluded Collateral ” has the meaning assigned to such term in Section 3.01.
“ Requirement of Law ” means, as to any person, any law, treaty, rule, regulation, statute, order, ordinance, decree, judgment, consent decree, writ, injunction, settlement agreement or governmental requirement enacted, promulgated or imposed or entered into or agreed by any Governmental Authority or Gaming Authority (including Gaming Laws), in each case applicable to or binding upon such person or any of its property or assets or to which such person or any of its property or assets is subject.
“ Rule 3-16 ” has the meaning assigned to such term in Section 3.01.
“ Secured Obligations ” means, collectively, the Credit Agreement Secured Obligations and any Other First Lien Obligations, or any of the foregoing (but, excluding, in each case, any Excluded Swap Obligations).
“ Secured Parties ” means the persons holding any Secured Obligations and in any event including (i) all Credit Agreement Secured Parties and (ii) all Other First Lien Secured Parties.
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“ Security Documents ” has the meaning assigned to such term in the Credit Agreement and any analogous term in any Other First Lien Agreement (but, with respect to the Secured Obligations of any Series, the term Security Documents shall not include any document which by its terms is solely for the benefit of the holders of one or more other Series of Secured Obligations and not such Series of Secured Obligations)
“ Series ” means (a) with respect to the Secured Parties, each of (i) the Credit Agreement Secured Parties (in their capacities as such) and (ii) the Other First Lien Secured Parties that become subject to this Agreement and the First Lien Intercreditor Agreement after the date hereof that are represented by a common Authorized Representative (in its capacity as such for such Other First Lien Secured Parties) and (b) with respect to any Secured Obligations, each of (i) the Credit Agreement Secured Obligations and (ii) the Other First Lien Obligations incurred pursuant to any Other First Lien Agreement, which pursuant to any Other First Lien Secured Party Consent, are to be represented hereunder by a common Authorized Representative (in its capacity as such for such Other First Lien Obligations).
“ Specified Excluded Collateral ” means, solely with respect to any Series of Other First Lien Obligations, any asset that is not intended to be collateral with respect to such Series pursuant to the terms of the Other First Lien Agreement governing such Series (including the Regulation S-X Excluded Collateral to the extent applicable to such Series in accordance with the last paragraph of Section 3.01).
“ Successor Agent ” has the meaning assigned to such term in Section 6.19.
“ Termination Date ” means the “Termination Date” as defined in the Credit Agreement.
ARTICLE II
Guarantee
SECTION 2.01. The Guarantee .
(a) Guarantee of Secured Obligations . Holdings unconditionally guarantees to the Agent, jointly and severally with the other Guarantors, as a primary obligor and not merely as a surety, the due and punctual payment and performance of the Secured Obligations (such guarantee obligations of Holdings, the “ Guaranteed Obligations ”) for the benefit of the Secured Parties. Holdings further agrees that the Guaranteed 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 notwithstanding any extension or renewal of any Guaranteed Obligation. Holdings waives presentment to, demand of payment from and protest to the Borrower or any other Loan Party of any of the Guaranteed Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment.
(b) Guarantee of Payment . Holdings further agrees that its guarantee hereunder constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Agent or any other Secured Party to any security held for the payment of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of the Agent or any other Secured Party in favor of the Borrower or any other person.
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(c) No Limitations . Except for termination or release of Holdings’ obligations hereunder as expressly provided for in Section 6.15 and subject to the limitations set forth in clause (h) of this Section 2.01, the obligations of Holdings hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, 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 the Guaranteed Obligations or otherwise (other than defense of payment or performance). Without limiting the generality of the foregoing, the obligations of Holdings hereunder, to the fullest extent permitted by applicable law, shall not be discharged or impaired or otherwise affected by: (i) the failure of the Agent or any other Secured Party to assert any claim or demand or to exercise or enforce any right or remedy under the provisions of any Loan Document or otherwise; (ii) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, any Loan Document or any other agreement; (iii) the failure to perfect any security interest in, or the exchange, substitution, release or any impairment of, any security held by the Agent or any other Secured Party for the Guaranteed Obligations; (iv) any default, failure or delay, willful or otherwise, in the performance of the Guaranteed Obligations; (v) any other act or omission that may or might in any manner or to any extent vary the risk of any Guarantor or otherwise operate as a discharge of any Guarantor as a matter of law or equity (other than the payment in full in cash in immediately available funds of all the Guaranteed Obligations); (vi) any illegality, lack of validity or enforceability of any Guaranteed Obligation; (vii) any change in the corporate existence, structure or ownership of the Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or its assets or any resulting release or discharge of any Guaranteed Obligation (other than the payment in full in cash in immediately available funds of all the Guaranteed Obligations); (viii) the existence of any claim, set-off or other rights that Holdings may have at any time against the Borrower, the Agent, or any other corporation or person, whether in connection herewith or any unrelated transactions; provided , that nothing herein will prevent the assertion of any such claim by separate suit or compulsory counterclaim; and (ix) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by the Agent that might otherwise constitute a defense to, or a legal or equitable discharge of, the Borrower or any other Loan Party or any other guarantor or surety (other than defense of payment or performance).
Holdings expressly authorizes the Agent, on behalf of the Secured Parties, to take and hold security for the payment and performance of the Guaranteed Obligations, to exchange, waive or release any or all such security (with or without consideration), to enforce or apply such security and direct the order and manner of any sale thereof in their sole discretion or to release or substitute any one or more other guarantors or obligors upon or in respect of the Guaranteed Obligations, all without affecting the obligations of Holdings hereunder.
To the fullest extent permitted by applicable law, Holdings waives any defense based on or arising out of any defense of any other Guarantor or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any other Guarantor, other than the payment in full in cash in immediately
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available funds of all the Guaranteed Obligations. The Agent may, at its election, foreclose on any security held by it by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Guaranteed Obligations, make any other accommodation with the Borrower or any other Loan Party or exercise any other right or remedy available to it against the Borrower or any other Loan Party, without affecting or impairing in any way the liability of Holdings hereunder, except to the extent the Guaranteed Obligations have been paid in full in cash in immediately available funds. To the fullest extent permitted by applicable law, Holdings waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of Holdings against any other Guarantor, as the case may be, or any security.
(d) Reinstatement . Notwithstanding the provisions of Section 6.15, Holdings agrees that its guarantee hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Guaranteed Obligation is rescinded or must otherwise be restored or returned by the Agent or any other Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any other Loan Party, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any other Loan Party or any substantial part of its property, or otherwise, all as though such payment had not been made.
(e) Agreement To Pay . In furtherance of the foregoing and not in limitation of any other right that the Agent or any other Secured Party has at law or in equity against Holdings by virtue hereof, upon the failure of the Borrower or any other Loan Party to pay any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, Holdings hereby promises to and will forthwith pay, or cause to be paid, to the Agent for distribution to the applicable Secured Party in cash in immediately available funds the amount of such unpaid Guaranteed Obligation.
(f) Information . Holdings assumes all responsibility for being and keeping itself informed of the Borrower’s and each other Loan Party’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that Holdings assumes and incurs hereunder, and agrees that neither the Agent nor any other Secured Party will have any duty to advise Holdings of information known to it or any of them regarding such circumstances or risks.
(g) Maximum Liability . Holdings, and by its acceptance of this Agreement, the Agent and each Secured Party, hereby confirm that it is the intention of all such persons that this Agreement and the Guaranteed Obligations not constitute a fraudulent transfer or conveyance for purposes of the U.S. Bankruptcy Code or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Agreement and the Guaranteed Obligations. To effectuate the foregoing intention, the Agent, the Secured Parties and Holdings hereby irrevocably agree that the Guaranteed Obligations at any time shall be limited to the maximum amount as will result in the Guaranteed Obligations not constituting a fraudulent transfer or conveyance.
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(h) Limited Recourse . Notwithstanding anything herein or in the Credit Agreement, any other Loan Document or any Other First Lien Agreement to the contrary, the Guaranteed Obligations are limited recourse obligations payable solely from the Pledged Collateral pledged by Holdings hereunder and, following realization of the Pledged Collateral pledged by Holdings (whether through sale, foreclosure or otherwise) and the application thereof in accordance with this Agreement, such Guaranteed Obligations shall be extinguished and shall not revive.
ARTICLE III
Pledge of Equity Interests
SECTION 3.01. Pledge . As security for the payment or performance, as the case may be, in full of the Guaranteed Obligations, Holdings hereby assigns and pledges to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in all of Holdings’ right, title and interest in, to and under:
(a) the Equity Interests of the Borrower directly owned by Holdings (which such Equity Interests as of the Closing Date shall be listed on Schedule I ) and any certificates representing all such Equity Interests (collectively, the “ Pledged Borrower Stock ”);
(b) subject to Section 3.08, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of, and all other proceeds received in respect of, the Pledged Borrower Stock;
(c) subject to Section 3.08, all rights and privileges of Holdings with respect to the Pledged Borrower Stock and other property referred to in clause (b) above; and
(d) all proceeds of any of the foregoing (the items referred to in clauses (a) through this clause (d) being collectively referred to as the “ Pledged Collateral ”); provided that the Pledged Collateral shall not include any Excluded Property.
TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, forever; subject , however , to the terms, covenants and conditions hereinafter set forth.
Notwithstanding anything else to the contrary, in the event that Rule 3-16 of Regulation S-X under the Securities Act (as such Rule 3-16 may be amended, modified or interpreted by the SEC, “ Rule 3-16 ”) would require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other Governmental Authority) of separate financial statements of the Borrower due to the fact that the Pledged Borrower Stock secures any Series of the Other First Lien Obligations affected thereby, then the Pledged Borrower Stock (the “ Regulation S-X Excluded Collateral ”) will automatically be deemed not to be part of the Pledged Collateral securing such Series of Other First Lien Obligations affected thereby, but only to the extent necessary to not be
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subject to such requirement and only for so long as required to not be subject to such requirement. In such event, this Agreement may be amended or modified, without the consent of any Secured Party, to the extent necessary to release the Lien on the Regulation S-X Excluded Collateral in favor of the Agent with respect only to the relevant Series of Other First Lien Obligations. In the event that Rule 3-16 is amended, modified or interpreted by the SEC to permit (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would permit) any Regulation S-X Excluded Collateral to secure the Other First Lien Obligations in excess of the amount then pledged without the filing with the SEC (or any other Governmental Authority) of separate financial statements of the Borrower, then the Pledged Borrower Stock will automatically be deemed to be a part of the Pledged Collateral for the relevant Series of Other First Lien Obligations. For the avoidance of doubt and notwithstanding anything to the contrary in this Agreement, nothing in this paragraph shall limit the pledge of such Pledged Borrower Stock and other securities from securing the Secured Obligations (other than the relevant Series of Other First Lien Obligations) at all relevant times or from securing any Other First Lien Obligations that are not in respect of securities subject to regulation by the SEC. To the extent any proceeds of any collection or sale of Pledged Borrower Stock deemed by this paragraph to no longer constitute part of the Pledged Collateral for the relevant Series of Other First Lien Obligations are to be applied by the Agent in accordance with Section 5.02 hereof, such proceeds shall, notwithstanding the terms of Section 5.02 and the First Lien Intercreditor Agreement, not be applied to the payment of such Series of Other First Lien Obligations.
SECTION 3.02. Delivery of Pledged Collateral .
(a) Subject to the provisions of Section 6.16, Holdings agrees promptly (and in any event within 45 days after the acquisition or such longer time as the Applicable First Lien Representative shall permit in its reasonable discretion) to deliver or cause to be delivered to the Agent, for the benefit of the Secured Parties, any and all Pledged Securities.
(b) Subject to the provisions of Section 6.16, upon delivery to the Agent within the time period set forth in clause (a) above, (i) any Pledged Securities required to be delivered pursuant to the foregoing paragraph (a) of this Section 3.02 shall be accompanied by stock powers, duly executed in blank or other instruments of transfer reasonably satisfactory to the Agent and by such other instruments and documents as the Agent may reasonably request and (ii) all other property comprising part of the Pledged Collateral delivered pursuant to the terms of this Agreement shall be accompanied to the extent necessary to perfect the security interest in or allow realization on the Pledged Collateral by proper instruments of assignment duly executed by Holdings and such other instruments or documents as the Agent may reasonably request. Each delivery of Pledged Securities shall be accompanied by a schedule describing the securities, which schedule shall be attached hereto as Schedule I (or a supplement to Schedule I, as applicable) and made a part hereof; provided, that failure to attach any such schedule hereto shall not affect the validity of such pledge of such Pledged Collateral. Each schedule so delivered shall be deemed to supplement any prior schedules so delivered.
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SECTION 3.03. Representations and Warranties . Holdings represents and warrants to the Agent, for the benefit of the Secured Parties:
(a) the Pledged Borrower Stock listed on Schedule I (as such Schedule may be updated from time to time) constitutes all of the issued and outstanding Equity Interests of the Borrower issued to Holdings;
(b) the Pledged Borrower Stock has been duly and validly authorized and issued and are fully paid;
(c) Holdings is the direct record and beneficial owner of, and has good title to, the Pledged Borrower Stock listed on Schedule I (as such Schedule may be updated from time to time) owned by Holdings, free of any and all Liens except Permitted Liens; and
(d) other than as set forth in the Credit Agreement or the schedules thereto or, after the termination of the Credit Agreement, in any Other First Lien Agreement, and except for restrictions and limitations imposed by the Loan Documents and any Other First Lien Agreement then in effect, Gaming Laws or securities laws generally or otherwise not prohibited by the Loan Documents and any Other First Lien Agreement then in effect, the Pledged Borrower Stock is and will continue to be freely transferable and assignable, and none of the Pledged Borrower Stock is or will be subject to any option, right of first refusal, shareholders agreement, charter, by-law, memorandum of association or articles of association provisions or contractual restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of the Pledged Collateral hereunder, the Disposition thereof pursuant hereto or the exercise by the Agent of rights and remedies hereunder other than under applicable Requirements of Law (including Gaming Laws);
(e) Holdings has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;
(f) other than as set forth in the Credit Agreement or the schedules thereto or in the other Loan Documents or as required under Gaming Laws, as of the Closing Date, no consent or approval of any Governmental Authority, any securities exchange or any other person was or is necessary to the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect);
(g) by virtue of the execution and delivery by Holdings of this Agreement, when the Pledged Securities are delivered to the Agent, for the benefit of the Secured Parties, in accordance with this Agreement, and a Uniform Commercial Code financing statement naming the Agent as the secured party and covering the Pledged Collateral is filed in the appropriate filing office, the Agent will obtain, for the benefit of the Secured Parties, a legal, valid and perfected lien upon and security interest in such Pledged Collateral, subject only to Permitted Liens, as security for the payment of the Guaranteed Obligations, to the extent such perfection is governed by the Uniform Commercial Code.
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SECTION 3.04. Covenants . Holdings covenants and agrees with the Agent and the Secured Parties, that, from and after the date of this Agreement until the date of its termination pursuant to Section 6.15(a):
(a) Holdings agrees to pay, and to save the Agent and the Secured Parties harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Pledged Collateral or in connection with any of the transactions contemplated by this Agreement all in accordance with all of the terms, covenants and agreements that Section 2.17 of the Credit Agreement requires Holdings to perform or observe, subject to the qualifications set forth therein.
(b) Holdings agrees to furnish to the Agent prompt written notice of any change in (i) its organization name, (ii) its identity or organizational structure, (iii) its organizational identification number, (iv) its jurisdiction of organization or (v) the location of its chief executive office if it is not a registered organization; provided that Holdings agrees not to effect or permit any such change unless all filings have been made, or will have been made within any applicable statutory period following such change, under the Uniform Commercial Code or otherwise that are required in order for the Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Pledged Collateral in which a security interest may be perfected by such filing, for the benefit of the Secured Parties.
(c) Holdings agrees it will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, and will not Dispose of any other Pledged Collateral, in each case other than pursuant to a transaction not prohibited by any Loan Document and any Other First Lien Agreement then in effect and other than Permitted Liens.
(d) Subject to the rights of Holdings under the Loan Documents and each Other First Lien Agreement then in effect to Dispose of Pledged Collateral, Holdings shall, at its own expense, use commercially reasonable efforts to defend its title to the Pledged Collateral against all persons and to defend the security interest of the Agent, for the benefit of the Secured Parties, in the Pledged Collateral and the priority thereof against any Lien that is not a Permitted Lien.
(e) Holdings agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Agent may from time to time reasonably request to better assure, preserve, protect and perfect the Agent’s security interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement and the granting of the security interest and the filing of any financing statements or other documents in connection herewith or therewith.
SECTION 3.05. Registration in Nominee Name; Denominations . The Agent, on behalf of the Secured Parties, shall have the right (in its sole and absolute discretion) to hold the Pledged Securities in the name of Holdings, endorsed or assigned in blank or in favor of the Agent or, if an Event of Default shall have occurred and be continuing, in its own name as pledgee or the name of its nominee (as pledgee or as sub-agent). Following the occurrence and during the continuance of an Event of Default, Holdings will promptly give to the Agent copies of any notices or other communications received by it with respect to Pledged Securities registered in the name of Holdings. If an Event of Default shall have occurred and be
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continuing, the Agent shall have the right to exchange the certificates representing Pledged Securities for certificates of smaller or larger denominations for any purpose consistent with this Agreement. Holdings shall use its commercially reasonable efforts to cause any Subsidiary of the Borrower that is not a party to this Agreement to comply with a request by the Agent, pursuant to this Section 3.05, to exchange certificates representing Pledged Securities of such Subsidiary for certificates of smaller or larger denominations.
SECTION 3.06. Financing Statements . Holdings hereby irrevocably authorizes the Agent at any time and from time to time to file in any relevant jurisdiction any initial financing statements with respect to the Pledged Collateral or any part thereof and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment, including (i) whether Holdings is an organization, the type of organization and any organizational identification number issued to Holdings and (ii) a description of collateral that describes such property in any other manner as the Agent may reasonably determine is necessary or advisable to ensure the perfection of the security interest in the Pledged Collateral.
SECTION 3.07. Certification of Pledged Borrower Stock . Holdings hereby represents and warrants to the Agent for the benefit of the Secured Parties that as of the Closing Date none of the Pledged Borrower Stock is a “security” (within the meaning of Section 8-103 of the New York UCC or the corresponding code or statute of any other applicable jurisdiction) and covenants that Holdings shall at no time elect to treat any of the Pledged Borrower Stock as a “security” or issue any certificate representing such interest unless Holdings provides the Agent notification thereof and delivers any such certificate to the Agent pursuant to Section 3.02(a).
SECTION 3.08. Voting Rights; Dividends and Interest, Etc.
(a) Unless and until an Event of Default shall have occurred and be continuing and the Agent shall have given written notice to Holdings of the Agent’s intention to exercise its rights hereunder:
(i) Holdings shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Collateral or any part thereof for any purpose not prohibited by the terms of this Agreement, the Credit Agreement and each Other First Lien Agreement then in effect; provided that, except as not prohibited by the Credit Agreement, any other Loan Documents and each Other First Lien Agreement then in effect, such rights and powers shall not be exercised in any manner that could materially and adversely affect the rights and remedies of the Agent or any other Secured Party under this Agreement, the Credit Agreement, any other Loan Documents or any Other First Lien Agreement or the ability of the Secured Parties to exercise the same.
(ii) The Agent shall promptly execute and deliver to Holdings, or cause to be executed and delivered to Holdings, all such proxies, powers of attorney and other instruments as Holdings may reasonably request for the purpose of enabling Holdings to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.
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(iii) Holdings shall be entitled to receive and retain any and all dividends, interest, principal and other distributions paid on or distributed in respect of the Pledged Collateral to the extent and only to the extent that such dividends, interest, principal and other distributions are not prohibited by, and otherwise paid or distributed in accordance with, the terms and conditions of the Credit Agreement, any other Loan Documents and each Other First Lien Agreement then in effect and applicable laws; provided that any noncash dividends, interest, principal or other distributions that would constitute Pledged Borrower Stock, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the Borrower, received in exchange for Pledged Borrower Stock or any part thereof, or in redemption thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which the Borrower may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by Holdings, shall be promptly (and in any event within 45 days following their receipt (or such longer time as the Applicable First Lien Representative shall permit in its reasonable discretion)) delivered to the Agent, for the benefit of the Secured Parties, in the same form as so received (endorsed in a manner reasonably satisfactory to the Agent).
(b) Upon the occurrence and during the continuance of an Event of Default and upon written notice by the Agent to Holdings of the Agent’s intention to exercise its rights hereunder, subject to applicable Gaming Laws, all rights of Holdings to receive dividends, interest, principal or other distributions with respect to the Pledged Securities that Holdings is authorized to receive pursuant to paragraph (a)(iii) of this Section 3.08 shall cease, and all such rights shall thereupon become vested, for the benefit of the Secured Parties, in the Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends, interest, principal or other distributions; provided that, notwithstanding the occurrence and continuation of an Event of Default, Holdings may continue to receive dividends and distributions made pursuant to subclause (i), subclause (iii) and subclause (v) of Section 6.06(b) of the Credit Agreement. All dividends, interest, principal or other distributions received by Holdings contrary to the provisions of this Section 3.08 shall not be commingled by Holdings with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Agent, for the benefit of the Secured Parties, and shall be forthwith delivered to the Agent, for the benefit of the Secured Parties, in the same form as so received (endorsed in a manner reasonably satisfactory to the Agent). Any and all money and other property paid over to or received by the Agent pursuant to the provisions of this paragraph (b) shall be retained by the Agent in an account to be established by the Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 5.02. After all Events of Default have been cured or waived and the Borrower has delivered to the Agent a certificate to that effect, the Agent shall promptly repay to Holdings (without interest) all dividends, interest, principal or other distributions that Holdings would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 3.08 and that remain in such account.
(c) Upon the occurrence and during the continuance of an Event of Default and after written notice by the Agent to Holdings of the Agent’s intention to exercise its rights hereunder, subject to applicable Gaming Laws, all rights of Holdings to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 3.08, and the obligations of the Agent under paragraph (a)(ii) of this Section 3.08, shall
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cease, and all such rights shall thereupon become vested in the Agent, for the benefit of the Secured Parties, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that, unless otherwise directed by the Applicable First Lien Representative, the Agent shall have the right from time to time following and during the continuance of an Event of Default to permit Holdings to exercise such rights. After all Events of Default have been cured or waived and the Borrower has delivered to the Agent a certificate to that effect, all rights of Holdings to exercise the voting and/or other consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 3.08 shall continue and all such rights shall no longer be vested in the Agent for the benefit of the Secured Parties, and the obligations of the Agent under paragraph (a)(ii) of this Section 3.08 shall be reinstated,
(d) Any notice given by the Agent to Holdings suspending Holdings’ rights under paragraph (a)(i) of this Section 3.08 may be given by telephone if promptly confirmed in writing and (ii) may suspend the rights of Holdings under paragraph (a)(i) or paragraph (a)(iii) of this Section 3.08 in part without suspending all such rights (as specified by the Agent in its sole and absolute discretion) and without waiving or otherwise affecting the Agent’s rights to give additional notices from time to time suspending other rights so long as an Event of Default has occurred and is continuing.
SECTION 3.09. Powers Coupled with an Interest . All authorizations and agencies herein contained with respect to the Pledged Collateral are irrevocable and powers coupled with an interest.
ARTICLE IV
[Reserved]
ARTICLE V
Remedies
SECTION 5.01. Remedies Upon Default . In accordance with, and to the extent consistent with, the terms of any applicable Intercreditor Agreement and applicable Requirements of Law (including Gaming Laws), the Agent may take any action specified in this Section 5.01. If an Event of Default shall occur and be continuing and the Agent shall have given notice of its intent to exercise its rights hereunder to Holdings, the Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the New York UCC or applicable law. Without limiting the generality of the foregoing, the Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below and any notice referred to in the preceding sentence) to or upon Holdings, the Borrower, or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Pledged Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise
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Dispose of and deliver the Pledged Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange or broker’s board or office of the Agent or any Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Agent shall give Holdings 10 days’ written notice (which Holdings agrees is reasonable notice within the meaning of Section 9-611 of the New York UCC or its equivalent in other jurisdictions) of the Agent’s intention to make any Disposition of Pledged Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Pledged Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Agent may fix and state in the notice (if any) of such sale. At any such sale, the Pledged Collateral, or the portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Agent may (in its sole and absolute discretion) determine. The Agent shall not be obligated to make any sale of any Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Pledged Collateral shall have been given. The Agent or any Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Pledged Collateral so sold, free of any right or equity of redemption in Holdings, which right or equity is hereby waived or released.
SECTION 5.02. Application of Proceeds . The Agent shall, subject to any applicable Intercreditor Agreement, promptly apply the proceeds, moneys or balances of any collection or sale of Pledged Collateral realized through the exercise by the Agent of its remedies hereunder, as well as any Pledged Collateral consisting of cash at any time when remedies are being exercised hereunder, as follows:
FIRST, to the payment of all out-of-pocket costs and expenses incurred by the Agent in connection with such collection or sale or otherwise in connection with this Agreement, any other Loan Document, any Other First Lien Agreement or any of the Guaranteed Obligations, including all court costs and the fees and expenses of its agents and legal counsel, the repayment of all advances made by the Agent hereunder or under any other Loan Document or any Other First Lien Agreement on behalf of Holdings, any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document or any Other First Lien Agreement, and other fees, indemnities and other amounts owing or reimbursable to the Agent under any Loan Document or any Other First Lien Agreement in its capacity as such;
SECOND, to the payment in full of the Guaranteed Obligations secured by such Pledged Collateral (the amounts so applied to be distributed among the Series of Secured Obligations pro rata based on the respective amounts of such Secured Obligations owed to the applicable Secured Parties in respect of each Series on the date of any such distribution (or in accordance with such other method of distribution as may be set forth in any applicable Intercreditor
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Agreement), with (x) the portion thereof distributed to the Credit Agreement Secured Parties to be further distributed in accordance with the order of priority set forth in Section 7.02 of the Credit Agreement and (y) the portion thereof distributed to the Secured Parties of any other Series to be further distributed in accordance with the applicable provisions of the Other First Lien Agreements governing such Series); and
THIRD, to Holdings, its successors or assigns, or as a court of competent jurisdiction may otherwise direct;
provided , that in no event shall the proceeds of any collection or sale of any Specified Excluded Collateral be applied to the relevant Series of Secured Obligations under any Other First Lien Agreement.
The Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon the request of the Agent prior to any distribution under this Section 5.02, each Authorized Representative shall provide to the Agent certificates, in form and substance reasonably satisfactory to the Agent, setting forth the respective amounts referred to in this Section 5.02 that each applicable Secured Party or its Authorized Representative believes it is entitled to receive, and the Agent shall be fully entitled to rely on such certificates. Upon any sale of Pledged Collateral by the Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the purchase money by the Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Pledged Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Agent or such officer or be answerable in any way for the misapplication thereof.
SECTION 5.03. Securities Act, Etc. In view of the position of Holdings in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act, or any similar federal statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “Federal Securities Laws ”) with respect to any Disposition of the Pledged Collateral permitted hereunder. Holdings understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Agent if the Agent were to attempt to Dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could Dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Agent in any attempt to Dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. Holdings acknowledges and agrees that in light of such restrictions and limitations, the Agent, subject to any applicable Intercreditor Agreement, in its sole and absolute discretion, (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws or, to the extent applicable, Blue Sky or other state securities laws and (b) may approach and negotiate with a single potential purchaser to effect such sale. Holdings acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, the Agent shall incur no responsibility or liability
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for selling all or any part of the Pledged Collateral at a price that the Agent, subject to any applicable Intercreditor Agreement, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached. The provisions of this Section 5.03 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Agent sells.
ARTICLE VI
Miscellaneous
SECTION 6.01. Notices . All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 9.01 of the Credit Agreement (whether or not then in effect), and all notices to any holder of obligations under any Other First Lien Agreements shall be given at its address set forth in the Other First Lien Secured Party Consent or in the First Lien Intercreditor Agreement (upon and during the effectiveness thereof), in each case of the foregoing, as such address may be changed by written notice to the Agent and Holdings.
SECTION 6.02. Security Interest Absolute . To the extent not prohibited by applicable law and subject to Section 2.01(h), all rights of the Agent hereunder, the security interest in the Pledged Collateral and all obligations of Holdings hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any Loan Document, any other agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Secured Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, Holdings in respect of the Secured Obligations or this Agreement (other than a defense of payment or performance).
SECTION 6.03. Limitation by Law . All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable Requirement of Law (including any Gaming Law), and all the provisions of this Agreement are intended to be subject to all applicable Requirements of Law (including any Gaming Law) that may be controlling and to be limited to the extent necessary so that they shall not render this Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable Requirement of Law (including any Gaming Law).
SECTION 6.04. Binding Effect; Several Agreement . This Agreement shall become effective as to any party to this Agreement when a counterpart hereof executed on behalf of such party shall have been delivered to the Agent and a counterpart hereof shall have been
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executed on behalf of the Agent, and thereafter shall be binding upon such party and the Agent and their respective permitted successors and assigns, and shall inure to the benefit of such party, the Agent and the other Secured Parties and their respective permitted successors and assigns, except that no party shall have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Pledged Collateral (and any such assignment or transfer shall be void) except as not prohibited by this Agreement or the Credit Agreement or, after the termination of the Credit Agreement, any Other First Lien Agreement. This Agreement shall be construed as a separate agreement with respect to each party and may be amended, modified, supplemented, waived or released in accordance with Section 6.09 or 6.15, as applicable.
SECTION 6.05. Successors and Assigns . Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of Holdings or the Agent that are contained in this Agreement shall bind and inure to the benefit of their respective permitted successors and assigns.
SECTION 6.06. Agent’s Fees and Expenses .
(a) The parties hereto agree that the Agent shall be entitled to reimbursement of its expenses incurred hereunder by Holdings, and the Agent and other Indemnitees shall be indemnified by Holdings, in each case of this clause (a), mutatis mutandis , as provided in Section 9.05 of the Credit Agreement and the equivalent provision of any Other First Lien Agreement.
(b) Any such amounts payable as provided hereunder shall be additional Secured Obligations secured hereby and by the other Security Documents. The provisions of this Section 6.06 shall remain operative and in full force and effect regardless of the termination of this Agreement, any other Loan Document or any Other First Lien Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Secured Obligations, the invalidity or unenforceability of any term or provision of this Agreement, any other Loan Document or any Other First Lien Agreement, or any investigation made by or on behalf of the Agent or any other Secured Party. All amounts due under this Section 6.06 shall be payable within fifteen days (or such longer period as the Agent may agree) of written demand therefor, accompanied by reasonable documentation with respect to any reimbursement, indemnification or other amount requested.
(c) The agreements in this Section 6.06 shall survive the resignation of the Agent and the termination of this Agreement.
SECTION 6.07. Agent Appointed Attorney-in-Fact . Holdings hereby appoints the Agent the attorney-in-fact of Holdings for the purpose of carrying out the provisions of this Agreement and, upon the occurrence and during the continuance of an Event of Default, taking any action and executing any instrument that the Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, subject to any applicable Requirements of Law (including Gaming Laws) and any applicable Intercreditor Agreement, the Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of
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substitution either in the Agent’s name or in the name of Holdings, (a) to receive, endorse, assign or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Pledged Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Pledged Collateral; (c) to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due under and by virtue of any Pledged Collateral; (d) to sign the name of Holdings on any invoice or bill of lading relating to any of the Pledged Collateral; (e) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Pledged Collateral or to enforce any rights in respect of any Pledged Collateral; (f) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Pledged Collateral; and (g) to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Pledged Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Agent were the absolute owner of the Pledged Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Agent, or to present or file any claim or notice, or to take any action with respect to the Pledged Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to Holdings for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
SECTION 6.08. GOVERNING LAW . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6.09. Waivers; Amendment; Extension of Time .
(a) No failure or delay by the Agent, any Issuing Bank, any Lender or any other Secured Party in exercising any right, power or remedy hereunder or under any other Loan Document or any Other First Lien Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy, or any abandonment or discontinuance of steps to enforce such a right, power or remedy, preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies of the Agent, any Issuing Bank, the Lenders or any other Secured Party hereunder and under the other Loan Documents and any Other First Lien Agreement are cumulative and are not exclusive of any rights, powers or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by Holdings therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 6.09, 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, the increase of any Other First Lien Obligations or the issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Agent, any Lender, any Issuing Bank or any other Secured Party may have had notice or knowledge of such Default or Event of Default at the time. No notice or demand on Holdings in any case shall entitle any Loan Party to any other or further notice or demand in similar or other circumstances.
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(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Agent and Holdings, subject to any consent required in accordance with Section 9.08 of the Credit Agreement and any equivalent provision in each applicable Other First Lien Agreement and, by each other Authorized Representative to the extent required by (and in accordance with) such applicable Other First Lien Agreement, or, in each case, as otherwise provided in any applicable Intercreditor Agreement. The Agent may conclusively rely on a certificate of an officer of the Borrower as to whether any amendment contemplated by this Section 6.09(b) is permitted.
(c) Notwithstanding anything to the contrary contained herein, the Agent may grant extensions of time or waivers of the requirement for the creation or perfection of security interests in or the obtaining of insurance (including title insurance) or surveys with respect to particular assets (including extensions beyond the date hereof for the perfection of security interests in the assets of Holdings on such date) where it reasonably determines, in consultation with the Borrower, that perfection or obtaining of such items cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required by this Agreement, any other Loan Documents or any Other First Lien Agreement.
SECTION 6.10. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER LOAN DOCUMENTS OR ANY OTHER FIRST LIEN AGREEMENT. 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 6.10.
SECTION 6.11. Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 6.12. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 6.04. Delivery of an executed counterpart to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed original.
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SECTION 6.13. 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 are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.
SECTION 6.14. Jurisdiction; Consent to Service of Process .
(a) Subject to the final sentence of this clause (a), each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, any other Loan Document, any Other First Lien Agreement or the transactions relating hereto or thereto, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement, any other Loan Document or any Other First Lien Agreement shall affect any right that the Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement, any other Loan Document or any Other First Lien Agreement against Holdings or its properties in the courts of any jurisdiction.
(b) Each party to this Agreement 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 the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, any other Loan Document or any Other First Lien Agreement in any New York State or federal court of the United States of America sitting in New York County, and any appellate court from any thereof. 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.
(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 6.01. Nothing in this Agreement, any other Loan Document or any Other First Lien Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 6.15. Termination or Release .
(a) This Agreement, the pledges and guarantees made herein, the Liens in the Pledged Collateral created hereby and all other security interests granted hereby, shall automatically terminate and/or be released (i) upon the occurrence of the Termination Date or, if any Other First Lien Obligations secured by the Lien granted hereby are outstanding on the Termination Date, the date after the Termination Date when all such Other First Lien Obligations (other than contingent or unliquidated obligations or liabilities not then due and any other
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obligations that, by the terms of any Other First Lien Agreements, are not required to be paid in full prior to termination and release of the Pledged Collateral) have been paid in full and the Secured Parties have no further commitment to extend credit under any such Other First Lien Agreement, or (ii) otherwise in accordance with Section 9.18 of the Credit Agreement and the equivalent provision of any applicable Other First Lien Agreement.
(b) The security interest in the Pledged Collateral shall be automatically released, all without delivery of any instrument or performance of any act by any party, (i) upon any sale or other transfer by Holdings of any Pledged Collateral that is permitted by the Credit Agreement and each Other First Lien Agreement then in effect to any person that is not Holdings or a Pledgor (as defined in the Collateral Agreement), (ii) upon the effectiveness of any written consent to the release of the security interest granted hereby in any Pledged Collateral pursuant to Section 9.08 of the Credit Agreement and any equivalent provision of each applicable Other First Lien Agreement (in each case, to the extent required thereby), or (iii) as otherwise may be provided in any applicable Intercreditor Agreement.
(c) In connection with any termination or release pursuant to this Section 6.15, the Agent shall execute and deliver to Holdings, at Holdings’ expense, all documents (forms of which shall be reasonably acceptable to the Agent) that Holdings shall reasonably request to evidence such termination or release (including Uniform Commercial Code termination statements), and will duly assign and transfer to Holdings, such of the Pledged Collateral that may be in the possession of the Agent and has not theretofore been sold or otherwise applied or released pursuant to this Agreement. Any execution and delivery of documents pursuant to this Section 6.15 shall be without recourse to or warranty by the Agent. In connection with any release pursuant to this Section 6.15, Holdings shall be permitted to take any action in connection therewith consistent with such release including, without limitation, the filing of Uniform Commercial Code termination statements. Upon the receipt of any necessary or proper instruments of termination, satisfaction or release prepared by the Borrower pursuant to this Section 6.15, the Agent shall execute, deliver or acknowledge such instruments or releases (forms of which shall be reasonable acceptable to the Agent) to evidence the release of any Pledged Collateral permitted to be released pursuant to this Agreement. Holdings agrees to pay all reasonable and documented out-of-pocket expenses incurred by the Agent (and its representatives and counsel) in connection with the execution and delivery of such release documents or instruments.
SECTION 6.16. Compliance with Gaming Laws . Notwithstanding anything to the contrary set forth in this Agreement, any other Loan Document or any Other First Lien Agreement, the Agent, on behalf of the Secured Parties, acknowledges and agrees that:
(a) the pledge of the Pledged Borrower Stock of any Pledgor that is a licensee or registered holding company under the Gaming Laws applicable in the State of Nevada (“ Nevada Gaming Laws ”) (any such entity, a “ Nevada Licensee ”) or the Gaming Laws applicable in the State of Mississippi (“ Mississippi Gaming Laws ”) (any such entity, a “ Mississippi Licensee ”), or under the Gaming Laws of any other state (any such entity, an “ Other State Licensee ”), pursuant to this Agreement, any other Loan Document or any Other First Lien Agreement, will not be effective without the prior approval of the Gaming Authorities having jurisdiction in Nevada (the “ Nevada Gaming Authorities ”), the Gaming Authorities
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having jurisdiction in Mississippi (the “ Mississippi Gaming Authorities ”), and any other Gaming Authorities having jurisdiction over any Other State Licensee (“ Other State Gaming Authorities ”) and no certificates evidencing any such Pledged Borrower Stock may be delivered to the Agent until such approval has been obtained. Furthermore, no amendment of this Agreement shall be effective until any approvals required from the Nevada Gaming Authorities under the Nevada Gaming Laws, the Mississippi Gaming Authorities under the Mississippi Gaming Laws and any Other State Gaming Authorities under their applicable Gaming Laws have been obtained;
(b) in the event that Agent exercises one or more of the remedies set forth in this Agreement with respect to the Pledged Borrower Stock of any Nevada Licensee, any Mississippi Licensee or any Other State Licensee, including, without limitation, the foreclosure, transfer, sale, distribution or other disposition of any interest therein (except back to Holdings), the exercise of voting and consensual rights, and any other resort to or enforcement of the security interest in such Pledged Borrower Stock, such action will require the separate and prior approval of the Nevada Gaming Authorities and/or the Mississippi Gaming Authorities and/or any Other State Gaming Authorities, as applicable, or the licensing or finding of suitability of the Agent or any transferee thereof unless such licensing or suitability requirement is waived thereby;
(c) the Agent, and any custodial agent of Agent in the State of Nevada, will be required to comply with the conditions, if any, imposed by the Nevada Gaming Authorities in connection with their approval of the pledge granted hereunder, including, without limitation, requirements that the Agent or its custodial agent maintain the certificates evidencing the Pledged Borrower Stock of Nevada Licensees at a location in Nevada (notice of which the Agent or its custodial agent shall provide to the Nevada Gaming Authorities) and that the Agent or its custodial agent permit agents or employees of the Nevada Gaming Authorities to inspect such certificates upon request;
(d) neither the Agent nor any custodial agent of the Agent will be permitted to surrender possession of any Pledged Borrower Stock of Nevada Licensees to any person other than Holdings without the prior approval of the Nevada Gaming Authorities or as otherwise permitted by the Gaming Laws;
(e) any approval of the Nevada Gaming Authorities, the Mississippi Gaming Authorities or the Other State Gaming Authorities of this Agreement, or any amendment hereto, does not constitute approval, either express or implied, of the Agent to take any actions provided for in this Agreement, for which separate approval by the Nevada Gaming Authorities, the Mississippi Gaming Authorities or the Other State Gaming Authorities may be required by the Gaming Laws; and
(f) the Agent, the Secured Parties and their respective successors and assigns are subject to being called forward by the Nevada Gaming Authorities and/or the Mississippi Gaming Authorities and/or any Other State Gaming Authorities in their sole and absolute discretion, for licensing or a finding of suitability in order to remain entitled to the benefits of this Agreement, any other Loan Documents and any Other First Lien Agreement.
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SECTION 6.17. Subject to Any Applicable Intercreditor Agreement . Notwithstanding anything herein to the contrary, (i) the Liens and security interests granted to the Agent for the benefit of the Secured Parties pursuant to this Agreement are expressly subject to any applicable Intercreditor Agreement to the extent provided therein and (ii) the exercise of any right or remedy by the Agent hereunder or the application of proceeds (including insurance and condemnation proceeds) of any Pledged Collateral are subject to any applicable Intercreditor Agreement to the extent provided therein. In the event of any conflict between the terms of such applicable Intercreditor Agreement and the terms of this Agreement, the terms of such applicable Intercreditor Agreement shall govern.
