As filed with the Securities and Exchange Commission on July 8, 2019
Registration No. 333-232312
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AssetMark Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 7389 | 30-0774039 | ||
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification Number) |
1655 Grant Street, 10 th Floor
Concord, California 94520
(925) 521-2200
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Charles Goldman
Chief Executive Officer
AssetMark Financial Holdings, Inc.
1655 Grant Street, 10 th Floor
Concord, California 94520
(925) 521-2200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Alan F. Denenberg
Davis Polk & Wardwell LLP 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000 |
Ted Angus
AssetMark Financial Holdings, Inc. 1655 Grant Street, 10 th Floor Concord, California 94520 (925) 521-2200 |
Eric C. Jensen
John T. McKenna Mark Medearis Cooley LLP 3175 Hanover Street Palo Alto, California 94304 (650) 843-5000 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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(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 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, a 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 ☐ | Non-accelerated filer ☒ | 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
|
||||||||
Title of each class of
securities to be registered |
Amount to be Registered (1) |
Proposed maximum offering price per share (2) |
Proposed
maximum aggregate offering price (1)(2) |
Amount of
registration fee (3) |
||||
Common Stock, $0.001 par value per share |
14,375,000 | $21.00 | $301,875,000 | $36,588 | ||||
|
||||||||
|
(1) | Includes the aggregate amount of additional shares that the underwriters have the option to purchase. |
(2) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. |
(3) | The Registrant previously paid $12,120 in connection with the initial filing of the Registration Statement. |
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. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion, dated July 8, 2019
Preliminary prospectus
|
12,500,000 shares |
Common stock
This is an initial public offering of shares of common stock of AssetMark Financial Holdings, Inc. We are offering 6,250,000 shares of our common stock. The selling stockholder identified in this prospectus is offering an additional 6,250,000 shares of our common stock. We will not receive any proceeds from the sale of common stock by the selling stockholder. We anticipate that the initial public offering price will be between $19.00 and $21.00 per share.
Prior to this offering, there has been no public market for our common stock. We have applied to list our common stock on the New York Stock Exchange (the NYSE) under the symbol AMK.
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act and will be subject to reduced public-company reporting requirements. We will be a controlled company within the meaning of the corporate governance rules of the NYSE. See the section titled ManagementControlled company.
Per share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions (1) |
$ | $ | ||||||
Proceeds to AssetMark Financial Holdings, Inc. before expenses |
$ | $ | ||||||
Proceeds to the selling stockholder before expenses |
$ | $ |
(1) |
See the section titled Underwriting (conflict of interest) for a description of the compensation payable to the underwriters. |
The selling stockholder has granted the underwriters an option, for a period of 30 days from the date of this prospectus, to purchase up to 1,875,000 additional shares of common stock from the selling stockholder at the initial public offering price less underwriting discounts and commissions.
Investing in our common stock involves a high degree of risk. See the section titled Risk factors beginning on page 24 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to investors on or about , 2019.
J.P. Morgan | Goldman Sachs & Co. LLC | |
Credit Suisse |
Huatai Securities (USA) |
BMO Capital Markets | Raymond James | William Blair |
Prospectus dated , 2019
FOCUSED ON A CONSISTENT STRATEGY Fully integrated Compelling Technology Personalized and Scalable Service Curated Investment Platform $50B 87% Platform assets1 Platform growth attributed to net flows2 99% Of total revenue is recurring in nature 17% Total revenue CAGR3 10.3% Net income margin4 24.5% Adjusted EBITDA margin5 No Spacing;1 As of March 31, 2019. 2 From January 1, 2016 to December 31, 2018. See Managements discussion and analysis of financial condition and results of operationsKey operating metrics for an explanation of how we measure net flows. 3 From the year ended December 31, 2014 to the year ended December 31, 2018. 4 For the year ended December 31, 2018. 5 For the year ended December 31, 2018. See Prospectus summarySummary consolidated financial and other data for the definition of adjusted EBITDA margin and a reconciliation of net income margin to adjusted EBITDA margin.
60 Track record of Smarter $50B $30B Account Setup Platform Launched Assets growth and innovation Platform Smarter Assets Account High Yield Cash Setup Launched High Yield Cash 50 Launched proprietary investment $40B framework, Investing Evolved Platform Assets Launched Launched Guided Insured Portfolios Solutions, Acquired Clarks Cash 40 Deposit Launched goals diversied, all-in-one TAMP assets Program based digital portfolios advice solution, $20B WealthBuilder Acquired Platform Assets Aris Assets 30 Launched Launched modern Introduced Ensemble client engagement Platform Multi Strategy Team experience, Accounts Investor Portal Sales team transformation 20 Launched Platinum Launched end-to-end Service Team retirement solutions, Guided Income Current Solutions management team in place 10 Launched Business Launched state of Consulting services the art portfolio Acquired analytics tool, GFPC PortfolioEngine 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 April 2019
Our community1 7,600+ 137,000+ 600+ Advisers Investor Households Employees Supported by strong values Heart Integrity Excellence Respect And conducted in a culture of compliance As of March 31, 2019
Page | ||||
1 | ||||
17 | ||||
20 | ||||
24 | ||||
53 | ||||
54 | ||||
55 | ||||
56 | ||||
57 | ||||
59 | ||||
61 | ||||
Managements discussion and analysis of financial condition and results of operations |
63 | |||
Letter from Charles Goldman, President and Chief Executive Officer |
89 | |||
93 | ||||
116 | ||||
124 | ||||
134 | ||||
137 | ||||
139 | ||||
Material U.S. federal tax considerations for non-U.S. holders of common stock |
147 | |||
150 | ||||
153 | ||||
162 | ||||
162 | ||||
162 | ||||
F-1 |
In this prospectus, AssetMark, AssetMark Financial Holdings, Inc., the Company, we, us and our refer to AssetMark Financial Holdings, Inc. and its consolidated subsidiaries.
Neither we, the selling stockholder nor the underwriters have authorized anyone to provide you with any information other than that, or to make any representations other than those, contained in this prospectus or in any free writing prospectuses we have prepared. Neither we, the selling stockholder nor the underwriters take any responsibility for, and cannot provide any assurance as to the reliability of, any other information that others may provide you. We, the selling stockholder and the underwriters are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or in
i
any applicable free writing prospectus is current only as of the date of this prospectus or of any such free writing prospectus, as applicable, regardless of its time of delivery or of the time of any sale of the shares of our common stock. Our results of operations, financial condition or business may have changed since that date.
Neither we, the selling stockholder nor any of the underwriters have taken any action to permit a public offering of our common stock or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons who come into possession of this prospectus in a jurisdiction outside the United States are required to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus applicable to that jurisdiction.
Through and including , 2019 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
ii
This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the Risk factors section and the consolidated financial statements and the notes to those statements.
AssetMark Financial Holdings, Inc.
Overview
AssetMark is a leading provider of extensive wealth management and technology solutions that power independent financial advisers and their clients. Our platform enables advisers to outsource high-cost and specialty services that would otherwise require significant investments of time and moneyhelping to level the playing field for independent financial advisers of all sizes. We provide an end-to-end experience, spanning nearly all elements of an advisers engagement with his or her clientfrom initial conversations to ongoing financial planning discussions, including performance reporting and billing. In addition, our platform provides tools and capabilities for advisers to better manage their day-to-day business activities, giving them more time for meaningful conversations with investors.
We believe that independent financial advisers who have a deep understanding of their communities and put the needs of investors first provide the best path for investors to achieve their long-term financial goals. We empower these adviser-entrepreneurs to start, run and grow independent advisory businesses.
The compelling value of our tools for advisers and their clients has facilitated our rapid growth. From December 31, 2014 to March 31, 2019, our platform assets (1) grew from $25 billion to $50 billion, representing a compounded annual growth rate of 17%, and more recently grew 45% from March 31, 2017 to March 31, 2019. Further, our investors value the services they receive from advisers as evidenced by the growth in our net flows (2) from $2.4 billion in 2016 to $5.9 billion in 2018, representing 8% and 14% of beginning platform assets, respectively. As of March 31, 2019, our platform served approximately 137,000 investor Households (as defined in the section titled Managements discussion and analysis of financial condition and results of operationsKey operating metrics) through our approximately 7,600 adviser relationships.
Our platform provides advisers with an integrated suite of products and services that facilitates growth, streamlines workflows and provides scale to advisers businesses so they can better serve their clients, who are large and small investors. Highlights of our platform include:
|
Fully integrated technology platform : Our integrated platform is built for advisers, providing advisers access to a broad range of highly automated processes, including new account opening, portfolio construction, streamlined financial planning, customer billing, investor reporting, progress to goal analysis and client activity tracking. Our dual focus on technology utility and design has resulted in a platform that is accessible, easy-to-use, intuitive and expansive. |
(1) | We define platform assets as all assets on the AssetMark platform whether these are assets for which we provide advisory services, referred to as assets under management, or non-advisory assets under administration, assets held in cash accounts or assets otherwise not managed. |
(2) | We define net flows for a period as production (the amount of new assets that are added to existing and new client accounts in the period) minus redemptions (the amount of assets that are terminated or withdrawn from client accounts in the period), excluding the impact of changes in the market value of investments held in client accounts and fees charged to advisers and end-investors. |
1
|
Personalized and scalable adviser service : We surround our advisers with highly experienced consulting and service support. We provide a full spectrum of services for many aspects of the advisers firm. These services include high-value day-to-day business support from field professionals, operations and service support teams and specialty teams including business management consultants, investment specialists and retirement consultants. Our offering is guided by extensive intellectual capital and well-established business performance benchmarking tools and responsive back- and middle-office outsourcing support from highly tenured service and operations professionals. We aim for every adviser to feel that their AssetMark service and consulting team is an integral part of their business. |
|
Curated investment platform : We provide independent advisers with a curated set of over 20 thoroughly vetted specialty and leading third-party asset managers, in addition to our two proprietary investment providers. Our due diligence team narrows the universe of potential investment solutions to a select group of time-tested and emerging investment choices. In effect, we equip each adviser with a team of skilled investment professionals that act as a virtual extension of their investment staff, who deliver our solutions through an array of technology-enabled tools that assist in the creation and monitoring of goal-based portfolios. Further, the flexibility and breadth of our platform allows us to offer custom portfolios designed to meet the unique needs of investors, specifically mass-affluent and high-net-worth investors. |
Our offerings distinctive combination of a compelling technology platform, extensive and scalable value-added services and curated investment solutions has been a key driver of our market share expansion from 8% to 10% from December 31, 2014 to December 31, 2018. We define our market share based on assets managed by third-party vendors as calculated by Cerulli Associates (Cerulli), excluding non-advisory assets managed by Schwabs Marketplace and Fidelitys Separate Account Network, and, for SEI Investments, including only assets reported in Advisor Network, their third-party asset management segment. Additionally, our platform can act as a critical accelerant for the success of our advisers businesses, which in turn can result in an increase in assets on our platform; the success of our advisers is reflected in our record $5.9 billion in net flows in 2018. Further, given that our platform and services are tightly integrated into our advisers businesses, we believe that we have engendered and will continue to engender deep loyalty from our advisers.