SECTION 6.18. Other First Lien Obligations . On or after the date hereof and so long as such obligations are not prohibited by the Credit Agreement and any Other First Lien Agreement then in effect, the Borrower may from time to time designate obligations in respect of Indebtedness to be secured (except with respect to any applicable Specified Excluded Collateral) on a pari passu basis with then outstanding Secured Obligations as Other First Lien Obligations hereunder by delivering to the Agent and each Authorized Representative (a) a certificate signed by a Responsible Officer of the Borrower (i) identifying the obligations so designated and the initial aggregate principal amount or face amount thereof, (ii) stating that such obligations are designated as Other First Lien Obligations for purposes hereof, (iii) representing that such designation of such obligations as Other First Lien Obligations is not prohibited by the terms of the Credit Agreement and any Other First Lien Agreement then in effect and (iv) specifying the name and address of the Authorized Representative for such obligations, (b) a fully executed Other First Lien Secured Party Consent and (c) if not already in effect, execute and deliver the First Lien Intercreditor Agreement (or a joinder thereto in the form (and to the extent, if any) required thereby to the extent such First Lien Intercreditor Agreement is then in effect). The Agent and each Authorized Representative agree that upon the satisfaction of all conditions set forth in the preceding sentence, (x) the Agent shall act as agent under and subject to the terms of the Security Documents for the benefit of all Secured Parties, including without limitation, any Secured Parties that hold any such Other First Lien Obligations, and (y) the Agent and each Authorized Representative agrees to the appointment, and acceptance of the appointment, of the Agent as agent for the holders of such Other First Lien Obligations as set forth in each Other First Lien Secured Party Consent and agree, on behalf of itself and each Secured Party it represents, to be bound by this Agreement and the First Lien Intercreditor Agreement. The rights and obligations of each party to this Agreement shall remain in full force and effect notwithstanding the addition of any new Secured Obligations to this Agreement.
SECTION 6.19. Person Serving as Agent . On the Closing Date, the Agent hereunder is the same person that is the Credit Agreement Agent. Written notice of resignation by the Credit Agreement Agent pursuant to the Credit Agreement shall also constitute notice of resignation as the Agent under this Agreement. Upon the acceptance of any appointment as the Administrative Agent under (and as defined in) the Credit Agreement by a successor, that successor shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent pursuant hereto. Immediately upon the occurrence of the Discharge (as such term or equivalent term is defined in the First Lien Intercreditor Agreement) of Credit Agreement Loan Obligations, if any other Series of Secured Obligations is then outstanding, the Authorized Representative of such Series (or, if more than one such Series is outstanding, the applicable Authorized Representative determined pursuant to the terms of (and
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as defined in) the applicable Intercreditor Agreement) shall be deemed the Agent for all purposes under this Agreement. The Agent immediately prior to any change in Agent pursuant to this Section 6.19 (the “ Prior Agent ”) shall be deemed to have assigned all of its rights, powers and duties hereunder to the successor Agent determined in accordance with this Section 6.19 (the “ Successor Agent ”) and the Successor Agent shall be deemed to have accepted, assumed and succeeded to such rights, powers and duties. The Prior Agent shall cooperate with Holdings and such Successor Agent to ensure that all actions are taken that are necessary or reasonably requested by the Successor Agent to vest in such Successor Agent the rights granted to the Prior Agent hereunder with respect to the Pledged Collateral, including (a) the filing of amended financing statements in the appropriate filing offices, (b) to the extent that the Prior Agent holds, or a third party holds on its behalf, physical possession of or “control” (as defined in the New York UCC or the Uniform Commercial Code of any other applicable jurisdiction) over Pledged Collateral pursuant to this Agreement or any other Security Document, the delivery to the Successor Agent of the Pledged Collateral in its possession or control together with any necessary endorsements to the extent required by this Agreement, and (c) the execution and delivery of any further documents, financing statements or agreements and the taking of all such further action that may be required under any applicable law, or that the Successor Agent may reasonably request, all without recourse to, or representation or warranty by, the Agent, and at the sole cost and expense of Holdings. The Agent hereunder shall at all times be the same person that is the “Collateral Agent” under the First Lien Intercreditor Agreement. Written notice of resignation by the “Collateral Agent” pursuant to the First Lien Intercreditor Agreement shall also constitute notice of resignation as the Agent under this Agreement. Upon the acceptance of any appointment as the “Collateral Agent” under the First Lien Intercreditor Agreement by a successor “Collateral Agent”, that successor “Collateral Agent” shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent pursuant hereto.
SECTION 6.20. General Authority of the Agent .
(a) By acceptance of the benefits of this Agreement and any other Security Documents, each Secured Party (whether or not a signatory hereto) shall be deemed irrevocably (i) to consent to the appointment of the Agent as its agent hereunder and under such other Security Documents, (ii) to confirm that the Agent shall have the authority to act as the exclusive agent of such Secured Party for the enforcement of any provision of this Agreement and such other Security Documents against Holdings, the exercise of remedies hereunder or thereunder and the giving or withholding of any consent or approval hereunder thereunder relating to any Pledged Collateral or Holdings’ obligations with respect thereto, (iii) to agree that it shall not take any action to enforce any provisions of this Agreement or any other Security Document against Holdings, to exercise any remedy hereunder or thereunder or to give any consents or approvals hereunder or thereunder except as expressly provided in this Agreement or any other Security Document and (iv) to agree to be bound by the terms of this Agreement, any other Security Documents and any Intercreditor Agreement then in effect.
(b) Holdings acknowledges that the rights and responsibilities of the Agent under this Agreement with respect to any action taken by the Agent or the exercise or non-exercise by the Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Agent and
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the Secured Parties, be governed by the Credit Agreement, any Other First Lien Agreement and such other agreements with respect thereto as may exist from time to time among them, but, as between the Agent and Holdings, the Agent shall be conclusively presumed to be acting as agent for the applicable Secured Parties with full and valid authority so to act or refrain from acting, and Holdings shall not be under any obligation, or entitlement, to make any inquiry respecting such authority.
SECTION 6.21. Application of Gaming Laws . Notwithstanding anything herein to the contrary, this Agreement and any Other First Lien Agreements are subject to the applicable Gaming Laws. Without limiting the foregoing, the Secured Parties acknowledge that (i) they are subject to the jurisdiction of the Gaming Authorities, in their discretion, for licensing, qualification or findings of suitability or to file or provide other information, and (ii) all rights, remedies and powers in or under this Agreement and the Other First Lien Agreements, including with respect to the Pledged Collateral (including the pledge and delivery of Pledged Collateral) and the transportation, ownership and operation of gaming machines and/or facilities may be subject to the jurisdiction of the Gaming Authorities, and may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of the Gaming Laws and only to the extent that required approvals (including prior approvals), if any, are obtained from the relevant Gaming Authorities.
[ Signature Pages Follow ]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
AP GAMING HOLDINGS, LLC, as Holdings |
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By: |
/s/ David Lopez |
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Name: | David Lopez | |
Title: | Authorized Signatory |
[Holdings Guarantee and Pledge Agreement]
JEFFERIES FINANCE LLC, as Agent |
By: |
/s/ John Koehler |
|
Name: | John Koehler | |
Title: | Senior Vice President |
[Holdings Guarantee and Pledge Agreement]
Exhibit I
to Holdings Guarantee and Pledge Agreement
[Form of]
OTHER FIRST LIEN SECURED PARTY CONSENT
[Name of Other First Lien Secured
Party] [Address of Other First Lien
Secured Party]
[Date]
|
|
|
The undersigned is the Authorized Representative for Persons wishing to become Secured Parties (the “ New Secured Parties ”) under the Holdings Guarantee and Pledge Agreement, dated as of June 6, 2017 (as heretofore amended and/or supplemented, the “ Guarantee and Pledge Agreement ” (terms used without definition herein have the meanings assigned to such term in the Guarantee and Pledge Agreement)), between AP GAMING HOLDINGS, LLC and JEFFERIES FINANCE LLC, as collateral agent (the “ Agent ”).
In consideration of the foregoing, the undersigned hereby:
(i) represents that the Authorized Representative has been duly authorized by the New Secured Parties to become a party to the Guarantee and Pledge Agreement and the First Lien Intercreditor Agreement on behalf of the New Secured Parties under that [DESCRIBE OPERATIVE AGREEMENT] (the “ New Secured Obligation ”) and to act as the Authorized Representative for the New Secured Parties;
(ii) acknowledges that the Authorized Representative has received a copy of the Guarantee and Pledge Agreement and the First Lien Intercreditor Agreement;
(iii) appoints and authorizes the Agent to take such action as agent on its behalf and on behalf of all other Secured Parties and to exercise such powers under the Guarantee and Pledge Agreement and First Lien Intercreditor Agreement as are delegated to the Agent by the terms thereof, together with all such powers as are reasonably incidental thereto;
(iv) accepts and acknowledges the terms of the First Lien Intercreditor Agreement applicable to it and the New Secured Parties and agrees to serve as Authorized Representative for the New Secured Parties with respect to the New
Secured Obligations and agrees on its own behalf and on behalf of the New Secured Parties to be bound by the terms thereof applicable to holders of Other First Lien Obligations, with all the rights and obligations of a Secured Party thereunder and bound by all the provisions thereof (including, without limitation, Section 2.02(b) thereof) as fully as if it had been a Secured Party on the effective date of the Guarantee and Pledge Agreement and the First Lien Intercreditor Agreement and agrees that its address for receiving notices pursuant to the Guarantee and Pledge Agreement and the First Lien Intercreditor Agreement shall be as follows:
[Address]
(v) confirms the authority of the Agent to enter into such agreements on its behalf and on behalf of the New Secured Parties and agrees on its own behalf and on behalf of the New Secured Parties to be bound by the terms thereof applicable to it and the New Secured Parties as fully as if it had been a party to each such agreement on behalf of itself and the New Secured Parties.
The Agent, by acknowledging and agreeing to this Other First Lien Secured Party Consent, accepts the appointment set forth in clause (iii) above.
THIS OTHER FIRST LIEN SECURED PARTY CONSENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Exhibit 10.6
Execution Version
SUBSIDIARY GUARANTEE
This SUBSIDIARY GUARANTEE dated and effective as of June 6, 2017 (as amended, restated, supplemented or otherwise modified from time to time, this “ Guaranty ”) by and among each Subsidiary listed on the signature page hereof and each other Subsidiary that becomes a party hereto after the date hereof (each a “ Subsidiary Guarantor ” and, collectively, the “ Subsidiary Guarantors ”) and JEFFERIES FINANCE LLC, as collateral agent (together with its successors and permitted assigns in such capacity, the “ Agent ”) for the Secured Parties (as defined below).
WITNESSETH:
WHEREAS , pursuant to the First Lien Credit Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among AP Gaming Holdings, LLC, a Delaware limited liability company (“ Holdings ”), AP Gaming I, LLC, a Delaware limited liability company and a Subsidiary of Holdings (the “ Borrower ”), the Lenders party thereto from time to time, the Agent, as administrative agent, and the other parties thereto, the Lenders and the Issuing Banks have agreed to extend credit to the Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS , the Lenders and the Issuing Banks have agreed to extend credit to the Borrower subject to the terms and conditions set forth in the Credit Agreement. The obligations of the Lenders and the Issuing Banks to extend such credit are conditioned upon, among other things, the execution and delivery of this Guaranty. The Subsidiary Guarantors, as affiliates of the Borrower, will derive substantial benefits from the extension of credit to the Borrower pursuant to the Credit Agreement. The Subsidiary Guarantors are willing to execute and deliver this Guaranty in order to induce the Lenders and the Issuing Banks to extend such credit under the Credit Agreement.
Accordingly, the parties hereto agree as follows:
1. | DEFINITIONS |
(a) | Credit Agreement . |
(i) Capitalized terms used in this Guaranty and not otherwise defined herein have the respective meanings assigned thereto in the Credit Agreement.
(ii) The rules of construction specified in Section 1.02 of the Credit Agreement also apply to this Guaranty.
(b) Other Defined Terms . As used in this Guaranty, the following terms have the meanings specified below:
“ Agent ” has the meaning assigned to such term in the preliminary statement of this Guaranty.
“ Borrower ” has the meaning assigned to such term in the introductory paragraph of this Guaranty.
“ Claiming Guarantor ” has the meaning assigned to such term in Section 6(b).
“ Contributing Guarantor ” has the meaning assigned to such term in Section 6(b).
“ Credit Agreement ” has the meaning assigned to such term in the preliminary statement of this Guaranty.
“ Guaranteed Obligations ” has the meaning assigned to such term in Section 2(a).
“ Holdings ” has the meaning assigned to such term in the preliminary statement of this Guaranty.
“ Subsidiary Guarantor ” has the meaning assigned to such term in the preliminary statement of this Guaranty.
2. | THE GUARANTY |
(a) Guaranty of Guaranteed Obligations . Each Subsidiary Guarantor unconditionally guarantees to the Agent, jointly and severally with the other Guarantors, as a primary obligor and not merely as a surety, the due and punctual payment and performance of the Obligations (the “ Guaranteed Obligations ”) for the benefit of the Secured Parties. Each Subsidiary Guarantor further agrees that the Guaranteed 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 notwithstanding any extension or renewal of any Guaranteed Obligation. Each Subsidiary Guarantor waives presentment to, demand of payment from and protest to the Borrower or any other Loan Party of any of the Guaranteed Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment.
(b) Guaranty of Payment . Each Subsidiary Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Agent or any other Secured Party to any security held for the payment of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of the Agent or any other Secured Party in favor of the Borrower or any other person.
(c) No Limitations . Except for termination or release of a Subsidiary Guarantor’s obligations hereunder as expressly provided for in Section 5(g)(i), the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity,
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illegality or unenforceability of the Guaranteed Obligations or otherwise (other than defense of payment or performance). Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor hereunder, to the fullest extent permitted by applicable law, shall not be discharged or impaired or otherwise affected by: (i) the failure of the Agent or any other Secured Party to assert any claim or demand or to exercise or enforce any right or remedy under the provisions of any Loan Document or otherwise; (ii) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, any Loan Document or any other agreement, including with respect to any other Subsidiary Guarantor under this Guaranty; (iii) the failure to perfect any security interest in, or the exchange, substitution, release or any impairment of, any security held by the Agent or any other Secured Party for the Guaranteed Obligations; (iv) any default, failure or delay, willful or otherwise, in the performance of the Guaranteed Obligations; (v) any other act or omission that may or might in any manner or to any extent vary the risk of any Guarantor or otherwise operate as a discharge of any Guarantor as a matter of law or equity (other than the payment in full in cash in immediately available funds of all the Guaranteed Obligations); (vi) any illegality, lack of validity or enforceability of any Guaranteed Obligation; (vii) any change in the corporate existence, structure or ownership of the Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or its assets or any resulting release or discharge of any Guaranteed Obligation (other than the payment in full in cash in immediately available funds of all the Guaranteed Obligations); (viii) the existence of any claim, set-off or other rights that such Subsidiary Guarantor may have at any time against the Borrower, the Agent, or any other corporation or person, whether in connection herewith or any unrelated transactions; provided , that nothing herein will prevent the assertion of any such claim by separate suit or compulsory counterclaim; and (ix) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by the Agent that might otherwise constitute a defense to, or a legal or equitable discharge of, the Borrower or any other Loan Party or any other guarantor or surety (other than defense of payment or performance). Each Subsidiary Guarantor expressly authorizes the Secured Parties (or the Agent on behalf of the Secured Parties) to take and hold security for the payment and performance of the Guaranteed Obligations, to exchange, waive or release any or all such security (with or without consideration), to enforce or apply such security and direct the order and manner of any sale thereof in their sole discretion or to release or substitute any one or more other guarantors or obligors upon or in respect of the Guaranteed Obligations, all without affecting the obligations of any Subsidiary Guarantor hereunder. To the fullest extent permitted by applicable law, each Subsidiary Guarantor waives any defense based on or arising out of any defense of any other Guarantor or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any other Guarantor, other than the payment in full in cash in immediately available funds of all the Guaranteed Obligations. The Agent and the other Secured Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Guaranteed Obligations, make any other accommodation with the Borrower or any other Loan Party or exercise any other right or
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remedy available to them against the Borrower or any other Loan Party, without affecting or impairing in any way the liability of any Subsidiary Guarantor hereunder except to the extent the Guaranteed Obligations have been paid in full in cash in immediately available funds. To the fullest extent permitted by applicable law, each Subsidiary Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Subsidiary Guarantor against any other Guarantor, as the case may be, or any security.
(d) Reinstatement . Notwithstanding the provisions of Section 5(g), each Subsidiary Guarantor agrees that its guarantee hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Guaranteed Obligation is rescinded or must otherwise be restored or returned by the Agent or any other Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any other Loan Party, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any other Loan Party or any substantial part of its property, or otherwise, all as though such payment had not been made.
(e) Agreement To Pay; Subrogation . In furtherance of the foregoing and not in limitation of any other right that the Agent or any other Secured Party has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Borrower or any other Loan Party to pay any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Subsidiary Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Agent for distribution to the applicable Secured Party in cash in immediately available funds the amount of such unpaid Guaranteed Obligation. Upon payment by any Subsidiary Guarantor of any sums to the Agent as provided above, all rights of such Subsidiary Guarantor against the Borrower or any other Loan Party arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subject to Section 6.
(f) Information . Each Subsidiary Guarantor assumes all responsibility for being and keeping itself informed of the Borrower’s and each other Loan Party’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that such Subsidiary Guarantor assumes and incurs hereunder, and agrees that neither the Agent nor any other Secured Party will have any duty to advise such Subsidiary Guarantor of information known to it or any of them regarding such circumstances or risks.
(g) Maximum Liability . Each Subsidiary Guarantor, and by its acceptance of this Guaranty, the Agent and each Secured Party hereby confirms that it is the intention of all such persons that this Guaranty and the Guaranteed Obligations of each Subsidiary Guarantor hereunder not constitute a fraudulent transfer or conveyance for purposes of the U.S. Bankruptcy Code or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, the Uniform Fraudulent Conveyance Act, the Uniform
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Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Guaranty and the Guaranteed Obligations of each Subsidiary Guarantor hereunder. To effectuate the foregoing intention, the Agent, the Secured Parties and the Subsidiary Guarantors hereby irrevocably agree that the Guaranty Obligations of each Subsidiary Guarantor under this Guaranty at any time shall be limited to the maximum amount as will result in the Guaranteed Obligations of such Subsidiary Guarantor under this Guaranty not constituting a fraudulent transfer or conveyance.
(h) Representations and Warranties . Each Subsidiary Guarantor acknowledges and agrees that it is familiar with the Credit Agreement and the representations and warranties applicable to it thereunder. Each Subsidiary Guarantor also agrees that the representations and warranties contained in Article III of the Credit Agreement, insofar as the representations and warranties contained therein are applicable to any Subsidiary Guarantor and its properties, are true and correct in all material respects on each date on which such representations and warranties are repeated in accordance with the Loan Documents (except to the extent they relate to any earlier date in which case they shall be true and correct in all material respects as of such earlier date), each representation and warranty set forth in Article III of the Credit Agreement (insofar as applicable as aforesaid) and all other terms of the Credit Agreement to which reference is made therein, together with all related definitions and ancillary provisions, being hereby incorporated into this Guaranty by this reference as though specifically set forth in this Section 2(h).
(i) Covenants . Each Subsidiary Guarantor acknowledges and agrees that it is familiar with the Credit Agreement and the covenants applicable to it thereunder. Each Subsidiary Guarantor covenants and agrees that, at all times prior to the termination of this Guaranty in accordance with Section 5(g), it will be bound by all of the agreements, covenants and obligations contained in Articles V and VI of the Credit Agreement, to the extent applicable to such Subsidiary Guarantor, each such agreement, covenant and obligation contained in Articles V and VI of the Credit Agreement, together with all related definitions and ancillary provisions, being hereby incorporated into this Guaranty by this reference as though specifically set forth in this Section 2(i).
3. | FURTHER ASSURANCES |
Each Subsidiary Guarantor agrees, upon the written request of the Agent, to execute and deliver to the Agent, from time to time, any additional instruments or documents reasonably considered necessary by the Agent to cause this Guaranty to be, become or remain valid and effective in accordance with its terms.
4. | PAYMENTS FREE AND CLEAR OF TAXES |
Each Subsidiary Guarantor agrees that it will perform or observe all of the terms, covenants and agreements that Section 2.17 of the Credit Agreement requires such Subsidiary Guarantor to perform or observe, subject to the qualifications set forth therein.
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5. | OTHER TERMS |
(a) Entire Agreement . This Guaranty, together with the other Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a guaranty of the Loans under the Loan Documents.
(b) Headings . The headings in this Guaranty are for convenience of reference only, are not part of this Guaranty and are not to affect the construction of, or to be taken into consideration in interpreting, this Guaranty.
(c) Severability . In the event any one or more of the provisions contained in this Guaranty should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
(d) Notices . All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to any Subsidiary Guarantor shall be given to it in care of the Borrower, with such notice to be given as provided in Section 9.01 of the Credit Agreement.
(e) Successors and Assigns . Whenever in this Guaranty any Guarantor is referred to, such reference shall be deemed to include the permitted successors and assigns of such party in accordance with the terms of the Credit Agreement; and all covenants, promises and agreements by any Subsidiary Guarantor that are contained in this Guaranty shall bind and inure to the benefit of its permitted successors and assigns.
(f) Waivers; Amendment; Extension of Time .
(i) No failure or delay by the Agent, any Issuing Bank, any Lender or any other Secured Party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy, or any abandonment or discontinuance of steps to enforce such a right, power or remedy, preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies of the Agent, any Issuing Bank, the Lenders or any other Secured Party hereunder are cumulative and are not exclusive of any rights, powers or remedies that they would otherwise have. No waiver of any provision of this Guaranty or consent to any departure by any Subsidiary Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (ii) of this Section 5(f), 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 the issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Agent, any Lender, any Issuing Bank or any other Secured Party may have had notice or knowledge of such Default or Event of Default at the time. No notice or
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demand on any Guarantor in any case shall entitle any Subsidiary Guarantor to any other or further notice or demand in similar or other circumstances. When making any demand hereunder against any of the Guarantors, the Agent or any other Secured Party may, but shall be under no obligation to, make a similar demand on the Borrower or any other Guarantor or guarantor, and any failure by the Agent or any other Secured Party to make any such demand or to collect any payments from the Borrower or any other Guarantor or guarantor or any release of the Borrower or any other Guarantor or guarantor shall not relieve any of the Subsidiary Guarantors in respect of which a demand or collection is not made or any of the Subsidiary Guarantors not so released of their several obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Agent or any other Secured Party against any of the Subsidiary Guarantors. For the purposes hereof “ demand ” shall include the commencement and continuance of any legal proceedings.
(ii) Neither this Guaranty nor any provision hereof may be waived, amended or modified (other than termination or release of this Guaranty pursuant to Section 5(g)) except pursuant to an agreement or agreements in writing entered into by the Agent and the Subsidiary Guarantor or Subsidiary Guarantors with respect to which such waiver, amendment or modification is to apply, subject to any consent required in accordance with Section 9.08 of the Credit Agreement.
(g) Termination or Release .
(i) This Guaranty and each Subsidiary Guarantor’s obligations hereunder shall automatically terminate and/or be released (x) upon the occurrence of the Termination Date, or (y) otherwise in accordance with Section 9.18 of the Credit Agreement.
(ii) In connection with any termination or release pursuant to this Section 5(g), the Agent shall execute and deliver to the Borrower, at the Borrower’s expense, all documents that the Borrower shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section 5(g) shall be made without recourse to or warranty by the Agent. The Borrower agrees to pay all reasonable and documented out-of-pocket expenses incurred by the Agent (and its representatives and counsel) in connection with the execution and delivery of such release documents or instruments.
(h) Counterparts . This Guaranty may be executed in two or more counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute but one contract. Delivery of an executed counterpart to this Guaranty by facsimile or other electronic transmission shall be as effective as delivery of a manually signed original.
(i) Survival of Representations and Warranties . All representations and warranties made hereunder and in any other Loan Document shall survive the execution and delivery of this Guaranty and the other Loan Documents and any increase in Commitments under the Credit Agreement.
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6. | INDEMNITY; SUBROGATION AND SUBORDINATION |
(a) Indemnity and Subrogation . In addition to all such rights of indemnity and subrogation as the Subsidiary Guarantors may have under applicable law (but subject to Section 6(c)), the Borrower agrees that (i) in the event a payment shall be made by any Subsidiary Guarantor under this Guaranty in respect of any Guaranteed Obligation of the Borrower, the Borrower shall indemnify such Subsidiary Guarantor for the full amount of such payment and such Subsidiary Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment and (ii) in the event any assets of any Subsidiary Guarantor shall be sold pursuant to any Security Document to satisfy in whole or in part a Guaranteed Obligation of the Borrower, the Borrower shall indemnify such Subsidiary Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold.
(b) Contribution and Subrogation . Each Subsidiary Guarantor (a “ Contributing Guarantor ”) agrees (subject to Section 6(c)) that, in the event a payment shall be made by any other Subsidiary Guarantor hereunder in respect of any Guaranteed Obligation or assets of any other Subsidiary Guarantor shall be sold pursuant to any Security Document to satisfy any Guaranteed Obligation owed to any Secured Party and such other Subsidiary Guarantor (the “ Claiming Guarantor ”) shall not have been fully indemnified by the Borrower as provided in Section 6(a) hereof, the Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as applicable, in each case multiplied by a fraction of which the numerator shall be the net worth of such Contributing Guarantor on the date hereof and the denominator shall be the aggregate net worth of all the Subsidiary Guarantors on the date hereof (or, in the case of any Subsidiary Guarantor becoming a party hereto pursuant to Section 5.10 of the First Lien Credit Agreement, the date of the supplement hereto executed and delivered by such Subsidiary Guarantor). Any Contributing Guarantor making any payment to a Claiming Guarantor pursuant to this Section 6(b) shall be subrogated to the rights of such Claiming Guarantor under Section 6(a) hereof to the extent of such payment. The provisions of this Section 6(b) shall in no respect limit the obligations and liabilities of any Subsidiary Guarantor to the Agent and the other Secured Parties, and each Subsidiary Guarantor shall remain liable to the Agent and the other Secured Parties for the full amount guaranteed by such Subsidiary Guarantor hereunder.
(c) Subordination . Notwithstanding any provision of this Guaranty to the contrary, all rights of the Subsidiary Guarantors under Sections 6(a) and 6(b) and all other rights of indemnity, contribution or subrogation of any Subsidiary Guarantor under applicable law or otherwise shall be fully subordinated to the Guaranteed Obligations until the occurrence of the Termination Date. Notwithstanding any payment or payments made by any of the Subsidiary Guarantors hereunder or any set-off or appropriation or application of funds of any of the Subsidiary Guarantors by any Secured Party, no Subsidiary Guarantor shall be entitled to be subrogated to any of the rights of the Agent or any other Secured Party against the Borrower or any other Guarantor or any collateral security or guarantee or right of set-off held by any Secured Party for the payment of the Guaranteed Obligations until the Termination Date shall have occurred, nor shall any
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Subsidiary Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Subsidiary Guarantor hereunder until the Termination Date shall have occurred. If any amount shall be paid to any Subsidiary Guarantor on account of such subrogation rights at any time prior to the Termination Date of the Guaranteed Obligations, such amount shall be held by such Subsidiary Guarantor in trust for the Agent and the other Secured Parties, segregated from other funds of such Subsidiary Guarantor, and shall, forthwith upon receipt by such Subsidiary Guarantor, be paid to the Agent to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the First Lien Credit Agreement. No failure on the part of the Borrower or any Subsidiary Guarantor to make the payments required by Sections 6(a) and 6(b) (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Subsidiary Guarantor with respect to its obligations hereunder, and each Subsidiary Guarantor shall remain liable for the full amount of the obligations of such Subsidiary Guarantor hereunder.
7. | GOVERNING LAW |
THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
8. | JURISDICTION; CONSENT TO SERVICE OF PROCESS |
(a) Each Subsidiary Guarantor irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Agent, any other Secured Party, or any Affiliate of the foregoing, in any way relating to this Guaranty or the transactions relating hereto or thereto, in any forum other than the courts of the State of New York sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, and each of the parties hereto hereby irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guaranty shall affect any right that the Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Guaranty against any Subsidiary Guarantor or its properties in the courts of any jurisdiction.
(b) Each party to this Guaranty 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 the laying of venue of any suit, action or proceeding arising out of or relating to this Guaranty in any New York State or federal court. 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.
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(c) Each party to this Guaranty irrevocably consents to service of process in the manner provided for notices in Section 5(d). Nothing in this Guaranty will affect the right of any party to this Guaranty to serve process in any other manner permitted by law.
9. | WAIVER OF JURY TRIAL |
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY. 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 GUARANTY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.
10. | RIGHT OF SET-OFF |
If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Lender to or for the credit or the account of any Subsidiary Guarantor against any of and all the obligations of such Subsidiary Guarantor now or hereafter existing under this Guaranty owed to such Lender, irrespective of whether or not such Lender shall have made any demand under this Guaranty and although such obligations may be unmatured; provided , however, that any Defaulting Lender’s set-off right hereunder shall be subject to Section 9.06 of the Credit Agreement. Notwithstanding anything to the contrary contained herein, no Lender or any of its respective Affiliates shall have a right to set off and apply any deposits held by, or other Indebtedness owing by, such Lender or any of its Affiliates to or for the credit or the account of any subsidiary of a Loan Party that (i) is not a “United States person” within the meaning of Section 7701(a)(30) of the Code or (ii) is a subsidiary of a person described in clause (i), unless (in either case) such subsidiary is not a direct or indirect Subsidiary of the Borrower. Each Lender agrees promptly to notify the Borrower and the Agent after any such set off and application made by such Lender; provided , that the failure to give such notice shall not affect the validity of such set off and application. The rights of each Lender under this Section 10 are in addition to other rights and remedies (including other rights of set off) that such Lender may have.
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11. | ADDITIONAL SUBSIDIARIES |
Upon execution and delivery by any Subsidiary of the Borrower that is required or permitted to become a party hereto by Section 5.10(c) of the Credit Agreement (or that is referred to in clause (ii) of the definition of Subsidiary Loan Party) of an instrument substantially in the form of Exhibit A hereto (or another instrument reasonably satisfactory to the Agent and the Borrower), subject to the applicable Requirements of Law (including Gaming Laws), such Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor herein. The execution and delivery of any such instrument shall not require the consent of any other party to this Guaranty. The rights and obligations of each party to this Guaranty shall remain in full force and effect notwithstanding the addition of any new party to this Guaranty. Each reference to “Subsidiary Guarantor” or “Guarantor” in this Guaranty shall be deemed to include such Subsidiary.
12. | AGENCY OF BORROWER FOR SUBSIDIARY GUARANTORS |
Each of the Subsidiary Guarantors hereby appoints the Borrower as its agent for all purposes relevant to this Guaranty and the other Loan Documents, including the giving and receipt of notices and the execution and delivery of all documents, instruments and certificates contemplated herein and therein and all modifications hereto and thereto.
[ remainder of page intentionally left blank; signature pages follow ]
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IN WITNESS WHEREOF , the undersigned has caused this Guaranty to be executed and delivered as of the date first above written.
AP GAMING II, INC. AP GAMING ACQUISITION, LLC AGS CAPITAL, LLC AGS, LLC AGS PARTNERS, LLC AGS ILLINOIS, LLLP AP GAMING NV, LLC each as a Subsidiary Guarantor |
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By: |
/s/ David Lopez |
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Name: | David Lopez | |
Title: | Authorized Signatory |
[Signature Page to Subsidiary Guarantee]
Accepted and Agreed to:
JEFFERIES FINANCE LLC, as Collateral Agent |
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By: |
/s/ John Koehler |
|
Name: | John Koehler | |
Title: | Senior Vice President |
[Signature Page to Subsidiary Guarantee]
Exhibit A
to the Subsidiary Guarantee
SUPPLEMENT NO. [ ]
TO SUBSIDIARY GUARANTEE
SUPPLEMENT NO. [ ], dated as of [●], 20[●] (as amended, restated, supplemented or otherwise modified from time to time, this “ Supplement ”), to the Subsidiary Guarantee, dated as of June 6, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ Guaranty ”), among each Subsidiary listed on the signature pages thereof (each a “ Existing Subsidiary Guarantor ” and collectively, the “ Existing Subsidiary Guarantors ”) and JEFFERIES FINANCE LLC, as collateral agent (in such capacity, the “ Agent ”) for the benefit of the Secured Parties.
A. Reference is made to the First Lien Credit Agreement dated as of June 6, 2017 (as amended, supplemented, waived or otherwise modified from time to time, the “ Credit Agreement ”), by and among AP Gaming Holdings, LLC, a Delaware corporation (“ Holdings ”), AP Gaming I, LLC, a Delaware limited liability company (the “ Borrower ”), the Lenders party thereto from time to time and the Agent, in its capacity as the administrative agent.
B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
C. Each Existing Subsidiary Guarantor has entered into the Guaranty in order to induce the Lenders to make Loans. Section 11 of the Guaranty provides that additional Subsidiaries may become Subsidiary Guarantors (as defined in the Guaranty) under the Guaranty by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the “ New Subsidiary ”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Guarantor under the Guaranty in order to induce the Lenders to maintain and/or make additional Loans, and as consideration for Loans previously made.
Accordingly, the New Subsidiary agrees as follows:
SECTION 1. In accordance with Section 11 of the Guaranty, the New Subsidiary by its signature below becomes a Subsidiary Guarantor under the Guaranty with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary hereby agrees to all the terms and provisions of the Guaranty applicable to it as a Subsidiary Guarantor thereunder. In furtherance of the foregoing, the New Subsidiary does hereby guarantee to the Agent the due and punctual payment of the Guaranteed Obligations (as defined in the Guaranty) as set forth in the Guaranty. Each reference to a “Subsidiary Guarantor” or a “Guarantor” in the Guaranty and in this Supplement shall be deemed to include the New Subsidiary. The Guaranty is hereby incorporated herein by reference.
SECTION 2. The New Subsidiary represents and warrants to the Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors’ rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) implied covenants of good faith and fair dealing.
SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute but one contract. This Supplement shall become effective when the Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary. Delivery of an executed counterpart to this Supplement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed original.
SECTION 4. Except as expressly supplemented hereby, the Guaranty shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In the event any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guaranty shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 5(d) of the Guaranty.
SECTION 8. The New Subsidiary agrees to reimburse the Agent for its reasonable and documented out-of-pocket expenses in connection with this Supplement, including the reasonable and documented fees, disbursements and other charges of counsel to the Agent.
[ remainder of page intentionally left blank; signature page follows ]
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IN WITNESS WHEREOF, the New Subsidiary has duly executed this Supplement to the Guaranty as of the day and year first above written.
[Name of New Subsidiary] |
By: |
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Name: | ||
Title: |
[Signature Page to Supplement to Subsidiary Guarantee]
Exhibit 10.7
FORM OF AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
by and among
APOLLO GAMING HOLDINGS, L.P.,
AP GAMING VOTECO, LLC,
PLAYAGS, INC. (f/k/a AP GAMING HOLDCO, INC.)
and the other HOLDERS that are parties hereto
DATED AS OF [ ● ]
TABLE OF CONTENTS
Page | ||||||
Section 1. |
Definitions |
1 | ||||
Section 2. |
Transfers; Additional Parties |
9 | ||||
Section 3. |
Demand Registration Rights |
12 | ||||
Section 4. |
Piggyback Registration Rights |
13 | ||||
Section 5. |
Repurchase Rights |
19 | ||||
Section 6. |
Restrictive Covenants |
21 | ||||
Section 7. |
Notices |
23 | ||||
Section 8. |
Miscellaneous Provisions |
24 |
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This AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT dated as of [●] (this “ Agreement ”), by and among APOLLO GAMING HOLDINGS, L.P. , a Delaware limited partnership (the “ Apollo Holder ”), AP GAMING VOTECO, LLC , a Delaware limited liability company (“ VoteCo ”), and each other HOLDER that is a party hereto or who may become party to this Agreement from time to time in accordance with the provisions herein, and PLAYAGS, INC. , a Nevada corporation, and formerly known as AP Gaming Holdco, Inc. (the “ Company ”), amends and restates in its entirety the Securityholders Agreement, dated as of April 28, 2014 (the “ Original Agreement ”), by and among the Apollo Holder, VoteCo, the Company and the other Holders thereto.
WHEREAS , contemporaneously with the execution of this Agreement, the Company intends to consummate an initial public offering of shares of the Company’s common stock, par value $0.01 per share (the “ Common Stock ”), pursuant to the Registration Statement on Form S-1 filed by the Company (the “ IPO ”); and
WHEREAS , the parties hereto desire to amend and restate the Original Agreement to set forth certain respective rights and obligations on and after the consummation of the IPO.
NOW, THEREFORE , in consideration of the premises and of the mutual consents and obligations hereinafter set forth, the parties hereto hereby agree as follows:
Section 1. Definitions .
As used in this Agreement:
“ Adoption Agreement ” has the meaning given to such term in Section 2(a)(iii) .
“ Affiliate ” means:
(a) In the case of a Person (other than an individual), another Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person. For the avoidance of doubt, any co-investment vehicle controlled by any member of the Apollo Group shall be deemed to be an Affiliate of the Apollo Group hereunder.
(b) In the case of an individual, (i) any member of the Immediate Family of such individual, including parents, siblings, spouse and children (including those by adoption) and any other Person who lives in such individual’s household; the parents, siblings, spouse, or children (including those by adoption) of such Immediate Family member, and in any such case any trust whose primary beneficiary is such individual or one or more members of such Immediate Family and/or such individual’s lineal descendants; (ii) the legal representative or guardian of such individual or of any such Immediate Family member in the event such individual or any such Immediate Family member becomes mentally incompetent; and (iii) any Person controlling, controlled by or under common control with such individual.
As used in this definition, the term “ control ,” including the correlative terms “controlling,” “controlled by” and “under common control with,” means possession, directly or
indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or any partnership or other ownership interest, by contract or otherwise) of a Person. The term “ Affiliate ” shall not include at any time any portfolio companies of Apollo Management VIII, L.P. or its Affiliates, other than the Apollo Holder, the Company and their respective Subsidiaries.
“ Affiliated Entities ” has the meaning given to such term in Section 6(a)(i) .
“ Agreement ” has the meaning given to such term in the preamble.
“ Apollo Group ” means (a) the Apollo Holder, (b) Apollo Investment Fund VIII, L.P., (c) each of their respective Affiliates (including, for avoidance of doubt, any syndication vehicles) to which any transfers of Common Stock are made and (d) VoteCo, to the extent that it has beneficial ownership of shares of Common Stock pursuant to that certain Irrevocable Proxy and Power of Attorney of the Company, dated as of the date hereof.
“ Apollo Holder ” has the meaning given to such term in the preamble.
“ Asset Sale ” means any sale of assets of the Company, including the sale of all or substantially all of the assets of the Company and its subsidiaries, on a consolidated basis, to a Person or Group that is not included in the Apollo Group.
“ Bankruptcy Event ” means with respect to any Management Holder (i) such Management Holder shall voluntarily be adjudicated as bankrupt or insolvent; (ii) such Management Holder shall consent to or not contest the appointment of a receiver or trustee for himself, herself or itself or for all or any part of his, her or its property; (iii) such Management Holder shall voluntarily file a petition seeking relief under the bankruptcy, rearrangement, reorganization or other debtor relief laws of the United States or any state or any other competent jurisdiction (including foreign jurisdictions); (iv) such Management Holder shall make a general assignment for the benefit of his, her or its creditors; (v) a judgment shall have been made against such Management Holder in response to relief under the bankruptcy, rearrangement, reorganization or other debtor relief laws of the United States or any state or other competent jurisdiction (including foreign jurisdictions); or (vi) a court of competent jurisdiction shall have entered a petition, order, judgment or decree appointing a receiver or trustee for such Management Holder, or for any part of his, her or its property, and such petition, order, judgment or decree shall not be and remain discharged or stayed within a period of sixty (60) days after its entry.
“ Board ” means the Board of Directors of the Company and any duly authorized committee thereof. All determinations by the Board required pursuant to the terms of this Agreement to be made by the Board shall be binding and conclusive, so long as they are made in good faith.
“ Call Right ” has the meaning given to such term in Section 5(a)(iv) .
“ Cause ” means, unless otherwise defined in a Management Holder’s Award Agreement, (i) any definition of “Cause” in an employment, severance or similar agreement between the Company or any of its subsidiaries and the applicable Management Holder or (ii) if
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no such agreement is in effect or if any such agreement in effect does not define “Cause,” a termination based upon any one of the following, as determined in good faith by the Board: (1) failure to correct underperformance after written notification from the Board; (2) illegal or fraudulent conduct; (3) conviction of or plea of “guilty” or “no contest” to any crime constituting a felony or other crime involving dishonesty, breach of trust, moral turpitude or physical harm to any person; (4) a determination by the Board that the Management Holder’s involvement with the Company or any of its Subsidiaries would have a negative impact on the ability of the Company or any of its Subsidiaries to receive or retain any licenses, including any Gaming Licenses (as defined in the Company’s articles of incorporation); (5) willful or material misrepresentation to the Company or any of its subsidiaries or to members of the Board relating to the business, assets or operations of the Company or any of its subsidiaries; (6) refusal to take any action as reasonably directed by the Board or any individual acting on behalf of or at the direction of the Board; or (7) material breach of any agreement with the Company or any of its Subsidiaries, which material breach has not been cured within ten days’ written notice from the Board.
“ Common Stock ” has the meaning given to such term in the recitals and shall include, when the context so requires, any Class B Shares (as defined in the Original Agreement) that were converted into shares of Common Stock upon the conversion of the Company from a Delaware corporation to a Nevada corporation (the “ Conversion ”).
“ Company ” has the meaning ascribed to such term in the preamble.
“ Confidential Information ” means information that is not generally known to the public (except for information known to the public because of the Management Holder’s violation of Section 6(c) of this Agreement or in breach of any other obligation owed by the Management Holder to the Company) and that is used, developed or obtained by the Company in connection with its business, including, but not limited to, information, observations and data obtained by the Management Holder while employed by the Company or any predecessors thereof (including those obtained prior to the date of this Agreement) concerning (i) the business or affairs of the Company (or such predecessors), (ii) products or services, (iii) fees, costs and pricing structures, (iv) designs, (v) analyses, (vi) drawings, photographs and reports, (vii) computer software, including operating systems, applications and program listings, (viii) flow charts, manuals and documentation, (ix) databases, (x) accounting and business methods, (xi) inventions, devices, new developments, methods and processes, whether patentable or unpatentable and whether or not reduced to practice, (xii) customers and clients and customer or client lists, (xiii) other copyrightable works, (xiv) all production methods, processes, technology and trade secrets, and (xv) all similar and related information in whatever form. Confidential Information will not include any information that has been published in a form generally available to the public prior to the date the Management Holder proposes to disclose or use such information. Confidential Information will not be deemed to have been published or otherwise disclosed merely because individual portions of the information have been separately published, but only if all material features comprising such information have been published in combination. For purposes of this definition, the “Company” shall mean the Company collectively with its Affiliates.
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“ Conversion ” has the meaning ascribed to such term in the definition of Common Stock.
“ Demand Notice ” has the meaning ascribed thereto in Section 3(a) .
“ Demand Period ” has the meaning ascribed thereto in Section 3(b) .
“ Disability ” means, with respect to each Management Holder, unless otherwise defined in such Management Holder’s Award Agreement under the Company’s 2014 Long-Term Incentive Plan, that the Management Holder (a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident, disability or health plan covering employees of the Company.
“ Disposition ” means any direct or indirect transfer, assignment, sale, gift, pledge, hypothecation or other encumbrance, or any other disposition, of Common Stock (or any interest therein or right thereto), or any other transfer of beneficial ownership of Common Stock whether voluntary or involuntary.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“ Fair Market Value ” means, with respect to each share of Common Stock or other capital stock with economic value held by any Management Holder:
(a) With respect to any series or class of capital stock with economic value, the per share fair market value as determined by the Board in such manner as it deems appropriate.
(b) Notwithstanding anything to the contrary contained in clause (a) above, if any securities of the Company are publicly traded or quoted at the time of determination, then the per share fair market value of such securities shall be the most recent closing trading price, during regular trading hours, of such securities on the business day immediately prior to the date of determination as determined by the Board.
(c) Neither the Company nor any officer, director, employee or agent of the Company shall have any liability with respect to the valuation of such securities that are bought or sold at Fair Market Value determined in accordance with clause (a) as a result of the Fair Market Value, as so determined, being more or less than actual fair market value. Each of the Company and its officers, directors, employees and agents shall be fully protected in relying in good faith upon the records of the Company and upon information, opinions, reports or statements presented to the Company by any Person as to matters which the
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Company or such officer, director, employee or agent reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company in determining such Fair Market Value.
(d) In the case of a Call Right provided pursuant to this agreement, Fair Market Value will be determined as of the date of exercise of the Call Right, as applicable, except (i) where provided otherwise in this Agreement or (ii) if necessary to avoid liability accounting, Fair Market Value will be determined as of the date of the repurchase made pursuant to exercise of the Call Right.
“ Gaming Authority ” means any commission, panel, board or similar body or organization of any Governmental Entity, including any Indian Tribe, with authority to regulate gambling or other games of chance or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations in a jurisdiction, including a tribal jurisdiction.
“ Gaming Laws ” means all Laws, including any rules, regulations, judgments, injunctions, orders, decrees or other restrictions of any Gaming Authority, applicable to the gaming industry, or any person engaged therein, or Indian Tribes or the manufacture, sale, lease, distribution or operation of gaming devices or equipment, the design, operation or distribution of internet gaming services or products, online gaming products and services, the ownership or operation of current or contemplated casinos or any other gaming activities and operations.
“ Good Reason ” means with respect to the voluntary resignation of any Management Holder: (i) if the Management Holder is at the time of resignation a party to an Award Agreement pursuant to the Company’s 2014 Long-Term Incentive Plan which defines such term, the meaning given in the Award Agreement; and (ii) otherwise, if the Management Holder is at the time of resignation a party to an employment, consulting or similar agreement with the Company or any of its Subsidiaries which defines such term, the meaning given in such agreement.
“ Governmental Entity ” means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, county, provincial, local or foreign, including any governing authority of any Indian Tribe, or any agency, department, commission, board, bureau, instrumentality or authority thereof, or any court, arbitrator or mediator (public or private).
“ Group ” shall have the meaning ascribed thereto in Section 13(d)(3) of the Exchange Act.
“ Holders ” mean the holders of securities of the Company who are parties to this Agreement, including the Apollo Holder.
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“ Immediate Family ” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and shall include adoptive relationships of such Person.
“ Indian Tribe ” means any United States Native American Indian tribe, band, nation or other organized group or community recognized by the Secretary of the Interior of the United States of America as being eligible for special status as Indians and recognized as possessing powers of self-government.
“ Initial Notice ” has the meaning ascribed to such term in Section 4(a) .
“ IPO ” has the meaning ascribed to such term in the recitals.
“ IRA ” has the meaning ascribed to such term in Section 2(b)(iii) .
“ Law ” means any law, rule, regulation, judgment, injunction, order, decree or other restriction of any Governmental Entity.
“ Majority Disposition ” means a Disposition that would have the effect of transferring to a Person or Group that is not a member of the Apollo Group or a portfolio company of any members of the Apollo Group, a majority of the outstanding shares of Common Stock.
“ Management Holder ” means Holders who are employed by, or serve as consultants to or directors of, the Company or any of its Subsidiaries.
“ Options ” means the options issued to certain Holders pursuant to the Company’s 2014 Long-Term Incentive Plan, as it is amended, supplemented, restated or otherwise modified from time to time, or any other options to purchase Common Stock issued by the Company.
“ Original Agreement ” has the meaning ascribed to such term in the preamble.
“ Original Cost ” with respect to Common Stock, means the original price paid by the Holder for such share of Common Stock, subject to appropriate adjustment for stock splits, stock dividends or other distributions, combinations and similar transactions. For the avoidance of doubt, the Original Cost of a share of Common Stock issued upon the exercise of an Option is the exercise price of such Option.
“ PDF ” has the meaning ascribed to such term in Section 8(j) .
“ Permitted Transferee ” means, with respect to any Holder, any Affiliate of such Holder.
“ Person ” shall be construed broadly and shall include, without limitation, an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
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“ Piggyback Registration Rights ” has the meaning ascribed to such term in Section 4(a) .
“ Prospectus ” means the prospectus included in any Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the shares of Common Stock covered by a Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments and freewriting prospectuses and in each case including all material incorporated by reference therein.
“ Public Offering ” has the meaning ascribed to such term in Section 4(c) .
“ Qualified Public Offering ” means an underwritten public offering of shares of Common Stock by the Company or any selling securityholders pursuant to an effective Registration Statement filed by the Company with the Securities and Exchange Commission (other than (i) a registration relating solely to an employee benefit plan or employee stock plan, a dividend reinvestment plan, or a merger or a consolidation, (ii) a registration incidental to an issuance of securities under Rule 144A, (iii) a registration on Form S-4 or any successor form, or (iv) a registration on Form S-8 or any successor form) under the Securities Act, pursuant to which the aggregate offering price of the shares of Common Stock (by the Company and/or other selling securityholders) sold in such offering (together with the aggregate offering prices from any prior such offerings) is at least $100,000,000.
“ Registrable Securities ” shall mean shares of Common Stock (including any shares of Common Stock issuable or issued upon exercise, exchange or conversion of any securities exercisable, exchangeable or convertible into shares of Common Stock) held by the Apollo Group or Management Holders; provided , that any Registrable Securities shall cease to be Registrable Securities when (a) a Registration Statement with respect to the sale of such Registrable Securities has been declared effective under the Securities Act and such Registrable Securities have been disposed of in accordance with the plan of distribution set forth in such Registration Statement, (b) such Registrable Securities are distributed pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or (c) such Registrable Securities shall have been otherwise transferred and new certificates for them not bearing a legend restricting further transfer under the Securities Act shall have been delivered by the Company; provided , further , that any securities that have ceased to be Registrable Securities shall not thereafter become Registrable Securities and any security that is issued or distributed in respect of securities that have ceased to be Registrable Securities is not a Registrable Security.
“ Registration Request ” has the meaning ascribed to such term in Section 3(c) .
“ Registration Statement ” means a registration statement filed by the Company with the SEC.
“ Repurchase Right ” has the meaning ascribed to such term in Section 5(a)(iv) .
“ Restricted Period ” has the meaning ascribed to such term in Section 6(a)(i) .
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“ SEC ” means the U.S. Securities and Exchange Commission.
“ Securities ” means, with respect to any Person, such Person’s “securities” as defined in Section 2(1) of the Securities Act and includes such Person’s capital stock or other equity interests or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, such Person’s capital stock or other equity or equity-linked interests, including phantom stock and stock appreciation rights.
“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“ Subject Employee ” has the meaning ascribed to such term in Section 2(b)(iii) .
“ Subsidiary ” means, with respect to any Person, any corporation of which a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof, or any partnership, association, limited liability company or other business entity of which a majority of the partnership or other similar ownership interest is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of such Person or a combination thereof. For purposes of this definition, a Person is deemed to have a majority ownership interest in a partnership, association, limited liability company or other business entity if such Person is allocated a majority of the gains or losses of such partnership, association, limited liability company or other business entity or is or controls the managing director, managing member, manager or general partner of such partnership, association, limited liability company or other business entity.
“ Transferee ” has the meaning ascribed to such term in the preamble of the form of Adoption Agreement attached hereto as Exhibit A .
“ Underwritten Offering ” means a sale of shares of Common Stock to an underwriter for reoffering to the public.
“ VoteCo ” has the meaning ascribed to such term in the preamble.
“ Work Product ” means all inventions, innovations, improvements, technical information, systems, software developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information (whether patentable or unpatentable) that relates to the Company’s or any of its Affiliates’ actual or anticipated business, research and development or existing or future products or services and that are conceived, developed or made by the Management Holder (whether or not during usual business hours and whether or not alone or in conjunction with any other person) while employed by the Company or any of its Affiliates (including those conceived, developed or made prior to the date of this Agreement) together with all patent applications, letters patent, trademark, trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing.
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Section 2. Transfers; Additional Parties .
(a) Restrictions; Permitted Dispositions . Without the prior written consent of a majority of the Board then in office, no Holder shall (i) directly or indirectly, grant any proxies or enter into any voting trust or other agreement or arrangement or (ii) make any Disposition, directly or indirectly, through an Affiliate or otherwise except as expressly permitted by this Section 2 . The preceding sentence shall apply with respect to all shares of Common Stock held at any time by a Holder (including without limitation, all Options and all shares of Common Stock that may be acquired upon the exercise of any Option or upon a distribution pursuant to any deferred compensation plan), regardless of the manner in which such Holder initially acquired such shares of Common Stock or Options other than:
(i) Dispositions by a Holder that is an individual to: (A) a guardian of the estate of such Holder; (B) an inter-vivos trust primarily for the benefit of such Holder; (C) an inter-vivos trust whose primary beneficiary is one or more of such Holder’s lineal descendants (including lineal descendants by adoption); or (D) the spouse of such Holder during marriage and not incident to divorce;
(ii) Dispositions by a Holder that is an individual to (x) a Person who is a member of such Holders’ Immediate Family; provided , that such Person remains an Immediate Family member of such Holder or to (y) a trust established for the exclusive benefit of such Holder’s Immediate Family; and
(iii) any Disposition permitted pursuant to Section 3 or Section 4 .
provided , that in the case of each subclause of this Section 2(a) , that such Disposition complies with the applicable securities rules and regulations and Gaming Laws in effect at the time of the Disposition and provided that each proposed Transferee executes an adoption agreement in substantially the form of Exhibit A or in such other form that is reasonably satisfactory to the Company (an “ Adoption Agreement ”). Furthermore, each such permitted Transferee of any Holder to which shares of Common Stock are transferred shall, and such Holder shall cause such permitted Transferee to, transfer back to such Holder (or to another permitted Transferee of such Holder) any shares of Common Stock it owns if such permitted Transferee ceases to be a permitted Transferee of such Holder.
(b) Additional Parties .
(i) As a condition to the Company’s issuance of shares of Common Stock in any transaction other than a Public Offering, or the Company’s obligation to effect a transfer of shares of Common Stock permitted by this Agreement on the books and records of the Company (other than an issuance or a transfer to the Apollo Group or of any of the Apollo Group’s Affiliates, the Company or any Subsidiary of the Company), the Transferee shall (and the recipient, if requested to by the Company, shall) be required to become a party to this Agreement by executing (together with such Person’s spouse, if applicable) an Adoption Agreement.
(ii) In the event that any Person acquires shares of Common Stock in a negotiated private transaction permitted by this Agreement prior to a Public Offering from (i) a Holder (other than the Apollo Holder) or any Affiliate or member of such Holder’s Group or
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(ii) any direct or indirect Transferee of such Holder or such Holder’s Group, such Person shall be subject to any and all obligations and restrictions of such Holder hereunder, as if such Person were such Holder named herein (except as otherwise provided in the Adoption Agreement executed by such Person and accepted by the Company). Additionally, if the restrictions specified in Section 2(c) are in effect, whenever a Management Holder makes a transfer of shares of Common Stock in a negotiated private transaction permitted by this Agreement, such shares of Common Stock shall contain a legend so as to inform any Transferee that such shares of Common Stock were held originally by a Management Holder and are subject to repurchase pursuant to Section 5 below based on the employment of or events relating to such Management Holder. Such legend shall not be placed on any shares of Common Stock acquired from a Management Holder by the Company, the Apollo Group or any of its Affiliates.
(iii) If any shares of Common Stock are acquired by an individual retirement account (“ IRA ”) on behalf of an employee of the Company or any of its Subsidiaries (the “ Subject Employee ”), such IRA shall be deemed to be a Management Holder. Additionally, such Subject Employee shall be deemed to be a Management Holder and his or her IRA shall be deemed to have acquired all shares of Common Stock it holds from such Subject Employee pursuant to a transfer that is subject to Section 2(b)(ii) above.
(iv) Any Holder that proposes to transfer shares of Common Stock in accordance with the terms and conditions hereof shall be responsible for any reasonable expenses incurred by the Company in connection with such transfer, and all expenses incurred by such Holder in connection with obtaining any approvals required under applicable Gaming Laws.
(c) Securities Restrictions; Legends .
(i) No shares of Common Stock shall be transferable except upon the conditions specified in this Section 2(c) , which conditions are intended to insure compliance with the provisions of the Securities Act.
(ii) Each certificate representing shares of Common Stock shall (unless otherwise permitted by the provisions of clause (iv) below) be stamped or otherwise imprinted with a legend in substantially the following form:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO A SECURITYHOLDERS AGREEMENT AMONG THE ISSUER OF SUCH SECURITIES (THE “COMPANY”), AND THE OTHER PARTIES NAMED THEREIN. THE TERMS OF SUCH SECURITYHOLDERS AGREEMENT INCLUDE, AMONG OTHER THINGS, RESTRICTIONS ON TRANSFER. A COPY OF SUCH AGREEMENT WILL BE FURNISHED
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WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
NO SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF SECURITIES OF THE COMPANY SHALL BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS OF SUCH SECURITYHOLDERS AGREEMENT HAVE BEEN COMPLIED WITH IN FULL AND UNLESS AND UNTIL THE APPROVALS OF ALL GAMING AUTHORITIES REQUIRING SUCH PRIOR CONSENTS HAVE BEEN OBTAINED.
IF PRIOR APPROVAL IS REQUIRED BY ONE OR MORE GAMING AUTHORITIES, INCLUDING BUT NOT LIMITED TO THE NEVADA GAMING COMMISSION (TOGETHER, THE “ COMMISSIONS ”), THE SALE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF THIS SECURITY IS INEFFECTIVE UNLESS APPROVED IN ADVANCE BY EACH SUCH COMMISSION. IF AT ANY TIME A COMMISSION FINDS THAT AN OWNER OF THIS SECURITY IS UNSUITABLE TO CONTINUE TO HOLD AN INTEREST IN THIS CORPORATION OR TO HAVE INVOLVEMENT IN GAMING IN THE STATE OF SUCH COMMISSION, SUCH OWNER MUST DISPOSE OF SUCH SECURITY AS PROVIDED BY THE GAMING LAWS OF THE RELEVANT STATE AND THE REGULATIONS PROMULGATED THEREUNDER. SUCH GAMING LAWS AND REGULATIONS RESTRICT THE RIGHT UNDER CERTAIN CIRCUMSTANCES OF THE OWNER (A) TO RECEIVE ANY DIVIDEND OR INTEREST OR ANY PAYMENT OR DISTRIBUTION OF ANY KIND UPON SUCH SECURITY; (B) TO EXERCISE DIRECTLY OR THROUGH ANY PROXY, TRUSTEE OR NOMINEE ANY VOTING RIGHT CONFERRED BY SUCH SECURITY; OR (C) TO RECEIVE ANY REMUNERATION IN ANY FORM FROM THE CORPORATION OR ANY OTHER COMPANY HOLDING A GAMING LICENSE FOR SERVICES RENDERED OR OTHERWISE.”
(iii) Any Holder of Common Stock, by acceptance thereof, agrees, prior to any voluntary Disposition, to give written notice to the Company of such Holder’s intention to affect such Disposition and to comply in all other respects with the provisions of this Section 2(c) . Each such notice shall describe the manner and circumstances of the proposed Disposition. Upon request by the Company, the Holder delivering such notice shall deliver a written opinion, addressed to the Company, of counsel for such Holder, stating that in the opinion of such counsel (which opinion and counsel shall be reasonably satisfactory to the Company) such proposed Disposition does not involve a transaction requiring registration or qualification of such shares under the Securities Act. Such Holder shall be entitled to Dispose of such shares in accordance with the terms of the notice delivered to the Company, if the Company does not reasonably object to such transfer and request such opinion within ten (10) days after delivery of such notice, or, if it requests such opinion, does not reasonably object to such transfer within ten (10) days after delivery of such opinion. Subject to clause (iv) below, each certificate or other instrument evidencing any such Disposed Common Stock shall bear the legend set forth
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in clause (ii) above unless (1) the opinion of counsel referred to above states that such legend is not required or (2) the Company shall have waived the requirement of such legend.
(iv) Notwithstanding the foregoing provisions of this Section 2(c) , the restrictions imposed by this Section 2(c) (other than those imposed by Gaming Laws) shall cease and terminate when (i) any such shares of Common Stock are sold or otherwise disposed of pursuant to an effective Registration Statement, or (ii) after a Qualified Public Offering, the Holder has met the requirements for transfer of such shares pursuant to Rule 144 under the Securities Act. Whenever the restrictions imposed by this Section 2(c) shall terminate, the Holder shall be entitled to receive from the Company, without expense, a new certificate not bearing the restrictive legend set forth in clause (ii) above and not containing any other reference to the restrictions imposed by this Section 2(c) .
(d) Gaming Laws Restrictions on Transfer . No Disposition of any security under this Section 2 or any other Section of this Agreement may be made, and no shares of Common Stock may be issued, except in compliance with all applicable Gaming Laws and following receipt of all approvals required thereunder.
(e) Improper Dispositions . Any Disposition or attempted Disposition in breach of this Agreement shall be void ab initio and of no effect. In connection with any attempted Disposition in breach of this Agreement, the Company may hold and refuse to transfer any shares of Common Stock or any certificate therefor, in addition to and without prejudice to any and all other rights or remedies which may be available to it or the Holders, and the Person(s) engaging in such Disposition or attempted Disposition shall indemnify and hold harmless the Company and each of the Holders from all losses, claims, damages, liabilities and expenses that such indemnified person may incur (including legal fees and expenses) in enforcing the provisions of this Agreement.
Section 3. Demand Registration Rights .
(a) Subject to the provisions of this Section 3 , at any time and from time to time after the date hereof, the Apollo Group may make one or more written requests (“ Registration Request ”) to the Company for registration under and in accordance with the provisions of the Securities Act of all or part of their Registrable Securities.
(b) All Registration Requests made pursuant to this Section 3 will specify the aggregate amount of Registrable Securities to be registered and will also specify the intended methods of disposition thereof (a “ Demand Notice ”). Subject to Section 3(d) , promptly upon receipt of any such Demand Notice, the Company will use its reasonable best efforts to effect such registration under the Securities Act (including, without limitation, filing post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with the applicable regulations promulgated under the Securities Act) of the Registrable Securities which the Company has been so requested to register within one hundred eighty (180) days of such request (or within one hundred twenty (120) days of such request in the case of a Registration Request after a Qualified Public Offering (subject to any lock-up restrictions)). At any time prior to the registration, the Apollo Group may revoke such request by providing a notice to the Company revoking such request.
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(c) If the Company receives a Registration Request and the Company furnishes to the Apollo Group a copy of a resolution of the Board certified by the secretary of the Company stating that in the good faith judgment of the Board it would be materially adverse to the Company for a Registration Statement to be filed on or before the date such filing would otherwise be required hereunder, the Company shall have the right to defer such filing for a period of not more than fifty (50) days after the date such filing would otherwise be required hereunder. The Company shall not be permitted to take such action more than once in any 360-day period. If the Company shall so postpone the filing of a Registration Statement, the Apollo Group may withdraw its Registration Request by so advising the Company in writing within thirty (30) days after receipt of the notice of postponement. In addition, if the Company receives a Registration Request and the Company is then in the process of preparing to engage in a Public Offering, the Company shall inform the Apollo Group of the Company’s intent to engage in a Public Offering and may require the Apollo Group to withdraw such Registration Request for a period of up to one hundred twenty (120) days so that the Company may complete its Public Offering. In the event that the Company ceases to pursue such Public Offering, it shall promptly inform the Apollo Group and the Apollo Group shall be permitted to submit a new Registration Request. For the avoidance of doubt, such requesting party shall have the right to participate in the Company’s Public Offering as provided in Section 4 .
(d) Registrations under this Section 3 shall be on such appropriate registration form of the Securities and Exchange Commission (i) as shall be selected by the Company and as shall be reasonably acceptable to the Apollo Group and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in the Demand Notice. If, in connection with any registration under this Section 3 which is proposed by the Company to be on Form S-3 or any successor form, the managing underwriter, if any, shall advise the Company in writing that in its opinion the use of another permitted form is of material importance to the success of the offering, then such registration shall be on such other permitted form.
(e) The Company shall use its best efforts to keep any Registration Statement filed in response to a Registration Request effective for as long as is necessary for the Apollo Group to dispose of all of the covered securities.
(f) In the case of an Underwritten Offering, the Apollo Group shall select the underwriters, provided such selection is reasonably acceptable to the Company.
Section 4. Piggyback Registration Rights .
(a) Participation . Subject to Section 4(b) , if at any time after the consummation of a Qualified Public Offering (or prior to the consummation of a Qualified Public Offering with the Company’s consent), the Company proposes to file a Registration Statement, whether on its own behalf or in connection with the exercise of any demand registration rights by the Apollo Group or any other Holder possessing such rights (other than (i) a registration relating solely to an employee benefit plan or employee stock plan, a dividend reinvestment plan, or a merger or a consolidation, (ii) a registration incidental to an issuance of debt securities under Rule 144A, (iii) a registration on Form S-4 or any successor form, or (iv) a registration on Form S-8 or any successor form), with respect to an offering (for its own account
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or otherwise, and including any registration pursuant to Section 3 other than the initial Qualified Public Offering) that includes any Registrable Securities, then the Company shall give prompt notice (the “ Initial Notice ”) to the Apollo Group and the Management Holders, and such Holders shall be entitled to include in such Registration Statement the Registrable Securities held by them. The Initial Notice shall offer the Apollo Group and the Management Holders, respectively, the right, subject to Section 4(b) (the “ Piggyback Registration Right ”), to register such number of shares of Registrable Securities as each such holder may request and shall set forth (X) the anticipated filing date of such Registration Statement and (Y) the number of Registrable Securities that is proposed to be included in such Registration Statement. Subject to Section 4(b) , the Company shall include in such Registration Statement such shares of Registrable Securities for which it has received written requests to register such shares within ten (10) days after the Initial Notice has been given.
(b) Underwriters ’ Cutback . Notwithstanding the foregoing, if a registration pursuant to this Section 4 involves an Underwritten Offering and the managing underwriter or underwriters of such proposed Underwritten Offering advise the Company that the total or kind of securities which such Holders and any other persons or entities intend to include in such offering would be reasonably likely to adversely affect the price, timing or distribution of the securities offered in such offering, then the number of securities proposed to be included in such registration shall be allocated among the Company and all of the selling Apollo Group and Management Holders, such that the number of securities that each such Person shall be entitled to sell in the Underwritten Offering shall be included in the following order:
(i) In the event of an exercise of any demand registration rights by the Apollo Group or any other Holder or Holders possessing such rights:
(1) first , the securities held by the Person(s) exercising such demand registration rights pursuant to Section 3 or pursuant to any other agreement containing demand registration rights, pro rata based upon the number of Registrable Securities requested to be registered by each such Person in connection with such registration;
(2) second , the securities held by the Apollo Group and the Management Holders requested to be included in such registration pursuant to the terms of this Section 4 , pro rata based upon the number of Registrable Securities requested to be registered by each such Person in connection with such registration;
(3) third , the securities to be issued and sold by the Company in such registration; and
(4) fourth , the securities held by any other Persons requested to be included in such registration pursuant to the terms of this Section 4 or pursuant to any other agreement containing piggyback registration rights, pro rata based upon the number of Registrable Securities requested to be registered by each such Person in connection with such registration.
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(ii) In all other cases:
(1) first , the securities to be issued and sold by the Company in such registration;
(2) second , the securities held by the Apollo Holder and the Management Holders requested to be included in such registration pursuant to the terms of this Section 4 or pursuant to any other agreement containing piggyback registration rights, pro rata based upon the number of Registrable Securities requested to be registered by each such Person in connection with such registration; and
(3) third , the securities held by all other Persons requesting their securities be included in such registration pursuant to the terms of this Section 4 or pursuant to any other agreement containing piggyback registration rights, pro rata based upon the number of Registrable Securities requested to be registered by each such Person in connection with such registration.
In the event that the managing underwriter or underwriters of such proposed Underwritten Offering determine that participation in such Underwritten Offering by a particular Holder or group of Holders would be likely to adversely affect such Underwritten Offering, such Holder or Holders shall not participate in such Underwritten Offering.
(c) Lock-ups .
(i) If the Company shall register Registrable Securities under the Securities Act for sale to the public (a “ Public Offering ”), no Holder shall sell publicly, make any short sale of, grant any option for the purchase of, or otherwise dispose publicly of, any shares of Common Stock without the prior written consent of VoteCo and the Company, for the period of time in which the Apollo Group has similarly agreed not to sell publicly, make any short sale of, grant any option for the purchase of, or otherwise dispose publicly of, shares of Common Stock. In addition, if requested by the managing underwriter(s), in connection with the initial Public Offering, all Holders shall enter into a customary lock-up agreement with the managing underwriter(s). In connection with an underwritten Public Offering following a Qualified Public Offering, no Holder shall sell publicly, make any short sale of, grant any option for the purchase of, or otherwise dispose publicly of, any shares of Common Stock, for such period as shall be required by the managing underwriter of such Public Offering.
(ii) In connection with the initial Public Offering, the Management Holders shall agree with the Company to lock-up their shares of Common Stock for a period of one year from and after the completion of such initial Public Offering, subject to customary exceptions in the Company’s discretion.
(d) Company Control . The Company may decline to file a Registration Statement after giving the Initial Notice, or withdraw any such Registration Statement after filing but prior to the effectiveness of such Registration Statement, provided that the Company shall promptly notify each Holder who was to participate in such offering in writing of any such action and provided further that the Company shall bear all reasonable expenses incurred by such Holder or otherwise in connection with such unfilled or withdrawn Registration Statement and no Holder shall be deemed to have made a Registration Request with respect to the unfilled or
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withdrawn Registration Statement. Except as provided in Section 3(f) , the Company shall have sole discretion to select any and all underwriters that may participate in any Underwritten Offering.
(e) Participation in Underwritten Offerings . No Person may participate in any Underwritten Offering hereunder unless such Person agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by VoteCo and the Company and provides the questionnaires, powers of attorney, customary indemnities, underwriting agreements, lock-ups (subject to Section 4(c) above) and other documents required for such underwriting arrangements. Nothing in this Section 4(e) shall be construed to create any additional rights regarding the piggyback registration of Registrable Securities in any Person otherwise than as set forth herein.
(f) Expenses . The Company will pay all registration fees and other expenses in connection with each registration of Registrable Securities requested pursuant to this Section 4 ; provided , that each Holder shall pay all applicable underwriting fees, discounts and similar charges ( pro rata based on the securities sold) and that all Holders as a group shall be entitled to a single counsel (at the Company’s expense) to be selected by the Apollo Group.
(g) Indemnification .
(i) Indemnification by the Company . The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each selling Holder, its officers, directors, employees and representatives and each Person who controls (within the meaning of the Securities Act) such selling Holder, and in the case of the Apollo Holder, its officers, managers, employees, representatives, Affiliates, the Apollo Group and any portfolio companies of any members of the Apollo Group, and in the case of VoteCo, its officers, managers, employees, and representatives, against any losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any Registration Statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may be caused by or contained in any information furnished in writing to the Company by such selling Holder for use therein; provided , however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such preliminary prospectus if (A) such selling Holder failed to deliver or cause to be delivered a copy of the prospectus to the Person asserting such loss, claim, damage, liability or expense after the Company has furnished such selling Holder with a sufficient number of copies of the same and (B) the prospectus completely corrected in a timely manner such untrue statement or omission; and provided , further , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in the prospectus, if such untrue statement or alleged untrue statement, omission or alleged omission is completely corrected in an amendment or supplement to the prospectus and the selling Holder thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of the securities to the Person asserting such loss, claim, damage, liability or expense after the Company had
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furnished such selling Holder with a sufficient number of copies of the same. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the selling Holder, if requested.
(ii) Indemnification by Selling Holders . Each selling Holder agrees to indemnify and hold harmless, to the full extent permitted by law, the Company, its directors, officers, employees and representatives and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages or liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any Registration Statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any statement or affidavit furnished in writing by such selling Holder to the Company expressly for inclusion in such Registration Statement, prospectus or preliminary prospectus and has not been corrected in a subsequent writing prior to or concurrently with the sale of the securities to the Person asserting such loss, claim, damage, liability or expense. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the proceeds received by such selling Holder upon the sale of the securities giving rise to such indemnification obligation. The Company and the selling Holders shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any prospectus or Registration Statement.
(iii) Conduct of Indemnification Proceedings . Any Person entitled to indemnification hereunder will (i) give prompt (but in any event within thirty (30) days after such Person has actual knowledge of the facts constituting the basis for indemnification) written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided , however , that any delay or failure to so notify the indemnifying party shall relieve the indemnifying party of its obligations hereunder only to the extent, if at all, that it is actually prejudiced by reason of such delay or failure; provided , further , however , that any Person entitled to indemnification hereunder shall have the right to select and employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (a) the indemnifying party has agreed in writing to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim within a reasonable time after receipt of notice of such claim from the Person entitled to indemnification hereunder and employ counsel reasonably satisfactory to such Person or (c) in the reasonable judgment of any such Person, based upon advice of counsel, a conflict of interest may exist between such Person and the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). An indemnified party shall not be
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required to consent to any settlement involving the imposition of equitable remedies or involving the imposition of any material obligations on such indemnified party other than financial obligations for which such indemnified party will be indemnified hereunder. No indemnifying party will be required to consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. Whenever the indemnified party or the indemnifying party receives a firm offer to settle a claim for which indemnification is sought hereunder, it shall promptly notify the other of such offer. If the indemnifying party refuses to accept such offer within twenty (20) business days after receipt of such offer (or of notice thereof), such claim shall continue to be contested and, if such claim is within the scope of the indemnifying party’s indemnity contained herein, the indemnified party shall be indemnified pursuant to the terms hereof. If the indemnifying party notifies the indemnified party in writing that the indemnifying party desires to accept such offer, but the indemnified party refuses to accept such offer within twenty (20) business days after receipt of such notice, the indemnified party may continue to contest such claim and, in such event, the total maximum liability of the indemnifying party to indemnify or otherwise reimburse the indemnified party hereunder with respect to such claim shall be limited to and shall not exceed the amount of such offer, plus reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) to the date of notice that the indemnifying party desires to accept such offer, provided that this sentence shall not apply to any settlement of any claim involving the imposition of equitable remedies or to any settlement imposing any material obligations on such indemnified party other than financial obligations for which such indemnified party will be indemnified hereunder. An indemnifying party who is not entitled to, or elects not to, assume the defense or a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim in any one jurisdiction, unless in the written opinion of counsel to the indemnified party, reasonably satisfactory to the indemnifying party, use of one counsel would be expected to give rise to a conflict of interest between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of each additional counsel.
(iv) Other Indemnification . Indemnification similar to that specified in this Section 4(g) (with appropriate modifications) shall be given by the Company and each selling Holder with respect to any required registration or other qualification of securities under Federal or state law or regulation of governmental authority other than the Securities Act.
(v) Contribution . If for any reason the indemnification provided for in the preceding clauses g(i) and g(ii) is unavailable to an indemnified party or insufficient to hold such indemnified party harmless as contemplated by the preceding clauses g(i) and g(ii), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that no selling Holder shall be required to contribute in an amount greater than the dollar amount of the proceeds received by such selling Holder with respect to the sale of any securities under this Section 4 . No Person guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not itself guilty of such fraudulent misrepresentation.
Section 5. Repurchase Rights .
(a) Company Call Rights .
(i) In the event that a Management Holder’s employment is terminated by the Company or, if applicable, an Affiliate thereof, for Cause or is terminated by such Management Holder without Good Reason, then the Company (or at its option, any of its Subsidiaries) shall have the right, but not the obligation, to repurchase all or any portion of the shares of Common Stock held by such Management Holder (including any shares of Common Stock received upon a distribution from any deferred compensation plan or any shares of Common Stock then issuable upon exercise of any Options held by such Management Holder) in accordance with this Section 5 for the lesser of (i) Original Cost and (ii) Fair Market Value. If Fair Market Value was determined at any time during the twelve-month period prior to such closing date, the Fair Market Value as of such closing date shall be deemed to equal the most recent determination of Fair Market Value during such twelve-month period unless the Board, in its sole discretion, otherwise elects to recalculate the Fair Market Value as of such closing date. Only to the extent necessary to comply with Section 409A of the Code, with respect to shares of Common Stock received by a Management Holder upon exercise of any Options, the provisions of this Section 5(a)(i) shall cease to apply on the ten-year anniversary of the grant of such Options to such Management Holder.
(ii) In the event that a Management Holder’s employment is terminated other than as described in Section 5(a)(i) , then the Company (or at its option, any of its Subsidiaries) shall have the right, but not the obligation, to repurchase all or any portion of the shares of Common Stock held by such Management Holder (including any shares of Common Stock received upon a distribution from any deferred compensation plan or any shares of Common Stock then issuable upon exercise of any Options held by such Management Holder) in accordance with this Section 5 for Fair Market Value. If Fair Market Value was determined at any time during the twelve month period prior to such closing date, the Fair Market Value as of such closing date shall be deemed to equal the most recent determination of Fair Market Value during such twelve-month period unless the Board, in its sole discretion, otherwise elects to recalculate the Fair Market Value as of such closing date.
(iii) From and after a Bankruptcy Event with respect to any Management Holder, the Company (or at its option, any of its Subsidiaries) shall have the right, but not the obligation, to repurchase all or any portion of the shares of Common Stock held by such holder (including any shares of Common Stock received upon a distribution of any deferred compensation plan or any shares of Common Stock issuable upon exercise of any Options held by any such Management Holder) in accordance with this Section 5 for Fair Market Value.
(iv) Following the occurrence of any of the events set forth in Section 5(a)(i) , Section 5(a)(ii) , and Section 5(a)(iii) (each a “ Repurchase Event ”), the Company or any of its Subsidiaries may exercise its right of repurchase (a “ Call Right ”) until the date occurring ninety (90) days after the relevant Repurchase Event; provided , however , that (A) with respect to
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shares of Common Stock acquired by a Management Holder after such Repurchase Event (whether by exercise of Options, distribution of shares of Common Stock from any equity compensation plan, deferred compensation plan or otherwise), the Company or any of its Subsidiaries may exercise its right to purchase such shares of Common Stock until the date occurring six (6) months after the acquisition of such shares of Common Stock by such Management Holder, and (B) if the termination of employment giving rise to a Repurchase Event is due to death or Disability, the Company or any of its Subsidiaries may exercise its Call Right with respect to such Management Holder until the date occurring 180 days after such Repurchase Event.
(b) The Apollo Group Repurchase Right . The Company or a Subsidiary thereof shall give written notice to the Apollo Group stating whether the Company or any Subsidiary will exercise such Call Rights pursuant to clause (a) above. If such notice states that the Company and its Subsidiaries will not exercise their Call Right for all or a portion of the shares of Common Stock then subject thereto, the Apollo Group shall have the right to purchase such shares of Common Stock not purchased by the Company or its Subsidiaries on the same terms and conditions as the Company and its Subsidiaries until the later of (i) the 30th day following the receipt of such notice or (ii) such longer period as specified in subclauses (A) and (B) of Section 5(a)(iv) , if applicable.
(c) Closing . The closing of any purchase of shares of Common Stock pursuant to this Section 5 shall take place on a date designated by the Company, one of its Subsidiaries, or the Apollo Group, as applicable, in accordance with the applicable provisions of this Section 5 ; provided , that if necessary to avoid liability accounting, the closing with respect to a Management Holder will be deferred until such time as the applicable Management Holder has held the shares of Common Stock for a period of at least six (6) months and one day. The Company, one of its Subsidiaries, or the Apollo Group, as applicable, will pay for the shares of Common Stock purchased by it pursuant to this Section 5 by delivery of a check or wire transfer of funds, in exchange for the delivery by the Management Holder of the certificates representing such shares of Common Stock, duly endorsed for transfer to the Company, such Subsidiary or the Apollo Group, as applicable. The Company shall have the right to record such purchase on its books and records without the consent of the Management Holder, so long as such transaction is consistent with the terms of this Agreement.
(d) Restrictions on Repurchase . Notwithstanding anything to the contrary contained in this Agreement, (i) all purchases of shares of Common Stock by the Company, its Subsidiaries or the Apollo Group shall be subject to applicable restrictions contained in any federal, state or non-U.S. law; (ii) if any such restrictions prohibit or otherwise delay any purchase of shares of Common Stock which the Company, the Subsidiaries thereof or the Apollo Group is otherwise entitled or required to make pursuant to this Section 5 , then the Company, the Subsidiaries thereof and the Apollo Group shall have the option to make such purchases pursuant to this Section 5 within thirty (30) days of the date that it is first permitted to make such purchase under the laws and/or agreements containing such restrictions; and (iii) the Company and its Subsidiaries shall not be obligated to effectuate any transaction contemplated by this Section 5 if such transaction would violate the terms of any restrictions imposed by agreements evidencing the indebtedness of the Company or any of its Subsidiaries. In the event that any shares of Common Stock are sold by a Holder pursuant to this Section 5 , the Holder, and such Holder’s
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successors, assigns or representatives, will take all reasonable steps necessary and desirable to obtain all required third-party, governmental and regulatory consents and approvals with respect to such Holder and take all other actions necessary and desirable to facilitate consummation of such sale in a timely manner. For the avoidance of doubt, in the event a repurchase is delayed pursuant to the terms of this Section 5(d) , the determination date for purposes of determining the Fair Market Value shall be the date on which the closing date of the purchase of the applicable shares would have occurred but for the delay.
(e) Withholdings . The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable Law, or may permit a Holder to elect to pay the Company any such required withholding taxes. If such Holder so elects, the payment by such Holder of such taxes shall be a condition to the receipt of amounts payable to such Holder under this Agreement. The Company shall, to the extent permitted or required by Law, have the right to deduct any such taxes from any payment otherwise due to such Holder.
Section 6. Restrictive Covenants .
(a) Non-Solicitation; Non-Competition . Each Management Holder shall be bound by the non-competition and non-solicitation provisions contained in this Section 6(a) , except that if any Management Holder is a party to a subscription, employment or other agreement with the Company or any of its Subsidiaries which contains non-compete and non-solicitation provisions, such Management Holder shall only be bound by the non-compete and non-solicitation provisions contained in such other agreement and shall not be bound by the provisions of this Section 6 .
(i) Non-Solicitation . During the period commencing on the date hereof and ending on the date of the one-year anniversary of the Management Holder’s termination of employment for any reason (such period, the “ Restricted Period ”), the Management Holder shall not directly or indirectly (i) induce or attempt to induce any employee, consultant or independent contractor of the Company or any Affiliate of the Company (collectively, the “ Affiliated Entities ” and each such entity an “ Affiliated Entity ”) to leave the Company or such Affiliated Entity, or in any way interfere with the relationship between the Company or any such Affiliated Entity, on the one hand, and any employee or independent contractor thereof, on the other hand, (ii) hire any person who is an employee or independent contractor of the Company or any Affiliated Entity until twelve (12) months after such individual’s relationship with the Company or such Affiliated Entity has been terminated for any reason or (iii) induce or attempt to induce any customer (including former customers who were customers at any time during the three-year period immediately prior to such inducement or attempted inducement), supplier, licensee or other business relation of the Company or any subsidiary of the Company to cease doing business with the Company or such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation, on the one hand, and the Company or any subsidiary, on the other hand.