2
Our revenue model is almost entirely composed of fees that are recurring in nature, which provides a high level of visibility into our near-term financial performance. The two main components of our revenue are asset-based revenue and spread-based revenue. We generate asset-based revenue from fees billed to investors on a bundled basis in advance of each quarter. The quarterly nature of our asset-based revenue provides significant visibility into near-term revenue and helps minimize unexpected revenue fluctuations stemming from market volatility. Our spread-based revenue is driven by interest rates on the cash assets held by investors at our proprietary trust company. In the year ended December 31, 2018, we generated $338.0 million in asset-based revenue and $20.4 million in spread-based revenue.
In the year ended December 31, 2018, we generated total revenue of $363.6 million, net income of $37.4 million, adjusted EBITDA of $88.9 million and adjusted net income of $60.8 million. We generated total revenue of $92.3 million, net income of $2.8 million, adjusted EBITDA of $22.7 million and adjusted net income of $12.7 million in the three months ended March 31, 2019 compared with $84.5 million, $9.8 million, $21.0 million and $15.1 million for the three months ended March 31, 2018. From January of 2015, the first full year in which the members of our current senior management team were together at our company, to December 31, 2018, our total revenue and net income have grown at compounded annual growth rates of 17% and 55%, respectively.
See the section titled Summary consolidated financial and other data for the definitions of adjusted EBITDA and adjusted net income as well as reconciliations of net income to adjusted EBITDA and net income to adjusted net income.
Market opportunity
We serve fee-based, independent advisers who provide wealth management advice to U.S. investors. The wealth management market is large and has a long history of rapid growth fueled by several secular trends. According to Cerulli, in aggregate across the United States, 311,305 advisers managed $20.3 trillion in assets as of December 31, 2017, and total industry assets have grown at a compounded annual growth rate of 9% over the five years ended December 31, 2017. Cerulli expects these assets to grow to $25.5 trillion by 2022. Our current offering and growth plans are built to capitalize on favorable industry trends, which we expect will continue to support our growth.
3
|
Total U.S. investible wealth is massive and growing, accelerated by a shifting retirement segment : According to Cerulli, U.S. households had $96.6 trillion in net worth as of December 31, 2017, which has grown at a compounded annual growth rate of 8.3% over the five years ended December 31, 2017. As of December 31, 2017, advisers managed $20.3 trillion (approximately 21%) of this wealth, indicating ample runway for future growth of the financial advisory industry. As the U.S. population has aged and Baby Boomers have moved into retirement, employer-sponsored retirement plan assets have shifted into individual retirement accounts (IRAs), fueling growth of the retail asset segment. Cerulli estimates that this movement of assets will result in approximately $4.0 trillion of new IRA assets from 2016 to 2022. |
|
Investor demand for financial advisers is expanding : As investors have aged and their financial goals have become more complex, the demand for financial advice has expanded. According to Cerulli, demand for financial advice has increased from 38% to 44% from 2013 to 2017, measured by the percentage of investor households surveyed receiving assistance or direction from financial advisers relative to investor households self-managing their financial affairs. |
|
Advisers are transitioning to an independent model, and we expect this trend to continue : The U.S. wealth management industry consists primarily of two types of channels, independent and traditional. We consider the independent channel to comprise registered investment advisers (RIAs), hybrid and independent broker-dealers and insurance broker-dealer advisers, and the traditional channel to comprise national and regional broker-dealers, bank broker-dealers and wirehouse advisers. According to Cerulli data and internal estimates of expected growth of the wealth management industry, from 2012 to 2017, independent channels have grown faster than traditional channels in terms of market share measured by assets, expanding by nearly 11% annually at the expense of traditional channels. This trend is expected to continue, with independent assets forecasted to grow from $8.4 trillion in 2017 to $12.1 trillion in 2022, from 42% to 48% of total adviser-managed assets over the same period. |
|
Shift from commissions to fee-based models : According to PriceMetrix, in 2018, advisers received over 60% of their total revenue from fees, which represented a record level relative to commissions. The long-term adviser trend towards a fiduciary standard of advice, catalyzed in part by the 2016 Department of Labor (DOL) rule (later vacated) that expanded the definition of fiduciary investment advice to include all financial professionals providing retirement advice, has helped drive this shift to a fee-based revenue model. |
4
Notes: Based on data from The State of Retail Wealth Management, PriceMetrix, 2016, 2017 and 2018.
|
Advisers are increasingly reliant on technology to remain price competitive and achieve scale while serving evolving client needs : Individual investors are increasingly turning to independent financial advisers for their wealth management and investment needs. From 2013 to 2016, the average number of investors served by an RIA adviser increased by 20% according to Fidelity. Advisers are increasingly relying on technology to meet the needs of an expanding client base while continuing to scale their advisory businesses, as indicated by a 24% increase in the average number of software solutions used by advisers from 2013 to 2017, according to the 2017 InvestmentNews Adviser Technology Study. Investor preferences for service models delivered via mobile applications and online portals are also increasing advisers focus on the quality of their technology. 61% of investors surveyed recently stated that they prefer an advice model that combines human and digital elements to one that is either purely digital or limited to direct interaction with an adviser, according to the Fidelity 2017 Digital Advisor Adoption Study Update. |
|
Advisers are rapidly expanding their use of model portfolios : Advisers are increasingly choosing to outsource key components of the asset management aspect of their role as financial advisers, including the choice of investment manager. As such, the use of model portfolios (which we define as mutual fund advisory, ETF-advisory, unified managed account and separate account assets) among financial advisers grew at a compounded annual growth rate of 15% from 2012 to 2017, based on data from Cerulli and internal estimates. |
Our offering is built around technology, investment solutions and expert support, positioning us to benefit from these trends. Combined with our scalable, fee-based platform and services that help advisers put investors needs first, we believe that these favorable industry trends will give us the opportunity to continue to gain market share. Our gains in market share since 2014 have been due largely to organic growth, an area on which we plan to continue to focus.
5
Our offering and business model
AssetMarks purpose
Our over 600 employees come to work focused on our mission: to make a difference in the lives of our advisers and the investors they serve. Our mission is guided by a singular focus on successful outcomes for those investors. We strive to execute our mission through our stated corporate values of heart, integrity, excellence and respect, in everything that we do.
The AssetMark offering to advisers and the investors they serve
We provide independent financial advisers with an array of tools and services designed to streamline their workflow, help them develop and expand their businesses and provide goal-oriented investment solutions. We believe that the quality of our offering, coupled with our deep relationships with our advisers, has generated significant adviser satisfaction, as measured by our exceptional Net Promoter Score (NPS) of 65 as of June 30, 2018. Our offering is defined by solutions in three focus areas:
|
Fully integrated technology platform : Independent financial advisers and their teams are faced with a multitude of marketing, administrative and business management tasks. We offer a compelling technology suite that fully integrates leading third-party technology solutions with our core proprietary technology and helps advisers perform these tasks. Our solution helps advisers streamline their operations while providing a superior experience for their staff and clients. The combined capabilities of our technology platform support advisers throughout the investor life cycle, from initial prospecting and onboarding through ongoing service and reporting, and replace a complex array of technologies with a single, streamlined solution. With less time spent navigating multiple systems and technologies, advisers are able to focus on enhancing productivity. As advisers come to rely on our integrated platform, it becomes integral to their daily practices. This reliance, in conjunction with high adviser satisfaction due to our platforms ability to optimize adviser workflow, has contributed to our strong growth in assets and net flows. |
6
We are dedicated to innovation and strive to continually improve our offering through the development of new tools and services. From January 1, 2015 to March 31, 2019, we invested $153 million in technology development and our dedicated technology team, and we have a proven track record of delivering innovative solutions that deepen our advisers offerings to their investor clients while also enhancing advisers scale. Recent innovations include a new portfolio construction and analysis tool that assists advisers in creating and monitoring investor portfolios, a streamlined account opening solution that reduces the time to onboard new accounts on our platform, a goals-based investor portal that serves as a hub for communications between advisers and their clients and a fully automated digital advice tool that connects our advisers with their clients.
|
Personalized and scalable adviser service : Providing advisers access to high-quality service is a critical component of our value proposition. We develop deep, multi-level relationships with advisers firms, helping to ensure that, at all levels, advisers and their teams are connected with AssetMark. We tailor our services to the size of the adviser, allowing us to provide high service levels to a wide-range of adviser business sizes while also maintaining our operating leverage. |
The Regional Consultant is the centerpiece of an advisers relationship with AssetMark. Our highly experienced Regional Consultants ensure that advisers can draw from a wide array of resources and institutional knowledge as they build and grow their businesses. These professionals are the single point of contact for the adviser and bring in expertise to help the adviser grow and compete. As of March 31, 2019, our Regional Consultants in the field and phone-based consultants served approximately 7,600 advisers. Depending on the advisers business needs, our consultants introduce advisers to investment experts, business development professionals, retirement consultants and business consultants who can help the adviser reach his or her goals. For example, investment experts provide advisers with insights into portfolio construction and how specific investments help investors reach their goals. Our team of business consultants helps advisers build more efficient and scalable businesses. This relationship model provides each adviser with a trusted colleague whom the adviser can contact with questions and who can provide access to an array of specialty resources. The value our clients place on our sales model is reflected in our high Sales NPS of 63 as of June 30, 2018.
The Relationship Manager is at the heart of the back-office professionals relationship with us. Our Relationship Managers work to ensure operational activity is accurately executed and seek to promptly resolve any issues investors may encounter. We feature high-touch, accurate and rapid client servicing from dedicated teams who strive to enhance the responsiveness of the advisers back office. In addition, our Relationship Managers provide productivity and client-service best practices, gained through deep industry experience, to the advisers back office teams. Like our Regional Consultants, our Relationship Managers are go-to resources for our advisers and their offices. Depending on the size of the office, we offer a range of service models. Our largest advisers receive support from a dedicated Relationship Manager, while smaller offices are served by a centralized team of professionals. Our service model is highly valued by advisers of all sizes, as demonstrated by our high Service NPS of 66 as of June 30, 2018. Further, approximately 81% of those advisers who were identified as promoters of our services in the NPS surveys from June 30, 2018 selected service as a key reason for their high satisfaction with us.
|
Curated investment solutions : Financial planning is the core competency and value proposition for most wealth managers. The various investment management functions that compose this role, such |
7
as formulating capital market assumptions, conducting manager due diligence, constructing portfolios and monitoring markets, managers and portfolios, can take time away from advisers ability to help their investors stay on track to reach their goals. As a result, many advisers outsource these activities to independent platforms like AssetMark. |
We perform this challenging work for the adviser through our dedicated team of investment professionals who assess markets, conduct due diligence on asset managers and construct model portfolios for advisers to offer to their clients. We deliver these capabilities through a portfolio construction methodology that can be broadly described in three categories:
|
Core markets Strategies that provide exposure to growth in domestic and global economies. |
|
Tactical strategies Supplemental equity strategies that can augment core performance or provide risk mitigation in periods of market decline. |
|
Diversifying strategies Equity alternative or bond / bond alternative strategies that offer lower volatility or lower correlation to help smooth portfolio performance or allow for greater equity exposure. |
Our portfolios feature a wide range of investment vehicles including ETFs, mutual funds, equities, individual bonds and options strategies. In addition, we provide turnkey solutions for advisers who would prefer to fully outsource a selection of investments, and portfolio components and construction tools for advisers who would prefer to build or customize portfolios themselves using our curated list of strategists.
The AssetMark business model
To achieve our mission, we have built a business model that allows us to reinvest in our advisers and their clients success. Our business model has delivered a track record of attractive revenue growth and adjusted EBITDA margin expansion, both driven by strong fundamentals including:
|
Strong asset growth : We have experienced (1) platform asset growth from existing clients of approximately 32% from December 31, 2014 to March 31, 2019, (2) $15.4 billion in assets attracted from new advisers to the platform over the same period and (3) $3.5 billion in assets added to our platform through acquisitions of competitors over the same period, measured at the date of acquisition. Subsequently, in April 2019, we closed our acquisition of Global Financial Private Capital for a cash purchase price of $35.9 million, which added another $3.8 billion in platform assets. |
|
Recurring and resilient revenue model : In the year ended December 31, 2018, 99% of our total revenue was recurring in nature (based on revenue generated from assets that are under contract and not dependent on trading activity) and derived from either asset-based revenue or spread-based revenue from investor cash held at our proprietary custodian. In the year ended December 31, 2018, 93% of our total revenue was derived from asset-based revenue and 6% of our total revenue was derived from spread-based revenue. Since asset-based revenue is influenced by sector, asset class and market returns, while spread-based revenue is influenced by Federal Reserve movements and the amount of cash investors hold, our two sources of revenue are relatively uncorrelated, which has helped us establish a sustainable business model through various market fluctuations. |
8
|
Attractive margin profile driven by a mix of proprietary and third-party solutions : Our open-architecture technology, investment solutions and custodial platform offer choice and superior capabilities for advisers. In addition, since we offer a balance of third-party and proprietary solutions, we capture incremental economics, which has led to enhanced margins. By offering proprietary solutions alongside third-party technology, asset management and custody solutions, we foster competition across our offering. This competition drives participants (including us) to improve their offerings or risk losing favor with advisers. Each solution competes on its own value proposition and merits, and we do not promote or advantage our proprietary offerings above those of third parties. Our trust company held approximately 72% of our platform assets, and our proprietary strategists served 20% of our platform assets as of March 31, 2019, evidencing the strength of our proprietary offerings. |
|
Consistently strong and growing net flows : Because our platform offers an array of solutions to advisers and our technology is deeply integrated into advisers businesses, our net flows grew from $1.5 billion in 2014 to $5.9 billion in 2018, representing 7% and 14% of beginning platform assets, respectively. |
|
Significant operating leverage : Our purpose-built platform and upfront investments in our business have positioned us to benefit from upside growth and continued scale with meaningful operating leverage. Our net income margin was 33.5% for the year ended December 31, 2017 and 10.3% for the year ended December 31, 2018. Our net income for the year ended December 31, 2017 was impacted by a non-recurring $90.1 million benefit related to the Tax Cuts and Jobs Act of 2017. The power of the operating leverage in our model is apparent both from our ability to expand our adjusted EBITDA margin and our relationships with advisers over time. Our adjusted EBITDA margin (defined as adjusted EBITDA divided by total revenue) expanded from 19.9% for the year ended December 31, 2017 to 24.5% for the year ended December 31, 2018, while we delivered enhanced platform capabilities and solutions to advisers. |
Our strengths
For more than 20 years, we have focused on providing solutions that enhance and simplify the lives of our advisers and the investors they serve. We believe that this approach distinguishes us from many of our competitors. The following strengths underpin our competitive advantage:
|
Our mission-driven, client-focused culture : We believe that our exceptional client-centric culture has driven our historical performance. The AssetMark team is dedicated to its mission of making a difference in the lives of advisers and investors through a culture that rests on our core pillars of heart, integrity, excellence and respect. We are also committed to helping advisers and the communities they serve. Through our Summer of Service and Community Inspiration Awards we seek to ensure that our firms and our advisers communities benefit from our charitable contributions. We believe that our focus on doing the right thing while also running a great business not only results in higher adviser loyalty and referrals, but also increases our employee tenure. |
|
A deep understanding of fee-based, independent advisers : Our frequent, value-added interactions with our diverse group of advisers help us tailor offerings to meet their needs, at scale and in the context of their business opportunities and challenges. We also benefit from tracking and evaluating advisers extensive activity in our ecosystem. This allows us to create responsive service |
9
models, operational processes and solutions that help advisers reduce the time associated with administrative tasks. In addition, members of our community of advisers have access to each others best practices as well as data about their specific business activity, which helps our advisers grow their businesses and drives our extensive best practices library. |
|
Proven ability to execute superior outsource solutions facilitated by a leading technology offering : We create outsource solutions that transform advisers businesses. We believe the transformation that we enable for the advisers on our platform is the result of our deeply integrated service model and robust, user-friendly technology, which together help advisers improve responsiveness to investors. Collectively, our outsource offerings optimize advisers time and, as a result, help improve investor outcomes. |
|
We are a scale provider : We are an established leader as an outsource service provider for independent, fee-based financial advisers. Our scale and access enable us to establish favorable partnerships with technology and asset management institutions and provide attractive pricing for our advisers clients. In addition, our feature-rich technology solution scales to serve a broad-range of business sizes, from solo practices to ensemble firms. The scope and scale of our offering has made us an essential part of our advisers businesses, in turn making us the third largest outsource provider of the components of a managed account platform (known in the industry as a Turnkey Asset Management Program, or TAMP) in terms of platform assets in 2017, according to WealthAdvisors 2018 Americas Best TAMPs report. As of December 31, 2018, our market share among U.S. TAMPs was 10%. |
|
We are a disciplined acquirer : Growth through acquisition of small, subscale, outsource providers is a core competency of our business. Our value creation through acquisition is generated by purchase price discipline and our ability to grow relationships formed through these acquisitions. In 2014 and 2015, respectively, we acquired the platform assets of two firms that collectively added $3.5 billion in assets to our platform at the time of acquisition. On average, three years post-acquisition, these acquired assets had grown by 17% compounded annually. Subsequently, in April 2019, we closed our acquisition of Global Financial Private Capital for a cash purchase price of $35.9 million, which added another $3.8 billion in platform assets. |
Our growth strategy
|
Increase the adviser base : Through our marketing efforts and the outreach of our more than 100-person field force, we expect to continue building on our existing relationships with advisers and growing business from new relationships. |
|
Expand share of wallet from existing adviser clients : According to our internal share of wallet study, as of March 31, 2019, we had approximately 33% of the total assets and 61% of the total advisory assets of our advisers with at least $5 million in positive net flows on our platform over the life of our relationship with them. We plan to work with existing advisers to add investment solutions to our platform that they otherwise obtain elsewhere. This work aims to help advisers further their operational efficiencies and improve their investor experience by shifting an increasing portion of their business to AssetMark. |
|
Help advisers grow their businesses : Our turnkey, holistic platform and adviser engagement model are designed to help advisers grow and build sustainable businesses. We plan to continue to help |
10
advisers grow through our deep business consulting engagements and comprehensive platform support. |
|
Expand our services to new segments : We are focused on introducing new products and enhancing services and capabilities in areas including cash management, business consulting and trading to further expand our reach into the RIA market, retirement services and the high-net-worth segment. We believe that these solutions will enhance our offering to existing advisers while also deepening and extending our relationships with high-growth segments of advisers. |
|
Continue to pursue strategic transactions : We expect to continue to selectively pursue acquisitions that we believe will enhance the scale and operating leverage of our business. In addition, we may pursue acquisitions that expand the appeal of our offering to independent, fee-based advisers and the investors they serve. |
Recent developments
Set forth below are certain preliminary estimates of selected key operating metrics as of June 30, 2019 and for the three and six month periods ended June 30, 2019. The following information reflects our preliminary estimates with respect to such metrics based on currently available information, is not a comprehensive statement of our financial or operating results and is subject to completion of our quarter-end closing procedures. Our quarter-end closing procedures for the three and six months ended June 30, 2019 are not yet complete and, as a result, our actual results may differ materially from these estimates. These estimates should not be viewed as a substitute for our full interim financial statements or key operating metrics. There can be no assurance that these estimates will be realized, and estimates are subject to risks and uncertainties, many of which are not within our control. Further, these estimates are not necessarily indicative of the results to be expected for the remainder of the year or any future period as a result of various factors, including, but not limited to, those discussed in the sections titled Risk factors and Special note regarding forward-looking statements. This information should be read in conjunction with our consolidated financial statements and the related notes thereto and the section titled Managements discussion and analysis of financial condition and results of operations for prior periods included elsewhere in this prospectus.
11
We ended the three months ended June 30, 2019 with $56 billion of platform assets, an increase of $6.4 billion from March 31, 2019. Net flows for the three months ended June 30, 2019 were $1.5 billion, an increase of $0.1 billion, or 7.4%, from the three months ended March 31, 2019 and a decrease of $0.2 billion, or 10.7%, from the three months ended June 30, 2018. Additionally, during the second quarter of 2019, we closed our acquisition of Global Financial Private Capital, which added $3.8 billion of platform assets as well as approximately 250 advisers. Market impact net of fees was $1.1 billion for the quarter ended June 30, 2019. Key operating metrics for the three and six months ended June 30, 2019 were as follows (in millions):
Three months ended June 30, 2019 |
Six months ended June 30, 2019 |
|||||||
|
||||||||
Platform assets (at beginning of period) |
$ | 49,695 | $ | 44,855 | ||||
Net flows |
1,514 | 2,924 | ||||||
Market impact net of fees |
1,053 | 4,483 | ||||||
Platform assets from acquisitions |
3,789 | 3,789 | ||||||
|
|
|
|
|||||
Platform assets (at period-end) |
$ | 56,051 | $ | 56,051 | ||||
|
Additionally, AssetMark Trust Company (ATC) client cash was $1.5 billion at June 30, 2019.