(b) Non-Competition . Each Management Holder acknowledges that, in the course of his employment with the Company and/or its Subsidiaries and their predecessors, he has become familiar, or will become familiar, with the Company’s and its Subsidiaries’ and their
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predecessors’ trade secrets and with other confidential information concerning the Company, its Subsidiaries and their respective predecessors and that his services have been and will be of special, unique and extraordinary value to the Company and its Subsidiaries. Therefore, each Management Holder agrees that, during the Restricted Period, such Management Holder shall not, within any jurisdiction or marketing area in which the Company or any of its Subsidiaries is doing business or intends to do business at any time during such Management Holder’s employment with the Company and its affiliates or during the six-month period following the termination of such employment, directly or indirectly, own, manage, operate, control, be employed or retained by (whether as an employee, consultant, independent contractor or otherwise, and whether or not for compensation), participate in the ownership, management, operation or control of, or otherwise render services to or engage in, any business that engages in any line of business conducted by the Company or any of its Subsidiaries at any time during such Management Holder’s employment with the Company and its affiliates or during the six-month period following the termination of such employment; provided, that ownership of securities of two percent (2%) or less of any publicly traded class of securities of a public company shall not violate this paragraph.
(c) Non-Disclosure; Non-Use of Confidential Information . Each Management Holder shall not disclose or use at any time, either during his employment with the Company and its Affiliates or thereafter, any Confidential Information of which the Management Holder is or becomes aware, whether or not such information is developed by him, except to the extent that such disclosure or use is directly related to and required by such Management Holder’s performance in good faith of duties assigned to such Management Holder by the Company. Each Management Holder shall take all appropriate steps to safeguard Confidential Information in his possession and to protect it against disclosure, misuse, espionage, loss and theft. Each Management Holder shall deliver to the Company at the termination of his employment with the Company and its Affiliates, or at any time the Company may request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information or the Work Product of the business of the Company or any of its Affiliates that the Management Holder may then possess or have under his control. The non-disclosure and non-use of Confidential Information obligations pursuant to this Section 6(c) shall survive the termination of each Management Holder’s employment with the Company and its Affiliates. This foregoing does not limit any other non-disclosure or confidentiality obligation otherwise applicable to such Management Holder.
(d) Proprietary Rights . The Management Holder recognizes that the Company and its Affiliates possess a proprietary interest in all Confidential Information and Work Product and have the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas and concepts described therein to the exclusion of the Management Holder, except as otherwise agreed between the Company and the Management Holder in writing. The Management Holder expressly agrees that any Work Product made or developed by the Management Holder or the Management Holder’s agents or Affiliates during the course of the Management Holder’s employment, including any Work Product which is based on or arises out of Work Product, shall be the property of an inure to the exclusive benefit of the Company and its Affiliates. The Management Holder further agrees that all Work Product developed by the Management Holder (whether or not able to be protected by
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copyright, patent or trademark) during the course of such Management Holder’s employment, or involving the use of the time, materials or other resources of the Company or any of its Affiliates, shall be promptly disclosed to the Company and shall become the exclusive property of the Company, and the Management Holder shall execute and deliver any and all documents necessary or appropriate to implement the foregoing.
Section 7. Notices .
All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (a) when personally delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (c) the day following the day (except if not a business day then the next business day) on which the same has been delivered prepaid to a reputable national overnight air courier service, (d) the third (3rd) business day following the day on which the same is sent by certified or registered mail, postage prepaid or (e) the day on which the same is sent via e-mail and has been confirmed via telephone. Notices, demands and communications, in each case to the respective parties, shall be sent to the applicable address set forth below, unless another address has been previously specified in writing:
If to the Company:
PlayAGS, Inc.
5475 S. Decatur Blvd., Suite 100
Las Vegas, Nevada
Attention: Vic Gallo
Email: v.gallo@playags.com
Telephone: 702-724-1111
with a copy (which shall not constitute notice) to:
Apollo Gaming Holdings, L.P.
c/o Apollo Management VIII, L.P.
9 West 57th St.
New York, New York 10019
Attention: David Sambur
Email: sambur@apollolp.com
Attention: Laurie Medley
Email: lmedley@apollolp.com
Telephone: 212-515-3484
Facsimile: 646-390-1501
If to the Apollo Group:
Apollo Gaming Holdings, L.P.
c/o Apollo Management VIII, LP
9 West 57th Street, 43rd Floor
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New York, New York 10019
Attention: David Sambur
Email: sambur@apollolp.com
Attention: Laurie Medley
Email: lmedley@apollolp.com
Telephone: 212-515-3484
Facsimile: 646-390-1501
with a copy (which shall not constitute notice) to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Ross A. Fieldston
Email: rfieldston@paulweiss.com
Telephone: 212-373-3075
Facsimile: 212-492-0075
If to any Management Holder: to the address set forth with respect to such Management Holder in the Company’s records.
The Company, any Holder or any spouse or legal representative of a Holder may effect a change of address for purposes of this Agreement by giving notice of such change to the Company, and the Company shall, upon the request of any party hereto, notify such party of such change in the manner provided herein. Until such notice of change of address is properly given, the addresses set forth in this Section 7 shall be effective for all purposes.
Section 8. Miscellaneous Provisions .
(a) THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEVADA TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEVADA WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(b) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE, APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
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SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHT OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS ENTERED INTO IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN.
(c) Whenever the context requires, the gender of all words used herein shall include the masculine, feminine and neuter, and the number of all words shall include the singular and plural.
(d) This Agreement shall be binding upon the Company, the Apollo Holder, VoteCo, the Management Holders, any other Holders, any spouses of individual Holders, and their respective heirs, executors, administrators and permitted successors and assigns.
(e) This Agreement may be amended or waived from time to time by an instrument in writing signed by the Company, the Apollo Holder and VoteCo; provided , however , that (x) if an amendment or waiver would materially disproportionately adversely affect the rights or obligations of the Management Holders as a group relative to the Apollo Holder, such instrument in writing shall also require the signatures of Management Holders who hold at least a majority of the outstanding shares of Common Stock owned by all Management Holders as of the date of such amendment or waiver. Notwithstanding the foregoing, if the Company issues a new class of capital stock, the Company may in good faith amend the terms of this Agreement to reflect such issuance and apply the terms of this Agreement to such new class of capital stock; provided , however , that (x) if such issuance would materially disproportionately adversely affect the rights or obligations of the Management Holders as a group relative to the Apollo Holder, such instrument in writing shall also require the signatures of Management Holders who hold at least a majority of the outstanding shares of Common Stock owned by all Management Holders as of the date of such amendment or waiver.
(f) This Agreement shall terminate automatically upon the earlier to occur of: (i) the dissolution of the Company (it being understood that neither the Conversion nor any other event after which the Company continues to exist as a limited liability company or in another form, whether incorporated in Nevada or in another jurisdiction, shall constitute a dissolution) or (ii) the consummation of a Majority Disposition; provided , however , that if Registrable Securities have been registered pursuant to Section 3 or Section 4 hereof prior to such termination, Section 4(g) shall survive such termination.
(g) Any Holder who disposes of all of his, her or its shares of Common Stock in conformity with the terms of this Agreement shall have no further rights hereunder other than rights to indemnification under Section 4 , if applicable (it being understood and agreed, for the avoidance of doubt, that the obligations and restrictions under Section 6 hereof shall continue to apply to a Management Holder after such Disposition in accordance with the terms of Section 6 ).
(h) The spouses of the individual Holders are fully aware of, understand and fully consent and agree to the provisions of this Agreement and its binding effect upon any community property interests or similar marital property interests in the shares of Common Stock or other Company securities they may now or hereafter own, and agree that the termination of their marital relationship with any Holder for any reason shall not have the effect
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of removing any shares of Common Stock or other securities of the Company otherwise subject to this Agreement from the coverage of this Agreement and that their awareness, understanding, consent and agreement are evidenced by their signing this Agreement. Furthermore, each individual Holder agrees to cause his or her spouse (and any subsequent spouse) to execute and deliver, upon the request of the Company, a counterpart of this Agreement, or an Adoption Agreement substantially in the form of Exhibit A or in a form satisfactory to the Company.
(i) Each party to this Agreement acknowledges that a remedy at law for any breach or attempted breach of this Agreement will be inadequate, agrees that each other party to this Agreement shall be entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach and further agrees to waive (to the extent legally permissible) any legal conditions required to be met for the obtaining of any such injunctive or other equitable relief (including posting any bond in order to obtain equitable relief).
(j) This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission or Portable Document Format (“ PDF ”) shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes. It shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. The failure of any Holder to execute this Agreement does not make it invalid as against any other Holder.
(k) Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, illegal or otherwise unenforceable provisions shall be null and void as to such jurisdiction. It is the intent of the parties, however, that any invalid, illegal or otherwise unenforceable provisions be automatically replaced by other provisions which are as similar as possible in terms to such invalid, illegal or otherwise unenforceable provisions but are valid and enforceable to the fullest extent permitted by Law.
(l) Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments, and other documents as any other party hereto reasonably may request in order to carry out the provisions of this Agreement and the consummation of the transactions contemplated hereby.
(m) The parties to this Agreement agree that jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall exclusively and properly lie in Eighth Judicial District Court, located in Clark County, Nevada, or (in the event that such court denies jurisdiction) any federal or state court located in the State of Nevada. By execution and delivery of this Agreement each party hereto irrevocably submits to the jurisdiction of such courts for himself and in respect of his property with respect to such action. The parties hereto
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irrevocably agree that venue for such action would be proper in such court, and hereby waive any objection that such court is an improper or inconvenient forum for the resolution of such action. The parties further agree that the mailing by certified or registered mail, return receipt requested, or service in accordance with Section 8 or any other manner permitted by applicable Law, of any process required by any such court shall constitute valid and lawful service of process against them, without necessity for service by any other means provided by statute or rule of court.
(n) No course of dealing between the Company, its Subsidiaries, and the Holders (or any of them) or any delay in exercising any rights hereunder will operate as a waiver of any rights of any party to this Agreement. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
(o) Except as otherwise expressly provided herein, this Agreement sets forth the entire agreement of the parties hereto as to the subject matter hereof and supersedes all previous agreements among all or some of the parties hereto, whether written, oral or otherwise, as to such subject matter. Unless otherwise provided herein, any consent required by the Company may be withheld by the Company in its sole discretion.
(p) Except as otherwise expressly provided herein, no Person not a party to this Agreement, as a third party beneficiary or otherwise, shall be entitled to enforce any rights or remedies under this Agreement.
(q) If, and as often as, there are any changes in the Common Stock by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions of this Agreement, as may be required, so that the rights, privileges, duties and obligations hereunder shall continue with respect to the Common Stock as so changed.
(r) No officer or director of the Company shall be personally liable to the Company or any Holder as a result of any acts or omissions taken under this Agreement in good faith.
(s) In the event of any amendment or material waiver of this Agreement, the Company shall provide the Holders with a written notice of such amendment or waiver, with such notice conforming to the requirements set forth in Section 7 above. A copy of this Agreement and of all amendments hereto shall be filed and maintained at the principal offices of the Company.
(t) In the event additional shares of Common Stock are issued by the Company to a Holder at any time during the term of this Agreement, either directly or upon the exercise or exchange of securities of the Company exercisable for or exchangeable into Common Stock, such additional Common Stock, as a condition to its issuance, shall become subject to the terms and provisions of this Agreement.
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(u) Notwithstanding anything to the contrary contained herein, but subject to Section 2 , the Apollo Group may assign its rights or obligations, in whole or in part, under this Agreement to one or more of its Affiliates.
(v) Notwithstanding anything that may be expressed or implied in this Agreement, and notwithstanding that certain of the Holders may be limited partnerships or limited liability companies, each Holder covenants, agrees and acknowledges that, except as required by applicable Law, no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement shall be had against the Apollo Group or any of its Affiliates or any of its or their former, current or future direct or indirect equity holders, controlling persons, shareholders, directors, officers, employees, agents, Affiliates, members, financing sources, accountants, advisors, managers, general or limited partners, assignees or representatives (“ Related Parties ”), whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable Law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any of the Related Parties, as such, for any obligation or liability of the Company, the Apollo Group or any Holder, under this Agreement or any documents or instruments delivered in connection with this Agreement in respect of or by reason of obligations or liabilities or their creation.
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This Agreement is executed by the Company and by each Holder and spouse of each Holder to be effective as of the date first above written.
PLAYAGS, INC. | ||
By: |
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Name: | David Lopez | |
Title: | Chief Executive Officer and President | |
APOLLO GAMING HOLDINGS, L.P. |
By: |
Apollo Gaming Holdings GP, LLC, its general partner |
By: |
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Name: | David B. Sambur | |
Title: | Chief Executive Officer, President, | |
Treasurer and Secretary | ||
AP GAMING VOTECO, LLC | ||
By: |
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Name: | Eric Press | |
Title: | Member | |
By: |
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Name: | David B. Sambur | |
Title: | Member |
[Signature Page to PlayAGS, Inc. Amended and Restated Securityholders Agreement]
This Agreement is executed by the Company and by each Holder and spouse of each Holder to be effective as of the date first above written. |
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Name of Holder: |
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Name of Holder: |
[Signature Page to PlayAGS, Inc. Amended and Restated Securityholders Agreement]
EXHIBIT A
ADOPTION AGREEMENT
This Adoption Agreement (“ Adoption ”) is executed pursuant to the terms of the Amended and Restated Securityholders Agreement, dated as of [ ], 2017, copy of which is attached hereto (as it may be amended from time to time, the “ Securityholders Agreement ”), by the transferee or the recipient of an issuance by the Company, as applicable, (“ Transferee ”) executing this Adoption. By the execution of this Adoption, the Transferee agrees as follows:
1. Acknowledgement . Transferee acknowledges that Transferee is acquiring certain shares of Common Stock of PlayAGS, Inc., a Nevada corporation (the “ Company ”), subject to the terms and conditions of the Securityholders Agreement, among the Company, Apollo Gaming Holdings, L.P., AP Gaming VoteCo, LLC and the Holders party thereto. Capitalized terms used herein without definition are defined in the Securityholders Agreement and are used herein with the same meanings set forth therein.
2. Agreement . Transferee (i) agrees that the shares of Common Stock acquired by Transferee, and certain other shares of Common Stock that may be acquired by Transferee in the future, shall be bound by and subject to the terms of the Securityholders Agreement, pursuant to the terms thereof, (ii) hereby adopts the Securityholders Agreement with the same force and effect as if he, she or it were originally a party thereto and (iii) agrees that Transferee shall be deemed to be a [insert “Management Holder” or “Holder,” as applicable] for purposes of the Securityholders Agreement.
3. Notice . Any notice required as permitted by the Securityholders Agreement shall be given to Transferee at the address listed below Transferee’s signature.
4. Law . THIS ADOPTION WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEVADA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEVADA TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEVADA WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS ADOPTION, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
5. Joinder . The spouse of the undersigned Transferee, if applicable, executes this Adoption to acknowledge its fairness and that it is in such spouse’s best interest, and to bind such spouse’s community interest, if any, in the shares of Common Stock and other securities referred to above and in the Securityholders Agreement, to the terms of the Securityholders Agreement.
Exhibit A-1
IN WITNESS WHEREOF, the undersigned has executed this Adoption Agreement as of the date written below.
Date:
[NAME] |
By: |
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Name: | ||
Title: | ||
Address for Notices: |
Exhibit A-2
Exhibit 10.8
AS ADOPTED
AP GAMING HOLDCO, INC.
2014 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the AP Gaming Holdco, Inc. 2014 LONG-TERM INCENTIVE PLAN (the “ Plan ”) is (i) to further the growth and success of AP Gaming Holdco, Inc., a Delaware corporation (the “ Company ”), and its Subsidiaries (as hereinafter defined) by enabling directors and employees of and consultants to, the Company or any of its Subsidiaries to acquire Shares (as hereinafter defined), thereby increasing their personal interest in such growth and success, and (ii) to provide a means of rewarding outstanding performance by such persons to the Company and/or its Subsidiaries. Awards granted under the Plan (the “ Awards ”) shall be nonqualified stock options (referred to herein as “ Options ” or “ NSOs ”), rights to purchase Shares, restricted stock (referred to herein as “ Restricted Stock ”), restricted stock units (referred to herein as “ Restricted Stock Units ”) and other awards settleable in, or based upon, Common Stock (as hereinafter defined) (“ Other Stock-Based Awards ”).
ARTICLE II
DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth below:
“ Adoption Agreement ” means an agreement between the Company and a holder of Shares, pursuant to which such holder agrees to become a party to the Securityholders Agreement.
“ Affiliate ” means with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such Person and/or one or more Affiliates thereof. As used in this definition and the definition of “Change in Control”, the term “control,” including the correlative terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies (whether through the ownership of securities or any partnership or other ownership interests, by contract or otherwise) of a Person. The term “Affiliate” shall not include at any time any portfolio companies of Apollo Management VIII, L.P. or any of its Affiliates, other than the Company and its Subsidiaries.
“ Award ” has the meaning set forth in Article I hereof.
“ Award Agreement ” means any writing setting forth the terms of an Award that has been duly authorized and approved by the Board or the Committee.
“ Board ” means the Board of Directors of the Company.
“ Capital Stock ” means any and all shares of, interests and participations in, and other equivalents (however designated) of stock, including, without limitation, all Common Stock.
“ Cause ” means, unless otherwise defined in a Participant’s Award Agreement, (i) any definition of “Cause” in an employment, severance or similar agreement between the Company
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or any of its Subsidiaries and the applicable participant or (ii) if no such agreement is in effect or if any such agreement in effect does not define “Cause,” a termination based upon any one of the following, as determined in good faith by the Board: (1) failure to correct underperformance after written notification from the Board, (2) illegal fraudulent conduct, (3) conviction of or plea of “guilty” or “no contest” to any crime (other than a vehicular misdemeanor), (4) a determination by the Board that Participant’s involvement with the Company or any of its Subsidiaries would have a negative impact on the ability of the Company or any of its Subsidiaries to receive or retain any licenses, (5) being found unsuitable for, or having been denied, a gaming license, or having such license revoked by a gaming regulatory authority in any jurisdiction in which the Company or any of its Subsidiaries conducts operations, (6) willful or material misrepresentation relating to the business, assets or operations of the Company or any of its Subsidiaries, (7) refusal to take any action as reasonably directed by the Board or any superior officer, or (8) material breach of any agreement with the Company, or any of its Subsidiaries.
“ Change in Control ” means (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (other than the Sponsor, a Sponsor-controlled entity, any personnel affiliated with the Sponsor or a Sponsor-controlled entity, or any Affiliate of the Company immediately prior to such acquisition) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50%, indirectly or directly, of the voting power of the Company (other than any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Subsidiaries), or (ii) consummation of an amalgamation, merger, consolidation, recapitalization or similar business combination transaction of the Company or any direct or indirect Subsidiary thereof with any other entity (other than the Sponsor, a Sponsor-controlled entity, any personnel affiliated with the Sponsor or a Sponsor-controlled entity, or any Affiliate of the Company immediately prior to such transaction) or a sale or other disposition of all or substantially all of the assets of the Company to any other person or entity (other than the Sponsor, a Sponsor-controlled entity, any personnel affiliated with the Sponsor or a Sponsor-controlled entity, or an Affiliate of the Company immediately prior to such transaction), following which the voting securities of the Company that are outstanding immediately prior to such transaction cease to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity (or the person or entity that owns substantially all of the Company’s assets either directly or through one or more Subsidiaries) or any parent or other affiliate thereof) at least 50% of the combined voting power of the securities of the Company or, if the Company is not the surviving entity, such surviving entity (or the person or entity that owns substantially all of the Company’s assets either directly or through one or more Subsidiaries) or any parent or other affiliate thereof, outstanding immediately after such transaction.
“ Closing Date ” shall mean December 20, 2013.
“ Code ” means the Internal Revenue Code of 1986, as amended.
“ Committee ” means a committee appointed by the Board to administer the Plan.
“ Common Stock ” means the Class B non-voting Common Stock of the Company, par value $0.01 per share.
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“ Company ” has the meaning set forth in Article I hereof.
“ Corporate Transaction ” has the meaning set forth in Article X hereof.
“ Disability ” means, with respect to each Participant, unless otherwise defined in such Participant’s Award Agreement, that the Participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident, disability or health plan covering employees of the Company.
“ Effective Date ” means the date the Plan is adopted by the Board.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
“ Fair Market Value ” means, as of any date, the closing price of the Common Stock on any national securities exchange or any national market system (including, but not limited to, The NASDAQ National Market) on that date, or if no prices are reported on that date, on the last preceding date on which such prices of the Common Stock are so reported. If the Common Stock is not then listed on any national securities exchange but is traded over-the-counter at the time determination of its Fair Market Value is required to be made, its Fair Market Value shall be deemed to be equal to the average between the reported high and low sales prices of Common Stock on the most recent date on which Common Stock was publicly traded. If the Common Stock is not publicly traded at the time a determination of its Fair Market Value is made, the Board shall reasonably determine its Fair Market Value in good faith as it deems appropriate (such determination will be made in the manner that satisfies Section 409A of the Code and in good faith, and may be based on the advice of an independent investment banker or appraiser recognized to be an expert in making such valuations, but will not take into account any reduction in value of the Common Stock because the Common Stock (x) represents a minority position, (y) is subject to restrictions on transfer and resale, or (z) lacks liquidity).
“ Investor ” means, collectively, Apollo Management VIII, L.P. and each of its Affiliates and any other investment fund or vehicle managed by Apollo Management VIII, L.P. or any of its Affiliates (including any successors or assigns of any such manager).
“ Investor Investment ” means direct or indirect investments in Shares or other Capital Stock of the Company made by the Investor on or after the Closing Date, but excluding any purchases or repurchases of Shares on any securities exchange or any national market system after an initial public offering.
“ Investor IRR ” means the pretax compounded annual internal rate of return realized by the Investor on the Investor Investment, based on the aggregate amount invested by the Investor for all Investor Investments and the aggregate amount of cash received by the Investor in respect of all Investor Investments, assuming all Investor Investments were purchased by one Person and were held continuously by such Person. The Investor IRR shall be determined based on the actual time of each Investor Investment and actual cash received by the Investor in respect of all
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Investor Investments and including, as a return on each Investor Investment, any cash dividends, cash distributions, cash sales or cash interest made by the Company or any Subsidiary in respect of such Investor Investment during such period, but excluding any other amounts payable that are not directly attributable to an Investor Investment (such exclusions to include, without limitation, management fees and other payments pursuant to a management agreement and expense reimbursement).
“ Notice ” has the meaning set forth in Section 5.7 hereof.
“ NSOs ” has the meaning set forth in Article I hereof.
“ Option ” has the meaning set forth in Article I hereof.
“ Option Price ” has the meaning set forth in Section 5.4 hereof.
“ Option Shares ” has the meaning set forth in Section 5.7(b) hereof.
“ Participant ” has the meaning set forth in Article IV hereof.
“ Person ” shall be construed broadly and shall include, without limitation, an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
“ Plan ” has the meaning set forth in Article I hereof.
“ Purchase Price ” has the meaning set forth in Section 6.2 hereof.
“ Qualified Public Offering ” means an underwritten public offering of Common Stock by the Company pursuant to an effective Registration Statement filed by the Company with the U.S. Securities and Exchange Commission (other than (i) a registration relating solely to an employee benefit plan or employee stock plan, a dividend reinvestment plan, or a merger or a consolidation, (ii) a registration incidental to an issuance of securities under Rule 144A, (iii) a registration on Form S-4 or any successor form, or (iv) a registration on Form S-8 or any successor form) under the Securities Act, pursuant to which the aggregate offering price of the Common Stock sold in such offering is at least $100,000,000.
“ Registration Statement ” means a registration statement filed by the Company with the U.S. Securities and Exchange Commission.
“ Reserved Shares ” means, at any time, an aggregate of 1,250,000 Shares, as the same may be adjusted at or prior to such time in accordance with Article X hereof.
“ Restricted Stock ” means an Award granted to a Participant pursuant to Article VII hereof.
“ Restricted Stock Unit ” means an Award granted to a Participant pursuant to Article VIII hereof.
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“ Securities Act ” means the Securities Act of 1933, as amended.
“ Shares ” means shares of Common Stock.
“ Sponsor ” means Apollo Management VIII, L.P. and its Affiliates.
“ Stock Award ” means an Award of the right to purchase Shares under Article VI of the Plan.
“ Securityholders Agreement ” means the Securityholders Agreement, by and among the Company and certain of its securityholders, dated as of April 28, 2014, as it may be amended, supplemented, restated or otherwise modified from time to time.
“ Subsidiary ” means any corporation or other entity of which the Company owns securities or interests having a majority, directly or indirectly, of the ordinary voting power in electing the board of directors, managers, general partners or similar governing Persons thereof.
“ Termination Date ” means the tenth anniversary of the Effective Date.
“ Termination of Service ” means (i) if the Participant is an employee of the Company or any Subsidiary, the termination of the Participant’s employment with the Company and its Subsidiaries for any reason, (ii) if the Participant is a consultant to the Company or any Subsidiary, the termination of the Participant’s consulting relationship with the Company and its Subsidiaries for any reason, and (iii) if the Participant is a director of the Company or any Subsidiary, the termination of the Participant’s service as a director of the Company or such Subsidiary for any reason; including, in the case of clause (i), (ii) or (iii), as a result of such Subsidiary no longer being a Subsidiary of the Company because of a sale, divestiture or other disposition of such Subsidiary by the Company (whether such disposition is effected by the Company or another Subsidiary thereof). Notwithstanding the foregoing, a Termination of Service shall not be deemed to have occurred if a Participant remains an employee, consultant or director of the Company or any Subsidiary. Notwithstanding the foregoing, with respect to any Award that constitutes a “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code, “Termination of Service” shall mean a “separation from service” as defined under Section 409A of the Code.
“ Vested Options ” means Options that have vested in accordance with the applicable Award Agreement.
ARTICLE III
ADMINISTRATION OF THE PLAN; SHARES SUBJECT TO THE PLAN
3.1 | Committee . |
The Plan shall be administered by the Board or the Committee. The term “Committee” shall, for all purposes of the Plan, be deemed to refer to the Board if the Board is administering the Plan.
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3.2 | Procedures . |
The Committee shall adopt such rules and regulations as it shall deem appropriate concerning the holding of meetings and the administration of the Plan. The entire Committee shall constitute a quorum and the actions of the entire Committee present at a meeting, or actions approved in writing by the entire Committee, shall be the actions of the Committee.
3.3 | Interpretation; Powers of Committee . |
Except as may otherwise be expressly reserved to the Board as provided herein, and with respect to any Award, except as may otherwise be provided in the Award Agreement evidencing such Award or an employment or consulting agreement between the Participant and Company, the Committee shall have all powers with respect to the administration of the Plan, including the authority to:
(a) determine eligibility and the particular persons who will receive Awards;
(b) grant Awards to eligible persons, determine the price and number of securities to be offered or awarded to any of such persons, determine the other specific terms and conditions of Awards consistent with the express limits of the Plan, establish the installments (if any) in which such Awards will become exercisable or will vest and the respective consequences thereof (or determine that no delayed exercisability or vesting is required), and establish the events of termination or reversion of such Awards;
(c) approve the forms of Award Agreements, which need not be identical either as to type of Award or among Participants;
(d) construe and interpret the provisions of the Plan and any Award Agreement or other agreement defining the rights and obligations of the Company and Participants under the Plan, make factual determinations with respect to the administration of the Plan, further define the terms used in the Plan, and prescribe, amend and rescind rules and regulations relating to the administration of the Plan;
(e) cancel, modify, or waive the Company’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards held by Participants, subject to any required consent under Article XIII ;
(f) accelerate or extend the exercisability or extend the term of any or all outstanding Awards, subject to any consent required under Article XIII ; and
(g) make all other determinations and take such other action as contemplated by this Plan or as may be necessary or advisable for the administration of this Plan and the effectuation of its purposes.
All decisions of the Board or the Committee, as the case may be, shall be reasonable and made in good faith and shall be conclusive and binding on all Participants in the Plan.
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3.4 | Compliance with Code Section 162(m) . |
In the event the Company becomes a “publicly-held corporation” as defined in Section 162(m)(2) of the Code, the Company may establish a committee of outside directors meeting the requirements of Section 162(m)(2) of the Code to (i) approve Awards that might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes by the Company pursuant to Section 162(m) of the Code, and (ii) administer the Plan. In such event, the powers reserved to the Committee in the Plan shall be exercised by such committee. In addition, Awards under the Plan may be granted upon satisfaction of the conditions to such grants provided pursuant to Section 162(m) of the Code and any Treasury Regulations promulgated thereunder.
3.5 | Number of Shares . |
Subject to the provisions of Article X (relating to adjustments upon changes in capital structure and other corporate transactions), the aggregate number of Shares with respect to which Awards may be granted under the Plan shall not exceed the Reserved Shares. Shares that are subject to or underlie Options granted under the Plan that expire or for any reason are canceled or terminated without having been exercised (or Shares subject to or underlying the unexercised portion of any Options, in the case of Options that were partially exercised at the time of their expiration, cancellation or termination), as well as Shares that are subject to Stock Awards made under the Plan that are not actually purchased pursuant to such Stock Awards and Shares that are subject to Restricted Stock or Restricted Stock Units that are forfeited, will again, except to the extent prohibited by law or applicable listing or regulatory requirements, be available for subsequent Award grants under the Plan.
3.6 | Reservation of Shares . |
The number of Shares reserved for issuance with respect to Awards granted under the Plan shall at no time be less than the maximum number of Shares which may be issued or delivered at any time pursuant to outstanding Awards.
ARTICLE IV
ELIGIBILITY
Awards may be granted under the Plan only to persons who are employees or directors of, or consultants to, the Company or any of its Subsidiaries on the date of the grant. Each such person to whom an Award is granted under the Plan is referred to herein as a “ Participant ”.
ARTICLE V
STOCK OPTIONS
5.1 | General . |
Options may be granted under the Plan at any time and from time to time on or prior to the Termination Date. Each Option granted under the Plan shall be designated as an NSO and
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shall be subject to the terms and conditions applicable to NSOs set forth in the Plan. Each Option shall be evidenced by an Award Agreement incorporating the terms and provisions of the Plan that shall be executed by the Company and the Participant. The Award Agreement shall specify the number of Shares for which such Option shall be exercisable, the Option Price (as defined in Section 5.4 below) for such Shares and the other terms and conditions of the Option.
5.2 | Vesting . |
The Committee, in its sole discretion, shall determine and set forth in the Award Agreement whether and to what extent any Options are subject to vesting based upon the Participant’s continued service to, or the Participant’s performance of duties for, the Company and its Subsidiaries, or upon any other basis.
5.3 | Date of Grant . |
Except as may be otherwise provided in an Award Agreement, the date of grant of an Option under this Plan shall be the date as of which the Committee approves the grant.
5.4 | Option Price . |
The Option Price shall be determined by the Committee and set forth in the Award Agreement. In no event, however, may the Committee determine an Option Price that is less than the Fair Market Value of the Share on the date of grant.
5.5 | Automatic Termination of Options . |
Each Option granted under the Plan, to the extent not previously exercised, shall automatically terminate and shall become null and void and be of no further force or effect upon such date or dates as are set forth in the applicable Award Agreement, consistent with the terms of the Plan.
5.6 | Payment of Option Price . |
The aggregate Option Price shall be paid in cash (by wire transfer of immediately available funds to a bank account of the Company designated by the Committee or by delivery of a personal or certified check payable to the Company); provided that the Committee may, in its sole discretion, specify one or more of the following other forms of payment which may be used by a Participant (but only to the extent permitted by applicable law) upon exercise of his Option:
(a) by surrender of Shares (by delivery of such Shares or by attestation) with a Fair Market Value equal to the Option Price which were obtained by the Participant in the public market (but, subject in any case, to the applicable limitations of Rule 16b-3 under the Exchange Act);
(b) to the extent permitted by applicable law, if the Common Stock is a class of securities then listed or admitted to trading on any national securities exchange or traded on any national market system (including, but not limited to, The Nasdaq National Market), in compliance with any cashless exercise program authorized by the Board or the Committee for use in connection with the Plan at the time of such exercise (but, subject in any case, to the applicable limitations of Rule 16b-3 under the Exchange Act); or
(c) a combination of the methods set forth in this Section 5.6 .
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5.7 | Notice of Exercise . |
A Participant (or other person, as provided in Section 11.2 ) may exercise an Option (for the Shares represented thereby) granted under the Plan in whole or in part (but for the purchase of whole Shares only), as provided in the Award Agreement evidencing his Option, by delivering a written notice (the “ Notice ”) to the Secretary of the Company. The Notice shall state:
(a) that the Participant elects to exercise the Option;
(b) the number of Shares with respect to which the Option is being exercised (the “ Option Shares ”);
(c) the method of payment for the Option Shares (which method must be available to the Participant under the terms of his Award Agreement);
(d) the date upon which the Participant desires to consummate the purchase of the Option Shares (which date must be prior to the termination of such Option); and
(e) any additional provisions consistent with the Plan as the Committee may from time to time require.
The exercise date of an Option shall be the date on which the Company receives the Notice from the Participant. Such Notice shall also contain, to the extent such Participant is not then a party to the Securityholders Agreement (and the Securityholders Agreement has not been terminated prior to such date), an Adoption Agreement, in form and substance satisfactory to the Board pursuant to which the Participant agrees to become a party to the Securityholders Agreement.
5.8 | Issuance of Certificates . |
The Company shall issue stock certificates in the name of the Participant (or other person exercising the applicable Option in accordance with the provisions of Section 11.2 ), representing the Shares purchased upon exercise of the Option as soon as practicable after receipt of the Notice and payment of the aggregate Option Price for such Shares; provided that the Company, in its sole discretion, may elect to not issue any fractional Shares upon the exercise of an Option (determining the fractional Shares after aggregating all Shares issuable to a single holder as a result of an exercise of an Option for more than one Share) and, in lieu of issuing such fractional Shares, shall pay the Participant the Fair Market Value thereof as determined by the Board in good faith. Neither the Participant nor any person exercising an Option in accordance with the provisions of Section 11.2 shall have any privileges as a stockholder of the Company with respect to any Shares of stock issuable upon exercise of an Option granted under the Plan until the date of issuance of stock certificates representing such Shares pursuant to this Section 5.8 .
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ARTICLE VI
STOCK AWARDS
6.1 | General . |
Stock Awards may be granted under the Plan at any time and from time to time on or prior to the Termination Date. Each Stock Award shall be evidenced by an Award Agreement that shall be executed by the Company and the Participant. The Award Agreement shall specify the terms and conditions of the Stock Award, including, without limitation, the number of Shares covered by the Stock Award, the Purchase Price (as defined in Section 6.2 below), if any, for such Shares and the deadline for the purchase of such Shares.
6.2 | Purchase Price; Payment . |
The price (the “ Purchase Price ”), if any, at which each Share covered by the Stock Award may be purchased upon exercise of a Stock Award shall be determined by the Committee and set forth in the applicable Award Agreement. The Company will not be obligated to issue certificates evidencing Shares purchased under this Article VI unless and until it receives full payment of the aggregate Purchase Price therefor and all other conditions to the purchase, as reasonably determined by the Committee, have been satisfied. The Purchase Price of any shares subject to a Stock Award must be paid in full at the time of the purchase.
ARTICLE VII
RESTRICTED STOCK
7.1 | General . |
Shares of Restricted Stock may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the employees, consultants and directors to whom and the time or times at which grants of Restricted Stock will be awarded, the number of Shares to be awarded to any Participant, the conditions for vesting, the time or times within which such Awards may be subject to forfeiture and any other terms and conditions of the Awards, in addition to those contained in Section 7.3 . The Committee may, prior to grant, condition the vesting of Restricted Stock upon continued service of the Participant. The provisions of Restricted Stock Awards need not be the same with respect to each recipient.
7.2 | Awards and Certificates . |
Shares of Restricted Stock shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates. Any certificate issued in respect of Shares of Restricted Stock shall be registered in the name of such Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award. The Committee may require that the certificates evidencing such Shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the Participant shall have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such Award.
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7.3 | Terms and Conditions . Shares of Restricted Stock shall be subject to the following terms and conditions: |
(a) Subject to the provisions of the Plan and the Award Agreement referred to in Section 7.3(d) , during the restricted period, the Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Shares of Restricted Stock. Within these limits, the Committee may provide for the lapse of restrictions based upon period of service in installments or otherwise and may accelerate or waive, in whole or in part, restrictions based upon period of service.
(b) Except as provided in this paragraph (b) and paragraph (a), above, and unless otherwise provided in the applicable Award Agreement, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a stockholder of the Company holding the class or series of Shares that is the subject of the Restricted Stock, including, if applicable, the right to vote the Shares and the right to receive any cash dividends. Dividends payable in Shares and other non-cash dividends and distributions and extraordinary cash dividends shall be held subject to the vesting of the underlying Restricted Stock, unless the Committee determines otherwise in the applicable Award Agreement or makes an adjustment or substitution to the Restricted Stock pursuant to Article X hereof in connection with such dividend or distribution.
(c) If and when any applicable Restriction Period expires without a prior forfeiture of the Restricted Stock, unlegended certificates for such Shares shall be delivered to the Participant upon surrender of the legended certificates.
(d) Each Award of Restricted Stock shall be confirmed by, and be subject to, the terms of an Award Agreement.
ARTICLE VIII
RESTRICTED STOCK UNITS
8.1 | Nature of Award . |
Restricted Stock Units are Awards denominated in Shares that will be settled, subject to the terms and conditions of the Restricted Stock Units, either by delivery of Shares to the Participant or by the payment of cash based upon the Fair Market Value of a specified number of Shares. Restricted Stock Units may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the employees, consultants and directors to whom and the time or times at which grants of Restricted Stock Units will be awarded, the number of Shares to be awarded to any Participant, the conditions for vesting, the time or times within which such Awards may be subject to forfeiture and any other terms and conditions of the Awards, in addition to those contained in Section 8.2 .
8.2 | Terms and Conditions . |
The Committee may, in connection with the grant of Restricted Stock Units, condition the vesting thereof upon the continued service of the Participant. Each Award of Restricted
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Stock Units shall be confirmed by, and be subject to, the terms of an Award Agreement. The applicable Award Agreement shall specify the consequences for the Restricted Stock Units of the Participant’s Termination of Service. An Award of Restricted Stock Units shall be settled as and when the Restricted Stock Units vest or at a later time specified by the Committee or in accordance with an election of the Participant, if the Committee so permits. Restricted Stock Units may not be sold, assigned, transferred, pledged or otherwise encumbered until they are settled, except to the extent provided in the applicable Award Agreement in the event of the Participant’s death. The Award Agreement for Restricted Stock Units shall specify whether, to what extent and on what terms and conditions the applicable Participant shall be entitled to receive current or deferred payments of cash, Common Stock or other property corresponding to dividends payable on the Common Stock (subject to Section 21.3 below).
ARTICLE IX
OTHER STOCK-BASED AWARDS
Other Awards of Common Stock and other Awards that are valued in whole or in part by reference to, or are otherwise based upon, Common Stock, including (without limitation) dividend equivalents and convertible debentures, may be granted under the Plan.
ARTICLE X
ADJUSTMENTS
In the event of an extraordinary stock dividend, stock split, reverse stock split, share combination, or recapitalization or similar event affecting the capital structure of the Company, an extraordinary cash dividend, separation, spinoff or a reorganization (each, an “ Adjustment Event ”), the Committee or the Board shall make such equitable adjustments, if any, as it deems appropriate and equitable to reflect such change with respect to the aggregate number and kind of Shares or other securities reserved for issuance and delivery under the Plan, the number and kind of Shares or other securities subject to outstanding Awards, performance metrics and targets underlying outstanding Awards, and the Option Price of outstanding Options. In the event of a merger, consolidation, acquisition of property or shares, stock rights offering, liquidation, disaffiliation, or similar event affecting the Company or any of its Subsidiaries (each, a “ Corporate Transaction ”), the Committee or the Board may in its discretion make such substitutions or adjustments as it deems appropriate and equitable to the aggregate number and kind of Shares or other securities reserved for issuance and delivery under the Plan, the number and kind of Shares or other securities subject to outstanding Awards, performance metrics and targets underlying outstanding Awards, and the Option Price of outstanding Options. In the case of Corporate Transactions, such adjustments may include, without limitation, the cancellation of outstanding Awards in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Awards, as determined by the Committee or the Board in its sole discretion (it being understood that in the case of a Corporate Transaction with respect to which holders of Common Stock receive consideration other than publicly traded equity securities of the ultimate surviving entity, any such determination by the Committee that the value of an Option shall for this purpose be deemed to equal the excess, if any, of the value of the consideration being paid for each Share pursuant to such Corporate Transaction over the Option Price
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of such Option shall conclusively be deemed valid), and/or the substitution of other property (including, without limitation, cash or other securities of the Company and securities of entities other than the Company) for the Shares subject to outstanding Awards. Any adjustments referred to in this paragraph shall be made by the Committee or the Board in its discretion and shall, absent manifest error, be conclusive and binding on all Persons holding any Awards granted under the Plan.
ARTICLE XI
RESTRICTIONS ON AWARDS
11.1 | Compliance With Securities Laws . |
No Awards shall be granted under the Plan, and no Shares shall be issued and delivered pursuant to Awards granted under the Plan, unless and until the Company and/or the Participant shall have complied with all applicable Federal, state or foreign registration, listing and/or qualification requirements and all other requirements of law or of any regulatory agencies having jurisdiction. The Committee in its discretion may, as a condition to the delivery of any Shares pursuant to any Award granted under the Plan, require the applicable Participant (i) to represent in writing that the Shares received pursuant to such Award are being acquired for investment and not with a view to distribution and (ii) to make such other representations and warranties as are deemed reasonably appropriate by the Committee. Stock certificates representing Shares acquired under the Plan that have not been registered under the Securities Act shall, if required by the Committee, bear such legends as may be required by the Securityholders Agreement or the applicable Award Agreement.
11.2 | Nonassignability of Awards . |
No Award granted under this Plan shall be assignable or otherwise transferable by the Participant, except by designation of a beneficiary, by will or by the laws of descent and distribution. An Award may be exercised during the lifetime of the Participant only by the Participant, unless the Participant becomes subject to a Disability. If a Participant dies or becomes subject to a Disability, his Options shall thereafter be exercisable, during the period specified in the applicable Award Agreement (as the case may be), by his designated beneficiary or if no beneficiary has been designated in writing, by his executors or administrators to the full extent (but only to such extent) to which such Options were exercisable by the Participant at the time of (and after giving effect to any vesting that may occur in connection with) his death or Disability. Before granting any Awards or issuing any Shares under the Plan to any person who is not already a party to the Securityholders Agreement, the Company shall obtain an executed Adoption Agreement from such person, in form and substance satisfactory to the Company, unless a Qualified Public Offering shall have already occurred prior to such grant or issuance.
11.3 | No Right to an Award or Grant . |
Neither the adoption of the Plan nor any action of the Board or the Committee shall be deemed to give an employee, director, or consultant any right to be granted an Option to purchase Common Stock, receive an Award under the Plan except as may be evidenced by an
13
Award Agreement duly executed on behalf of the Company, and then only to the extent of and on the terms and conditions expressly set forth in the Award Agreement. The Plan will be unfunded. The Company will not be required to establish any special or separate fund or to make any other segregation of funds or assets to assure the payment of any Award.
11.4 | No Evidence of Employment or Service . |
Nothing contained in the Plan or in any Award Agreement shall confer upon any Participant any right with respect to the continuation of his employment by or service with the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any such Subsidiary, in its sole discretion (subject to the terms of any separate agreement to the contrary), at any time to terminate such employment or service or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Award.
11.5 | No Restriction of Corporate Action . |
Nothing contained in the Plan or in any Award Agreement will be construed to prevent the Company or any Subsidiary or Affiliate of the Company from taking any corporate action which is deemed by the Company or by its Subsidiaries and Affiliates to be appropriate or in its best interest, whether such action would have an adverse effect on the Plan or any Award made under the Plan. No Participant or beneficiary of a Participant will have any claim against the Company or any Affiliate as a result of any corporate action.
ARTICLE XII
TERM OF THE PLAN
This Plan shall become effective on the Effective Date and shall terminate on the Termination Date. No Awards may be granted after the Termination Date. Any Award outstanding as of the Termination Date shall remain in effect and the terms of the Plan will apply until such Award terminates as provided in the Plan or the applicable Award Agreement.
ARTICLE XIII
AMENDMENT OF PLAN
The Plan may be modified or amended in any respect, and at any time or from time to time, by the Board or by the Committee with the prior approval of the Board. Notwithstanding the foregoing, the Plan may not be modified or amended as it pertains to any existing Award Agreement without the consent of an applicable Participant where such modification or amendment would materially impair the rights of such Participant. In addition, no such amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by applicable law or regulation or the listing standards of the securities exchange, which is, at the applicable time, the principal market for the Common Stock.
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ARTICLE XIV
CAPTIONS
The use of captions in the Plan is for convenience. The captions are not intended to provide substantive rights.
ARTICLE XV
WITHHOLDING TAXES
Upon any exercise or payment of any Award, the Company shall have the right at its option and in its sole discretion to (i) require the Participant to pay or provide for payment of the amount of any taxes which the Company or any Subsidiary may be required to withhold with respect to such exercise or payment, (ii) deduct from any amount payable to the Participant in cash or securities in respect of the Award the amount of any taxes which the Company may be required to withhold with respect to such exercise or payment, or (iii) reduce the number of Shares to be delivered to the Participant in connection with such exercise or payment by the appropriate number of Shares, valued at their then Fair Market Value, to satisfy the minimum withholding obligation. In no event will the value of Shares withheld under clause (iii) above exceed the minimum amount of required withholding under applicable law.
ARTICLE XVI
SECTION 83(B) ELECTION
To the extent permitted by the Board or Committee, each Participant of a Stock Award or Restricted Stock may, but is not obligated to, make an election under Section 83(b) of the Code to be taxed currently with respect to any Award issued under this Plan. The election permitted under this Article XVI shall comply in all respects with and shall be made within the period of time prescribed under Section 83(b) of the Code. Each Participant shall prepare such forms as are required to make an election under Section 83(b) of the Code. The Company shall have no liability to any grantee who fails to make a permitted Section 83(b) election in a timely manner.
ARTICLE XVII
CODE SECTION 409A COMPLIANCE
If any distribution or settlement of an Award pursuant to the terms of this Plan or an Award Agreement would subject a Participant to tax under Section 409A of the Code, the Company may modify the Plan or applicable Award Agreement in the least restrictive manner necessary in order to comply with the provisions of Section 409A of the Code, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and, in each case, without any material diminution in the value of the payments to an affected Participant. Any settlement of Awards subject to Section 409A of the Code in connection with a Change in Control shall be effectuated in a manner that complies with the requirements of Section 409A.
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ARTICLE XVIII
SECTION 16 COMPLIANCE
In the event that the Company becomes subject to Section 16 of the Exchange Act, it is intended that the Plan and any Award made to a Participant subject to Section 16 of the Exchange Act will meet all of the requirements of Rule 16b-3. Accordingly, unless otherwise provided by the Committee, if any provisions of the Plan or any Award would disqualify the Plan or the Award, or would otherwise not comply with Rule 16b-3, such provision or Award will be construed or deemed amended to conform to Rule 16b-3.
ARTICLE XIX
OTHER PROVISIONS
Each Award granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion.
ARTICLE XX
NUMBER AND GENDER
With respect to words used in the Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, and vice versa, as the context requires.
ARTICLE XXI
MISCELLANEOUS
21.1 | Subsidiary Employees . |
In the case of a grant of an Award to an employee or consultant of any Subsidiary of the Company, the Company may, if the Committee so directs, issue or transfer the shares of Common Stock, if any, covered by the Award to the Subsidiary, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Subsidiary will transfer the shares of Common Stock to the employee or consultant in accordance with the terms of the Award specified by the Committee pursuant to the provisions of the Plan. All shares of Common Stock underlying Awards that are forfeited or canceled should revert to the Company.
21.2 | Foreign Employees and Foreign Law Considerations . |
The Committee may grant Awards to individuals who are eligible to participate in the plan who are foreign nationals, who are located outside the United States or who are not compensated from a payroll maintained in the United States, or who are otherwise subject to (or could cause the Company to be subject to) legal or regulatory provisions of countries or jurisdictions outside the United States, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote
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achievement of the purposes of the Plan, and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, or subplans as may be necessary or advisable to comply with such legal or regulatory provisions.
21.3 | Limitation on Dividend Reinvestment and Dividend Equivalents . |
Reinvestment of dividends in additional Restricted Stock at the time of any dividend payment, and the payment of Shares with respect to dividends to Participants holding Awards of Restricted Stock Units, shall only be permissible if sufficient Shares are available under Section 3.5 for such reinvestment (taking into account then outstanding Options and other Awards).
ARTICLE XXII
GOVERNING LAW
All questions concerning the construction, interpretation and validity of the Plan and the instruments evidencing the Awards granted hereunder shall be governed by and construed and enforced in accordance with the domestic laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. In furtherance of the foregoing, the internal law of the State of Delaware will control the interpretation and construction of this Plan, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.
* * * * * *
As adopted by the Board of Directors of AP Gaming Holdco, Inc. on April 28, 2014.
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EXHIBIT 10.13
SUBSCRIPTION AGREEMENT
BETWEEN
APOLLO GAMING HOLDINGS, L.P.
AND
AP GAMING HOLDCO, INC.
STOCK SUBSCRIPTION AGREEMENT dated as of May 28, 2015 (this “ Agreement ”), between Apollo Gaming Holdings, L.P., a Delaware limited partnership (“ Parent ”), and AP Gaming Holdco, Inc., a Delaware corporation (the “ Corporation ”).
Parent hereby subscribes for and offers to purchase, and the Corporation hereby accepts such offer and agrees to issue to Parent, 4,931,529 shares of its Common Stock, par value $0.01 per share, in consideration of the payment by Parent to it on or before the date hereof of cash in the amount of $77,425,000, the receipt of which is hereby acknowledged.
The Corporation represents and warrants that such shares are validly issued, fully paid and nonassessable.
This Agreement may be executed in one or more counterparts, each of which when so executed and delivered shall be an original, but all of such counterparts shall together constitute but one and the same instrument.
This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware without regard to principles of conflict of laws.
[ Signature Page Follows ]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date hereof
APOLLO GAMING HOLDINGS, L.P. | ||
By: | Apollo Gaming Holdings GP, LLC its General Partner | |
By: |
/s/ David B. Sambur |
|
Name: | David B. Sambur | |
Title: | Chief Executive Officer, President, Treasurer and Secretary |
[Signature Page to Subscription Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date hereof
AP GAMING HOLDCO, INC. | ||
By: |
/s/ David Lopez |
|
Name: | David Lopez | |
Title: | Chief Executive Officer, President and Secretary |
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “ Agreement ”) is entered into as of April 28, 2014 by and between AP Gaming Holdco, Inc., a Delaware corporation (“ Parent ”), and David Lopez (the “ Executive ”).
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period . Parent hereby agrees to cause AGS Capital, LLC, a subsidiary of Parent (the “ Company ”), to employ the Executive, and the Executive hereby agrees to serve the Company, subject to the terms and conditions of this Agreement, for the period commencing on February 3, 2014 and ending on the third anniversary thereof (the “ Employment Period ”); provided , however , that commencing on such third anniversary, and on each subsequent anniversary of such date (such third anniversary and each annual anniversary thereof shall each be hereinafter referred to as a “ Renewal Date ”), unless previously terminated, the Employment Period shall be automatically extended so as to terminate on the first anniversary of such Renewal Date, unless, at least 90 days prior to a Renewal Date, either party shall give notice to the other that the Employment Period shall not be so extended. Notwithstanding the foregoing, the Employment Period shall immediately expire upon any termination of the Executive’s employment with the Company and its subsidiaries pursuant to Section 3 hereof.
2. Terms of Employment . (a) Position; Location . During the Employment Period, the Executive shall serve as President and Chief Executive Officer of the Company, and shall serve on the Board of Directors of the Company (the “ Board ”). During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business attention and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use his reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, the Executive’s services shall be performed in the Las Vegas, Nevada area, subject to business travel at the Company’s request.
(b) Compensation and Employee Benefits .
(i) Base Salary . During the Employment Period, the Executive shall receive an annual base salary (“ Base Salary ”) of no less than $500,000, payable in accordance with the Company’s regular payroll practices. The Base Salary shall be reviewed periodically, and, if adjusted (but not below $500,000), the term “Base Salary” shall refer to such adjusted amount.
(ii) Annual Bonus . During the Employment Period, the Executive shall be eligible to receive an annual performance-based bonus pursuant to an annual plan to be established by the Company, with an annual target bonus of $500,000. Actual annual bonus amounts shall be determined by the Board in its sole discretion. With respect to each of the first five annual bonuses payable to the Executive hereunder, the actual bonus amount determined by the Board shall be reduced by $25,000.
(iii) Other Employee Benefit Plans . During the Employment Period, the Executive shall be entitled to participate in employee benefit plans, practices, policies and programs generally applicable to employees of the Company on the same terms applicable to similarly situated senior executives of the Company.
(iv) Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the Company’s policies.
(v) Vacation . During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company as in effect with respect to similarly situated senior executives of the Company.
(vi) Indemnification . During the Employment Period, the Executive shall be provided with directors and officers indemnification insurance coverage in accordance with the terms of the Company’s policies for similarly situated directors and officers as in effect from time to time (which policies may be subject to change).
3. Termination of Employment . (a) Death or Disability . The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 9(b) hereof of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “ Disability Effective Date ”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 90 business days within a one-year period as a result of incapacity due to mental or physical illness which is determined to be permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.
(b) Cause . The Company may terminate the Executive’s employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, “ Cause ” shall mean the Executive’s termination of employment based upon any one of the following, as determined in good faith by the Board: (i) illegal fraudulent conduct, (ii) conviction of or plea of “guilty” or “no contest” to any crime constituting a felony or other crime involving dishonesty, breach of trust, moral turpitude or physical harm to any person, (iii) a determination by the Board that the Executive’s involvement with the Company would have a negative impact on the Company’s ability to receive or retain any licenses, (iv) being found unsuitable for, or having been denied, a gaming license, or having such license revoked by a gaming regulatory authority in any jurisdiction in which the Company or any of its subsidiaries or affiliates conducts operations, (v) willful or material misrepresentation to the Company or to members of the Board relating to the business, assets or operations of the Company, (vi) refusal to take any action that is consistent with the Executive’s obligations and responsibilities hereunder as reasonably directed by the Board, if such refusal is not cured within five days of written notice from the Board, or (vii) material breach of any agreement with the Company and its affiliates, which material breach has not been cured within 30 days of written notice from the Board.
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(c) Good Reason . The Executive’s employment may be terminated by the Executive for Good Reason or without Good Reason. For purposes of this Agreement, “ Good Reason ” shall mean the Executive’s voluntary resignation after any of the following actions are taken by the Company or any of its subsidiaries without the Executive’s consent: (i) removal of the Executive from the office of President and Chief Executive Officer of the Company or a change in reporting lines such that the Executive no longer reports to the Board, (ii) a requirement that the Executive be based anywhere other than within 35 miles of Las Vegas, Nevada, or (iii) a notice pursuant to Section 1 hereof from the Company to the Executive of non-extension of the Employment Period; provided , however , that a termination will not be for “Good Reason” under this Section 3(c) unless the Executive shall have provided written notice to the Company of the existence of one of the conditions described in this Section 3(c) within 30 days following the initial existence of such condition, specifying in reasonable detail such condition, the Company shall have had 30 days following receipt of such written notice (the “ Cure Period ”) to remedy the condition, the Company shall have failed to remedy the condition constituting Good Reason during the applicable Cure Period, the Executive shall have thereafter and prior to the Date of Termination provided a Notice of Termination (as defined below) to the Company, and the Executive’s Date of Termination (as defined below) shall have occurred within 30 days following expiration of such Cure Period.
(d) Notice of Termination . Any termination by the Company for Cause or without Cause, or by the Executive for Good Reason or without Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(b) hereof. For purposes of this Agreement, a “ Notice of Termination ” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice).
(e) Date of Termination . “ Date of Termination ” means (i) if the Executive’s employment is terminated by the Company for Cause or without Cause, or by the Executive for or without Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be (except that in the case of a termination by the Executive, the Company may in its sole discretion change any such later date to a date of its choosing between the date of such receipt and such later date), and (ii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. Effective upon the Date of Termination, the Executive hereby resigns from the Board and from all offices and positions that he then holds with the Company and its affiliates, and agrees to execute all documentation and take all other actions necessary to effectuate such resignations. Notwithstanding any provision of this Agreement to the contrary, any references to termination of the Executive’s employment or Date of Termination shall mean, to the extent necessary to avoid the imposition of excise taxes and penalties under Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”), and refer to the date of the Executive’s “separation from service,” as that term is defined in Section 409A and Treasury Regulations Section 1.409A-1(h).
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4. Obligations of the Company upon Termination .
(a) Good Reason; Other Than for Cause, Death or Disability . If, during the Employment Period, the Company terminates the Executive’s employment other than for Cause or Disability or the Executive resigns employment for Good Reason, then, the Company shall:
(i) pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of the Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, and any accrued but unpaid vacation (the “ Accrued Obligations ”);
(ii) subject to the Executive’s execution within 50 days of the Date of Termination (and non-revocation) of a release of claims in a form satisfactory to the Company (the “ Release Requirements ”) and the Executive’s continued compliance with the Covenants (as defined in Section 7), continue the Executive’s Base Salary in effect prior to the Date of Termination through the second anniversary thereof in accordance with the Company’s payroll practices as in effect on the Date of Termination (it being understood that in the event that the Executive does not ultimately satisfy the Release Requirements or comply with the Covenants, the Executive shall return any continuation payments previously made pursuant to this clause);
(iii) subject to the Executive’s compliance with the Release Requirements and the Executive’s continued compliance with the Covenants, make available continued health benefits to the Executive and his eligible dependents pursuant to the Consolidated Budget Reconciliation Act of 1985, at no greater cost to the Executive than would apply if he were an active employee, through the first to occur of (A) his commencement of employment with a subsequent employer and (B) the date that is 18 months following the Date of Termination (or, if earlier, the date such benefit is determined to constitute a discriminatory benefit under, result in the imposition of an excise tax under, or otherwise violate, Section 105(h) of the Internal Revenue Code of 1986, as amended, or the Patient Protection and Affordable Care Act); and
(iv) to the extent not theretofore paid or provided, timely pay or provide, in accordance with the terms of the applicable plan, program, policy, practice, or contract, to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice or contract of the Company through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the “ Other Benefits ”).
(b) Other Termination . If the Executive’s employment is terminated during the Employment Period for a reason other than those governed by Section 4(a) hereof, the Employment Period shall terminate without further obligations to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits.
5. Non-exclusivity of Rights . Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice, program or contract or agreement except as explicitly modified by this Agreement. Notwithstanding the foregoing, if the Executive receives payments and benefits pursuant to Section 4(a) hereof, the Executive shall not be entitled
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to any severance pay or benefits under any severance plan, program or policy of the Company and its affiliates, unless otherwise specifically provided therein in a specific reference to this Agreement.
6. No Mitigation . In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of any amounts payable to the Executive under Section 4(a) hereof and such amounts shall not be reduced whether or not the Executive obtains other employment.
7. Restrictive Covenants . (a) Confidentiality; Work Product . During the Executive’s employment with the Company and its subsidiaries and thereafter, the Executive will not divulge, transmit or otherwise disclose (except as legally compelled by court order), directly or indirectly, any confidential knowledge or information with respect to the operations, finances, organization or employees of the Company or its affiliates or with respect to confidential or secret processes, services, techniques, customers or plans with respect to the Company and its affiliates, and the Executive will not use, directly or indirectly, any confidential information of the Company and its affiliates for the benefit of anyone other than the Company or its affiliates (provided, however, that the Executive’s employment by a subsequent employer while he still has knowledge of any such information shall not, by itself, constitute a breach of this provision, so long as he does not disclose the same to any third party). All new processes, techniques, know-how, inventions, plans, products, patents and devices developed, made or invented by the Executive, alone or with others, while an employee of the Company and its subsidiaries which are related to the business of the Company or its affiliates shall be and become the sole property of the Company, and the Executive hereby assigns any and all rights therein or thereto to the Company. All files, records, correspondence, memoranda, notes or other documents (including, without limitation, those in computer-readable form) or property relating or belonging to the Company and its affiliates, whether prepared by the Executive or otherwise coming into his possession in the course of the performance of his services, shall be the exclusive property of the Company and shall be delivered to the Company and not retained by the Executive (including, without limitation, any copies thereof) upon termination of employment for any reason whatsoever.
(b) Noncompetition . While employed by the Company and its subsidiaries and for a period of 24 months thereafter (the “ Restricted Period ”), the Executive shall not, within any jurisdiction or marketing area in which the Company or any of its subsidiaries is doing business or intends to do business at any time during his employment with the Company and its affiliates or during the six-month period following the termination of such employment, directly or indirectly, own, manage, operate, control, consult with, be employed by, participate in the ownership, management, operation or control of, or otherwise render services to or engage in, any business that engages in any line of business conducted by the Company and its subsidiaries at any time during his employment with the Company and its affiliates or during the six-month period following the termination of such employment (each a “ Competitive Business ”); provided, that his ownership of securities of 2% or less of any publicly traded class of securities of a public company shall not violate this paragraph.
(c) Nonsolicitation . During the Restricted Period, the Executive will not, directly or indirectly, (i) solicit for employment any individual who is then an employee of the
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Company or its subsidiaries or who was an employee of the Company or its subsidiaries within the previous 12 months (a “ Covered Employee ”), or (ii) contract for, hire or employ any Covered Employee earning at least $100,000 in annualized base compensation as of the Covered Employee’s most recent date of employment with the Company. During the Restricted Period, the Executive will also not take any action that could reasonably be expected to have the effect of encouraging or inducing any employee, representative, officer or director of the Company or any of its subsidiaries to cease his or her relationship with the Company or any of its subsidiaries for any reason. In addition, during the Restricted Period, the Executive will not, with respect to providing services in a Competitive Business, solicit for business or accept the business of, any person or entity who is, or was at any time within the previous twelve months, a customer of the business conducted by the Company (or potential customer with whom the Company had initiated contact) or its affiliates.
(d) Nondisparagement . At all times during his employment and thereafter, the Executive will refrain from all conduct, verbal or otherwise, that disparages or damages the reputation, goodwill, or standing in the community of Apollo Management VIII, LP (“ Apollo ”), the Company or any of their respective affiliates; and, at all times during his employment and thereafter, the Company and its subsidiaries will, subject to requirements of law, refrain from all conduct, verbal or otherwise, that disparages or damages the reputation, goodwill, or standing in the community of the Executive.
(e) Representations . The Executive represents to the Company and its affiliates, including Apollo that, in fulfilling his duties or responsibilities to the Company and its affiliates or for any other reason, he will not disclose or disseminate any information from any of his former employers that would be considered by such former employers to be confidential information. In addition, he represents that, except as previously disclosed to Apollo in writing (“ Disclosed Arrangements ”), he is not subject to any covenant not to compete that would limit his ability to fulfill his duties and responsibilities hereunder. Apollo agrees to indemnify, defend and hold the Executive harmless from and against any and all damages, costs and expenses (including attorney fees) resulting from any claim by a third party of a breach of a covenant not to compete in a Disclosed Arrangement that is directly related to his being employed by the Company.
(f) Remedies . The parties agree that the provisions of Sections 7(a), 7(b), 7(c) and 7(d) (the “ Covenants ”) have been specifically negotiated by sophisticated commercial parties and agree that all such provisions are reasonable under the circumstances of the activities contemplated by this Agreement. The Executive acknowledges and agrees that the Covenants are reasonable in light of all of the circumstances, are sufficiently limited to protect the legitimate interests of the Company and its affiliates, impose no undue hardship on the Executive, and are not injurious to the public, and further acknowledges and agrees that the Executive’s breach of the Covenants will cause the Company irreparable harm, which cannot be adequately compensated by money damages, and that if the Company elects to prevent the Executive from breaching such provisions by obtaining an injunction against the Executive, there is a reasonable probability of the Company’s eventual success on the merits. Accordingly, notwithstanding Section 9(a) hereof, the Executive consents and agrees that if the Executive commits any such breach or threatens to commit any breach, the Company shall be entitled to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security
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and without the necessity of proof of actual damage, in addition to, and not in lieu of, such other remedies as may be available to the Company for such breach, including the recovery of money damages. In the event that the Covenants shall be determined by any court of competent jurisdiction to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which they may be enforceable and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action.
(g) Survival . The provisions of this Section 7 shall survive termination of the Employment Period for any reason.
8. Successors . (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
9. Miscellaneous . (a) Governing Law and Dispute Resolution . This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without reference to principles of conflict of laws. Subject to Section 7(f) hereof, any controversy or claim arising out of or relating to this Agreement shall be settled by final, binding and nonappealable arbitration in New York, New York. Subject to the following provisions, any such arbitration shall be conducted in accordance with the rules of the American Arbitration Association then in effect. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(b) Notices . All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: To the most recent address on file with the Company.
If to the Company, to:
AP Gaming Holdco, Inc.
6680 Amelia Earhart Court
Las Vegas, NV 89119
Facsimile: (702) 722-6705
Attention: Vic Gallo
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with a copy (which shall not constitute notice) to:
Apollo Management, L.P.
9 West 57th Street
43rd Floor
New York, New York 10019
Facsimile: (646) 350-1501
Attention: David Sambur
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) Tax Withholding . The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(d) Section 409A . It is intended that payments and benefits made or provided under this Agreement shall comply with Section 409A or an exemption thereto. For purposes of the limitations on nonqualified deferred compensation under Section 409A, each payment of compensation under this Agreement shall be treated as a separate payment of compensation for purposes of applying the exclusion under Section 409A for short-term deferral amounts, the separation pay exception or any other exception or exclusion under Section 409A. All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under Section 409A to the extent necessary in order to avoid the imposition of penalty taxes on the Executive pursuant to Section 409A. In no event may the Executive, directly or indirectly, designate the calendar year of any payment under this Agreement. Notwithstanding anything to the contrary in this Agreement, all reimbursements and in-kind benefits provided under this Agreement that are subject to Section 409A shall be made in accordance with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement); (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. Without limiting the generality of the foregoing, to the extent required in order to comply with Section 409A, amounts and benefits to be paid or provided under Section 4(a) hereof during the period between the Executive’s termination of service with the Company and the six-month anniversary thereof, shall be paid or provided to the Executive on the first business day after the date that is six months following the date of such termination.
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(e) Whole Agreement . This Agreement supersedes all agreements between the parties covering the same subject matter, including, without limitation, the management employment term sheet between the Executive and the Company, dated January 27, 2014. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
[ Signature Page Follows ]
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from its Board of Directors, Parent has caused these presents to be executed in its name of its behalf, all as of the day and year first above written.
/s/ David Lopez |
||
DAVID LOPEZ | ||
AP GAMING HOLDCO, INC. | ||
By: |
/s/ David Sambur |
|
Name: | David Sambur | |
Title: | Chief Executive Officer, President, Treasurer and Secretary |
[Signature Page to Lopez Employment Agreement]
Exhibit 10.15
NON QUALIFIED STOCK OPTION AGREEMENT (this “ Agreement ”) dated as of April 28, 2014, between AP GAMING HOLDCO, INC. , a Delaware corporation (the “ Company ”), and the Optionee set forth on the signature page to this Agreement (the “ Optionee ”). |
WHEREAS , the Company, acting through the Company’s Board of Directors (the “ Board ”) has agreed to grant to the Optionee, effective on the date hereof (the “ Grant Date ”), an option under the AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan (the “ Plan ”) (capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Plan or the Securityholders Agreement (as defined in the Plan), as the case may be) to purchase a number of shares of Common Stock (“ Shares ”) on the terms and subject to the conditions set forth in this Agreement and the Plan;
WHEREAS , as of the date hereof the Optionee is purchasing Shares from the Company pursuant to the Subscription Agreement and has entered into an adoption agreement, dated as of the date hereof, pursuant to which the Optionee became a party to the Securityholders Agreement; and
WHEREAS , future securities in the Company (including those being acquired pursuant to this Agreement) owned by the Optionee shall be subject to the terms of the Securityholders Agreement.
NOW, THEREFORE , in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:
Section 1. The Plan . The terms and provisions of the Plan are hereby incorporated into this Agreement as if set forth herein in their entirety. In the event of a conflict between any provision of this Agreement and the Plan, the provisions of the Plan shall control. A copy of the Plan may be obtained from the Company by the Optionee upon request.
Section 2. Option; Option Price . Effective on the Grant Date, on the terms and subject to the conditions of the Plan and this Agreement, the Company hereby grants to the Optionee a fully vested option (the “ Option ”) to purchase Shares on the terms set forth herein and in the amounts set forth on the signature page hereto. To the extent permitted by the Board, payment of the Option Price may be made in any manner specified by Section 5.6 of the Plan. The Option is not intended to qualify for federal income tax purposes as an “incentive stock option” within the meaning of Section 422 of the Code.
Section 3. Term . The term of the Option shall commence on the Grant Date and expire on the earlier of the second anniversary of the Grant Date and the Optionee’s Termination of Service for any reason. Upon expiration, the Option shall immediately terminate and become null and void, unexercisable and be of no further force and effect.
Section 4. Restriction on Transfer/Securityholders Agreement . The Option may not be transferred, pledged, assigned, hypothecated or otherwise disposed of in any way by the Optionee, except (i) if permitted by the Board, (ii) by will or the laws of descent and distribution or
(iii) pursuant to beneficiary designation procedures approved by the Company. The Option shall not be subject to execution, attachment or similar process. Shares of Common Stock acquired pursuant to the exercise of Options hereunder will be subject to the Securityholders Agreement. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of this Agreement or the Securityholders Agreement shall be null and void and without effect.
Section 5. Optionee’s Employment . Nothing in this Agreement or in the Option shall confer upon the Optionee any right to continue in the employ of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or its Subsidiaries, as the case may be, in its sole discretion, to terminate the Optionee’s employment or to increase or decrease the Optionee’s compensation at any time.
Section 6. Securities Law Representations . The Optionee acknowledges that the Option and the Shares are not being registered under the Securities Act of 1933, as amended (the “ Securities Act ”), based, in part, on either (i) reliance upon an exemption from registration under Securities and Exchange Commission Rule 701 promulgated under the Securities Act or (ii) the fact that the Optionee is an “accredited investor” (as defined under the Securities Act and the rules and regulations promulgated thereunder), and, in each of (i) and (ii) above, a comparable exemption from qualification under applicable state securities laws, as each may be amended from time to time. The Optionee, by executing this Agreement, hereby makes the following representations to the Company and acknowledges that the Company’s reliance on federal and state securities law exemptions from registration and qualification is predicated, in substantial part, upon the accuracy of these representations:
(a) The Optionee is an “accredited investor” within the meaning of Rule 501(a)(4), (5) or (6) of the Securities Act.
(b) The Optionee is acquiring the Option and, if and when he exercises the Option, will acquire the Shares solely for the Optionee’s own account, for investment purposes only, and not with a view to or an intent to sell, or to offer for resale in connection with any unregistered distribution, all or any portion of the Shares or Option within the meaning of the Securities Act and/or any applicable state securities laws.
(c) The Optionee acknowledges that he has not acquired the Option or the Shares as a result of any general solicitation or general advertising in the United States, including any meeting whose attendees have been invited by general solicitation or general advertising.
(d) The Optionee has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the Option and the restrictions imposed on any Shares purchased upon exercise of the Option. The Optionee has been furnished with, and/or has access to, such information as he considers necessary or appropriate for deciding whether to exercise the Option and purchase the Shares. However, in evaluating the merits and risks of an investment in the Shares, the Optionee has relied and will rely only upon the advice of his own legal counsel, tax advisors and/or investment advisors.
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(e) The Optionee is aware that the Option may be of no practical value, that any value it may have depends on its exercisability as well as an increase in the Fair Market Value of the underlying Shares to an amount in excess of the Option Price, and that any investment in common shares of a closely held corporation such as the Company is non-marketable, non-transferable and could require capital to be invested for an indefinite period of time, possibly without return, and at substantial risk of loss.
(f) The Optionee understands that the Option and the Shares are being offered in an acquisition not involving any public offering within the United States within the meaning of the Securities Act and that the Option and the Shares have not been and will not be registered under the Securities Act, and that the Option and the Shares are “restricted securities” as defined by Rule 144(a)(3) under the Securities Act, and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances, including in accordance with the conditions of Rule 144 promulgated under the Securities Act or in an offshore acquisition meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act, each as presently in effect. The Optionee acknowledges reviewing a copy of Rule 144 promulgated under the Securities Act and Regulation S under the Securities Act, as presently in effect, and represents that he is familiar with such rule, and understands the resale limitations imposed thereby and by the Securities Act and the applicable state securities law.
(g) The Optionee agrees that he will comply with all applicable laws and regulations in effect in any jurisdiction in which he sells any of the securities or otherwise transfers any interest therein.
(h) The Optionee has read and understands the restrictions and limitations set forth in the Securityholders Agreement, the Plan and this Agreement.
(i) The Optionee understands and acknowledges that, if and when he exercises the Option, (i) any certificate evidencing the Shares (or evidencing any other securities issued with respect thereto pursuant to any stock split, stock dividend, merger or other form of reorganization or recapitalization) when issued shall bear any legends which may be required by applicable federal and state securities laws, and (ii) except as otherwise provided under the Securityholders Agreement, the Company has no obligation to register the Shares or file any registration statement under federal or state securities laws.
Section 7. Designation of Beneficiary . The Optionee may appoint any individual or legal entity in writing as his beneficiary to receive any Option (to the extent not previously terminated or forfeited) under this Agreement upon the Optionee’s death or Disability. The Optionee may revoke his designation of a beneficiary at any time and appoint a new beneficiary in writing. To be effective, the Optionee must complete the designation of a beneficiary or revocation of a beneficiary by written notice to the Company under Section 8 of this Agreement before the date of the Optionee’s death. In the absence of a beneficiary designation, the legal representative of the Optionee’s estate shall be deemed the beneficiary.
Section 8. Notices . All notices, claims, certifications, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and
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delivered if personally delivered or if sent by nationally recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:
If to the Company, to:
AP Gaming Holdco, Inc.
6680 Amelia Earhart Court
Las Vegas, NV 89119
Facsimile: (702) 722-6705
Attention: Vic Gallo
with a copy (which shall not constitute notice) to:
Apollo Management, L.P.
9 West 57th Street
43rd Floor
New York, New York 10019
Facsimile: (646) 350-1501
Attention: David Sambur
If to the Optionee, at the last address in the records of the Company; or, in all cases, to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.
Any such notice or other communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery (or if such date is not a business day, on the next business day after the date of delivery), (b) in the case of nationally recognized overnight courier, on the next business day after the date sent, (c) in the case of telecopy transmission, when received (or if not sent on a business day, on the next business day after the date sent), and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted.
Section 9. Waiver of Breach . The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other or subsequent breach.
Section 10. Optionee’s Undertaking . The Optionee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Agreement and the Plan; provided , however , that such additional actions and documents are consistent with the terms of this Agreement.
Section 11. Modification of Rights . The rights of the Optionee are subject to modification and termination in certain events as provided in this Agreement and the Plan (with respect to the Options granted hereby). Notwithstanding the foregoing, the Optionee’s rights under this Agreement and the Plan may not be materially impaired without the Optionee’s prior written consent.
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Section 12. Governing Law . THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION WOULD ORDINARILY APPLY.
Section 13. Restrictive Covenants . The grant and exercise of Options pursuant to this Agreement shall be subject to the Optionee’s continued compliance with the restrictive covenants in Section 9 of the Securityholders Agreement and the restrictive covenants set forth in any individual agreement between the Optionee and the Company (or one of its Affiliates).
Section 14. Withholding . As a condition to exercising this Option in whole or in part, the Optionee will pay, or make provisions satisfactory to the Company for payment of, any Federal, state and local taxes required to be withheld in connection with such exercise.
Section 15. Counterparts . This Agreement may be executed in one or more counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts together shall constitute but one agreement.
Section 16. Entire Agreement . This Agreement and the Plan (and the other writings referred to herein) constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior written or oral negotiations, commitments, representations and agreements with respect thereto.
Section 17. Severability . It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
Section 18. Waiver of Jury Trial . Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, trial by jury in any suit, action or proceeding arising hereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this Nonqualified Stock Option Agreement as of the date first written above.
AP GAMING HOLDCO, INC. | ||||
By: |
/s/ David Sambur |
|||
Name: | David Sambur | |||
Title: | Chief Executive Officer, President, Treasurer and Secretary | |||
DAVID LOPEZ | ||||
/s/ David Lopez |
Number of Shares of Common subject to the Options: |
30,000 | |||
|
|
|||
Option Price for the Options |
$ | 10.00 each | ||
|
|
Exhibit 10.16
RESTRICTED STOCK AGREEMENT (this “ Agreement ”) dated as of April 28, 2014, between AP GAMING HOLDCO, INC. , a Delaware corporation (the “ Company ”), and the Grantee set forth on the signature page to this Agreement (the “ Grantee ”). |
WHEREAS, the Company, acting through the Company’s Board of Directors has agreed to grant to the Grantee, effective on the date hereof (the “ Grant Date ”), Restricted Shares (as defined below) under the AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan (the “ Plan ”) on the terms and subject to the conditions set forth in this Agreement and the Plan; and
WHEREAS , as of the date hereof the Grantee is purchasing Shares from the Company pursuant to the Subscription Agreement and has entered into an adoption agreement, dated as of April 28, 2014, pursuant to which the Grantee became a party to the Securityholders Agreement; and
WHEREAS , future securities in the Company (including those being acquired pursuant to this Agreement) owned by the Grantee shall be subject to the terms of the Securityholders Agreement.
NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:
Section 1. The Plan . The terms and provisions of the Plan are hereby incorporated into this Agreement as if set forth herein in their entirety. In the event of a conflict between any provision of this Agreement and the Plan, the provisions of the Plan shall control. A copy of the Plan may be obtained from the Company by the Grantee upon request. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Plan.
Section 2. Grant . Subject to the terms of this Agreement, the Company hereby grants to the Grantee an Award of Restricted Stock with respect to an aggregate of 50,000 restricted shares of Common Stock of the Company (subject to adjustment as provided in Article X of the Plan) (the “ Restricted Shares ”).
Section 3. Vesting . The Restricted Shares shall vest, and the restrictions imposed on the Restricted Shares pursuant to this Section 3 shall lapse, in five equal installments on each of the first five anniversaries of the Grant Date; provided that, in each case, the Grantee has not incurred a Termination of Service prior to the applicable vesting date. Notwithstanding the foregoing, in the event that the Grantee incurs a Termination of Service due to a termination by the Company without Cause or by the Grantee for Good Reason, any Restricted Shares that would have vested had the Grantee remained employed through the first anniversary of such Termination of Service shall accelerate and vest upon such Termination of Service. Any Restricted Shares that are not vested as of the date of the Grantee’s Termination of Service, and that do not vest upon such Termination of Service pursuant to the immediately preceding sentence, shall be immediately forfeited upon such Termination of Service. Prior to the vesting of a Restricted
Share, such Restricted Share shall not be transferable by the Grantee by means of sale, assignment, exchange, encumbrance, hypothecation, pledge or otherwise. After vesting of a Restricted Share, such Restricted Share shall have the same attributes, terms and conditions as other Shares, as set forth in the Securityholders Agreement, and shall be subject to repurchase as set forth in the Securityholders Agreement.
Section 4. Grantee’s Service . Nothing in this Agreement shall confer upon the Grantee any right to continue as an employee of, or other service provider to, the Company or any of its Subsidiaries or Affiliates or interfere in any way with the right of the Company, its Subsidiaries or its Affiliates, as the case may be, in their respective sole discretion, to terminate the Grantee’s employment or service relationship or to increase or decrease the Grantee’s compensation at any time.
Section 5. Securities Law Representations . The Grantee acknowledges that the Restricted Shares are not being registered under the Securities Act based, in part, in (i) reliance upon an exemption from registration under Securities and Exchange Commission Rule 701 promulgated under the Securities Act or (ii) the fact that the Grantee is an “accredited investor” (as defined under the Securities Act and the rules and regulations promulgated thereunder), and, in each of clauses (i) and (ii) above, a comparable exemption from qualification under applicable state securities laws, as each may be amended from time to time. The Grantee, by executing this Agreement, hereby makes the following representations to the Company and acknowledges that the Company’s reliance on federal and state securities law exemptions from registration and qualification is predicated, in substantial part, upon the accuracy of these representations:
• | The Grantee is acquiring the Restricted Shares solely for the Grantee’s own account, for investment purposes only, and not with a view or an intent to sell, or to offer for resale in connection with any unregistered distribution, all or any portion of the shares within the meaning of the Securities Act and/or any applicable state securities laws. |
• | The Grantee is an “accredited investor”, as that term is defined in Rule 501(a)(4) (5) or (6) of Regulation D promulgated under the Securities Act. |
• | The Grantee has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the Restricted Shares. The Grantee has been furnished with, and/or has access to, such information as the Grantee considers necessary or appropriate for deciding whether to purchase the Restricted Shares. However, in evaluating the merits and risks of an investment in the Restricted Shares, the Grantee has and will rely only upon the advice of the Grantee’s own legal counsel, tax advisors, and/or investment advisors. |
• | The Grantee is aware that any value the Restricted Shares may have depends on their vesting and certain other factors, and that any investment in common shares of a closely held corporation such as the Company is non-marketable, non-transferable and could require capital to be invested for an indefinite period of time, possibly without return, and at substantial risk of loss. |
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• | The Grantee understands that the Restricted Shares will be characterized as “restricted securities” under the federal securities laws, and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances, including in accordance with the conditions of Rule 144 promulgated under the Securities Act, as presently in effect. The Grantee acknowledges receiving a copy of Rule 144 promulgated under the Securities Act, as presently in effect, and represents that the Grantee is familiar with such rule, and understands the resale limitations imposed thereby and by the Securities Act and the applicable state securities law. |
• | The Grantee has read and understands the restrictions, limitations and the Company’s rights set forth in the Securityholders Agreement, the Plan and this Agreement that will be imposed on the Restricted Shares (including those restrictions and limitations which will continue after the Shares have vested). The Grantee acknowledges that to the extent the Grantee is not a party to the Securityholders Agreement at the time that the Grantee purchases the Restricted Shares, such purchase shall be treated for all purposes as effecting the Grantee’s simultaneous execution of the Securityholders Agreement and the Grantee shall be bound thereby. |
• | The Grantee has not relied upon any oral representation made to the Grantee relating to the Restricted Shares or upon information presented in any promotional meeting or material relating to the Restricted Shares. |
• | The Grantee understands and acknowledges that (a) any certificate evidencing the Restricted Shares (or evidencing any other securities issued with respect thereto pursuant to any stock split, stock dividend, merger or other form of reorganization or recapitalization) when issued shall bear any legends which may be required by applicable federal and state securities laws or the Securityholders Agreement or the Plan, and (b) except as otherwise provided under the Securityholders Agreement, the Company has no obligation to register the Shares or file any registration statement under federal or state securities laws. The Committee reserves the right to account for Shares through book entry or other electronic means rather than the issuance of stock certificates. |
Section 6. Designation of Beneficiary . The Grantee may appoint any individual or legal entity in writing as his beneficiary to receive any Shares (to the extent not previously terminated or forfeited) under this Agreement upon the Grantee’s death or becoming subject to a Disability. The Grantee may revoke his designation of a beneficiary at any time and appoint a new beneficiary in writing. To be effective, the Grantee must complete the designation of a beneficiary or revocation of a beneficiary by written notice to the Company under Section 7 of this Agreement before the date of the Grantee’s death. In the absence of a beneficiary designation, the legal representative of the Grantee’s estate shall be deemed the Grantee’s beneficiary.