For more information regarding platform assets, net flows, market impact net of fees, advisers and ATC client cash, see the section titled Managements discuss and analysis of financial condition and results of operationsKey operating metrics.
Risk factors
Before you invest in our common stock, you should carefully consider all the information in this prospectus, including matters set forth in Risk factors. The principal risks we face include but are not limited to the following:
|
Our revenue can fluctuate from period to period, which could cause our share price to fluctuate; |
|
We operate in an intensely competitive industry, and this competition could hurt our financial performance; |
|
We derive nearly all of our revenue from clients in the financial advisory industry and our revenue could suffer if that industry experiences a downturn; |
|
Our clients that pay us an asset-based fee may seek to negotiate a lower fee percentage, choose to use lower-revenue products or cease using our services, which could limit the growth of our revenue or cause our revenue to decrease; |
|
Investors may redeem or withdraw their investment assets generally at any time. Significant changes in investing patterns could have a material adverse effect on our business; |
|
Changes in market and economic conditions could lower the value of assets on which we earn revenue and could decrease the demand for our investment solutions and services; |
|
We must continue to introduce new investment solutions and services, and a failure to do so could have a material adverse effect on our results of operations, financial condition or business; |
12
|
We are exposed to data and cyber-security risks that could result in data breaches, service interruptions, harm to our reputation or significant liability; |
|
Our controlling stockholder is subject to supervision by regulatory authorities in the PRC and must comply with certain PRC laws and regulations that may influence our controlling stockholders decisions relating to our business; |
|
Control by our principal stockholder could adversely affect our other stockholders; and |
|
We are subject to extensive government regulation in the United States, and our failure or inability to comply with these regulations or regulatory action against us could adversely affect our results of operations, financial condition or business. |
Our controlling stockholder
In April 2016, Huatai Securities Co., Ltd. (HTSC), a Chinese securities group with brokerage and investment services, acquired our collective businesses from Aquiline Capital Partners and Genstar Capital. Through the acquisition, HTSC became the ultimate parent company of our collective businesses through its subsidiary Huatai International Investment Holdings Limited, a company organized under the laws of the Cayman Islands (HIIHL). Following completion of the transactions described in the section titled Restructuring, upon completion of this offering and based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), HIIHL will own 73.3% of our outstanding common stock, or 70.7% if the underwriters exercise their option to purchase additional shares in full, and will continue to control our management and affairs, including determining the outcome of all matters requiring stockholder approval. See the section titled Risk factors Risks related to our controlling stockholders ultimate parent being a PRC company with stock listed in Hong Kong and Shanghai and Risk factors Risks related to our common stock and this offering for risks related to our controlling stockholder.
Restructuring
In connection with this offering, we and our immediate parent company, AssetMark Holdings LLC, will undergo a restructuring transaction prior to the completion of this offering. Prior to this restructuring, all of our outstanding capital stock was held by AssetMark Holdings LLC. 98.6% of AssetMark Holdings LLCs equity interests were held by HIIHL and the remaining 1.4% was held by members of our senior management and board of directors and certain of our employees.
13
The diagram below depicts our organizational structure prior to this restructuring.
In preparation for the restructuring, on July 5, 2019, we effected a 661,500-for-one forward stock split of our common stock, following which 66,150,000 shares of our common stock were issued and outstanding. Immediately following the pricing of this offering, AssetMark Holdings LLC will liquidate and dissolve and distribute shares of our common stock to its members as follows: holders of Class A Common Units and Class B Common Units of AssetMark Holdings LLC will receive an aggregate of 60,177,691 shares of our common stock, and holders of Class C Common Units of AssetMark Holdings LLC will receive an aggregate number of restricted stock awards (RSAs) equal to 5,972,309 shares of our common stock, in each case based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). We expect that these RSAs will be subject to the same vesting schedule as the incentive units they replace. See the section titled Execution compensationAdditional narrative disclosure relating to incentive unit awards for further information on the terms of the RSAs.
An increase (decrease) in the actual initial public offering price per share would increase (decrease) the number of RSAs distributed to the holders of Class C Common Units and decrease (increase) the number of shares of common stock distributed to holders of Class A Common Units and Class B Common Units. However, immediately following this restructuring and prior to the completion of this offering, an aggregate of 66,150,000 shares of our common stock (including RSAs) will be issued and outstanding, regardless of the actual initial public offering price per share in this offering. Upon completion of this offering, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), HIIHL will own approximately 73.3% of our outstanding common stock, or approximately 70.7% if the underwriters exercise their option to purchase additional shares in full.
14
The diagram below depicts our organizational structure immediately following this offering, assuming no exercise of the underwriters option to purchase additional shares, and before giving effect to the issuance of new RSUs to employees and options to certain members of our management not in connection with the restructuring, which we expect to issue upon the pricing of this offering. See the section titled Executive compensationEquity awards upon this offering for more information on the new options and RSUs that we expect to issue.
Emerging growth company status
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). For as long as we are an emerging growth company, we will not be required to comply with certain requirements that are applicable to other public companies that are not emerging growth companies, including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (as amended, the Sarbanes-Oxley Act), and may also take advantage of the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, for so long as we are an emerging growth company, we may take advantage of certain reduced reporting obligations, including a requirement to have only two years of audited financial statements and only two years of related managements discussion and analysis of financial condition and results of operations disclosure. We may choose to take advantage of some but not all of these reduced burdens. We have taken advantage of many of these reduced burdens in this prospectus, and intend to do so in future filings. As a result, the information that we provide stockholders may be different than you might get from other public companies in which you hold equity.
We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; the date we qualify as a large accelerated filer; the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; and the last day of the fiscal year in which the fifth anniversary of our initial public offering occurs.
15
In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the Securities Act), for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are not choosing to opt out of such extended transition period and, as a result, we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public non-emerging growth companies.
For a description of the qualifications and other requirements applicable to emerging growth companies, please read Risk factorsRisks related to our common stock and this offeringWe are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
Corporate information
AssetMark was founded in 1996 and AssetMark Financial Holdings, Inc. was incorporated in the State of Delaware on March 25, 2013. Our principal executive offices are located at 1655 Grant Street, 10 th Floor, Concord, California, 94520 and our telephone number is (925) 521-2200. Our Internet site is www.assetmark.com. Our website and the information contained therein or accessible through it are not incorporated into this prospectus or the registration statement of which it forms a part.
AssetMark, the AssetMark design logo and other AssetMark tradenames and service marks in use generally and included in this prospectus are the property of AssetMark Financial Holdings, Inc. and certain of our subsidiaries. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of the respective holders.
16
Common stock offered by us |
6,250,000 shares |
Common stock offered by the selling stockholder |
6,250,000 shares |
Underwriters option to purchase additional shares from the selling stockholder |
1,875,000 shares |
Common stock to be outstanding after this offering |
72,400,000 shares |
Use of proceeds |
We estimate that the net proceeds to us from this offering will be approximately $112.9 million, assuming an initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds to us from this offering, together with cash on hand, to repay approximately $125 million of our Term Loan (as defined in the section titled Managements discussion and analysis of financial condition and results of operationsLiquidity and capital resources) and the remainder of the net proceeds to us from this offering, if any, for general corporate purposes, including working capital, operating expenses and capital expenditures. As of March 31, 2019, we had $249.4 million of debt outstanding under the Term Loan, which bears interest at a variable rate, initially LIBOR plus a margin of 3.50% or the Alternate Base Rate, as specified in the Term Loan, plus a margin of 2.50%. We may also use a portion of the remaining net proceeds, if any, to acquire or invest in complementary businesses, technologies or other assets, although we currently have no agreements or understandings with respect to any acquisitions or investments. |
We will not receive any proceeds from the sale of common stock by the selling stockholder. |
See the section titled Use of proceeds for additional information. |
Directed share program |
At our request, the underwriters have reserved up to 5% of the shares offered by this prospectus for sale at the initial public offering price for our directors, officers, certain of our employees and certain other persons associated with us who have expressed an interest in purchasing |
17
common stock in this offering. For additional information, see the section titled Underwriting (conflict of interest). |
Proposed NYSE symbol |
AMK |
Dividend policy |
See the section titled Dividend policy for a discussion of our policy on paying dividends. |
Controlled company |
Upon completion of this offering and the transactions described in the section titled Restructuring, HTSC, through its subsidiary HIIHL, will control approximately 73.3% of the voting power of our outstanding common stock, assuming no exercise of the underwriters option to purchase additional shares and based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). As a result, we will be a controlled company under the NYSE governance standards. Under these standards, a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance standards. See the section titled Risk factorsRisks related to our common stock and this offering for more information. |
Conflict of interest |
We and Huatai Securities (USA), Inc., an underwriter in this offering, are under common control by HTSC. As such, Huatai Securities (USA), Inc. is deemed to have a conflict of interest under Rule 5121(f)(5)(B) of the Financial Industry Regulatory Authority, Inc. (FINRA). In addition, affiliates of Huatai Securities (USA), Inc. and Credit Suisse Securities (USA) LLC will each receive more than 5% of the net offering proceeds from this offering and will each be deemed to have a conflict of interest pursuant to FINRA Rule 5121(f)(5)(C). Accordingly, this offering is being made in compliance with the requirements of FINRA Rule 5121, pursuant to which the appointment of a qualified independent underwriter is not required in connection with this offering as the FINRA members primarily responsible for managing the public offering do not have a conflict of interest, are not affiliates of any FINRA member that has a conflict of interest and meet the requirements of FINRA Rule 5121(f)(12)(E). See the section titled Underwriting (conflict of interest) for more information. |
Risk factors |
See the section titled Risk factors and the other information included in this prospectus for a discussion of risks you should carefully consider before investing in our common stock. |
18
The number of shares of our common stock set forth above is based on 66,150,000 shares of our common stock outstanding as of March 31, 2019, assuming completion of the transactions described in the section titled Restructuring, and does not include:
|
909,688 shares of common stock issuable upon the exercise of options to be granted immediately following the pricing of this offering with an exercise price equal to the initial public offering price per share, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), which options will be granted outside of our 2019 Equity Incentive Plan; |
|
94,721 shares of common stock subject to restricted stock units (RSUs) to be granted under our 2019 Equity Incentive Plan immediately following the pricing of this offering, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus); and |
|
4,792,970 additional shares of common stock reserved for future issuance under our 2019 Equity Incentive Plan, which will become effective upon the pricing of this offering, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). |
Unless we specifically state otherwise or as the context may otherwise require, the information in this prospectus assumes (i) no exercise of the underwriters option to purchase additional shares, (ii) the effectiveness of our amended and restated certificate of incorporation as of July 5, 2019, including the effectiveness of the 661,500-for-one forward stock split of our common stock, (iii) no exercise of the stock options or issuance of the RSUs described above and (iv) the completion of the transactions described in the section titled Restructuring.