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Section 7. Notices . All notices, claims, certifications, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:
If to the Company, to:
AP Gaming Holdco, Inc.
6680 Amelia Earhart Court
Las Vegas, NV 89119
Facsimile: (702) 722-6705
Attention: Vic Gallo
with a copy (which shall not constitute notice) to:
Apollo Management, L.P.
9 West 57th Street
43rd Floor
New York, New York 10019
Facsimile: (646) 350-1501
Attention: David Sambur
If to the Grantee, at the last address in the records of the Company; or, in all cases, to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.
Any of the foregoing notice or other communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery (or if such date is not a business day, on the next business day after the date of delivery), (b) in the case of nationally-recognized overnight courier, on the next business day after the date sent, (c) in the case of telecopy transmission, when received (or if not sent on a business day, on the next business day after the date sent), and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted.
Section 8. Waiver of Breach . The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other or subsequent breach.
Section 9. Grantee’s Undertaking . The Grantee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Grantee pursuant to the express provisions of this Agreement and the Plan.
Section 10. Modification of Rights . The rights of the Grantee are subject to modification and termination in certain events as provided in this Agreement and the Plan (with respect to the Restricted Shares granted hereby). Notwithstanding the foregoing, the Grantee’s rights under this Agreement and the Plan may not be materially impaired without the Grantee’s prior written consent.
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Section 11. Governing Law . THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION WOULD ORDINARILY APPLY.
Section 12. Restrictive Covenants . The purchase, grant and vesting of the Restricted Shares pursuant to this Agreement shall be subject to the Grantee’s continued compliance with the restrictive covenants in Section 9 of the Securityholders Agreement and the restrictive covenants set forth in any individual agreement between the Grantee and the Company (or one of its Affiliates).
Section 13. Counterparts . This Agreement may be executed in one or more counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts together shall constitute but one agreement.
Section 14. Entire Agreement . This Agreement, the Plan, the Securityholders Agreement and the other writings specifically referred to herein constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior written or oral negotiations, commitments, representations and agreements with respect thereto.
Section 15. Severability . It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
Section 16. Waiver of Jury Trial . Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, trial by jury in any suit, action or proceeding arising hereunder.
Section 17. Dividend and Voting Rights . After the Grant Date, the Grantee shall be entitled to cash dividends that are payable on the same number of Shares as the Restricted Shares, except that such dividends shall vest only and be payable as and when the underlying Restricted Shares become vested. In addition, the Grantee shall have voting rights with respect to the Restricted Shares subject to the Award, provided that such rights shall terminate immediately as to any Restricted Shares that are repurchased by the Company or that are otherwise forfeited.
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Section 18. Tax Withholding . The Company shall reasonably determine the amount of any federal, state, local or other income, employment, or other taxes which the Company or any of its subsidiaries may reasonably be obligated to withhold with respect to the grant, vesting, making of an election under Section 83(b) of the Code or other event with respect to the Restricted Shares. The Company’s obligation to deliver the Restricted Shares or any certificates evidencing the Restricted Shares (or to make a book entry or other electronic notation indicating ownership of the Restricted Shares), or otherwise remove the restrictive notations or legends on such shares or certificates that refer to nontransferability as set forth in Section 3 of this Agreement, is subject to the condition precedent that the Grantee either pay or provide for the amount of any such withholding obligations in such manner as may be authorized by the Committee under, or as may otherwise be permitted under, Article XV of the Plan.
Section 19. Stock Power; Power of Attorney . Concurrent with the execution and delivery of this Agreement, the Grantee shall deliver to the Company an executed stock power in the form attached hereto as Exhibit A , in blank, with respect to the Restricted Shares and any related Restricted Property. The Grantee, by acceptance of the Award, shall be deemed to appoint, and does so appoint by execution of this Agreement, the Company and each of its authorized representatives as the Grantee’s attorney(s)-in-fact to (1) effect any transfer to the Company (or other purchaser, as the case may be) of the Restricted Shares acquired pursuant to this Agreement (including any related Restricted Property) that are repurchased by the Company (or other permitted purchaser), and (2) execute such documents as the Company or such representatives deem necessary or advisable in connection with any such transfer.
[ Signature Page Follows ]
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IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock Agreement as of the date first written above.
AP GAMING HOLDCO, INC. | ||||
By: |
/s/ David Sambur |
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Name: | David Sambur | |||
Title: | Chief Executive Officer, President, Treasurer and Secretary | |||
DAVID LOPEZ | ||||
/s/ David Lopez |
Exhibit 10.17
Employment Agreement
THIS EMPLOYMENT AGREEMENT (this “ Agreement ”) is entered into as of July 1st, 2015 (the “ Effective Date ”) by and between AGS, LLC, a Delaware limited liability company (the “ Company ”), and Sigmund Lee (“ Executive ”).
WHEREAS, the Company desires to employ Executive as its Chief Technology Officer pursuant to the terms of this Agreement; and
WHEREAS, Executive desires to serve in such position.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Nature of Employment Relationship . Executive’s employment with the Company will be “at-will,” meaning that either Executive or the Company may terminate the employment relationship at any time and for any reason, either with or without cause. The “at-will” nature of Executive’s employment may only be changed in an express written agreement signed by both Executive and a duly authorized officer of the Company.
2. Terms of Employment .
(a) Position; Location . During his employment with the Company, Executive shall serve as Chief Technology Officer of the Company. During his employment, and excluding any periods of vacation and sick leave to which Executive may be entitled, Executive agrees to devote all of his business attention and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to Executive hereunder, to use his reasonable best efforts to perform faithfully and efficiently such responsibilities. Executive agrees that he will not engage in any other gainful employment, business or activity without the written consent of the Company. Executive’s services shall be performed in the Atlanta, Georgia area, subject to reasonable business travel at the Company’s request.
(b) Compensation and Employee Benefits .
(i) Base Salary . Executive shall receive an annual base salary (“ Base Salary ”) of $300,000, payable in 26 installments in accordance with the Company’s regular payroll practices for salaried employees. The Base Salary and payment schedule are subject to adjustment at the sole discretion of the Company. If the Base Salary is adjusted at the discretion of the Company, the term “Base Salary” shall refer to such adjusted amount.
(ii) Annual Bonus . Executive shall be eligible to receive an annual performance-based bonus pursuant to an annual managerial bonus plan to be established by the Company, with an annual target bonus equal to 75% of Executive’s Base Salary. Actual annual bonus amounts payable under this Section 2(b)(ii) shall be determined by the Company in its sole discretion based on the attainment of financial results and earnings targets for the fiscal year in question. Notwithstanding the preceding provisions of this Section 2(b)(ii), Executive’s annual bonus in respect of (x) the first half of fiscal year 2015 shall be $125,000 (paid no later than the second payroll date following the execution of this Agreement); provided , that if the Executive’s employment with the Company and its affiliates is terminated for any reason other than (A) by
the Company without “cause” (as defined below) or (B) due to Executive’s death or becoming Disabled (as defined below), in either case, prior to the date on which annual bonuses for fiscal year 2015 are paid to other senior executives of the Company in the ordinary course of business, Executive will repay to the Company the after-tax portion of such half-year bonus ( i.e , $125,000 less Executive’s income taxes and payroll taxes, as calculated by the Company) within 15 days of such termination, and (y) the second half of fiscal year 2015 shall be determined under the Company’s annual managerial bonus plan as described in the preceding provisions of this Section 2(b)(ii).
(iii) Retention Bonus . The Company shall pay to Executive lump-sum cash retention bonuses of (x) $75,000 on December 31 st , 2015, (y) $150,000 on December 31 st , 2016 and (z) $75,000 on July 1, 2017, provided in each case that executive remains continuously employed with the Company or its affiliates through such dates. The retention bonuses may be paid within five business days of the dates indicated in the previous sentence if necessary for administrative convenience.
(iv) Equity . As soon as reasonably practicable following the Effective Date, Executive shall be granted (a) an option (the “ Time-Based Option ”) to purchase 75,000 shares of class B non-voting common stock of AP Gaming Holdco, Inc. (“ Holdco ”) under the AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan (the “ Plan ”), subject to Executive’s execution of a nonqualified stock option agreement (the “ Time-Based Option Agreement ”) and the terms and conditions contained therein and in the Plan, and (b) an option (the “ Performance-Based Option ”) to purchase 20,000 shares of class B non-voting common stock of Holdco under the Plan, subject to Executive’s execution of a nonqualified stock option agreement (the “ Performance-Based Option Agreement ”) and the terms and conditions contained therein and in the Plan. Subject to Executive’s continuous employment with the Company or its affiliates, (x) the Time-Based Option shall vest in equal annual installments on each of the first four anniversaries of the Effective Date and (y) the Performance-Based Option shall cliff vest only upon the Board’s determination, made in its sole discretion, that Holdco’s EBITDA for fiscal year 2017 was at least $140,000,000.
(v) Employee Benefit Plans and Vacation . Executive shall be entitled to participate in the employee health benefits plan provided by the Company for employees and eligible family. Executive will also be eligible for participation in the Company’s 401k plan. Executive shall be entitled to four (4) weeks paid vacation annually. Vacation will accrue on a monthly basis. Eligibility for participation in these benefits will be determined by the requirements of the plan(s) in effect at the time Executive commences employment and is subject to adjustment pursuant to the Company’s policies and plans in effect, which may change from time to time. Executive shall also be entitled to participate in employee benefit plans, long term incentive plans, practices, policies and programs generally applicable to employees of the Company on the same terms applicable to similarly situated senior executives of the company.
(vi) Expenses . Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the Company’s policies.
3. Termination of Employment Due to Death or Disability . Executive’s employment shall terminate automatically upon Executive’s death. If the Company determines in good faith that the Executive becomes Disabled during the Employment Period (pursuant to the definition of Disabled set forth below), it may give to Executive written notice in accordance with Section 7(b) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by Executive (the “ Disability Effective Date ”) unless, within the 30 days after such receipt, Executive returns to full-time performance of Executive’s duties. For purposes of this Agreement, “ Disabled ” shall mean the absence of Executive from Executive’s duties with
the Company on a full-time basis for 90 business days within a one-year period as a result of incapacity due to mental or physical illness that is determined to be permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.
4. Severance . In the event Executive is terminated by the Company without cause, the Company will pay to Executive severance in an aggregate amount equal to eighteen (18) months of Executive’s Base Salary (as in effect on the date of termination of employment). For purposes of this section, “cause” includes failure to correct underperformance after written notification from the CEO or Board of Directors of the Company (the “Board”), illegal and/or fraudulent conduct, conviction of a felony, a determination that Executive’s involvement with the Company would have a negative impact on the Company’s ability to receive or retain any necessary licenses, willful or material misrepresentation to the Company, or refusal to take any action as reasonably directed by the Board or any individual acting on behalf of or at the direction of the Board. The determination of whether cause exists shall be made by the Board in its sole discretion. Payment of severance pursuant to this section is conditioned and contingent upon (i) the execution and delivery, within 60 days of Executive’s termination of employment, by Executive of a waiver and general release in form and substance reasonably satisfactory to the Company that has become irrevocable in accordance with its terms and (ii) Executive’s continued compliance with the terms of this Agreement. Severance payments will be made in substantially equal installments consistent with the Company’s payroll practices during the twelve-month period following termination of employment, provided that no payments shall be made until the first payroll date following the effective date of such waiver and general release.
5. Restrictive Covenants .
(a) Confidentiality; Work Product . During Executive’s employment with the Company and its subsidiaries and thereafter, Executive will not divulge, transmit or otherwise disclose (except as legally compelled by court order), directly or indirectly, any confidential knowledge or information with respect to the operations, finances, organization or employees of the Company or its affiliates or with respect to trade secret, intellectual property, confidential processes, services, techniques, customers or plans with respect to the Company and its affiliates, and Executive will not use, directly or indirectly, any confidential or trade secret information of the Company and its affiliates for the benefit of anyone other than the Company or its affiliates; provided , however , that Executive’s employment by a subsequent employer while Executive still has knowledge of any such confidential or trade secret information shall not constitute a breach of this provision so long as Executive does not disclose the same to any third party. All new processes, techniques, know-how, inventions, plans, products, patents and devices developed, made or invented by Executive, alone or with others, while an employee of the Company and its subsidiaries that are related to the business of the Company or its affiliates shall be and become the sole property of the Company, and Executive hereby assigns any and all rights therein or thereto to the Company. All files, records, correspondence, memoranda, notes or other documents (including, without limitation, those in computer-readable form) or property relating or belonging to the Company and its affiliates, whether prepared by Executive or otherwise coming into his possession in the course of the performance of his services, shall be the exclusive property of the Company and shall be delivered to the Company and not retained by Executive (including, without limitation, any copies thereof) upon termination of employment for any reason whatsoever.
(b) Noncompetition . While employed by the Company and its subsidiaries and for a period of twenty-four (24) months thereafter (the “ Restricted Period ”), Executive shall not directly or indirectly, own, manage, operate, control, consult with, be employed by, participate in the ownership, management, operation or control of, or otherwise render services to or engage in, any business that engages in any line of business conducted by the Company and its subsidiaries during the Covered Period (defined below) within
any jurisdiction or marketing area in which the Company or any of its subsidiaries is doing business or has invested and established good will in demonstrating an intent to do business during the Covered Period (a “ Competitive Business ”); provided that Executive’s ownership of securities of 2% or less of any publicly traded class of securities of a public company shall not violate this Section 5(b). The “ Covered Period ” shall mean the period beginning as of the Effective Date and ending as of the end of the sixth month following the termination of the Executive’s employment for any reason.
(c) Nonsolicitation . During the Restricted Period, Executive shall not, directly or indirectly, (i) solicit for employment any individual who is then an employee of the Company or its subsidiaries or who was an employee of the Company or its subsidiaries within the 12 months prior to the termination of Executive’s employment (a “ Covered Employee ”), or (ii) contract for, hire or employ any Covered Employee earning at least $100,000 in annualized base compensation as of the Covered Employee’s most recent date of employment with the Company. During the Restricted Period, the Executive shall also not take any action that could reasonably be expected to have the effect of encouraging or inducing any employee, representative, officer or director of the Company or any of its subsidiaries to cease his or her relationship with the Company or any of its subsidiaries for any reason. In addition, during the Restricted Period, the Executive shall not, with respect to providing services in a Competitive Business, solicit for business or accept the business of, any person or entity who is, or was at any time within the 12 months prior to the termination of Executive’s employment, a customer of the business conducted by the Company (or potential customer with whom the Company had initiated contact) or its affiliates.
(d) Nondisparagement . At all times during Executive’s employment and thereafter, Executive shall refrain from all conduct, verbal or otherwise, that disparages or damages the reputation, goodwill, or standing in the community of Apollo Management VIII, LP (“ Apollo ”), the Company or any of their respective affiliates; and at all times during Executive’s employment and thereafter, the Company and its subsidiaries will, subject to requirements of law, refrain from all conduct, verbal or otherwise, that disparages or damages the reputation, goodwill, or standing in the community of Executive.
(e) Representations . Executive represents to the Company and its affiliates that, in fulfilling his duties or responsibilities to the Company and its affiliates or for any other reason, he will not disclose or disseminate any information from any of his former employers that would be considered by such former employers to be confidential information. In addition, he represents that, except as previously disclosed to AGS in writing, he is not subject to any covenant not to compete that would limit his ability to fulfill his duties and responsibilities hereunder.
(f) Remedies . The parties agree that the provisions of Sections 5(a), 5(b), 5(c) and 5(d) (the “ Covenants ”) have been specifically negotiated by sophisticated commercial parties and agree that all such provisions are reasonable under the circumstances of the activities contemplated by this Agreement. Executive acknowledges and agrees that the Covenants are reasonable in light of all of the circumstances, are sufficiently limited to protect the legitimate interests of the Company and its affiliates, impose no undue hardship on Executive, and are not injurious to the public, and further acknowledges and agrees that Executive’s breach of the Covenants will cause the Company irreparable harm, which cannot be adequately compensated by money damages, and that if the Company elects to prevent Executive from breaching such provisions by obtaining an injunction against Executive, there is a reasonable probability of the Company’s eventual success on the merits. Accordingly, notwithstanding Section 7(a) of this Agreement, Executive consents and agrees that if the Executive commits any such breach or threatens to commit any breach, the Company shall be entitled to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage, in addition to, and not in lieu of, such other remedies as may be available to the Company for such breach, including
the recovery of money damages. In the event that the Covenants shall be determined by any court of competent jurisdiction to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which they may be enforceable and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action.
(g) Survival . The provisions of this Section 5 shall survive termination of employment for any reason.
6. Successors . This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law, or otherwise.
7. Miscellaneous .
(a) Governing Law and Dispute Resolution . This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without reference to principles of conflict of laws. Subject to Section 5(f) of this Agreement, Executive specifically agrees and consents that any controversy or claim arising out of or relating to this Agreement shall be settled by final, binding and nonappealable arbitration in Las Vegas, Nevada. Subject to the following provisions, any such arbitration shall be conducted in accordance with the rules of the American Arbitration Association then in effect. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(b) Notices . All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, or by electronic mail addressed as follows:
If to the Executive: To the most recent address on file with the Company.
If to the Company, to:
AGS, LLC
ATTN: LEGAL DEPARTMENT
5475 S. Decatur Blvd. Ste. 100
Las Vegas, NV 89118
Email: legal@playags.com
Attention: Vic Gallo
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) Tax Withholding . The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(d) Section 409A . It is intended that payments and benefits made or provided under this Agreement shall comply with Section 409A or an exemption thereto. For purposes of the limitations on nonqualified deferred compensation under Section 409A, each payment of compensation under this Agreement shall be treated as a separate payment of compensation for purposes of applying the exclusion under Section 409A for short-term deferral amounts, the separation pay exception or any other exception or exclusion under Section 409A. All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under Section 409A to the extent necessary in order to avoid the imposition of penalty taxes on the Executive pursuant to Section 409A. In no event may the Executive, directly or indirectly, designate the calendar year of any payment under this Agreement. Notwithstanding anything to the contrary in this Agreement, all reimbursements and in-kind benefits provided under this Agreement that are subject to Section 409A shall be made in accordance with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement); (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. Without limiting the generality of the foregoing, to the extent required in order to comply with Section 409A, amounts and benefits to be paid or provided under Section 4 of this Agreement during the period between the Executive’s termination of service with the Company and the six-month anniversary thereof, shall be paid or provided to the Executive on the first business day after the date that is six months following the date of such termination.
(e) Entire Agreement; Amendment . This Agreement constitutes the entire agreement and understanding between the Company and Executive with respect to the subject matter hereof and supersedes all prior agreements and understandings (whether written or oral), between Executive and the Company or its affiliates, relating to such subject matter (including, without limitation, Executive’s prior employment agreement dated as of November 6, 2012). This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
[ Signature Page Follows ]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
AGS, LLC
By: AGS Capital, LLC
its Sole Member and Manager
By: |
/s/ David Lopez |
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Name: |
David Lopez |
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Title: |
Chief Executive officer |
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EXECUTIVE |
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/s/ Sigmund Lee |
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Sigmund Lee |
Exhibit 10.18
FIRST AMENDMENT TO JULY 1, 2015 EMPLOYMENT AGREEMENT
FIRST AMENDMENT TO THE JULY 1, 2015 EMPLOYMENT AGREEMENT (this “ First Amendment ”}, dated as of January 14, 2016, by and between AGS, LLC (the “Company”), a Delaware limited liability company with a place of business located at 5475 S. Decatur Blvd, Las Vegas, Nevada 89118 (“AGS”) and Mr. Sigmund Lee (“Executive”).
RECITALS:
WHEREAS, the Company and Executive entered into an Employment Agreement dated as of July 1, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “ Employment Agreement ”); and
WHEREAS, the Company and Executive wish to amend the Employment Agreement on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Base Salary . Base Salary in section 2(b)(i) is hereby amended to $500,000 effective January 1, 2016 and will remain so for a period of three (3) years.
2. Bonus . Sections 2(b)(ii) and 2(b)(iii) are replaced in their entirety with the following: “On or before 15 days from the execution of this document you will receive a signing bonus in the amount of $500,000 (before any appropriate and customary payroll deductions). If Executive terminates his employment at any time within three (3) years of the execution of this Amendment, Executive agrees to pay back the net amount (after taxes) of the signing bonus, otherwise Executive shall have no requirement to pay back said signing bonus. Furthermore, if there is a Change of Control, as that term is defined in the Company’s First Lien Credit Agreement dated as of December 20, 2013 (except that an Initial Public Offering of the Company or its affiliates shall not constitute a Change of Control), or if a change in CEO from David Lopez to another executive without Executive’s consent, or if a significant diminishment in the nature or scope of the authority, power, function or duty attached to the position which the Executive currently maintains without the consent of the Executive, said signing payback requirement shall immediately cease, and the Non-Compete as described in section 5(b) shall immediately cease. In addition to your Base Salary, Executive will be eligible for each of an Annual Bonus and an Annual Incentive Program. Your Annual Bonus will make you eligible for up to $250,000 (before any appropriate and customary payroll deductions) and will be based on company performance criteria as applied to other executives of the Company. Your Annual Incentive Program will entitle you to an annual bonus of $250,000 (before any appropriate and customary payroll deductions). Your Annual Bonus and your Annual Incentive Program (AIP) payment will be paid in the first quarter following the completion of the fiscal year at the same time that the company pays all employees their Incentive Program Bonus and Annual Bonuses.”
3. Equity . Section 2(b)(iv) is amended to add the following: “As soon as practicable following the execution of this Amendment, you will be granted an option to purchase an additional 50,000 Time-Based Options with a strike price per share equal to the fair market value of a share of AP Gaming Holdco, Inc. stock on the date of grant. Separate documents will be provided to you after your hire date for purchase of these shares.”
4. Restrictive Period : The Restrictive Period as defined in section 5(b) is hereby amended as follows: If Executive terminates his employment on or before January 1, 2019, the Restrictive Period shall be 12 months; but if the Executive terminates his employment after January 1, 2019, the Restrictive Period shall be six (6) months.
5. Reaffirmation of Employment Agreement . This First Amendment shall be deemed to be an
amendment to the Employment Agreement, and the Employment Agreement as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Employment Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Employment Agreement as amended hereby. This First Amendment is limited as specified and shall not constitute a modification or waiver of any other provision of the Employment Agreement.
6. Counterparts; Facsimile . This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. This First Amendment may be executed via facsimile or other electronic transmissions.
7. Governing Law . THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEVADA WITHOUT REGARD TO THE CONFLICT OF LAWS RULES THEREOF.
IN WITNESS WHEREOF, each of the undersigned parties hereto has caused a counterpart of this First Amendment to be duly executed and delivered as of the date first above written.
AGS, LLC |
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By: | /s/ David Lopez | |
DAVID LOPEZ | ||
CEO | ||
SIGMUND LEE | ||
/s/ Sigmund Lee | ||
Sigmund Lee |
Exhibit 10.19
NONQUALIFIED STOCK OPTION AGREEMENT (this “ Agreement ”) dated as of July 17, 2015, between AP GAMING HOLDCO, INC. , a Delaware corporation (the “ Company ”), and the Optionee set forth on the signature page to this Agreement (the “ Optionee ”).
WHEREAS , the Company, acting through the Company’s Board of Directors (the “ Board ”) has agreed to grant to the Optionee, effective on the date hereof (the “ Grant Date ”), an option under the AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan (the “ Plan ”) (capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Plan or the Securityholders Agreement (as defined in the Plan), as the case may be) to purchase a number of shares of Common Stock (“ Shares ”) on the terms and subject to the conditions set forth in this Agreement and the Plan; and
WHEREAS , future securities in the Company (including those being acquired pursuant to this Agreement) owned by the Optionee shall be subject to the terms of the Securityholders Agreement.
NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:
Section 1. The Plan . The terms and provisions of the Plan are hereby incorporated into this Agreement as if set forth herein in their entirety. In the event of a conflict between any provision of this Agreement and the Plan, the provisions of the Plan shall control. A copy of the Plan may be obtained from the Company by the Optionee upon request.
Section 2. Option; Option Price . Effective on the Grant Date, on the terms and subject to the conditions of the Plan and this Agreement, the Company hereby grants to the Optionee the option (the “ Option ”) to purchase Shares at the price per Share (the “ Option Price ”) and in the amount set forth on the signature page hereto. To the extent permitted by the Board, payment of the Option Price may be made in any manner specified by Section 5.6 of the Plan. The Option is not intended to qualify for federal income tax purposes as an “incentive stock option” within the meaning of Section 422 of the Code.
Section 3. Term . The term of the Option shall commence on the Grant Date and expire on the tenth anniversary of the Grant Date, unless the Option shall have sooner been terminated in accordance with the terms of the Plan or this Agreement.
Section 4. Vesting . Subject to the Optionee’s not having a Termination of Service prior to the applicable vesting date and except as otherwise set forth in Section 7 , twenty-five percent (25%) of the Option shall become vested and exercisable on each of the first four anniversaries of the Grant Date. In the event of a Termination of Service by the Company or its Subsidiaries without Cause or as a result of the Optionee’s death or Disability (each, a “ Good Leaver Termination ”), any portion of the Option which would have vested on the next applicable vesting date shall immediately vest and become exercisable, and any portion of the Option which remains unvested immediately after such accelerated vesting shall be forfeited. In addition, upon a Change in Control, subject to Optionee’s continued employment through the date of the Change in Control, any outstanding unvested portion of the Option shall immediately vest and become exercisable.
Section 5. Restriction on Transfer/Securityholders Agreement . The Option may not be transferred, pledged, assigned, hypothecated or otherwise disposed of in any way by the Optionee, except (i) if permitted by the Board, (ii) by will or the laws of descent and distribution or (iii) pursuant to beneficiary designation procedures approved by the Company. The Option shall not be subject to execution, attachment or similar process. Shares of Common Stock acquired pursuant to the exercise of the Option hereunder will be subject to the Securityholders Agreement. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of this Agreement or the Securityholders Agreement shall be null and void and without effect.
Section 6. Optionee’s Employment . Nothing in this Agreement or in the Option shall confer upon the Optionee any right to continue in the employ of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or its Subsidiaries, as the case may be, in its sole discretion, to terminate the Optionee’s employment or to increase or decrease the Optionee’s compensation at any time.
Section 7. Termination .
(a) The Option shall automatically terminate and shall become null and void, be unexercisable and be of no further force and effect upon the earliest of:
(i) the tenth anniversary of the Grant Date;
(ii) the 180th day following the Termination of Service in the case of a Termination of Service due to the Optionee’s death or Disability;
(iii) the 90th day following the Termination of Service in the case of a Termination of Service due to a termination by the Optionee or due to a termination by the Company without Cause; and
(iv) the date of the Termination of Service in the case of a Termination of Service for Cause.
(b) Except as otherwise provided in Section 4 of this Agreement, upon a Termination of Service for any reason, the unvested portion of the Option shall terminate on the date the Termination of Service occurs.
Section 8. Securities Law Representations . The Optionee acknowledges that the Option and the Shares are not being registered under the Securities Act of 1933, as amended (the “ Securities Act ”), based, in part, on either (i) reliance upon an exemption from registration under Securities and Exchange Commission Rule 701 promulgated under the Securities Act or (ii) the fact that the Optionee is an “accredited investor” (as defined under the Securities Act and the rules and regulations promulgated thereunder), and, in each of clauses (i) and (ii) above, a comparable exemption from qualification under applicable state securities laws, as each may be amended from time to time. The Optionee, by executing this Agreement, hereby makes the following representations to the Company and acknowledges that the Company’s reliance on federal and state securities law exemptions from registration and qualification is predicated, in substantial part, upon the accuracy of these representations:
(a) The Optionee is an “accredited investor” within the meaning of Rule 501(a)(4), (5) or (6) of the Securities Act.
(b) The Optionee is acquiring the Option and, if and when he exercises the Option, will acquire the Shares solely for the Optionee’s own account, for investment purposes only, and not with a view to or an intent to sell, or to offer for resale in connection with any unregistered distribution, all or any portion of the Shares or Option within the meaning of the Securities Act and/or any applicable state securities laws.
(c) The Optionee acknowledges that he has not acquired the Option or the Shares as a result of any general solicitation or general advertising in the United States, including any meeting whose attendees have been invited by general solicitation or general advertising.
(d) The Optionee has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the Option and the restrictions imposed on any Shares purchased upon exercise of the Option. The Optionee has been furnished with, and/or has access to, such information as he considers necessary or appropriate for deciding whether to exercise the Option and purchase the Shares. However, in evaluating the merits and risks of an investment in the Shares, the Optionee has and will rely only upon the advice of his own legal counsel, tax advisors, and/or investment advisors.
(e) The Optionee is aware that the Option may be of no practical value, that any value it may have depends on its vesting and exercisability as well as an increase in the Fair Market Value of the underlying Shares to an amount in excess of the Option Price, and that any investment in common shares of a closely held corporation such as the Company is non-marketable, non-transferable and could require capital to be invested for an indefinite period of time, possibly without return, and at substantial risk of loss.
(f) The Optionee understands that the Option and the Shares are being offered in an acquisition not involving any public offering within the United States within the meaning of the Securities Act and that the Option and the Shares have not been and will not be registered under the Securities Act, and that the Option and the Shares are “restricted securities” as defined by Rule 144(a)(3) under the Securities Act, and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances, including in accordance with the conditions of Rule 144 promulgated under the Securities Act or in an offshore acquisition meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act, each as presently in effect. The Optionee acknowledges reviewing a copy of Rule 144 promulgated under the Securities Act and Regulation S under the Securities Act, as presently in effect, and represents that he is familiar with such rule, and understands the resale limitations imposed thereby and by the Securities Act and the applicable state securities law.
(g) The Optionee agrees that he will comply with all applicable laws and regulations in effect in any jurisdiction in which he sells any of the securities or otherwise transfers any interest therein.
(h) The Optionee has read and understands the restrictions and limitations set forth in the Securityholders Agreement, the Plan and this Agreement.
(i) The Optionee understands and acknowledges that, if and when he exercises the Option, (i) any certificate evidencing the Shares (or evidencing any other securities issued with respect thereto pursuant to any stock split, stock dividend, merger or other form of reorganization or recapitalization) when issued shall bear any legends which may be required by applicable federal and state securities laws, and (ii) except as otherwise provided under the Securityholders Agreement, the Company has no obligation to register the Shares or file any registration statement under federal or state securities laws.
Section 9. Designation of Beneficiary . The Optionee may appoint any individual or legal entity in writing as his beneficiary to receive any Option (to the extent not previously terminated or forfeited) under this Agreement upon the Optionee’s death or Disability. The Optionee may revoke his designation of a beneficiary at any time and appoint a new beneficiary in writing. To be effective, the Optionee must complete the designation of a beneficiary or revocation of a beneficiary by written notice to the Company under Section 10 of this Agreement before the date of the Optionee’s death. In the absence of a beneficiary designation, the legal representative of the Optionee’s estate shall be deemed the beneficiary.
Section 10. Notices . All notices, claims, certifications, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:
If to the Company, to:
AP Gaming Holdco, Inc.
5475 South Decatur Blvd., Suite 100
Las Vegas, NV 89118
Facsimile: (702) 722-6705
Attention: Vic Gallo
with a copy (which shall not constitute notice) to:
Apollo Management, L.P.
9 West 57th Street
43rd Floor
New York, New York 10019
Facsimile: (646) 350-1501
Attention: David Sambur
If to the Optionee, at the last address in the records of the Company; or, in all cases, to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.
Any such notice or other communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery (or if such date is not a business day, on the next business day after the date of delivery), (b) in the case of nationally-recognized overnight courier, on the next business day after the date sent, (c) in the case of telecopy transmission, when received (or if not sent on a business day, on the next business day after the date sent), and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted.
Section 11. Waiver of Breach . The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other or subsequent breach.
Section 12. Optionee’s Undertaking . The Optionee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Agreement and the Plan; provided , however , that such additional actions and documents are consistent with the terms of this Agreement.
Section 13. Modification of Rights . The rights of the Optionee are subject to modification and termination in certain events as provided in this Agreement and the Plan (with respect to the Option granted hereby). Notwithstanding the foregoing, the Optionee’s rights under this Agreement and the Plan may not be materially impaired without the Optionee’s prior written consent.
Section 14. Governing Law . THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER
OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION WOULD ORDINARILY APPLY.
Section 15. Restrictive Covenants . The grant, vesting and exercise of the Option pursuant to this Agreement shall be subject to the Optionee’s continued compliance with the restrictive covenants in Section 9 of the Securityholders Agreement and the restrictive covenants set forth in any individual agreement between the Optionee and the Company (or one of its Affiliates).
Section 16. Withholding . As a condition to exercising this Option in whole or in part, the Optionee will pay, or make provisions satisfactory to the Company for payment of, any federal, state and local taxes required to be withheld in connection with such exercise.
Section 17. Counterparts . This Agreement may be executed in one or more counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts together shall constitute but one agreement.
Section 18. Entire Agreement . This Agreement and the Plan (and the other writings referred to herein) constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior written or oral negotiations, commitments, representations and agreements with respect thereto.
Section 19. Severability . It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
Section 20. Waiver of Jury Trial . Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, trial by jury in any suit, action or proceeding arising hereunder.
[ Signature Page Follows ]
IN WITNESS WHEREOF, the parties hereto have executed this Nonqualified Stock Option Agreement as of the date first written above.
AP GAMING HOLDCO, INC. | ||
By: | /s/ David Lopez | |
Name: | David Lopez | |
Title: | CEO, President & Secretary | |
OPTIONEE | ||
/s/ Sigmund Lee | ||
Name: | Sigmund Lee | |
Number of Shares of Common Stock
subject to the Option: 75,000
Option Price: $15.70 each
[ Signature Page to Option Agreement ]
Exhibit 10.20
NONQUALIFIED STOCK OPTION AGREEMENT (this “ Agreement ”) dated as of July 17, 2015, between AP GAMING HOLDCO, INC. , a Delaware corporation (the “ Company ”), and the Optionee set forth on the signature page to this Agreement (the “ Optionee ”).
WHEREAS , the Company, acting through the Company’s Board of Directors (the “ Board ”) has agreed to grant to the Optionee, effective on the date hereof (the “ Grant Date ”), an option under the AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan (the “ Plan ”) (capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Plan or the Securityholders Agreement (as defined in the Plan), as the case may be) to purchase a number of shares of Common Stock (“ Shares ”) on the terms and subject to the conditions set forth in this Agreement and the Plan; and
WHEREAS , future securities in the Company (including those being acquired pursuant to this Agreement) owned by the Optionee shall be subject to the terms of the Securityholders Agreement.
NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:
Section 1. The Plan . The terms and provisions of the Plan are hereby incorporated into this Agreement as if set forth herein in their entirety. In the event of a conflict between any provision of this Agreement and the Plan, the provisions of the Plan shall control. A copy of the Plan may be obtained from the Company by the Optionee upon request.
Section 2. Option; Option Price . Effective on the Grant Date, on the terms and subject to the conditions of the Plan and this Agreement, the Company hereby grants to the Optionee the option (the “ Option ”) to purchase Shares at the price per Share (the “ Option Price ”) and in the amount set forth on the signature page hereto. To the extent permitted by the Board, payment of the Option Price may be made in any manner specified by Section 5.6 of the Plan. The Option is not intended to qualify for federal income tax purposes as an “incentive stock option” within the meaning of Section 422 of the Code.
Section 3. Term . The term of the Option shall commence on the Grant Date and expire on the tenth anniversary of the Grant Date, unless the Option shall have sooner been terminated in accordance with the terms of the Plan or this Agreement.
Section 4. Vesting . Subject to the Optionee’s not having a Termination of Service prior to the applicable vesting date and except as otherwise set forth in Section 7 , the Option shall become vested and exercisable only upon the Board’s determination, made in its sole discretion, that the Company’s EBITDA (calculated for all purposes under this Agreement in a manner consistent with that set forth in the First Lien Credit Agreement, dated as of December 20, 2013, by and between AP Gaming Holdings, LLC, AP Gaming I, LLC, Citicorp North America, Inc. and the other parties thereto) for fiscal year 2017 is at least $140,000,000. In the event a Change in Control occurs prior to the Board’s determination of the Company’s EBITDA for fiscal year 2017, subject to the Optionee’s continued employment through the date of the Change in Control (the “ Closing Date ”), the Option shall immediately vest and become exercisable upon the Closing Date if and only if the Board determines, in its sole discretion, that the Company’s EBITDA for the twelve-month period preceding the Closing Date is at least $140,000,000. All
decisions by the Board with respect to any calculations pursuant to this Section 4 (absent manifest error), including determination of EBITDA, shall be final and binding on the Optionee.
Section 5. Restriction on Transfer/Securityholders Agreement . The Option may not be transferred, pledged, assigned, hypothecated or otherwise disposed of in any way by the Optionee, except (i) if permitted by the Board, (ii) by will or the laws of descent and distribution or (iii) pursuant to beneficiary designation procedures approved by the Company. The Option shall not be subject to execution, attachment or similar process. Shares of Common Stock acquired pursuant to the exercise of the Option hereunder will be subject to the Securityholders Agreement. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of this Agreement or the Securityholders Agreement shall be null and void and without effect.
Section 6. Optionee’s Employment . Nothing in this Agreement or in the Option shall confer upon the Optionee any right to continue in the employ of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or its Subsidiaries, as the case may be, in its sole discretion, to terminate the Optionee’s employment or to increase or decrease the Optionee’s compensation at any time.
Section 7. Termination .
(a) The Option shall automatically terminate and shall become null and void, be unexercisable and be of no further force and effect upon the earliest of:
(i) the tenth anniversary of the Grant Date;
(ii) the 180th day following the Termination of Service in the case of a Termination of Service due to the Optionee’s death or Disability;
(iii) the 90th day following the Termination of Service in the case of a Termination of Service due to a termination by the Optionee or due to a termination by the Company without Cause; and
(iv) the date of the Termination of Service in the case of a Termination of Service for Cause.
(b) Except as otherwise provided in Section 4 of this Agreement, upon a Termination of Service for any reason, the unvested portion of the Option shall terminate on the date the Termination of Service occurs.
Section 8. Securities Law Representations . The Optionee acknowledges that the Option and the Shares are not being registered under the Securities Act of 1933, as amended (the “ Securities Act ”), based, in part, on either (i) reliance upon an exemption from registration under Securities and Exchange Commission Rule 701 promulgated under the Securities Act or (ii) the fact that the Optionee is an “accredited investor” (as defined under the Securities Act and the rules and regulations promulgated thereunder), and, in each of clauses (i) and (ii) above, a comparable exemption from qualification under applicable state securities laws, as each may be amended from time to time. The Optionee, by executing this Agreement, hereby makes the following representations to the Company and acknowledges that the Company’s reliance on federal and state securities law exemptions from registration and qualification is predicated, in substantial part, upon the accuracy of these representations:
(a) The Optionee is an “accredited investor” within the meaning of Rule 501(a)(4), (5) or (6) of the Securities Act.
(b) The Optionee is acquiring the Option and, if and when he exercises the Option, will acquire the Shares solely for the Optionee’s own account, for investment purposes only, and not with a view to or an intent to sell, or to offer for resale in connection with any unregistered distribution, all or
any portion of the Shares or Option within the meaning of the Securities Act and/or any applicable state securities laws.
(c) The Optionee acknowledges that he has not acquired the Option or the Shares as a result of any general solicitation or general advertising in the United States, including any meeting whose attendees have been invited by general solicitation or general advertising.
(d) The Optionee has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the Option and the restrictions imposed on any Shares purchased upon exercise of the Option. The Optionee has been furnished with, and/or has access to, such information as he considers necessary or appropriate for deciding whether to exercise the Option and purchase the Shares. However, in evaluating the merits and risks of an investment in the Shares, the Optionee has and will rely only upon the advice of his own legal counsel, tax advisors, and/or investment advisors.
(e) The Optionee is aware that the Option may be of no practical value, that any value it may have depends on its vesting and exercisability as well as an increase in the Fair Market Value of the underlying Shares to an amount in excess of the Option Price, and that any investment in common shares of a closely held corporation such as the Company is non-marketable, non-transferable and could require capital to be invested for an indefinite period of time, possibly without return, and at substantial risk of loss.
(f) The Optionee understands that the Option and the Shares are being offered in an acquisition not involving any public offering within the United States within the meaning of the Securities Act and that the Option and the Shares have not been and will not be registered under the Securities Act, and that the Option and the Shares are “restricted securities” as defined by Rule 144(a)(3) under the Securities Act, and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances, including in accordance with the conditions of Rule 144 promulgated under the Securities Act or in an offshore acquisition meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act, each as presently in effect. The Optionee acknowledges reviewing a copy of Rule 144 promulgated under the Securities Act and Regulation S under the Securities Act, as presently in effect, and represents that he is familiar with such rule, and understands the resale limitations imposed thereby and by the Securities Act and the applicable state securities law.