19
Summary consolidated financial and other data
The following summary consolidated financial and other data of AssetMark Financial Holdings, Inc. should be read in conjunction with, and are qualified by reference to, Managements discussion and analysis of financial condition and results of operations and the consolidated financial statements and notes thereto included elsewhere in this prospectus. The consolidated statements of income data for the years ended December 31, 2018 and 2017 and the consolidated balance sheet data as of December 31, 2018 and 2017 are derived from, and qualified by reference to, the audited consolidated financial statements of AssetMark Financial Holdings, Inc. included elsewhere in this prospectus and should be read in conjunction with those consolidated financial statements and notes thereto. The consolidated statements of income data for the three months ended March 31, 2019 and 2018 and the consolidated balance sheet data as of March 31, 2019 and 2018 are derived from, and qualified by reference to, the unaudited interim condensed consolidated financial statements of AssetMark Financial Holdings, Inc. included elsewhere in this prospectus and should be read in conjunction with those unaudited interim condensed consolidated financial statements and notes thereto. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal, recurring adjustments, that are necessary to present fairly the unaudited interim condensed consolidated financial statements. Results for historical periods may not be indicative of results expected for future periods, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period.
Year ended December 31, | Three months ended March 31, | |||||||||||||||
(in thousands, except share and per share data) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Consolidated statements of income data: |
||||||||||||||||
Asset-based revenue |
$ | 338,031 | $ | 282,966 | $ | 83,063 | $ | 79,076 | ||||||||
Spread-based revenue |
20,403 | 10,430 | 7,549 | 3,749 | ||||||||||||
Other income |
5,200 | 2,121 | 1,702 | 1,708 | ||||||||||||
|
|
|||||||||||||||
Total revenue |
363,634 | 295,517 | 92,314 | 84,533 | ||||||||||||
Total expenses |
309,071 | 276,174 | 86,063 | 70,870 | ||||||||||||
|
|
|||||||||||||||
Income before income taxes |
54,563 | 19,343 | 6,251 | 13,663 | ||||||||||||
Provision for (benefit from) income taxes |
17,137 | (79,635 | ) | 3,440 | 3,872 | |||||||||||
|
|
|||||||||||||||
Net income |
$ | 37,426 | $ | 98,978 | $ | 2,811 | $ | 9,791 | ||||||||
|
|
|||||||||||||||
Net income per share, basic |
$ | 0.57 | $ | 1.50 | $ | 0.04 | $ | 0.15 | ||||||||
Weighted-average shares outstanding used in calculating net income per share, basic |
66,150,000 | 66,150,000 | 66,150,000 | 66,150,000 |
20
Year ended December 31, | Three months ended March 31, | |||||||||||||||
(in thousands, except share and per share data) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Other data: |
||||||||||||||||
Capital expenditures |
$ | 17,414 | $ | 15,652 | $ | 4,712 | $ | 4,214 | ||||||||
Net cash provided by operating activities |
61,662 | 45,612 | 2,769 | 8,562 | ||||||||||||
Net cash used in investing activities |
(17,714 | ) | (15,652 | ) | (5,020 | ) | (4,214 | ) | ||||||||
Net cash provided by financing activities |
11,259 | | (625 | ) | | |||||||||||
Non-GAAP financial metrics: |
||||||||||||||||
Adjusted EBITDA (1) |
88,945 | 58,879 | 22,730 | 21,007 | ||||||||||||
Adjusted net income (1) |
60,758 | 34,347 | 12,723 | 15,105 | ||||||||||||
|
(1) | We define adjusted EBITDA as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization and less interest income), further adjusted to exclude certain non-cash charges and other adjustments such as non-recurring items. We define adjusted net income as net income before: (a) share-based compensation expense, (b) amortization of intangible assets, (c) acquisition and related integration expenses, (d) restructuring and conversion costs and (e) certain other non-recurring expenses. |
Adjusted EBITDA and adjusted net income are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP.
We believe that adjusted EBITDA and adjusted net income provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) adjusted EBITDA and adjusted net income are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) adjusted EBITDA and adjusted net income are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.
Adjusted EBITDA and adjusted net income have limitations as analytical tools, and you should not consider such measures either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:
a. | adjusted EBITDA and adjusted net income do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; |
b. | adjusted EBITDA and adjusted net income do not reflect changes in, or cash requirements for, working capital; |
c. | adjusted EBITDA does not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments; and |
d. | other companies in the financial services industry may calculate adjusted EBITDA or adjusted net income differently than we do, limiting their usefulness as comparative measures. |
Because of these limitations, adjusted EBITDA and adjusted net income should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
21
The following table provides a reconciliation of net income, the most closely comparable U.S. GAAP financial measure, to adjusted EBITDA:
Year ended December 31, | Three months ended March 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Net income |
$ | 37,426 | $ | 98,978 | $ | 2,811 | $ | 9,791 | ||||||||
Income tax |
17,137 | (79,635 | ) | 3,440 | 3,872 | |||||||||||
Interest income |
(2,433 | ) | (268 | ) | (892 | ) | (310 | ) | ||||||||
Interest expense |
1,920 | | 4,024 | | ||||||||||||
Amortization/depreciation |
26,104 | 22,981 | 6,896 | 6,037 | ||||||||||||
|
|
|||||||||||||||
EBITDA |
80,154 | 42,056 | 16,279 | 19,390 | ||||||||||||
|
|
|||||||||||||||
Share-based compensation (1) |
6,568 | 6,920 | 5,226 | 1,296 | ||||||||||||
IPO readiness (2) |
1,182 | | 568 | 51 | ||||||||||||
Reorganization and integration costs (3) |
1,041 | 3,266 | 657 | 270 | ||||||||||||
Strategic initiatives (4) |
| 2,026 | | | ||||||||||||
Settlement costs related to a non-routine legal dispute (5) |
| 2,000 | | | ||||||||||||
Acquisition expenses (6) |
| 1,339 | | | ||||||||||||
Retention bonus related to our 2016 sale to HTSC (7) |
| 1,215 | | | ||||||||||||
Transition services payment for 2015 acquisition (8) |
| 57 | | | ||||||||||||
|
|
|||||||||||||||
Adjusted EBITDA |
$ | 88,945 | $ | 58,879 | $ | 22,730 | $ | 21,007 | ||||||||
|
(1) | Share-based compensation represents granted share-based compensation in the form of Class C Common Units (which are incentive units) of AssetMark Holdings LLC, our parent company, to certain of our directors and employees. Although this expense occurred in each measurement period, we have added the expense back in our calculation of adjusted EBITDA because of its non-cash impact. |
(2) | IPO readiness includes professional fees related to our preparation to become a public company. These expenses primarily include services for financial and human resources systems implementation, executive compensation assessments and other consulting services. Although these expenses occurred in both 2018 and the first quarter of 2019, these expenses are non-recurring as they are limited to our public-company readiness preparation and do not include ongoing public-company compliance costs. |
(3) | Reorganization and integration costs includes costs related to our functional reorganization within our Operations, Technology and Retirement functions as well as duplicate costs related to the outsourcing of back-office operations functions. While we have incurred such expenses in all periods measured, these expenses serve varied reorganization and integration initiatives, each of which is non-recurring. We do not consider these expenses to be part of our core operations. |
(4) | Strategic initiatives includes costs related to one-time investments for exploratory work regarding potential business opportunities in 2017. These strategic initiatives were part of the initial strategic review performed by HTSC in late 2016. These costs included research into such areas as RIA expansion, international products, retirement products and cash solutions. Such costs were non-recurring. |
(5) | Settlement costs related to a non-routine legal dispute are costs related to the settlement of an unusual legal dispute with a technology vendor. We consider this settlement to be non-recurring. |
(6) | Acquisition expenses includes legal fees and other professional fees related to a single significant acquisition effort in 2017 that was ultimately unsuccessful. We consider such costs to be non-recurring due to the extent that we invested in that particular effort. |
(7) | Retention bonus related to our 2016 sale to HTSC includes retention incentives paid to certain of our directors as an incentive to retain their services after HTSC acquired our company in 2016. This expense was a one-time incentive provided by HTSC to such directors. |
(8) | Transition services payment for 2015 acquisition represents a 2017 expense related to a final payment pursuant to a one-time transition services agreement and is therefore non-recurring. |
22
The following table provides a reconciliation of net income, the most closely comparable U.S. GAAP financial measure, to adjusted net income:
Year ended December 31, | Three months ended March 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Net income |
$ | 37,426 | $ | 98,978 | $ | 2,811 | $ | 9,791 | ||||||||
Tax adjustments (1) |
| (90,055 | ) | | | |||||||||||
Acquisition related amortization |
20,432 | 20,432 | 5,108 | 5,108 | ||||||||||||
Expense adjustments (2) |
2,221 | 9,903 | 1,225 | 322 | ||||||||||||
Share-based compensation |
6,568 | 6,920 | 5,226 | 1,296 | ||||||||||||
Tax effect of adjustments (3) |
(5,889 | ) | (11,831 | ) | (1,647 | ) | (1,412 | ) | ||||||||
|
|
|||||||||||||||
Adjusted net income |
$ | 60,758 | $ | 34,347 | $ | 12,723 | $ | 15,105 | ||||||||
|
(1) | Represents a non-recurring non-cash decrease in our deferred tax liability in connection with the lower federal tax rate attributable to the Tax Cuts and Jobs Act of 2017. |
(2) | Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above other than share-based compensation. |
(3) | Reflects the tax impact of expense adjustments and acquisition-related amortization. |
(1) | Pro forma amounts give effect to the transactions described in the section titled Restructuring. |
(2) | Pro forma as adjusted amounts give further effect to the issuance and sale of 6,250,000 shares of common stock by us in this offering at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses to be paid by us (of which approximately $0.8 million was previously recorded as an accrued current liability with a corresponding amount recorded as a non-current asset as of March 31, 2019), and the application of the net proceeds to us from this offering, together with cash on hand, to repay approximately $125 million of our Term Loan as set forth in the section titled Use of proceeds. |
A $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share would increase (decrease), on a pro forma as adjusted basis, each of cash and cash equivalents, working capital, total assets and stockholders equity by approximately $5.8 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease), on a pro forma as adjusted basis, each of cash and cash equivalents, working capital, total assets and stockholders equity by approximately $18.7 million, assuming the assumed initial public offering price per share remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and will depend on the actual initial public offering price, number of shares offered and other terms of this offering determined at pricing.
(3) | Current assets less current liabilities. |
23
You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
Risks related to our business and operations
Our revenue may fluctuate from period to period, which could cause our share price to fluctuate.
Our revenue may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following events, as well as other factors described elsewhere in this prospectus:
|
a decline or slowdown of the growth in the value of financial market assets or changes in the mix of assets on our platform, which may reduce the value of our platform assets and therefore our revenue and cash flows; |
|
significant fluctuations in securities prices affecting the value of assets on our platform; |
|
negative public perception and reputation of the financial services industry, which would reduce demand for our investment solutions and services; |
|
unanticipated acceleration of client investment preferences for lower-fee options; |
|
downward pressure on fees we charge our investor clients, which would reduce our revenue; |
|
changes in laws or regulations that could impact our ability to offer investment solutions and services; |
|
failure to obtain new clients or retain existing clients on our platform, or changes in the mix of clients on our platform; |
|
failure by our financial adviser clients to obtain new investor clients or retain their existing investor clients; |
|
failure to adequately protect our proprietary technology and intellectual property rights; |
|
reduction in the suite of investment solutions and services made available by third-party providers to existing clients; |
|
reduction in fee percentage or total fees for future periods, which may have a delayed impact on our results given that our asset-based fees are billed to advisers in advance of each quarter; |
|
changes in our pricing policies or the pricing policies of our competitors to which we have to adapt; or |
|
general domestic and international economic and political conditions that may decrease investor demand for financial advisers or investment services. |
24
As a result of these and other factors, our results of operations for any quarterly or annual period may differ materially from our results of operations for any prior or future quarterly or annual period and should not be relied upon as indications of our future performance.
We operate in an intensely competitive industry, with many firms competing for business from financial advisers on the basis of the quality and breadth of investment solutions and services, ability to innovate, reputation and the prices of services, among other factors, and this competition could hurt our financial performance.
We compete with many different types of companies that vary in size and scope, including other TAMPs. In addition, some of our adviser clients have developed or may develop the in-house capability to provide the technology or investment advisory services they have retained us to perform. These clients may also offer internally developed services to their financial advisers, obviating the need to hire us, and they may offer these services to third-party financial advisers or financial institutions, thereby competing directly with us for that business.
Some of our competitors have greater name recognition or greater resources than we do, and may offer a broader range of services across more markets. These resources may allow our competitors to respond more quickly to new technologies or changes in demand for investment solutions and services, devote greater resources to developing and promoting their services and make more attractive offers to potential clients and strategic partners, which could hurt our financial performance. Further, some of our competitors operate in a different regulatory environment than we do, which may give them certain competitive advantages in the services they offer.
We compete on a number of bases including the performance of our technology, the level of fees charged, the quality of our services, our reputation and position in the industry, our ability to adapt to technological developments or unforeseen market entrants and our ability to address the complex and changing needs of our clients. Our failure to successfully compete on the basis of any of these factors could result in a significant decline in market share, revenue and net income.
We derive nearly all of our revenue from the delivery of investment solutions and services to clients in the financial advisory industry and our revenue could suffer if that industry experiences a downturn.
We derive nearly all of our revenue from the delivery of investment solutions and services to clients in the financial advisory industry and we are therefore subject to the risks affecting that industry. A decline or lack of growth in demand for financial advisory services would adversely affect the financial advisers who work with us and, in turn, our results of operations, financial condition or business. For example, the availability of free or low-cost investment information and resources, including research and information relating to publicly traded companies and mutual funds available on the Internet or on company websites, could lead to lower demand by investors for the services provided by financial advisers. In addition, demand for our investment solutions and services among financial advisers could decline for many reasons. Consolidation or limited growth in the financial advisory industry could reduce the number of financial advisers and their potential clients. Events that adversely affect financial advisers businesses, rates of growth or the numbers of customers they serve, including decreased demand for their products and services, adverse conditions in the markets or adverse economic conditions generally, could decrease demand for our investment solutions and services and thereby decrease our revenue. Any of the foregoing could have a material adverse effect on our results of operations, financial condition or business.
25
Investors that pay us an asset-based fee may seek to negotiate a lower fee percentage, choose to use lower revenue products or cease using our services, which could limit the growth of our revenue or cause our revenue to decrease.
We derive a significant portion of our revenue from asset-based fees. Individual advisers or their clients may seek to negotiate a lower asset-based fee percentage. In addition, clients may elect to use products that generate lower revenue, which may result in lower total fees being paid to us. As competition among financial advisers increases, our clients may be required to lower the fees they charge to their clients, which could cause them to seek lower fee options on our platform or to more aggressively negotiate the fees we charge. Further, any reduction in asset-based fees could persist beyond the near term given the recurring quarterly nature of our asset-based fee arrangements. Any of these factors could result in a fluctuation or decline in our asset-based revenue, which would have a material adverse effect on our results of operations, financial condition or business.
Investors may redeem or withdraw their investment assets generally at any time. Significant changes in investing patterns or large-scale withdrawal of investment funds could have a material adverse effect on our results of operations, financial condition or business.
The clients of our financial advisers are generally free to change financial advisers, forgo the advice and other services provided by financial advisers or withdraw the funds they have invested with financial advisers. These clients of financial advisers may elect to change their investment strategies, including by withdrawing all or a portion of their assets from their accounts to avoid securities markets-related risks. These actions by investors are outside of our control and could materially adversely affect the market value of our platform assets, which could materially adversely affect the asset-based revenue we receive.
Changes in market and economic conditions could lower the value of assets on which we earn revenue and could decrease the demand for our investment solutions and services.
Asset-based revenue makes up a significant portion of our revenue, representing 93% and 90% of our total revenue for the year ended December 31, 2018 and the three months ended March 31, 2019, respectively. In addition, given our fee-based model, we expect that asset-based revenue will continue to account for a significant percentage of our total revenue in the future. Spread-based revenue accounted for 6% and 8% of our total revenue for the year ended December 31, 2018 and the three months ended March 31, 2019, respectively. Significant fluctuations in securities prices, as well as recent and anticipated increases in interest rates, may materially affect the value of the assets managed by our clients and may also influence financial adviser and investor decisions regarding whether to invest in, or maintain an investment in, one or more of our investment solutions. If such market fluctuation led to less investment in the securities markets, our revenue and earnings derived from asset-based and spread-based revenue could be simultaneously materially adversely affected.
We provide our investment solutions and services to the financial services industry. The financial markets, and in turn the financial services industry, are affected by many factors, such as U.S. and foreign economic conditions and general trends in business and finance that are beyond our control, which could be adversely affected by changes in the equity or debt marketplaces, unanticipated changes in currency exchange rates, interest rates, inflation rates, the yield curve, financial crises, war, terrorism, natural disasters and other factors that are difficult to predict. In the event that the U.S. or international financial markets suffer a severe or prolonged downturn, investments may lose value and investors may choose to withdraw assets from financial advisers and use the assets to pay
26
expenses or transfer them to investments that they perceived to be more secure, such as bank deposits and Treasury securities. Any prolonged downturn in financial markets, or increased levels of asset withdrawals could have a material adverse effect on our results of operations, financial condition or business.
We must continue to introduce new investment solutions and services, and enhancements thereon, to address our clients changing needs, market changes and technological developments, and a failure to do so could have a material adverse effect on our results of operations, financial condition or business.
The market for our investment solutions and services is characterized by shifting client demands, evolving market practices and, for many of our investment solutions and services, rapid technological change, including an increased use of and reliance on web and social network properties. Changing client demands (including increased reliance on technology), new market practices or new technologies can render existing investment solutions and services obsolete and unmarketable. As a result, our future success will continue to depend upon our ability to develop and enhance investment solutions and services that address the future needs of our target markets and respond to technological and market changes. We may not be able to accurately estimate the impact of new investment solutions and services on our business or how their benefits will be perceived by our clients. Further, we may not be successful in developing, introducing and marketing our new investment solutions or services or enhancements on a timely and cost effective basis, or at all, and our new investment solutions and services and enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. In addition, clients may delay purchases in anticipation of new investment solutions or services or enhancements. Any of these factors could materially adversely affect our results of operations, financial condition or business.
We could face liability or incur costs to remediate operational errors or to address possible customer dissatisfaction.
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in our operating systems, business disruptions and inadequacies or breaches in our internal control processes. We operate in diverse markets and are reliant on the ability of our employees and systems to process large volumes of transactions often within short time frames. In the event of a breakdown or improper operation of systems, human error or improper action by employees, we could suffer financial loss, regulatory sanctions or damage to our reputation. In addition, there may be circumstances when our customers are dissatisfied with our investment solutions and services, even in the absence of an operational error. In such circumstances, we may elect to make payments or otherwise incur increased costs or lower revenue to maintain customer relationships. In any of the forgoing circumstances, our results of operations, financial condition or business could be materially adversely affected.
We may be subject to liability for losses that result from a breach of our fiduciary duties.
Certain of our investment advisory services involve fiduciary obligations that require us to act in the best interests of our clients, and we may be sued and face liabilities for actual or claimed breaches of our fiduciary duties. Because we provide investment advisory services with respect to substantial assets, we could face substantial liability to our clients if it is determined that we have breached our
27
fiduciary duties. In certain circumstances, which generally depend on the types of investment solutions and services we are providing, we may enter into client agreements jointly with advisers and retain third-party investment money managers and strategists on behalf of clients. We are responsible for conducting due diligence on the investment solutions and strategies offered by such third parties with whom we partner, and a failure to adequately conduct due diligence could subject us to liability for misstatements or omissions contained in marketing and other materials describing the investment solutions and strategies offered by such third parties to our investor clients. As such, we may be included as a defendant in lawsuits against financial advisers, strategists and third-party investment money managers that involve claims of breaches of the duties of such persons, and we may face liabilities for the improper actions and/or omissions of such advisers and third-party investment money managers and strategists. In addition, we may face claims based on the results of our investment advisory services, even in the absence of a breach of our fiduciary duty. Such claims and liabilities could therefore have a material adverse effect on our results of operations, financial condition or business.
If our reputation is harmed, our results of operations, financial condition or business could be materially adversely affected.
Our reputation, which depends on earning and maintaining the trust and confidence of our clients, is critical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, lawsuits initiated by our clients, employee misconduct, perceptions of conflicts of interest and rumors, among other developments, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. Potential, perceived and actual conflicts of interest are inherent in our business activities and could give rise to client dissatisfaction or litigation. In particular, we offer proprietary mutual funds and portfolios of mutual funds as well as custodial services, and financial advisers or their clients could conclude that we favor our proprietary investment products or services over those of third parties. In addition, any perception that the quality of our investment solutions and services may not be the same or better than that of other providers can also damage our reputation. Any damage to our reputation could harm our ability to attract and retain clients, which could materially adversely affect our results of operations, financial condition or business.
If our investment solutions and services fail to perform properly due to undetected errors or similar problems, our results of operations, financial condition or business could be materially adversely affected.