(g) The Optionee agrees that he will comply with all applicable laws and regulations in effect in any jurisdiction in which he sells any of the securities or otherwise transfers any interest therein.
(h) The Optionee has read and understands the restrictions and limitations set forth in the Securityholders Agreement, the Plan and this Agreement.
(i) The Optionee understands and acknowledges that, if and when he exercises the Option, (i) any certificate evidencing the Shares (or evidencing any other securities issued with respect thereto pursuant to any stock split, stock dividend, merger or other form of reorganization or recapitalization) when issued shall bear any legends which may be required by applicable federal and state securities laws, and (ii) except as otherwise provided under the Securityholders Agreement, the Company has no obligation to register the Shares or file any registration statement under federal or state securities laws.
Section 9. Designation of Beneficiary . The Optionee may appoint any individual or legal entity in writing as his beneficiary to receive any Option (to the extent not previously terminated or forfeited) under this Agreement upon the Optionee’s death or Disability. The Optionee may revoke his designation of a beneficiary at any time and appoint a new beneficiary in writing. To be effective, the Optionee must complete the designation of a beneficiary or revocation of a beneficiary by written notice to the Company under Section 10 of this Agreement before the date of the Optionee’s death. In the
absence of a beneficiary designation, the legal representative of the Optionee’s estate shall be deemed the beneficiary.
Section 10. Notices . All notices, claims, certifications, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:
If to the Company, to:
AP Gaming Holdco, Inc.
5475 South Decatur Blvd., Suite 100
Las Vegas, NV 89118
Facsimile: (702) 722-6705
Attention: Vic Gallo
with a copy (which shall not constitute notice) to:
Apollo Management, L.P.
9 West 57th Street
43rd Floor
New York, New York 10019
Facsimile: (646) 350-1501
Attention: David Sambur
If to the Optionee, at the last address in the records of the Company; or, in all cases, to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.
Any such notice or other communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery (or if such date is not a business day, on the next business day after the date of delivery), (b) in the case of nationally-recognized overnight courier, on the next business day after the date sent, (c) in the case of telecopy transmission, when received (or if not sent on a business day, on the next business day after the date sent), and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted.
Section 11. Waiver of Breach . The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other or subsequent breach.
Section 12. Optionee’s Undertaking . The Optionee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Agreement and the Plan; provided , however , that such additional actions and documents are consistent with the terms of this Agreement.
Section 13. Modification of Rights . The rights of the Optionee are subject to modification and termination in certain events as provided in this Agreement and the Plan (with respect to the Option granted hereby). Notwithstanding the foregoing, the Optionee’s rights under this Agreement and the Plan may not be materially impaired without the Optionee’s prior written consent.
Section 14. Governing Law . THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION WOULD ORDINARILY APPLY.
Section 15. Restrictive Covenants . The grant, vesting and exercise of the Option pursuant to this Agreement shall be subject to the Optionee’s continued compliance with the restrictive covenants in Section 9 of the Securityholders Agreement and the restrictive covenants set forth in any individual agreement between the Optionee and the Company (or one of its Affiliates).
Section 16. Withholding . As a condition to exercising this Option in whole or in part, the Optionee will pay, or make provisions satisfactory to the Company for payment of, any federal, state and local taxes required to be withheld in connection with such exercise.
Section 17. Counterparts . This Agreement may be executed in one or more counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts together shall constitute but one agreement.
Section 18. Entire Agreement . This Agreement and the Plan (and the other writings referred to herein) constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior written or oral negotiations, commitments, representations and agreements with respect thereto.
Section 19. Severability . It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
Section 20. Waiver of Jury Trial . Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, trial by jury in any suit, action or proceeding arising hereunder.
[ Signature Page Follows ]
IN WITNESS WHEREOF, the parties hereto have executed this Nonqualified Stock Option Agreement as of the date first written above.
AP GAMING HOLDCO, INC. | ||
By: | /s/ David Lopez | |
Name: | David Lopez | |
Title: | CEO, President & Secretary | |
OPTIONEE | ||
/s/ Sigmund Lee | ||
Name: | Sigmund Lee | |
Number of Shares of Common Stock
subject to the Option: 20,000
Option Price: $15.70 each
[ Signature Page to Option Agreement ]
Exhibit 10.21
NONQUALIFIED STOCK OPTION AGREEMENT (this “ Agreement ”) dated as of January 18, 2016, between AP GAMING HOLDCO, INC. , a Delaware corporation (the “ Company ”), and the Optionee set forth on the signature page to this Agreement (the “ Optionee ”).
WHEREAS , the Company, acting through the Company’s Board of Directors (the “ Board ”) has agreed to grant to the Optionee, effective on the date hereof (the “ Grant Date ”), an option under the AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan (the “ Plan ”) (capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Plan or the Securityholders Agreement (as defined in the Plan), as the case may be) to purchase a number of shares of Common Stock (“ Shares ”) on the terms and subject to the conditions set forth in this Agreement and the Plan; and
WHEREAS , future securities in the Company (including those being acquired pursuant to this Agreement) owned by the Optionee shall be subject to the terms of the Securityholders Agreement.
NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:
Section 1. The Plan . The terms and provisions of the Plan are hereby incorporated into this Agreement as if set forth herein in their entirety. In the event of a conflict between any provision of this Agreement and the Plan, the provisions of the Plan shall control. A copy of the Plan may be obtained from the Company by the Optionee upon request.
Section 2. Option; Option Price . Effective on the Grant Date, on the terms and subject to the conditions of the Plan and this Agreement, the Company hereby grants to the Optionee the option (the “ Option ”) to purchase Shares at the price per Share (the “ Option Price ”) and in the amount set forth on the signature page hereto. To the extent permitted by the Board, payment of the Option Price may be made in any manner specified by Section 5.6 of the Plan. The Option is not intended to qualify for federal income tax purposes as an “incentive stock option” within the meaning of Section 422 of the Code.
Section 3. Term . The term of the Option shall commence on the Grant Date and expire on the tenth anniversary of the Grant Date, unless the Option shall have sooner been terminated in accordance with the terms of the Plan or this Agreement.
Section 4. Vesting . Subject to the Optionee’s not having a Termination of Service prior to the applicable vesting date and except as otherwise set forth in Section 7 , twenty-five percent (25%) of the Option shall become vested and exercisable on each of the first four anniversaries of the Grant Date. In the event of a Termination of Service by the Company or its Subsidiaries without Cause or as a result of the Optionee’s death or Disability (each, a “ Good Leaver Termination ”), any portion of the Option which would have vested on the next applicable vesting date shall immediately vest and become exercisable, and any portion of the Option which remains unvested immediately after such accelerated vesting shall be forfeited. In addition, upon a Change in Control, subject to Optionee’s continued employment through the date of the Change in Control, any outstanding unvested portion of the Option shall immediately vest and become exercisable.
Section 5. Restriction on Transfer/Securityholders Agreement . The Option may not be transferred, pledged, assigned, hypothecated or otherwise disposed of in any way by the Optionee, except (i) if permitted by the Board, (ii) by will or the laws of descent and distribution or (iii) pursuant to beneficiary designation procedures approved by the Company. The Option shall not be subject to execution,
attachment or similar process. Shares of Common Stock acquired pursuant to the exercise of the Option hereunder will be subject to the Securityholders Agreement. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of this Agreement or the Securityholders Agreement shall be null and void and without effect.
Section 6. Optionee’s Employment . Nothing in this Agreement or in the Option shall confer upon the Optionee any right to continue in the employ of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or its Subsidiaries, as the case may be, in its sole discretion, to terminate the Optionee’s employment or to increase or decrease the Optionee’s compensation at any time.
Section 7. Termination .
(a) The Option shall automatically terminate and shall become null and void, be unexercisable and be of no further force and effect upon the earliest of:
(i) the tenth anniversary of the Grant Date;
(ii) the 180th day following the Termination of Service in the case of a Termination of Service due to the Optionee’s death or Disability;
(iii) the 90th day following the Termination of Service in the case of a Termination of Service due to a termination by the Optionee or due to a termination by the Company without Cause; and
(iv) the date of the Termination of Service in the case of a Termination of Service for Cause.
(b) Except as otherwise provided in Section 4 of this Agreement, upon a Termination of Service for any reason, the unvested portion of the Option shall terminate on the date the Termination of Service occurs.
Section 8. Securities Law Representations . The Optionee acknowledges that the Option and the Shares are not being registered under the Securities Act of 1933, as amended (the “ Securities Act ”), based, in part, on either (i) reliance upon an exemption from registration under Securities and Exchange Commission Rule 701 promulgated under the Securities Act or (ii) the fact that the Optionee is an “accredited investor” (as defined under the Securities Act and the rules and regulations promulgated thereunder), and, in each of clauses (i) and (ii) above, a comparable exemption from qualification under applicable state securities laws, as each may be amended from time to time. The Optionee, by executing this Agreement, hereby makes the following representations to the Company and acknowledges that the Company’s reliance on federal and state securities law exemptions from registration and qualification is predicated, in substantial part, upon the accuracy of these representations:
(a) The Optionee is an “accredited investor” within the meaning of Rule 501(a)(4), (5) or (6) of the Securities Act.
(b) The Optionee is acquiring the Option and, if and when he exercises the Option, will acquire the Shares solely for the Optionee’s own account, for investment purposes only, and not with a view to or an intent to sell, or to offer for resale in connection with any unregistered distribution, all or any portion of the Shares or Option within the meaning of the Securities Act and/or any applicable state securities laws.
-2-
(c) The Optionee acknowledges that he has not acquired the Option or the Shares as a result of any general solicitation or general advertising in the United States, including any meeting whose attendees have been invited by general solicitation or general advertising.
(d) The Optionee has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the Option and the restrictions imposed on any Shares purchased upon exercise of the Option. The Optionee has been furnished with, and/or has access to, such information as he considers necessary or appropriate for deciding whether to exercise the Option and purchase the Shares. However, in evaluating the merits and risks of an investment in the Shares, the Optionee has and will rely only upon the advice of his own legal counsel, tax advisors, and/or investment advisors.
(e) The Optionee is aware that the Option may be of no practical value, that any value it may have depends on its vesting and exercisability as well as an increase in the Fair Market Value of the underlying Shares to an amount in excess of the Option Price, and that any investment in common shares of a closely held corporation such as the Company is non-marketable, non-transferable and could require capital to be invested for an indefinite period of time, possibly without return, and at substantial risk of loss.
(f) The Optionee understands that the Option and the Shares are being offered in an acquisition not involving any public offering within the United States within the meaning of the Securities Act and that the Option and the Shares have not been and will not be registered under the Securities Act, and that the Option and the Shares are “restricted securities” as defined by Rule 144(a)(3) under the Securities Act, and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances, including in accordance with the conditions of Rule 144 promulgated under the Securities Act or in an offshore acquisition meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act, each as presently in effect. The Optionee acknowledges reviewing a copy of Rule 144 promulgated under the Securities Act and Regulation S under the Securities Act, as presently in effect, and represents that he is familiar with such rule, and understands the resale limitations imposed thereby and by the Securities Act and the applicable state securities law.
(g) The Optionee agrees that he will comply with all applicable laws and regulations in effect in any jurisdiction in which he sells any of the securities or otherwise transfers any interest therein.
(h) The Optionee has read and understands the restrictions and limitations set forth in the Securityholders Agreement, the Plan and this Agreement.
(i) The Optionee understands and acknowledges that, if and when he exercises the Option, (i) any certificate evidencing the Shares (or evidencing any other securities issued with respect thereto pursuant to any stock split, stock dividend, merger or other form of reorganization or recapitalization) when issued shall bear any legends which may be required by applicable federal and state securities laws, and (ii) except as otherwise provided under the Securityholders Agreement, the Company has no obligation to register the Shares or file any registration statement under federal or state securities laws.
-3-
Section 9. Designation of Beneficiary . The Optionee may appoint any individual or legal entity in writing as his beneficiary to receive any Option (to the extent not previously terminated or forfeited) under this Agreement upon the Optionee’s death or Disability. The Optionee may revoke his designation of a beneficiary at any time and appoint a new beneficiary in writing. To be effective, the Optionee must complete the designation of a beneficiary or revocation of a beneficiary by written notice to the Company under Section 10 of this Agreement before the date of the Optionee’s death. In the absence of a beneficiary designation, the legal representative of the Optionee’s estate shall be deemed the beneficiary.
Section 10. Notices . All notices, claims, certifications, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:
If to the Company, to:
AP Gaming Holdco, Inc.
5475 South Decatur Blvd., Suite 100
Las Vegas, NV 89118
Facsimile: (702) 722-6705
Attention: Vic Gallo
with a copy (which shall not constitute notice) to:
Apollo Management, L.P.
9 West 57th Street
43rd Floor
New York, New York 10019
Facsimile: (646) 350-1501
Attention: David Sambur
If to the Optionee, at the last address in the records of the Company; or, in all cases, to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.
Any such notice or other communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery (or if such date is not a business day, on the next business day after the date of delivery), (b) in the case of nationally-recognized overnight courier, on the next business day after the date sent, (c) in the case of telecopy transmission, when received (or if not sent on a business day, on the next business day after the date sent), and (d) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted.
Section 11. Waiver of Breach . The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other or subsequent breach.
Section 12. Optionee’s Undertaking . The Optionee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Agreement and the Plan; provided , however , that such additional actions and documents are consistent with the terms of this Agreement.
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Section 13. Modification of Rights . The rights of the Optionee are subject to modification and termination in certain events as provided in this Agreement and the Plan (with respect to the Option granted hereby). Notwithstanding the foregoing, the Optionee’s rights under this Agreement and the Plan may not be materially impaired without the Optionee’s prior written consent.
Section 14. Governing Law . THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION WOULD ORDINARILY APPLY.
Section 15. Restrictive Covenants . The grant, vesting and exercise of the Option pursuant to this Agreement shall be subject to the Optionee’s continued compliance with the restrictive covenants in Section 9 of the Securityholders Agreement and the restrictive covenants set forth in any individual agreement between the Optionee and the Company (or one of its Affiliates).
Section 16. Withholding . As a condition to exercising this Option in whole or in part, the Optionee will pay, or make provisions satisfactory to the Company for payment of, any federal, state and local taxes required to be withheld in connection with such exercise.
Section 17. Counterparts . This Agreement may be executed in one or more counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts together shall constitute but one agreement.
Section 18. Entire Agreement . This Agreement and the Plan (and the other writings referred to herein) constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior written or oral negotiations, commitments, representations and agreements with respect thereto.
Section 19. Severability . It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
Section 20. Waiver of Jury Trial . Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, trial by jury in any suit, action or proceeding arising hereunder.
[ Signature Page Follows ]
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IN WITNESS WHEREOF, the parties hereto have executed this Nonqualified Stock Option Agreement as of the date first written above.
AP GAMING HOLDCO, INC.
|
||
By: |
/s/ David Lopez |
|
Name: David Lopez | ||
Title: CEO, President & Secretary | ||
OPTIONEE
|
||
/s/ Sigmund Lee Name: Sigmund Lee |
Number of Shares of Common Stock subject to the Option: |
50,000 | |||
Option Price: |
$ | 16.98 each |
[Signature Page to Option Agreement]
Exhibit 10.22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of February 23, 2015 (the “Effective Date”) by and between AGS, LLC, a Delaware limited liability company (the “Company”), and Nicholas Paul Kimokeo Akiona (“Executive”).
WHEREAS, the Company desires to employ Executive as its Chief Financial Officer pursuant to the terms of this Agreement; and
WHEREAS, Executive desires to serve in such position.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Nature of Employment Relationship. Executive’s employment with the Company will be “at-will,” meaning that either Executive or the Company may terminate the employment relationship at any time and for any reason, either with or without cause. The “at-will” nature of Executive’s employment may only be changed in an express written agreement signed by both Executive and a duly authorized officer of the Company.
2.Terms of Employment.
(a) Position; Location . During his employment with the Company, Executive shall serve as Chief Financial Officer of the Company. During his employment, and excluding any periods of vacation and sick leave to which Executive may be entitled, Executive agrees to devote all of his business attention and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to Executive hereunder, to use his reasonable best efforts to perform faithfully and efficiently such responsibilities. Executive agrees that he will not engage in any other gainful employment, business or activity without the written consent of the Company. Executive’s services shall be performed in the Las Vegas, Nevada area, subject to reasonable business travel at the Company’s request.
(b) Compensation and Employee Benefits .
(i) Base Salary . Executive shall receive an annual base salary (“Base Salary”) of $275,000, payable in 26 installments accordance with the Company’s regular payroll practices for salaried employees. The Base Salary and payment schedule are subject to adjustment at the sole discretion of the Company. If the Base Salary is adjusted at the discretion of the Company, the term “Base Salary” shall refer to such adjusted amount.
(ii) Annual Bonus . Executive shall be eligible to receive an annual performance-based bonus pursuant to an annual managerial bonus plan to be established by the Company, with an annual target bonus equal to 50% of Executive’s Base Salary. Actual annual bonus amounts payable under this Section 2(b)(ii) shall be determined by the Company in its sole discretion based on the attainment of financial results and earnings targets for the fiscal year in question.
(iii) Employee Benefit Plans and Vacation . Executive shall be entitled to participate in the employee health benefits plan provided by the Company for employees and family. Executive will also be eligible for participation in the Company’s 401k plan. Executive shall be entitled to four (4) weeks paid vacation annually. Vacation will accrue on a monthly basis. Eligibility for participation in these benefits will be determined by the requirements of the plan(s) in effect at the time Executive commences employment and is subject to adjustment pursuant to the Company’s policies and plans in effect, which may change from time to time. Employee shall also be entitled to participate in employee benefit plans, long term incentive plans, practices, policies and programs generally applicable to employees of the Company on the same terms applicable to similarly situated senior executives of the company.
(iv) Expenses . Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the Company’s policies.
3. Termination of Employment Due to Death or Disability. Executive’s employment shall terminate automatically upon Executive’s death. If the Company determines in good faith that the Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice in accordance with Section 7(b) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment
1
with the Company shall terminate effective on the 30th day after receipt of such notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of Executive from Executive’s duties with the Company on a full-time basis for 90 business days within a one-year period as a result of incapacity due to mental or physical illness that is determined to be permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.
1. Severance . The Company will provide Executive with nine (9) months of severance at Executive’s Base Salary in effect on the date of termination of employment in the event Executive is terminated without cause. For purposes of this section, “cause” includes failure to correct underperformance after written notification from the CEO or Board, illegal and/or fraudulent conduct, conviction of a felony, a determination that Executive’s involvement with the Company would have a negative impact on the Company’s ability to receive or retain any necessary licenses, willful or material misrepresentation to the Company, or refusal to take any action as reasonably directed by the Board or any individual acting on behalf of or at the direction of the Board. Payment of severance pursuant to this section is conditioned and contingent upon the execution by Executive of a standard release of claims.
2. Restrictive Covenants.
(a) Confidentiality: Work Product . During Executive’s employment with the Company and its subsidiaries and thereafter, Executive will not divulge, transmit or otherwise disclose (except as legally compelled by court order), directly or indirectly, any confidential knowledge or information with respect to the operations, finances, organization or employees of the Company or its affiliates or with respect to trade secret, intellectual property, confidential
processes, services, techniques, customers or plans with respect to the Company and its affiliates, and Executive will not use, directly or indirectly, any confidential or trade secret information of the Company and its affiliates for the benefit of anyone other than the Company or its affiliates; provided, however, that Executive’s employment by a subsequent employer while Executive still has knowledge of any such confidential or trade secret information shall not constitute a breach of this provision so long as Executive does not disclose the same to any third party. All new processes, techniques, know-how, inventions, plans, products, patents and devices developed, made or invented by Executive, alone or with others, while an employee of the Company and its subsidiaries that are related to the business of the Company or its affiliates shall be and become the sole property of the Company, and Executive hereby assigns any and all rights therein or thereto to the Company. All files, records, correspondence, memoranda, notes or other documents (including, without limitation, those in computer-readable form) or property relating or belonging to the Company and its affiliates, whether prepared by Executive or otherwise coming into his possession in the course of the performance of his services, shall be the exclusive property of the Company and shall be delivered to the Company and not retained by Executive (including, without limitation, any copies thereof) upon termination of employment for any reason whatsoever.
(a) Noncompetition . While employed by the Company and its subsidiaries and for a period of nine (9) months thereafter (the “Restricted Period”), Executive shall not directly or indirectly, own, manage, operate, control, consult with, be employed by, participate in the ownership, management, operation or control of, or otherwise render services to or engage in, any business that engages in any line of business conducted by the Company and its subsidiaries during the Covered Period (defined below) within any jurisdiction or marketing area in which the Company or any of its subsidiaries is doing business or has invested and established good will in demonstrating an intent to do business during the Covered Period (a “Competitive Business”); provided that Executive’s ownership of securities of 2% or less of any publicly traded class of securities of a public company shall not violate this Section 5(b). The “Covered Period” shall mean the period beginning as of the Effective Date and ending as of the end of the sixth month following the termination of the Executive’s employment for any reason.
(b) Nonsolicitation . During the Restricted Period, Executive shall not, directly or indirectly, (i) solicit for employment any individual who is then an employee of the Company or its subsidiaries or who was an employee of the Company or its subsidiaries within the previous 12 months (a “Covered Employee”), or (ii) contract for, hire or employ any Covered Employee earning at least $100,000 in annualized base compensation as of the Covered Employee’s most recent date of employment with the Company. During the Restricted Period, the Executive shall also not take any action that could reasonably be expected to have the effect of encouraging or inducing any employee, representative, officer or director of the Company or any of its subsidiaries to cease his or her relationship with the Company or any of its subsidiaries for any reason. In addition, during the Restricted Period, the Executive shall not, with respect to providing services in a Competitive Business, solicit for business or accept the business of, any person or entity who is, or was at any time within the previous 12 months, a customer of the business conducted by the Company (or potential customer with whom the Company had initiated contact) or its affiliates.
(c) Nondisparagement . At all times during Executive’s employment and thereafter, Executive shall refrain
2
from all conduct, verbal or otherwise, that disparages or damages the reputation, goodwill, or standing in the community of Apollo Management VIII, LP (“Apollo”), the Company or any of their respective affiliates; and at all times during Executive’s employment and thereafter, the Company and its subsidiaries will, subject to requirements of law, refrain from all conduct, verbal or otherwise, that disparages or damages the reputation, goodwill, or standing in the community of Executive.
(e) Representations . Executive represents to the Company and its affiliates that, in fulfilling his duties or responsibilities to the Company and its affiliates or for any other reason, he will not disclose or disseminate any information from any of his former employers that would be considered by such former employers to be confidential information. In addition, he represents that, except as previously disclosed to AGS in writing, he is not subject to any covenant not to compete that would limit his ability to fulfill his duties and responsibilities hereunder.
(f) Remedies . The parties agree that the provisions of Sections 5(a), 5(b), 5(c) and 5(d) (the “Covenants”) have been specifically negotiated by sophisticated commercial parties and agree that all such provisions are reasonable under the circumstances of the activities contemplated by this Agreement. Executive acknowledges and agrees that the Covenants are reasonable in light of all of the circumstances, are sufficiently limited to protect the legitimate interests of the Company and its affiliates, impose no undue hardship on Executive, and are not injurious to the public, and further acknowledges and agrees that Executive’s breach of the Covenants will cause the Company irreparable harm, which cannot be adequately compensated by money damages, and that if the Company elects to prevent Executive from breaching such provisions by obtaining an injunction against Executive, there is a reasonable probability of the Company’s eventual success on the merits. Accordingly, notwithstanding Section 7(a) of this Agreement, Executive consents and agrees that if the Executive commits any such breach or threatens to commit any breach, the Company shall be entitled to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage, in addition to, and not in lieu of, such other remedies as may be available to the Company for such breach, including the recovery of money damages. In the event that the Covenants shall be determined by any court of competent jurisdiction to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which they may be enforceable and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action.
(g) Survival. The provisions of this Section 5 shall survive termination of employment for any reason.
3. Successors. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement , “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law, or otherwise.
4. Miscellaneous.
(a) Governing Law and Dispute Resolution . This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without reference to principles of conflict of laws. Subject to Section 5(f) of this Agreement, Executive specifically agrees and consents that any controversy or claim arising out of or relating to this Agreement shall be settled by final, binding and nonappealable arbitration in Las Vegas, Nevada. Subject to the following provisions, any such arbitration shall be conducted in accordance with the rules of the American Arbitration Association then in effect. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(b) Notices . All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
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If to the Executive: To the most recent address on file with the Company.
If to the Company, to:
AGS, LLC
ATTN: LEGAL DEPARTMENT
6680 Amelia Earhart Court Las Vegas, NV 89119 Facsimile: (702) 722-6705 Attention : Vic Gallo
or to such other address as either party shall have furnished to the other in writing in accordance herewith . Notice and communications shall be effective when actually received by the addressee.
(c) Tax Withholding . The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(d) Section 409A . It is intended that payments and benefits made or provided under this Agreement shall comply with Section 409A or an exemption thereto. For purposes of the limitations on nonqualified deferred compensation under Section 409A, each payment of compensation under this Agreement shall be treated as a separate payment of compensation for purposes of applying the exclusion under Section 409A for short-term deferral amounts, the separation pay exception or any other exception or exclusion under Section 409A. All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under Section 409A to the extent necessary in order to avoid the imposition of penalty taxes on the Executive pursuant to Section 409A. In no event may the Executive, directly or indirectly, designate the calendar year of any payment under this Agreement. Notwithstanding anything to the contrary in this Agreement, all reimbursements and in-kind benefits provided under this Agreement that are subject to Section 409A shall be made in accordance with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement); (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. Without limiting the generality of the foregoing, to the extent required in order to comply with Section 409A, amounts and benefits to be paid or provided under Section 4 of this Agreement during the period between the Executive’s termination of service with the Company and the six-month anniversary thereof, shall be paid or provided to the Executive on the first business day after the date that is six months following the date of such termination.
(e) Entire Agreement; Amendment . This Agreement supersedes all agreements between the parties, whether oral or written, covering the same subject matter. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
AGS, LLC |
By: AGS Capital, LLC |
its Sole Member and Manager |
By: /s/ DAVID LOPEZ |
Name: David Lopez |
Title: Chief Executive Officer |
EXECUTIVE |
/s/ Kimo Akiona |
Name: Kimo Akiona |
Exhibit 10.23
FORM OF STOCKHOLDERS AGREEMENT
dated as of
[ ● ]
by and among
PLAYAGS, INC.,
APOLLO GAMING HOLDINGS, L.P.
and
AP GAMING VOTECO, LLC
TABLE OF CONTENTS
Page | ||||||
ARTICLE I DEFINITIONS AND USAGE | 1 | |||||
Section 1.1 |
Definitions | 1 | ||||
Section 1.2 |
Interpretation | 5 | ||||
ARTICLE II APPROVAL AND CONSULTATION OF CERTAIN MATTERS | 6 | |||||
Section 2.1 |
Approval of Apollo | 6 | ||||
ARTICLE III TRANSFER |
7 | |||||
Section 3.1 |
Transfers and Joinders | 7 | ||||
Section 3.2 |
Binding Effect on Transferees | 7 | ||||
Section 3.3 |
Charter Provisions | 7 | ||||
ARTICLE IV INFORMATION |
8 | |||||
Section 4.1 |
Books and Records; Access | 8 | ||||
Section 4.2 |
Sharing of Information | 9 | ||||
ARTICLE V BOARD REPRESENTATION |
10 | |||||
Section 5.1 |
Composition of Initial Board | 10 | ||||
Section 5.2 |
Nominees | 10 | ||||
Section 5.3 |
Committees | 11 | ||||
ARTICLE VI INDEMNIFICATION |
12 | |||||
Section 6.1 |
Right to Indemnification | 12 | ||||
Section 6.2 |
Prepayment of Expenses | 12 | ||||
Section 6.3 |
Claims | 12 | ||||
Section 6.4 |
Nonexclusivity of Rights | 13 | ||||
Section 6.5 |
Other Sources | 13 | ||||
Section 6.6 |
Indemnitor of First Resort | 13 | ||||
ARTICLE VII TERMINATION |
13 | |||||
Section 7.1 |
Term | 13 | ||||
Section 7.2 |
Survival | 14 | ||||
ARTICLE VIII REPRESENTATIONS AND WARRANTIES |
14 | |||||
Section 8.1 |
Representations and Warranties of Holdings | 14 | ||||
Section 8.2 |
Representations and Warranties of VoteCo | 14 | ||||
Section 8.3 |
Representations and Warranties of the Corporation | 14 | ||||
ARTICLE IX MISCELLANEOUS |
15 | |||||
Section 9.1 |
Entire Agreement | 15 | ||||
Section 9.2 |
Further Assurances | 15 | ||||
Section 9.3 |
Notices | 15 | ||||
Section 9.4 |
Governing Law | 16 | ||||
Section 9.5 |
Consent to Jurisdiction | 17 |
i
Page | ||||||
Section 9.6 |
Equitable Remedies | 17 | ||||
Section 9.7 |
Construction | 17 | ||||
Section 9.8 |
Counterparts | 17 | ||||
Section 9.9 |
Third Party Beneficiaries | 17 | ||||
Section 9.10 |
Binding Effect | 18 | ||||
Section 9.11 |
Severability | 18 | ||||
Section 9.12 |
Adjustments Upon Change of Capitalization | 18 | ||||
Section 9.13 |
Amendments; Waivers | 18 | ||||
Section 9.14 |
Actions in Other Capacities | 19 | ||||
Section 9.15 |
Non-Recourse | 19 |
ii
INDEX OF DEFINED TERMS
Term |
Section | |
Affiliate |
Section 1.1 | |
Agreement |
Preamble | |
Apollo Group |
Section 1.1 | |
Articles of Incorporation |
Section 1.1 | |
beneficial ownership |
Section 1.1 | |
Board of Directors |
Section 1.1 | |
By-Laws |
Section 1.1 | |
Change of Control |
Section 1.1 | |
Claim |
Section 6.1 | |
Controlled Affiliate |
Section 1.1 | |
Controlled Entity |
Section 1.1 | |
Corporation |
Preamble | |
Covered Person |
Section 6.1 | |
Entire Board |
Section 5.2(a) | |
Equity Security |
Section 1.1 | |
Exchange Act |
Section 1.1 | |
Fair Market Value |
Section 1.1 | |
Fund Indemnitors |
Section 6.6 | |
Governmental Entity |
Section 1.1 | |
Hedging Obligation |
Section 1.1 | |
Holdings |
Preamble | |
Indebtedness |
Section 1.1 | |
Information |
Section 4.1 | |
IPO |
Section 1.1 | |
IPO Registration Statement |
Recitals | |
Lien |
Section 1.1 | |
Minimum Condition |
Section 1.1 | |
Percentage Interest |
Section 1.1 | |
Permitted Transferee |
Section 1.1 | |
Person |
Section 1.1 | |
Registrable Securities |
Section 1.1 | |
Registration Statement |
Section 1.1 | |
Related Parties |
Section 9.15 | |
SEC |
Section 1.1 | |
Securities Act |
Section 1.1 | |
Stockholder Nominee |
Section 5.2(a) | |
Stockholders |
Preamble | |
Subsidiary |
Section 1.1 | |
Transfer |
Section 1.1 | |
Underwriting Agreement |
Section 1.1 | |
VoteCo |
Preamble | |
Voting Securities |
Section 1.1 |
FORM OF STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (this “ Agreement ”), dated as of [●], among PlayAGS, Inc., a Nevada corporation (the “ Corporation ”), Apollo Gaming Holdings, L.P., a Delaware limited partnership (“ Holdings ”, and together with any other stockholders of the Corporation who become party hereto in accordance with this Agreement, the “ Stockholders ”), and AP Gaming VoteCo, LLC, a Delaware limited liability company (“ VoteCo ”).
WHEREAS, in connection with the IPO (as defined herein), the Corporation and its Affiliates (as defined herein) intend to consummate the transactions described in the Registration Statement on Form S-1 filed by the Corporation (the “ IPO Registration Statement ”); and
WHEREAS, the parties hereto desire to provide for certain governance rights and other matters on and after the consummation of the IPO.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
“ Apollo Group ” means (a) Holdings, (b) Apollo Investment Fund VIII, L.P., (c) each of their respective Affiliates (including, for avoidance of doubt, any syndication vehicles) to which any transfers of Common Stock are made and (d) VoteCo, to the extent that it has beneficial ownership of shares of Common Stock pursuant to that certain Irrevocable Proxy and Power of Attorney of the Company, dated as of the date hereof.
Section 1.1 Definitions . As used in this Agreement, the following terms shall have the following meanings:
“ Affiliate ” means in the case of a Person, another Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person; provided , that neither the Corporation nor any of its Subsidiaries will be deemed an Affiliate of any Stockholder or any of such Stockholders’ Affiliates or VoteCo. For the avoidance of doubt, any co-investment vehicle controlled by any member of the Apollo Group shall be deemed to be an Affiliate of the Apollo Group hereunder. The term “ Affiliate ” shall not include at any time any portfolio companies of Apollo Management VIII, L.P. or its Affiliates, other than the Holdings, VoteCo, the Corporation and their respective Subsidiaries.
As used in this definition, the term “ control ,” including the correlative terms “controlling,” “controlled by” and “under common control with,” means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or any partnership or other ownership interest, by contract or otherwise) of a Person.
“ Apollo Group ” means (a) Holdings, (b) Apollo Investment Fund VIII, L.P., (c) each of their respective Affiliates (including, for avoidance of doubt, any syndication vehicles) to which any transfers of Common Stock are made and (d) VoteCo, to the extent that it has beneficial ownership of shares of Common Stock pursuant to that
certain Irrevocable Proxy and Power of Attorney of the Company, dated as of the date hereof.
“ Articles of Incorporation ” means the articles of incorporation of the Corporation on file in the office of the Nevada Secretary of State, as they may be amended, restated or otherwise modified from time to time.
“ beneficial ownership ” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act. The terms “ beneficially own ” and “ beneficial owner ” shall have correlative meanings.
“ Board of Directors ” means the board of directors of the Corporation.
“ Bylaws ” means the bylaws of the Corporation, as they may be amended, restated or otherwise modified from time to time.
“ Change of Control ” means (i) an acquisition by any Person or group of Persons of Equity Securities of the Corporation, whether already outstanding or newly issued, in a transaction or series of transactions, if immediately thereafter such Person or group of Persons (other than the Stockholders or their Permitted Transferees or a wholly-owned Subsidiary of the Corporation) has, or would have, directly or indirectly, beneficial ownership of fifty percent (50%) or more of the combined Equity Securities or voting power of the Corporation; (ii) the sale of all or substantially all of the assets of the Corporation and its Subsidiaries, taken as a whole, directly or indirectly, to any Person or group of Persons (other than the Stockholders or their Permitted Transferees or a wholly-owned Subsidiary of the Corporation) in a transaction or series of transactions; or (iii) the consummation of a tender offer, merger, recapitalization, consolidation, business combination, reorganization or other transaction, or series of related transactions, involving the Corporation and any other Person or group of Persons; unless , in the case of clause (iii) of this definition, both (1) the then-existing Stockholders, immediately prior to such transaction or the first transaction in such series of transactions, will beneficially own more than fifty percent (50%) of the combined Equity Securities or voting power of the Corporation (or, if the Corporation will not be the surviving entity or publicly traded parent company in such transaction or series of transactions, such surviving entity or parent) immediately after the consummation of such transaction or series of transactions and (2) the individuals who are members of the Board of Directors, immediately prior to the consummation of such transaction or the first transaction in such series of transactions, will be entitled to cast at least a majority of the votes of the Board of Directors (or the board of managers or equivalent body of such surviving entity, as the case may be) after the closing of such transaction or series of transactions. As used in this definition of Change of Control, the term “group” shall have the same meaning assigned to such term in Rule 13d-5 of the Exchange Act.
“ Common Stock ” means shares of the Corporation’s common stock, par value $0.01 per share.
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“ Controlled Affiliate ” of any Person means any Affiliate that directly or indirectly, through one or more intermediaries, is controlled (as defined in the definition of “Affiliate”) by such Person.
“ Controlled Entity ” means, as to any Person, (a) any corporation more than fifty percent (50%) of the outstanding voting stock of which is owned by such Person or such Person’s Affiliates, (b) any partnership of which such Person or an Affiliate of such Person is the managing partner (or the general partner if such partnership is a limited partnership) and in which such Person or such Person’s Affiliates hold partnership interests representing at least fifty percent (50%) of such partnership’s capital and profits and (c) any limited liability company of which such Person or an Affiliate of such Person is the manager or managing member and in which such Person or such Person’s Affiliates hold membership interests representing at least fifty percent (50%) of such limited liability company’s capital and profits.
“ Equity Security ” has the meaning ascribed to such term in Rule 405 under the Securities Act, and in any event, includes any security having the attendant right to vote for directors or similar representatives and any general or limited partner interest in any Person.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and any successor law or statute, in each case together with the rules and regulations promulgated thereunder.
“ Fair Market Value ” means, with respect to property (other than cash), the fair market value of such property as determined in good faith by the Board of Directors.
“ Governmental Entity ” means any court, administrative agency, regulatory body, commission or other governmental authority, board, bureau or instrumentality, domestic or foreign and any subdivision thereof.
“ Hedging Obligation ” means, with respect to any Person, any liability of such Person under any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices.
“ Indebtedness ” of a Person means, at any date of determination, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (excluding contingent obligations under surety bonds), (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising and paid in the ordinary course of business, (iv) the capitalized amount of all capital leases of such Person, (v) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, bankers acceptance, surety bond or similar instrument, (vi) all obligations of a type described in clauses (i) through (v) and clauses (vii) and (viii) of this definition secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an
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obligation of such Person, (vii) all Hedging Obligations of such Person, and (viii) all Indebtedness of others guaranteed by such Person. Any obligation constituting Indebtedness solely by virtue of the preceding clause (vi) shall be valued at the lower of the Fair Market Value of the corresponding asset and the aggregate unpaid amount of such obligation.
“ IPO ” means the initial public offering of shares of Common Stock pursuant to an effective IPO Registration Statement under the Securities Act.
“ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest in respect of such asset.
“ Minimum Condition ” means that the Apollo Group, together with its Permitted Transferees, maintains, directly or indirectly, beneficial ownership of at least 331/3% of the issued and outstanding Common Stock, as adjusted for any stock split, stock dividend, reverse stock split, recapitalization, business combination, reclassification or similar event, in each case with such adjustment being determined in good faith by the Board of Directors.
“ Percentage Interest ” means, with respect to any Person and as of any date of determination, a fraction, expressed as a percentage, the numerator of which is the number of shares of Common Stock held or beneficially owned by such Person as of such date and the denominator of which is the aggregate number of shares of Common Stock issued and outstanding as of such date.
“ Permitted Transferee ” means, with respect to any Person, any Controlled Entity or Affiliate of such Person.
“ Person ” means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity.
“ Registration Statement ” means a registration statement filed by the Corporation with the SEC.
“ SEC ” means the United States Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act.
“ Securities Act ” means the Securities Act of 1933, as amended, supplemented or restated from time to time and any successor to such statute, and the rules and regulations promulgated thereunder.
“ Subsidiary ” means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.
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“ Transfer ” means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary or involuntary or by operation of law. The terms “ Transferred ” and “ Transferring ” have correlative meanings.
“ Underwriting Agreement ” means the Underwriting Agreement with respect to the IPO.
“ Voting Securities ” means the Common Stock and any other securities of the Corporation or any Subsidiary of the Corporation which would entitle the holders thereof to vote with the holders of Common Stock in the election of directors of the Corporation.
Section 1.2 Interpretation . In this Agreement and in the exhibits hereto, except to the extent that the context otherwise requires:
(a) the headings are for convenience of reference only and shall not affect the interpretation of this Agreement;
(b) defined terms include the plural as well as the singular and vice versa;
(c) words importing gender include all genders;
(d) a reference to any statute or statutory provision shall be construed as a reference to the same as it may have been or may from time to time be amended, extended, re-enacted or consolidated and to all statutory instruments or orders made thereunder;
(e) any reference to a “day” shall mean the whole of such day, being the period of 24 hours running from midnight to midnight;
(f) references to Articles, Sections, subsections, clauses and Exhibits are references to Articles, Sections, subsections, clauses and Exhibits of and to this Agreement;
(g) the words “including” and “include” and other words of similar import shall be deemed to be followed by the phrase “without limitation”; and
(h) unless otherwise specified, references to any party to this Agreement or any other document or agreement shall include such party’s successors and permitted assigns.
ARTICLE II
APPROVAL AND CONSULTATION OF CERTAIN MATTERS
Section 2.1 Approval of Apollo . For so long as the Minimum Condition is satisfied, the Corporation shall not, and shall cause its Subsidiaries and Controlled
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Affiliates not to, take any of the following actions or agree to, enter into or adopt any plan with respect thereto without the prior approval (which approval may be in the form of an action by written consent or any other written instrument or writing) of Holdings:
(a) any increase or decrease in the size of the Board of Directors;
(b) the incurrence of an aggregate amount of Indebtedness of the Corporation and its Subsidiaries or Controlled Affiliates taken as a whole (other than (i) Indebtedness of the Corporation and its Subsidiaries or Controlled Affiliates as of the date hereof or any refinancing thereof up to the same maximum principal amount of such Indebtedness outstanding as of the date hereof, (ii) capital leases contemplated by an annual budget approved by the Board of Directors and (iii) inter-company Indebtedness) in excess of $10.0 million;
(c) any authorization, creation (by way of reclassification, merger, consolidation or otherwise) or issuance of any Equity Securities of any kind of the Corporation or its Subsidiaries, including any designation of the rights (including special voting rights) of one or more series of preferred stock of the Corporation, other than (i) pursuant to any equity compensation plan of the Corporation approved by the compensation committee of the Board of Directors, (ii) the issuance of Equity Securities of a Subsidiary of the Corporation to the Corporation or a wholly-owned Subsidiary of the Corporation, or (iii) upon conversion of convertible securities or upon exercise of warrants or options, which convertible securities, warrants or options are outstanding on the date hereof or issued in compliance with this Agreement;
(d) any redemption, repurchase or other acquisition by the Corporation of its Equity Securities or any declaration thereof, other than (i) the redemption, repurchase or other acquisition by the Corporation of any Equity Securities of any director, officer, independent contractor or employee in connection with the termination of the employment or services of such director, officer, independent contractor or employee as contemplated by the applicable equity compensation plan or award agreement with respect to such Equity Securities, or (ii) pursuant to an offer made to all stockholders of the Corporation pro rata with respect to such Equity Securities (regardless of whether any or all of such stockholders elect to participate in such redemption, repurchase or other acquisition);
(e) any material acquisition of assets or Equity Securities of any Person, in a single transaction or a series of related transactions;
(f) any material disposition of any assets of the Corporation or any of its Subsidiaries or Controlled Affiliates, other than (i) dispositions to the Corporation or any of its wholly owned Subsidiaries or (ii) the sale of inventory or products in the ordinary course of business;
(g) fundamental changes to the nature of the business of the Corporation and its Subsidiaries or its Controlled Affiliates, taken as a whole as of the date hereof, including entry by the Corporation or any of its Subsidiaries into material
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new and unrelated lines of business and the cessation of a material portion of the business;
(h) any adoption, approval or issuance of any “poison pill,” stockholder or similar rights plan by the Corporation or its Subsidiaries or Controlled Affiliates or any amendment, restatement, modification or waiver of such plan after the adoption thereof has been approved by Holdings in accordance with this Section 2.1 ;
(i) any payment or declaration of any dividend or distribution on any Equity Securities of the Corporation or entering into a recapitalization transaction the primary purpose of which is to pay a dividend or distribution, other than dividends or distributions required to be made pursuant to the terms of any outstanding preferred stock of the Corporation;
(j) appointment or removal of the chairperson of the Board of Directors or the chief executive officer, chief financial officer, general counsel, controller or any other officer of the Corporation that would be subject to Section 16 of the Exchange Act;
(k) the consummation of a Change of Control or entry into any contract or agreement the effect of which would be a Change of Control; or
(l) any entry by the Corporation or any of its Subsidiaries or Controlled Affiliates into voluntary liquidation, dissolution or commencement of bankruptcy or insolvency proceedings, the adoption of a plan with respect to any of the foregoing or the decision not to oppose any similar proceeding commenced by a third party.
ARTICLE III
TRANSFER
Section 3.1 Transfers and Joinders . If a Stockholder effects any Transfer of Common Stock to a Permitted Transferee, such Permitted Transferee may, if not a Stockholder, within five (5) days of such Transfer, execute a joinder to this Agreement, in form and substance reasonably acceptable to the Corporation, in which such Permitted Transferee agrees to be a “Stockholder” for all purposes of this Agreement and which provides that such Permitted Transferee shall be bound by and shall fully comply with the terms of this Agreement.
Section 3.2 Binding Effect on Transferees . Subject to execution of a joinder to this Agreement within five (5) days of the applicable Transfer, in form and substance reasonably acceptable to the Corporation, pursuant to Section 3.1 , such Permitted Transferee shall become a Stockholder hereunder.
Section 3.3 Charter Provisions . The parties hereto shall use their respective reasonable efforts (including voting or causing to be voted all of the Voting Securities held of record by such party or beneficially owned by such party by virtue of having
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voting power over such Voting Securities) so as to prevent any amendment to the Articles of Incorporation or Bylaws as in effect as of the date hereof that would (a) add restrictions to the transferability of the Voting Securities by any Stockholder or its Permitted Transferees at the time of such an amendment, which restrictions are beyond those then provided for in the Articles of Incorporation, the Bylaws, this Agreement or applicable securities laws or (b) nullify any of the rights of any Stockholder or its Permitted Transferees at the time of such amendment, which rights are explicitly provided for in this Agreement, unless, in each such case, such amendment shall have been approved by such Stockholder.
ARTICLE IV
INFORMATION
Section 4.1 Books and Records; Access . The Corporation shall, and shall cause its Subsidiaries to, keep proper books, records and accounts, in which full and correct entries shall be made of all financial transactions and the assets and business of the Corporation and each of its Subsidiaries in accordance with generally accepted accounting principles. For so long as the Apollo Group beneficially owns 3% or more of the outstanding shares of Common Stock, the Corporation shall, and shall cause its Subsidiaries to, permit the Apollo Group and their respective designated representatives, at reasonable times and upon reasonable prior notice to the Corporation, to inspect, review and/or make copies and extracts from the books and records of the Corporation or any of such Subsidiaries and to discuss the affairs, finances and condition of the Corporation or any of such Subsidiaries with the officers of the Corporation or any such Subsidiary. For so long as the Apollo Group beneficially owns 3% or more of the outstanding shares of Common Stock, the Corporation, upon the written request of any member of the Apollo Group, shall, and shall cause its Subsidiaries to, provide the Apollo Group, in addition to other information that might be reasonably requested by the Apollo Group from time to time, (i) direct access to the Corporation’s auditors and officers, (ii) the ability to link Holdings’ systems into the Corporation’s general ledger and other systems in order to enable the Apollo Group to retrieve data on a “real-time” basis, (iii) quarter-end reports, in a format to be prescribed by the Apollo Group, to be provided within thirty (30) days after the end of each quarter, (iv) copies of all materials provided to the Board of Directors (or committee of the Board of Directors) at the same time as provided to the directors (or members of a committee of the Board of Directors), (v) access to appropriate officers and directors of the Corporation at such times as may be requested by the Apollo Group for consultation with respect to matters relating to the business and affairs of the Corporation and its Subsidiaries, (vi) information in advance with respect to any significant corporate actions, including, without limitation, extraordinary dividends or distributions, mergers, acquisitions or dispositions of assets, issuances of significant amounts of debt or equity and material amendments to the Articles of Incorporation or Bylaws or the comparable governing documents of any of its Subsidiaries, and to provide the Apollo Group, with the right to consult with the Corporation and its Subsidiaries with respect to such actions, (vii) flash data, in a format to be prescribed by the Apollo Group, to be provided within ten (10) days after the end of each quarter and (viii) to the extent otherwise prepared by the Corporation, operating and
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capital expenditure budgets and periodic information packages relating to the operations and cash flows of the Corporation and its Subsidiaries (all such information so furnished pursuant to this Section 4.1 , the “ Information ”). The Corporation agrees to consider, in good faith, the recommendations of the Apollo Group in connection with the matters on which the Corporation is consulted as described above. Subject to Section 4.2 , any member of the Apollo Group (and any party receiving Information from such member of the Apollo Group) who shall receive Information shall maintain the confidentiality of such Information, and the Corporation shall not be required to provide such portions of any Information containing attorney-client, work product or similar privileged information of the Corporation or other information required by the Corporation to be kept confidential pursuant to and in accordance with the terms of any confidentiality agreement with a third Person or applicable law, so long as the Corporation has used its commercially reasonable efforts to enter into an arrangement pursuant to which it may provide such information to the Apollo Group without the loss of any such privilege or without violating such confidentiality obligation.
Section 4.2 Sharing of Information . Individuals associated with Holdings may from time to time serve on the Board of Directors or the equivalent governing body of the Corporation’s Subsidiaries. The Corporation, on its behalf and on behalf of its Subsidiaries, recognizes that such individuals (i) will from time to time receive non-public information concerning the Corporation and its Subsidiaries, and (ii) may (subject to the obligation to maintain the confidentiality of such information in accordance with Section 4.1 ) share such information with other individuals associated with Holdings. Such sharing will be for the dual purpose of facilitating support to such individuals in their capacity as members of the Board of Directors or such equivalent governing body and enabling the Apollo Group, as equityholders, to better evaluate the Corporation’s performance and prospects. The Corporation, on behalf of itself and its Subsidiaries, hereby irrevocably consents to such sharing. In the event that Holdings or any of its representatives are requested or required by law, regulation or legal or regulatory process to disclose any non-public Information concerning the Corporation and its Subsidiaries, Holdings or such representative may disclose only that portion of the requested information which it is advised by counsel is required by law, regulation or legal or regulatory process to be disclosed so long as Holdings or such representatives uses reasonable efforts to obtain assurances that such disclosed information will be afforded confidential treatment. Notwithstanding the foregoing, Holdings may disclose any information or data that it can demonstrate: (i) is or was independently developed by Holdings or its representatives without the benefit of any non-public Information or in breach of this Agreement; (ii) is or becomes generally available to the public, other than as a result of disclosure by Holdings or its representatives in breach of this Agreement or any other duty of confidentiality owed to the Corporation; (iii) becomes available to Holdings or its representatives from a source other than the Corporation or any of its representatives, so long as that source is, to Holdings’ or its representatives’ knowledge, as applicable, not prohibited from disclosing such information or data to you by any restrictions on disclosure or use or any other duty of confidentiality to the Corporation; or (iv) is known to, or already in the possession of, Holdings or its representatives on a non-confidential basis prior to it being furnished pursuant to this Agreement, so long as, to Holdings’ or its representatives’ knowledge, the source of such information was not
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bound by any restrictions on disclosure or use or any other duty of confidentiality to the Corporation.
ARTICLE V
BOARD REPRESENTATION
Section 5.1 Composition of Initial Board .
(a) The Corporation shall take all necessary actions so as to cause the Board of Directors to be comprised of [ ] directors, who shall be divided into three (3) classes of directors in accordance with the terms of the Articles of Incorporation. As of the date hereof, the [ ] directors shall be divided into three (3) classes as follows:
(i) the Class I directors shall include [ ];
(ii) the Class II directors shall include [ ]; and
(iii) the Class III directors shall include [ ].
(b) For the avoidance of doubt, Section 5.1(a) is applicable solely to the initial composition of the Board of Directors at the time of the IPO, except that, subject to the Articles of Incorporation, a director shall remain a member of the class of directors to which he or she was assigned in accordance with Section 5.1(a) .
Section 5.2 Nominees .
(a) The Corporation shall take all necessary actions so as to cause to be elected to the Board of Directors, and to cause to continue in office, at any given time, a number of individuals nominated by Holdings (each, a “ Stockholder Nominee ”) equal to:
(i) for so long as the Percentage Interest of the Apollo Group and its Permitted Transferees is at least 50%, the Percentage Interest of the Apollo Group and its Permitted Transferees multiplied by the total number of directorships comprising the Board of Directors ( i.e. , for the avoidance of doubt, including any vacancies and newly created directorships) (the “ Entire Board ”), and rounded up to the nearest whole number; and
(ii) for so long as the Percentage Interest of the Apollo Group and its Permitted Transferees is at least 5% but less than 50%, the greater of (x) the Percentage Interest of the Apollo Group and its Permitted Transferees multiplied by the total number of directorships comprising the Entire Board and rounded up to the nearest whole number and (y) one.
(b) The Corporation agrees to (i) include the Stockholder Nominees in the slate of persons nominated and recommended by the Board of Directors (or a committee thereof) for election to the Board of Directors at every meeting (or action by
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written consent without a meeting) of stockholders of the Corporation at which directors are to be elected, (ii) use its best efforts to cause the election of each such Stockholder Nominee to the Board of Directors, including soliciting proxies or consents in favor thereof to the same or greater extent as it does so in favor of the other members of such slate, (iii) not permit the number of persons nominated or recommended by the Board of Directors (or a committee thereof) to exceed the number of directorships to be elected at such meeting (or by such action by written consent without a meeting) and (iv) use its best efforts to cause each class of the Board of Directors to include, to the extent practicable, at least one Stockholder Nominee.
(c) The Corporation shall take all action within its control so that a Stockholder Nominee will not be removed from the Board of Directors without the approval of Holdings, so long as the Percentage Interest of the Apollo Group and its Permitted Transferees continues to equal or exceed 5%. If Holdings notifies the Apollo Group of its desire to remove, for any reason or no reason, any Stockholder Nominee from the Board of Directors, the Apollo Group shall vote or cause to be voted all of the shares of Voting Securities beneficially owned by the Apollo Group for the removal of such Stockholder Nominee, and the Corporation shall take all required action, if any, to permit the taking of such vote and removal by the Apollo Group.
(d) In the event that a vacancy is created at any time by the death, disability, retirement, resignation or removal of any director who was a Stockholder Nominee, the Corporation agrees to take at any time and from time to time all actions necessary to cause the vacancy created thereby to be filled as promptly as practicable by a new Stockholder Nominee; provided , that for the avoidance of doubt, Holdings shall not have the right to nominate a new Stockholder Nominee, and the Board of Directors and the Apollo Group shall not be required to take any action to cause any vacancy to be filled with any such new Stockholder Nominee, to the extent that election or appointment of such new Stockholder Nominee to the Board of Directors would result in a number of Stockholder Nominees serving on the Board of Directors being in excess of the number of Stockholder Nominees to which Holdings is then entitled pursuant to Section 5.2(a) .
(e) If the number of directors entitled to be nominated as Stockholder Nominees pursuant to Section 5.2(a) decreases, the Stockholder Nominee(s) then in office as directors need not resign from the Board of Directors at or prior to the end of such director’s term and, if the Board of Directors (or a committee thereof) recommends the nomination of such director(s) for election at the next annual meeting coinciding with the end of such director’s term or otherwise is reelected to the Board of Directors thereafter, such director shall no longer be considered a Stockholder Nominee.
Section 5.3 Committees . For so long as this Agreement is in effect, the Corporation shall take all necessary actions to cause to be appointed to each committee of the Board of Directors a number of Stockholder Nominees that is as proportionate (rounding up to the next whole director) to the number of members of such committee as is the number of Stockholder Nominees that Holdings is entitled to nominate to the Board of Directors under this Agreement to the number of directorships constituting the Entire Board, in each case to the extent such directors are permitted to serve on such committee
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under the applicable rules of the SEC and any applicable stock exchange. It is understood by the parties hereto that Holdings shall not have any obligation to appoint any Stockholder Nominee to any committee of the Board of Directors and any failure to exercise such right in this section in a prior period shall not constitute any waiver of such right in a subsequent period.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right to Indemnification . The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, VoteCo, each Stockholder, its Affiliates and its direct and indirect partners (including partners of partners and stockholders and members of partners), members, stockholders, managers, directors, officers, employees and agents and each Person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (the “ Covered Persons ”) from and against any and all losses, claims, damages, liabilities and expenses (including reasonable attorneys’ fees) sustained or suffered by any such Covered Person based upon, relating to, arising out of, or by reason of any third party or governmental claims relating to such Covered Person’s status as a Covered Person (including any and all losses, claims, damages or liabilities under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, which relate directly or indirectly to the registration, purchase, sale or ownership of any Equity Securities of the Corporation or to any fiduciary obligation owed with respect thereto), including in connection with any third party or governmental action or claim relating to any action taken or omitted to be taken or alleged to have been taken or omitted to have been taken by any Covered Person as a stockholder or controlling person, including claims alleging so-called control person liability or securities law liability (any such claim, a “ Claim ”). Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3 , the Corporation shall be required to indemnify a Covered Person in connection with a Claim (or part thereof) commenced by such Covered Person only if the commencement of such Claim (or part thereof) by the Covered Person was authorized by the Board of Directors.
Section 6.2 Prepayment of Expenses . To the extent not prohibited by applicable law, the Corporation shall pay the expenses (including reasonable attorneys’ fees) incurred by a Covered Person in defending any Claim in advance of its final disposition; provided , however , that, to the extent required by applicable law, such payment of expenses in advance of the final disposition of such Claim shall be made only upon receipt of an undertaking by such Covered Person to repay all amounts advanced if it should be ultimately determined that such Covered Person is not entitled to be indemnified under this ARTICLE VI or otherwise.
Section 6.3 Claims . If a claim for indemnification or advancement of expenses under this ARTICLE VI is not paid in full within 30 days after a written claim therefor by the Covered Person has been received by the Corporation, such Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the
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Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
Section 6.4 Nonexclusivity of Rights . The rights conferred on any Covered Person by this ARTICLE VI shall not be exclusive of any other rights that such Covered Person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or Bylaws or any agreement, vote of stockholders or disinterested directors or otherwise.
Section 6.5 Other Sources . Subject to Section 6.6 , the Corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from any other Person.
Section 6.6 Indemnitor of First Resort . The Corporation hereby acknowledges that the Covered Persons may have certain rights to advancement and/or indemnification by certain Affiliates of the Apollo Group (collectively, the “ Fund Indemnitors ”). In all events, (i) the Corporation hereby agrees that it is the indemnitor of first resort ( i.e. , its obligation to a Covered Person to provide advancement and/or indemnification to such Covered Person is primary and any obligation of the Fund Indemnitors (including any Affiliate thereof other than the Corporation) to provide advancement or indemnification hereunder or under any other indemnification agreement (whether pursuant to contract, by-laws or charter), or any obligation of any insurer of the Fund Indemnitors to provide insurance coverage, for the same expenses, liabilities, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such expenses, liabilities, judgments, penalties, fines and amounts paid in settlement) incurred by such Covered Person is secondary and (ii) if any Fund Indemnitor (or any Affiliate thereof, other than the Corporation) pays or causes to be paid, for any reason, any amounts otherwise indemnifiable hereunder or under any other indemnification agreement (whether pursuant to contract, by-laws or charter) with such Covered Person, then (x) such Fund Indemnitor (or such Affiliate, as the case may be) shall be fully subrogated to all rights of such Covered Person with respect to such payment and (y) the Corporation shall fully indemnify, reimburse and hold harmless such Fund Indemnitor (or such other Affiliate, as the case may be) for all such payments actually made by such Fund Indemnitor (or such other Affiliate, as the case may be).
ARTICLE VII
TERMINATION
Section 7.1 Term . The terms of this Agreement shall terminate, and be of no further force and effect, upon the first to occur of:
(a) the mutual consent of all of the parties hereto;
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(b) with respect to each Stockholder, the first time such Stockholder has Transferred all (but not less than all) of its Common Stock; or
(c) the consummation of a Change of Control.
Section 7.2 Survival . If this Agreement is terminated pursuant to Section 7.1 , this Agreement shall become void and of no further force and effect, except for: (i) the provisions set forth in this Section 7.2 , ARTICLE VI , Section 9.4 , Section 9.5 , Section 9.6 and Section 9.9 and (ii) the rights of the Stockholders with respect to the breach of any provision hereof by the Corporation, which shall, in each case of clauses (i) and (ii), survive the termination of this Agreement.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.1 Representations and Warranties of the Stockholders . Each Stockholder represents and warrants to the Corporation that (a) such Stockholder is duly authorized to execute, deliver and perform this Agreement; (b) this Agreement has been duly executed by such Stockholder and is a valid and binding agreement of such Stockholder, enforceable against such Stockholder in accordance with its terms; and (c) the execution, delivery and performance by such Stockholder of this Agreement does not violate or conflict with or result in a breach of or constitute (or with notice or lapse of time or both would constitute) a default under any agreement to which such Stockholder is a party or, if such Stockholder is an entity, the organizational documents of such Stockholder.
Section 8.2 Representations and Warranties of VoteCo . VoteCo represents and warrants to the Corporation that (a) VoteCo is duly authorized to execute, deliver and perform this Agreement; (b) this Agreement has been duly executed by VoteCo and is a valid and binding agreement of VoteCo, enforceable against VoteCo in accordance with its terms; and (c) the execution, delivery and performance by VoteCo of this Agreement does not violate or conflict with or result in a breach of or constitute (or with notice or lapse of time or both would constitute) a default under the organizational documents of VoteCo.
Section 8.3 Representations and Warranties of the Corporation . The Corporation represents and warrants to each Stockholder and VoteCo that (a) the Corporation is duly authorized to execute, deliver and perform this Agreement; (b) this Agreement has been duly authorized, executed and delivered by the Corporation and is a valid and binding agreement of the Corporation, enforceable against the Corporation in accordance with its terms; and (c) the execution, delivery and performance by the Corporation of this Agreement does not violate or conflict with or result in a breach by the Corporation of or constitute (or with notice or lapse of time or both would constitute) a default by the Corporation under the Articles of Incorporation or Bylaws, any existing applicable law, rule, regulation, judgment, order, or decree of any Governmental Entity exercising any statutory or regulatory authority over any of the foregoing, domestic or
14
foreign, having jurisdiction over the Corporation or any of its Subsidiaries or Controlled Affiliates or any of their respective properties or assets, or any agreement or instrument to which the Corporation or any of its Subsidiaries or Controlled Affiliates is a party or by which the Corporation or any of its Subsidiaries or Controlled Affiliates or any of their respective properties or assets may be bound.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Entire Agreement . This Agreement, together with documents contemplated hereby, constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and fully supersede any and all prior or contemporaneous agreements or understandings between the parties hereto pertaining to the subject matter hereof.
Section 9.2 Further Assurances . Each of the parties hereto does hereby covenant and agree on behalf of itself, its successors, and its permitted assigns, without further consideration, to prepare, execute, acknowledge, file, record, publish, and deliver such other instruments, documents and statements, and to take such other actions as may be required by law or reasonably necessary to effectively carry out the intent and purposes of this Agreement.
Section 9.3 Notices . Any notice, consent, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be (a) delivered personally to the Person or to an officer of the Person to whom the same is directed, (b) sent by facsimile, overnight mail or registered or certified mail, return receipt requested, postage prepaid, or (c) sent by e-mail, with electronic or written confirmation of receipt, in each case addressed as follows:
(i) if to the Corporation, to:
PlayAGS, Inc.
5475 S. Decatur Blvd, Suite 100
Las Vegas, Nevada
Attention: Vic Gallo
Email: v.gallo@playags.com
Telephone: 702-724-1111
with a copy (which shall not constitute notice) to:
Apollo Gaming Holdings, L.P.
c/o Apollo Management VIII, LP
9 West 57th Street, 43rd Floor
New York, New York 10019
Attention: David Sambur
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Email: sambur@apollolp.com
Attention: Laurie Medley
Email: lmedley@apollolp.com
Telephone: 212-515-3484
Facsimile: 646-390-1501
(ii) If to any member of the Apollo Group, to:
Apollo Gaming Holdings, L.P.
c/o Apollo Management VIII, LP
9 West 57th Street, 43rd Floor
New York, New York 10019
Attention: David Sambur
Email: sambur@apollolp.com
Attention: Laurie Medley
Email: lmedley@apollolp.com
Telephone: 212-515-3484
Facsimile: 646-390-1501
with a copy (which shall not constitute notice) to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Ross A. Fieldston
Email: rfieldston@paulweiss.com
Telephone: 212-373-3075
Fax: 212-492-0075
(iii) if to any other Stockholder, to:
the address and facsimile number of such Stockholder set forth in the records of the Corporation.
Any such notice shall be deemed to be delivered, given and received for all purposes as of: (A) the date so delivered, if delivered personally, (B) upon receipt, if sent by facsimile or e-mail, or (C) on the date of receipt or refusal indicated on the return receipt, if sent by registered or certified mail, return receipt requested, postage and charges prepaid and properly addressed.
Section 9.4 Governing Law . ALL ISSUES AND QUESTIONS CONCERNING THE APPLICATION, CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEVADA OR
16
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEVADA.
Section 9.5 Consent to Jurisdiction . ANY AND ALL SUITS, LEGAL ACTIONS OR PROCEEDINGS ARISING OUT OF THIS AGREEMENT (INCLUDING AGAINST ANY DIRECTOR OR OFFICER OF THE CORPORATION) SHALL BE BROUGHT SOLELY IN THE EIGHTH JUDICIAL DISTRICT COURT LOCATED IN CLARK COUNTY, NEVADA, OR IN THE EVENT SUCH COURT DENIES JURISDICTION, IN ANY OTHER STATE OR FEDERAL COURT LOCATED IN THE STATE OF NEVADA, AND EACH PARTY HERETO HEREBY SUBMITS TO AND ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURT FOR THE PURPOSE OF SUCH SUITS, LEGAL ACTIONS OR PROCEEDINGS. IN ANY SUCH SUIT, LEGAL ACTION OR PROCEEDING, EACH PARTY HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND AGREES THAT SERVICE THEREOF MAY BE MADE IN ACCORDANCE WITH SECTION 9.3 OR ANY OTHER METHOD PERMITTED BY LAW. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OR ANY SUCH SUIT, LEGAL ACTION OR PROCEEDING IN ANY SUCH COURT AND HEREBY FURTHER WAIVES ANY CLAIM THAT ANY SUIT, LEGAL ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 9.6 Equitable Remedies . The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an injunction or injunctions and other equitable remedies to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity. Any requirements for the securing or posting of any bond with respect to such remedy are hereby waived by each of the parties hereto. Each party further agrees that, in the event of any action for an injunction or other equitable remedy in respect of such breach or enforcement of specific performance, it will not assert the defense that a remedy at law would be adequate.
Section 9.7 Construction . This Agreement shall be construed as if all parties hereto prepared this Agreement.
Section 9.8 Counterparts . This Agreement may be executed in any number of counterparts, and each such counterpart shall for all purposes be deemed an original, and all such counterparts shall together constitute but one and the same agreement.
Section 9.9 Third Party Beneficiaries . Except for the rights of Covered Persons set forth in ARTICLE VI , nothing in this Agreement, express or implied, is intended or shall be construed to give any Person other than the parties hereto (or their respective legal representatives, successors, heirs and distributees) any legal or equitable
17
right, remedy or claim under or in respect of any agreement or provision contained herein, it being the intention of the parties hereto that this Agreement is for the sole and exclusive benefit of such parties (or such legal representatives, successors, heirs and distributees) and for the benefit of no other Person.
Section 9.10 Binding Effect . Except as otherwise provided herein, all the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and permitted assigns of the parties hereto. Neither VoteCo nor any Stockholder may assign any of its rights hereunder to any Person other than a Permitted Transferee. Each Permitted Transferee of VoteCo or any Stockholder shall be subject to all of the terms of this Agreement, and by taking and holding such shares such Person shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to comply with all of the terms and provisions of this Agreement. Notwithstanding the foregoing, no successor or assignee of the Corporation shall have any rights granted under this Agreement until such Person shall acknowledge its rights and obligations hereunder by a signed written statement of such Person’s acceptance of such rights and obligations.
Section 9.11 Severability . In the event that any provision of this Agreement as applied to any party or to any circumstance, shall be adjudged by a court to be void, unenforceable or inoperative as a matter of law, then the same shall in no way affect any other provision in this Agreement, the application of such provision in any other circumstance or with respect to any other party, or the validity or enforceability of the Agreement as a whole.
Section 9.12 Adjustments Upon Change of Capitalization . In the event of any change in the outstanding Common Stock, by reason of dividends, distributions, splits, reverse splits, spin-offs, split-ups, recapitalizations, combinations, exchanges of shares and the like, the term “Common Stock” shall refer to and include the securities received or resulting therefrom, but only to the extent such securities are received in exchange for or in respect of Common Stock.
Section 9.13 Amendments; Waivers .
(a) No provision of this Agreement may be amended or waived unless such amendment or waiver is in writing and signed, in the case of an amendment, by the Corporation and Holdings, or in the case of a waiver, by either the Corporation if such waiver is to be effective against the Corporation, or Holdings, if such waiver is to be effective against the Stockholders or VoteCo; provided that any amendment or waiver that affects the rights or obligations of any Stockholder hereunder in a manner disproportionately adverse to such Stockholder as compared to the other Stockholders shall require the written consent of such Stockholder.
(b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right,
18
power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 9.14 Actions in Other Capacities . Nothing in this Agreement shall limit, restrict or otherwise affect any actions taken by any Stockholder in its capacity as a stockholder, partner or member of the Corporation or any of its Subsidiaries or Controlled Affiliates, nor shall any of the Corporation’s covenants herein in any way limit, restrict or otherwise affect the ability of any director or officer of the Corporation to exercise his or her fiduciary duties as a director or officer of the Corporation; provided , that the Corporation shall nevertheless in all events remain liable for any breach of its covenants under this Agreement.
Section 9.15 Non-Recourse . No officer or director of the Corporation shall be personally liable to the Corporation, VoteCo or any Stockholder as a result of any acts or omissions taken under this Agreement in good faith. Notwithstanding anything that may be expressed or implied in this Agreement, and notwithstanding that VoteCo or certain of the Stockholders may be limited partnerships or limited liability companies, VoteCo and each Stockholder covenants, agrees and acknowledges that, except as required by applicable law, no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement shall be had against the Apollo Group or any of its Affiliates or any of its or their former, current or future direct or indirect equity holders, controlling persons, shareholders, directors, officers, employees, agents, Affiliates, members, financing sources, accountants, advisors, managers, general or limited partners, assignees or representatives (“ Related Parties ”), whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any of the Related Parties, as such, for any obligation or liability of the Corporation, the Apollo Group or any Stockholder, under this Agreement or any documents or instruments delivered in connection with this Agreement in respect of or by reason of obligations or liabilities or their creation.
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IN WITNESS WHEREOF, the parties have caused this Stockholders Agreement to be duly executed and delivered, all as of the date first set forth above.
[Signature Page to Stockholders Agreement]
Exhibit 10.24
FORM OF IRREVOCABLE PROXY AND POWER OF ATTORNEY (this “ Proxy ”), dated as of [●], 2017 but effective as of the Effective Time (as defined below), and made and granted by the party listed on Schedule A hereto (the “ Stockholder ”).
WHEREAS , PlayAGS, Inc., a Delaware corporation (the “ Company ”), intends to effect a recapitalization by (i) reclassifying its existing non-voting common stock, par value $0.01 per share (the “ Existing Non-Voting Stock ”), as a new class of voting common stock, par value $0.01 per share (the “ New Voting Stock ”), and (ii) cancelling its existing voting common stock, par value $0.01 per share (the “ Existing Voting Stock ”) (collectively, the “ Reclassification ”);
WHEREAS , AP Gaming VoteCo, LLC, a Delaware limited liability company (“ VoteCo ”), is the sole holder of all of the outstanding shares of the Existing Voting Stock (and, for the avoidance of doubt, the Existing Voting Stock is the Company’s only outstanding class of voting stock) and therefore holds sole voting control of the Company;
WHEREAS , the Stockholder owns the number of shares of Existing Non-Voting Stock set forth opposite its name on Schedule A hereto;
WHEREAS , to effect the Reclassification, the Company intends to amend and restate its articles of incorporation, as heretofore amended to date, by filing Amended and Restated Articles of Incorporation (the “ Amended Charter ”) with the Nevada Secretary of State;
WHEREAS , the Amended Charter will become effective immediately upon its filing with the Nevada Secretary of State or upon such later time (not later than 90 days after the filing time) specified in the Amended Charter (the “ Effective Time ”);
WHEREAS , automatically upon the Effective Time, the Existing Non-Voting Stock will be reclassified as New Voting Stock, and the Stockholder will own the number of shares of New Voting Stock set forth opposite its name on Schedule A hereto (the “ Subject Shares ”); and
WHEREAS , in connection with the Reclassification, and in compliance with gaming regulatory requirements, the Stockholder desires, effective as of the Effective Time, to vest voting and dispositive control in VoteCo with respect to matters relating to the Company and the Subject Shares by granting this Proxy as set forth below.
Section 1. Representations and Warranties of Each Stockholder . The Stockholder represents and warrants to VoteCo with respect to itself as follows:
(a) Authority; Execution and Delivery; Enforceability . The Stockholder has requisite power and authority to execute and deliver this Proxy. The execution and delivery of this Proxy and the grant hereunder have been duly and validly authorized by the Stockholder, and no other proceedings on the part of the Stockholder are necessary to authorize the grant contemplated by this Proxy. This Proxy has been
duly and validly executed and delivered by the Stockholder and constitutes the valid and binding proxy of the Stockholder, enforceable against the Stockholder in accordance with its terms, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors’ rights and general principles of equity.
(b) No Conflicts . Neither the execution and delivery by the Stockholder of this Proxy nor the compliance by the Stockholder with the terms and conditions hereof will violate, result in a breach of, or constitute a default under its organizational documents, or violate, result in a breach of, or constitute a default under, in each case in any material respect, any agreement, instrument, judgment, order or decree to which the Stockholder is a party or is otherwise bound or give to others any material rights or interests (including rights of purchase, termination, cancellation or acceleration) under any such agreement or instrument.
(c) The Subject Shares . After giving effect to the Reclassification (i) the Stockholder will be the beneficial and sole record owner of the Subject Shares set forth opposite its name on Schedule A ; (ii) the Stockholder will have the sole right to vote such Subject Shares, except as contemplated by this Proxy; and (iii) none of such Subject Shares will be subject to any voting trust or other agreement, arrangement or restriction with respect to the voting of such Subject Shares, except as contemplated by this Proxy.
Section 2. Irrevocable Proxy and Power of Attorney .
(a) Subject to Sections 2(b)-(d) below, upon the Effective Time, the Stockholder hereby irrevocably constitutes and appoints VoteCo, with full power of substitution, its true and lawful proxy and attorney-in-fact to (i) vote all of the Subject Shares at any meeting (and any adjournment or postponement thereof) of the Company’s stockholders and in connection with any written consent of the Company’s stockholders and (ii) direct and effect the sale, transfer or other disposition of all or any part of the Subject Shares, if, as and when so determined in the sole discretion of VoteCo.
(b) The proxy and power of attorney granted herein shall be irrevocable during the Term (as defined below), shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy, and shall revoke all prior proxies granted by the Stockholder (if any) with respect to the Subject Shares. The Stockholder shall not grant to any entity or other person any proxy which conflicts with the proxy granted herein, and any attempt to do so shall be void.
(c) VoteCo may exercise the proxy granted herein with respect to the Subject Shares only during the Term, and during the Term VoteCo shall have the right to vote the Subject Shares at any meeting of the Company’s stockholders and in any action by written consent of the Company’s stockholders in accordance with the provisions of Section 2(a) above. Unless expressly requested by VoteCo in writing, the Stockholder shall not vote all or any portion of the Subject Shares at any such meeting or in connection with any such written consent of stockholders. During the Term, the vote, written consent or other action by VoteCo shall control in any conflict between a vote of
2
or written consent or other action with respect to the Subject Shares by VoteCo and a vote of or written consent or other action by the Stockholder with respect to the Subject Shares.
(d) All or a portion of the Subject Shares, as the case may be, shall be released from the proxy created in this Proxy upon the sale, transfer or other disposition by VoteCo (including pursuant to the consummation of a public offering) of such Subject Shares (a “ Release Event ”). Such release of Subject Shares hereunder shall occur automatically, without any requirement for any further act by the Stockholder or VoteCo or the delivery of any certificate to memorialize the same.
Section 3. Covenants of the Stockholder . The Stockholder covenants and agrees during the Term as follows:
(a) The Stockholder hereby agrees, while this Proxy is in effect with respect to any Subject Shares, and except as contemplated by this Proxy, (i) not to enter into any voting agreements, whether by proxy, voting agreement or other voting arrangement with respect to such Subject Shares, and (ii) not to take any action that would make any representation or warranty of the Stockholder contained herein untrue or incorrect, in each case, that would have the effect of preventing the Stockholder from performing its obligations under this Proxy.
(b) The Stockholder shall not (i) sell, transfer, pledge or otherwise dispose of or encumber any of its Subject Shares, any beneficial ownership thereof or any other interest therein, and (ii) enter into any contract, arrangement or understanding with any entity or other person that violates or conflicts with, or would reasonably be expected to violate or conflict with, the Stockholder’s obligations under this Section 3(b) .
Section 4. Term and Termination . The term of this Proxy, including the proxy granted pursuant to Section 2 hereof and the Stockholder’s covenants and agreements contained herein with respect to the Subject Shares, shall commence at the Effective Time and shall terminate automatically with respect to any Subject Share as and when, and to the extent, that such Subject Share is subject to a Release Event (the “ Term ”).
Section 5. No Liability . Neither VoteCo (nor any of its affiliates), nor any direct or indirect former, current or future partner, member, stockholder, director, manager, officer or agent of VoteCo or any of its affiliates, or any direct or indirect former, current or future partner, member, stockholder, employee, director, manager, officer or agent of any of the foregoing (each, an “ Indemnified Person ”) shall be liable, responsible or accountable in damages or otherwise to the Stockholder, any or all of the members thereof, or their respective successors or assigns by reason of any act or omission related to the possession or exercise of this Proxy, and the Stockholder shall indemnify, defend and hold harmless each Indemnified Person in respect of the same. The Stockholder acknowledges and agrees that no duty is owed to the Stockholder by VoteCo (or any or all of the other Indemnified Persons) in connection with or as a result of the granting of this Proxy or by reason of any act or omission related to the possession
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or the exercise thereof, and, to the extent any duty shall nonetheless be deemed or found to exist, the Stockholder hereby expressly and knowingly irrevocably waives, to the fullest extent permitted by applicable law, any and all such duty or duties, regardless of type or source.
Section 6. General Provisions .
(a) Assignment . This Proxy shall not be assignable by the Stockholder.
(b) No Ownership Interest . Except as expressly set forth in this Proxy, nothing contained in this Proxy shall be deemed to vest in VoteCo any direct or indirect ownership or incidence of ownership of or with respect to the Subject Shares.
(c) Severability . If any provision of this Proxy would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Proxy or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Proxy or affecting the validity or enforceability of such provision in any other jurisdiction.
(d) Governing Law . This Proxy shall be governed by and construed in accordance with the laws of the State of Nevada, without giving effect to principles of conflicts of laws.
* * * * *
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IN WITNESS WHEREOF , the Stockholder has duly executed this Proxy as of the date first written above.
APOLLO GAMING HOLDINGS, L.P. | ||
By: |
Apollo Gaming Holdings GP, LLC its General Partner |
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By: |
|
|
Name: David Sambur | ||
Title: Chief Executive Officer, President, Treasurer and Secretary |
[Signature Page to Irrevocable Proxy]
SCHEDULE A
Stockholder | Existing Non-Voting Stock | Subject Shares | Address | |||
Apollo Gaming Holdings, L.P. | 14,931,529 | [●] |
c/o Apollo Management VIII, L.P. 9 West 57th Street 43rd Floor New York, NY 10019 |
Exhibit 16.1
July 11, 2016
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Ladies and Gentlemen:
We have read Item 4.01 of Form 8-K dated July 11, 2016, of AP Gaming Holdco, Inc. and are in agreement with the statements contained on page 2 in the paragraphs 2, 3, 4, 6 and 7 therein. We have no basis to agree or disagree with other statements of the registrant contained therein.
Regarding the registrant’s statement concerning the lack of internal control to prepare financial statements, included in the 4 th paragraph on page 2 therein, we had considered such matter in determining the nature, timing and extent of procedures performed in our audits of the registrant’s 2015 and 2014 financial statements.
/s/ Ernst & Young LLP
Exhibit 21.1
SUBSIDIARIES OF AP GAMING HOLDCO, INC.
Name |
Jurisdiction of Incorporation |
|
AP Gaming, Inc. |
Delaware |
|
AP Gaming Holdings, LLC |
Delaware |
|
AP Gaming I, LLC |
Delaware |
|
AP Gaming II, Inc. |
Delaware |
|
APGam Canada ULC |
British Columbia |
|
AP Gaming Acquisition, LLC |
Delaware |
|
AGS Capital, LLC |
Delaware |
|
AGS LLC |
Delaware |
|
AGS Partners, LLC |
Delaware |
|
AGS Illinois, LLLP |
Illinois |
|
AGS CJ Corporation |
Delaware |
|
AGS CJ Holdings Corporation |
Delaware |
|
Cadillac Jack, Inc. |
Georgia |
|
Equipos y Soluciones Tecnologicas Cadillac Jack de Mexico, S. De R.L. De C.V. |
Mexico |
|
Operadora de Juegos Cadillac Jack de Mexico, S. De R.L. De C.V. |
Mexico |
|
Servicios Administrativos Cadillac Jack de Mexico, S. De R.L. De C.V. |
Mexico |
|
Comercializadora de Juegos Cadillac Jack de Mexico S. De R.L. De C.V. |
Mexico |
|
PLAYAGS UK Limited |
England and Wales |
|
Gamingo Limited |
England and Wales |
GAMINGO (ISRAEL), LTD. |
Israel |
|
AGS Interactive US, INC. |
California |
|
PLAYAGS BRASIL LTDA |
Brazil |
|
PLAYAGS AUSTRALIA PTY |
Australia |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of PlayAGS, Inc. (formerly, AP Gaming Holdco, Inc.) of our report dated March 10, 2017 relating to the financial statements, and financial statement schedules, which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Las Vegas, Nevada
December 19, 2017
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 9, 2016, in the Registration Statement (Form S-1) and related Prospectus of PlayAGS, Inc. (formerly AP Gaming Holdco, Inc.) dated December 19, 2017.
/s/ Ernst & Young LLP
Las Vegas, NV
December 19, 2017
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form S-1 of PlayAGS, Inc. (formerly AP Gaming Holdco, Inc.) of our report dated March 27, 2015 (August 12, 2015 with respect to the income before tax and income tax rate reconciliation tables in Note 10 and with respect to Note 13) relating to the consolidated financial statements of Cadillac Jack, Inc. and its subsidiaries as of and for the years ended December 31, 2013 and 2014, appearing in the prospectus, which is part of this Registration Statement, and to the reference to us under the heading “Experts” in such prospectus.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 19, 2017