Investment solutions and services we develop or maintain may contain undetected errors or defects despite testing. Such errors can exist at any point in the life cycle of our investment solutions or services, but are typically found after introduction of new investment solutions and services or enhancements to existing investment solutions or services. We continually introduce new investment solutions and services and new versions of existing solutions and services. Our third-party providers, including asset managers whose products our clients access through our platform, could fail to detect errors or defects in the offered products that our clients use. Despite internal testing and testing by current and prospective clients, our current and future investment solutions and services may contain serious defects or malfunctions. If we detect any errors before release, we might be required to delay the release of the investment solution or service for an extended period of time while we address the problem. We might not discover errors that affect our new or current investment solutions, services or enhancements until after they are deployed, and we may need to provide enhancements to correct
28
such errors. Errors may occur that could have a material adverse effect on our results of operations, financial condition or business and could result in harm to our reputation, lost sales, delays in commercial release, third-party claims, contractual disputes, contract terminations or renegotiations or unexpected expenses and diversion of management and other resources to remedy errors. In addition, negative public perception and reputational damage caused by such claims would adversely affect our client relationships and our ability to enter into new contracts. Any of these problems could have a material adverse effect on our results of operations, financial condition or business.
Our failure to successfully execute the conversion of our clients assets from their existing technology platform to our platform in a timely and accurate manner could have a material adverse effect on our results of operations, financial condition or business.
When we begin working with a new client, or acquire new client assets through an acquisition or other transaction, we may be required to convert the new assets from the clients existing technology platform to our technology platform. These conversions sometimes present significant technological and operational challenges, can be time-consuming, may result in the loss of the target companys clients and may divert managements attention from other operational challenges. If we fail to successfully complete our conversions in a timely and accurate manner, we may be required to expend more time and resources than anticipated, which could erode the profitability of the client relationship. In addition, any such failure may harm our reputation and may cause financial advisers or their clients to move their assets off of our platform or make it less likely that prospective clients will commit to working with us. Any of these risks could materially adversely affect our results of operations, financial condition or business.
Our business relies heavily on computer equipment, electronic delivery systems and the Internet. Any failures or disruptions could result in reduced revenue and the loss of customers.
The success of our business depends upon our ability to deliver time-sensitive, up-to-date data and information. Our business relies heavily on computer equipment (including servers), electronic delivery systems and the Internet, but these technologies are vulnerable to disruptions, failures or slowdowns caused by fire, earthquake, power loss, telecommunications failure, terrorist attacks, wars, Internet failures, cyber-attacks and other events beyond our control. Furthermore, we rely on agreements with our suppliers, such as our current data hosting and service providers, to provide us with access to certain computer equipment, electronic delivery systems and the Internet. We are unable to predict whether a future contractual dispute may arise with one of our suppliers that could cause a disruption in service, or whether our agreements with our suppliers can be obtained or renewed on acceptable terms, or at all. An unanticipated disruption, failure or slowdown affecting our key technologies or facilities may have significant ramifications, such as data-loss, data corruption, damaged software codes or inaccurate processing of transactions. We maintain off-site back-up facilities for our electronic information and computer equipment, but these facilities could be subject to the same interruptions that may affect our primary facilities. Any significant disruptions, failures, slowdowns, data-loss or data corruption could have a material adverse effect on our results of operations, financial condition or business and result in the loss of customers.
29
If government regulation of the Internet changes, or if consumer attitudes towards the Internet change, we may need to change the manner in which we conduct our business or incur greater operating expenses.
We rely heavily on the Internet in conducting our business. The adoption, modification or interpretation of laws or regulations relating to the Internet could adversely affect the manner in which we conduct our business. Such laws and regulations may cover sales practices, taxes, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts, consumer protection, broadband residential Internet access and the characteristics and quality of services. Moreover, it is not clear how existing laws governing these matters apply to the Internet. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, we may be required to incur additional expenses or alter our business model, either of which could have a material adverse effect on our results of operations, financial condition or business.
Inadequacy or disruption of our disaster recovery plans and procedures in the event of a catastrophe could adversely affect our business.
We have made a significant investment in our infrastructure, and our operations are dependent on our ability to protect the continuity of our infrastructure against damage from catastrophe or natural disaster, breach of security, cyber-attack, loss of power, telecommunications failure or other natural or man-made events. A catastrophic event could have a direct negative impact on us by adversely affecting financial advisers, our employees or facilities, or an indirect impact on us by adversely affecting the financial markets or the overall economy. While we have implemented business continuity and disaster recovery plans and maintain business interruption insurance, it is impossible to fully anticipate and protect against all potential catastrophes. If our business continuity and disaster recovery plans and procedures were disrupted, inadequate or unsuccessful in the event of a catastrophe, we could experience a material adverse interruption of our operations.
We serve financial advisers and their clients using third-party data centers and cloud services. While we have electronic access to the infrastructure and components of our platform that are hosted by third parties, we do not control the operation of these facilities. Consequently, we may be subject to service disruptions as well as failures to provide adequate support for reasons that are outside of our direct control. These data centers and cloud services are vulnerable to damage or interruption from a variety of sources, including earthquakes, floods, fires, power loss, system failures, cyber-attacks, physical or electronic break-ins, human error or interference (including by employees, former employees or contractors), and other catastrophic events. Our data centers may also be subject to local administrative actions, changes to legal or permitting requirements and litigation to stop, limit or delay operations. Despite precautions taken at these facilities, such as disaster recovery and business continuity arrangements, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in interruptions or delays in our services, impede our ability to scale our operations or have other adverse impacts upon our business.
We are reliant on our relationships with certain broker-dealers and strategists, the loss of which could adversely affect our results of operations, financial condition or business.
We maintain relationships with certain broker-dealers who serve clients on our platform. The loss of these relationships likely would result in a loss of adviser and investor clients. Likewise, we engage strategists who offer certain investment products on our platform. The loss of certain strategists and
30
their investment products could cause our investor clients to leave our platform to follow such strategists and investment products to our competitors or otherwise. Additionally, the engagement contracts governing our relationships with these broker-dealers and strategists are terminable by either us or the broker-dealer or strategist, as applicable, upon short-notice with or without cause. Loss of our investor clients, whether due to termination of a significant number of engagement contracts or otherwise, may have a material adverse effect on our financial condition and result in harm to our business.
We are dependent on third-party service providers in our operations.
We utilize numerous third-party service providers in our operations, including for the development of new product offerings, the provision of custodial, strategy and other services and the maintenance of our proprietary systems. A failure by a third-party service provider could expose us to an inability to provide contractual services to our clients in a timely manner. Additionally, if a third-party service provider is unable to provide these services, we may incur significant costs to either internalize some of these services or find a suitable alternative. We serve as the investment adviser for several of the products offered through our investment management programs and utilize the services of investment sub-advisers to manage many of these assets. A failure in the performance of our due diligence processes and controls related to the supervision and oversight of these firms in detecting and addressing conflicts of interest, fraudulent activity, data breaches and cyber-attacks, noncompliance with relevant securities and other laws could cause us to suffer financial loss, regulatory sanctions or damage to our reputation.
We are dependent on third-party pricing services for the valuation of securities invested in our investment products.
The majority of the securities held by our investment products are valued using quoted prices from active markets gathered by external third-party pricing services. Securities for which market prices are not readily available are valued in accordance with procedures applicable to that investment product. These procedures may utilize unobservable inputs that are not gathered from any active markets and involve considerable judgment. If these valuations prove to be inaccurate, our revenue and earnings from platform assets could be adversely affected.
We rely on our key personnel and principals.
We depend on the efforts of our executive officers, other management team members, employees and principals. Our executive officers, in particular, play an important role in the stability and growth of our business, and our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of any key personnel could have a material adverse effect on our results of operations, financial condition or business.
Principal, employee or third-party provider misconduct could expose us to significant legal liability and reputational harm.
We are vulnerable to reputational harm because we and our investment adviser clients operate in an industry in which personal relationships, integrity and the confidence of clients are of critical importance. Our management team and employees, as well as the management teams and employees at our investment adviser clients or our third-party service providers, could engage in misconduct that adversely affects our business. For example, if a member of management or an employee were to
31
engage in illegal or suspicious activities, we or our investment adviser clients could be subject to regulatory sanctions and we could suffer serious harm to our reputation (as a consequence of the negative perception resulting from such activities), our financial position or financial advisers client relationships and ability to attract new clients. In addition, certain of our third-party providers may engage in illegal activities, which could result in disruptions to our platform or solutions, subject us to liability, fines, penalties, regulatory orders or reputational harm or require us to be involved in regulatory investigations. Further, our business and that of our financial adviser clients often require that we deal with confidential information, personal information and other sensitive data. If principals, employees or third-party providers were to improperly use or disclose this information, even if inadvertently, we or our financial adviser clients could be subject to legal or regulatory investigations or action and suffer serious harm to our reputation, financial position and current and future business relationships or those of our financial adviser clients. It is not always possible to deter misconduct, and the precautions we take to detect and prevent this activity may not always be effective. Misconduct by management, employees or third-party providers, or even unsubstantiated allegations of misconduct, could result in an adverse effect on our reputation and our business.
We could face liability related to our storage of personal information about our users.
We store extensive amounts of personal investment and financial information for consumers, including portfolio holdings, on our systems. We could be subject to liability if we were to inappropriately disclose any personal information or if third parties were able to penetrate our network security or otherwise access or misappropriate any personally identifiable information or portfolio holdings. Any such disclosure, security incident or breach could subject us to claims for financial loss, impersonation or other similar fraud claims, claims under data protection laws, claims for other misuses of personal information, such as unauthorized marketing or unauthorized access to personal portfolio information, or indemnity claims by our clients for fines, penalties or other assessments arising from third-party claims. Further, any real or perceived defects, errors or vulnerabilities in our security systems could harm our reputation or adversely impact or business, financial position and results of operations.
We could face liability for certain information we provide, including information based on data we obtain from other parties.
We may be subject to claims for securities law violations, negligence, breach of fiduciary duties or other claims relating to the information we provide. For example, individuals may take legal action against us if they rely on information we have provided and it contains an error. In addition, we could be subject to claims based upon the content that is accessible from our website through links to other websites. Moreover, we could face liability based on inaccurate information provided to us by others. Defending any such claims could be expensive and time-consuming, and any such claim could materially adversely affect our results of operations, financial condition or business.
We are exposed to data and cyber-security risks that could result in data breaches, service interruptions, harm to our reputation or significant liability.
A failure to safeguard the integrity, confidentiality, availability and authenticity of personal information, client data and our proprietary data from cyber-attacks, unauthorized access, fraudulent activity ( e.g. , check kiting or fraud, wire fraud or other dishonest acts), data breaches and other security incidents that we, our third-party service providers or our clients may experience may lead to modification,
32
destruction, loss of availability or theft of critical and sensitive data pertaining to us or our clients. We have established a strategy designed to protect against threats and vulnerabilities containing preventive and detective controls including, but not limited to, firewalls, intrusion detection systems, computer forensics, vulnerability scanning, server hardening, penetration testing, anti-virus software, data leak prevention, encryption and centralized event correlation monitoring. Such protective measures, as well as additional measures that may be required to comply with rapidly evolving privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations, have and will continue to create uncertainty and cause us to incur substantial expenses.
Despite our efforts to ensure the integrity, confidentiality, availability, and authenticity of our proprietary systems and information, it is possible that we may not be able to anticipate or to implement effective preventive measures against all cyber threats. No security solution, strategy, or measures can address all possible security threats or block all methods of penetrating a network or otherwise perpetrating a security incident. The risk of unauthorized circumvention of our security measures or those of our third-party providers, clients and partners has been heightened by advances in computer and software capabilities and the increasing sophistication of hackers who employ complex techniques involving the theft or misuse of personal and financial information, counterfeiting, phishing or social engineering incidents, account takeover attacks, denial or degradation of service attacks, malware, fraudulent payment and identity theft. Because the techniques used by hackers change frequently, we may be unable to anticipate these techniques or implement adequate preventive measures. Improper access to our systems or databases could result in the theft, publication, deletion or modification of confidential end-user information. An actual or perceived breach of our security systems or those of our third-party service providers may require notification under applicable data privacy regulations or contractual obligations.
Security incidents or disruptions of our proprietary systems or those of our service providers could also impact our ability to provide services to our clients, which could expose us to liability for damages which may not be covered by insurance, result in the loss of customer business, damage our reputation, subject us to regulatory scrutiny or expose us to protracted and costly civil litigation. In addition, the failure to timely upgrade or maintain computer systems, software and networks as necessary could also make us or our third-party service providers susceptible to breaches and unauthorized access and misuse. Data security breaches may also result from non-technical means, for example, employee misconduct or human error. We may be required to expend significant additional resources to modify, investigate or remediate vulnerabilities or other exposures arising from data and cyber-security risks. Data security breaches, acts of fraud involving our solutions or adverse findings in security audits or examinations could result in reputational damage to us, which could reduce the use and acceptance of our solutions, cause our customers to cease doing business with us or have a significant adverse impact on our revenue and future growth prospects. Furthermore, even if not directed at us specifically, attacks on other financial institutions could disrupt the overall functioning of the financial system or lead to additional regulation and oversight by federal and state agencies, which could impose new and costly compliance obligations.
If we are not able to satisfy data protection, security, privacy and other government- and industry-specific requirements or regulations, our results of operations, financial condition or business could be harmed.
Personal privacy, data protection, information security and other regulations are significant issues in the United States. Our handling of data is subject to a variety of laws and regulations, including
33
regulation by various government agencies. The U.S. federal government and various state governments have adopted or proposed limitations on the collection, distribution, use and storage of personally identifiable information of individuals. We also may find it necessary or desirable to join industry or other self-regulatory bodies or other information security or data protection-related organizations that require compliance with their rules pertaining to information security and data protection. We also may be bound by additional, more stringent contractual obligations relating to our collection, use and disclosure of personal, financial and other data.
The data protection landscape is rapidly evolving, and we expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection, information security and telecommunications services, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. For example, on June 28, 2018, California enacted the California Consumer Privacy Act (the CCPA), which takes effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.
Evolving and changing definitions of personal data and personal information, especially relating to the classification of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or expand our business, including limiting the sharing of data. Even the perception of privacy concerns, whether or not valid, may harm our reputation, inhibit adoption of our products by current and future customers, or adversely impact our ability to attract and retain workforce talent. In addition, changes in laws or regulations that adversely affect the use of the Internet, including laws impacting net neutrality, could impact our business. We expect that existing laws, regulations and standards may be interpreted in new manners in the future. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, regulations, standards and other obligations could require us to modify our solutions, restrict our business operations, increase our costs and impair our ability to maintain and grow our adviser base and increase our revenue.
Although we work to comply with applicable laws and regulations, industry standards, contractual obligations and other legal obligations, such laws, regulations, standards and obligations are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. In addition, they may conflict with other requirements or legal obligations that apply to our business or the features and services that our adviser clients and their investor clients expect from our products and services. As such, we cannot assure ongoing compliance with all such laws, regulations, standards and obligations. Any failure by us to comply with applicable laws and regulations, or to comply fully with employee, client and other data privacy and data security requirements pursuant to contract and our stated privacy notice(s), could result in enforcement actions against us, including fines, imprisonment of company officials and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (in relation to both existing and prospective clients), any of which could have a material adverse effect on our operations, financial performance and business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable laws, regulations, standards and obligations, could result in additional cost and liability to us, damage
34
our reputation, inhibit sales and materially and adversely affect our results of operations, financial condition or business.
If third parties infringe upon our intellectual property or if we were to infringe upon the intellectual property of third parties, we may expend significant resources enforcing or defending our rights or suffer competitive injury.
Our success depends in part on our proprietary technology. We rely on a combination of copyright, trademark and trade secret laws, confidentiality, nondisclosure, non-interference and invention assignment agreements and other contractual and technical security measures to establish and protect our proprietary rights. If we fail to successfully enforce, monitor, police or defend our intellectual property rights, or if we were to infringe on the intellectual property rights of others, our competitive position, operations, financial condition or business could suffer.
We license certain trademark and web domain rights from third parties and may be subject to claims of infringement if such parties do not possess the necessary intellectual property rights. In addition, we may face additional risk of infringement or misappropriation claims if we hire an employee who possesses third-party proprietary information who decides to use such information in connection with our investment solutions, services or business processes without such third partys authorization. Furthermore, third parties may in the future assert intellectual property infringement claims against our customers, which, in certain circumstances, we have agreed to indemnify.
In some instances, litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that we have infringed their intellectual property rights. Any litigation or claims brought by or against us, whether with or without merit, could result in substantial costs to us and divert the attention of our management, which could harm our results of operations, financial condition or business. In addition, any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property and proprietary rights, subject us to significant liabilities or require us to seek licenses on unfavorable terms or make changes to the investment services and solutions we offer, any of which could harm our results of operations, financial condition or business.
Confidentiality agreements with employees, consultants and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We have devoted substantial resources to the development of our proprietary technologies, investment solutions and services. To protect our proprietary rights, we enter into confidentiality, nondisclosure, non-interference and invention assignment agreements with our employees, consultants and independent contractors. These agreements may not effectively prevent unauthorized disclosure of confidential information or unauthorized parties from copying aspects of our technologies, investment solutions or products or obtaining and using information that we regard as proprietary. Moreover, these agreements may not provide an adequate remedy in the event of such unauthorized disclosures of confidential information and we cannot assure you that our rights under such agreements will be enforceable. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could reduce any competitive advantage we have developed and cause us to lose customers or otherwise harm our business.
35
The use of open source code in investment solutions may expose us to additional risks and harm our intellectual property rights.
We rely on open source code to some extent to develop our investment solutions and support our internal systems and infrastructure. While we monitor our use of open source code to attempt to avoid subjecting our investment solutions to conditions we do not intend, such use could occur. Additionally, if a third-party software provider has incorporated certain types of open source code into software we license from such third party for our investment solutions, we could, under certain circumstances, be required to disclose the source code for our investment solutions. This could harm our intellectual property position and have a material adverse effect on our results of operations, financial condition or business.
We may become subject to liability based on the use of our investment solutions and services by our clients.
Our investment solutions and services support the investment processes of our clients, which, in the aggregate, manage billions of dollars of assets. Our client agreements have provisions designed to limit our exposure to potential liability claims brought by our adviser clients, their clients or other third parties based on the use of our investment solutions and services. However, these provisions have certain exceptions and could be invalidated by unfavorable judicial decisions or by federal, state, foreign or local laws. Use of our products as part of the investment process creates the risk that clients, or the parties whose assets are managed by our clients, may pursue claims against us for significant dollar amounts. Any such claim, even if the outcome were to be ultimately favorable to us, would involve a significant commitment of our management, personnel, financial and other resources and could have a negative impact on our reputation. Such claims and lawsuits could therefore have a material adverse effect on our results of operations, financial condition or business.
Furthermore, our clients may use our investment solutions and services together with software, data or products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our investment solutions and services do not cause these problems, the existence of these errors might cause us to incur significant costs and divert the attention of our management and technical personnel, any of which could materially adversely affect our results of operations, financial condition or business.
Lack of liquidity or access to capital could impair our business and financial condition.
We expend significant resources investing in our business, particularly with respect to our technology and service platforms. In addition, we must maintain certain levels of required capital. As a result, reduced levels of liquidity could have a significant negative effect on us. Some potential conditions that could negatively affect our liquidity include diminished access to debt or capital markets, unforeseen or increased cash or capital requirements, adverse legal settlements or judgments or illiquid or volatile markets.
The capital and credit markets continue to experience varying degrees of volatility and disruption. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for businesses similar to ours. Such market conditions may limit our ability to satisfy statutory capital requirements, generate fee and other market-related revenue to meet liquidity needs and access the capital necessary to grow our business. As such, we may be forced to delay raising capital, issue different types of capital than we would otherwise, less effectively deploy such capital or
36
bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility.
In the event that our current resources are insufficient to satisfy our needs, we may need to rely on financing sources such as bank debt. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity and the possibility that our stockholders, advisers or lenders could develop a negative perception of our long- or short-term financial prospects if the level of our business activity decreases due to a market downturn. Similarly, our access to funds may be impaired if regulatory authorities or rating organizations take negative actions against us.
We may not be able to generate sufficient cash to service our indebtedness and may be forced to take other actions to satisfy our obligations under our Credit Facility, which may not be successful.
As of March 31, 2019, we had total indebtedness of $249.4 million. Our ability to make scheduled payments on or to refinance our indebtedness depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay acquisitions and capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis could harm our ability to incur additional indebtedness. In the absence of sufficient cash flows and capital 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. Our Credit Facility (as defined in the section titled Managements discussion and analysis of financial condition and results of operationsLiquidity and capital resources) currently restricts our ability to dispose of assets and our use of the proceeds from such disposition. We may not be able to consummate those dispositions, and the proceeds of any such disposition may not be adequate to meet any debt service obligations then due. Any of these circumstances could adversely affect our results of operations, financial condition or business.
Restrictions in our existing and future debt agreements could limit our growth and our ability to engage in certain activities.
Our Credit Facility contains a number of covenants that impose operating and financial restrictions on us, including restrictions on our ability to incur additional indebtedness, create liens, make acquisitions, dispose of assets and make restricted payments, among others. In addition, our Credit Facility may require us to maintain certain financial ratios. These restrictions may also limit our ability to obtain future financings, to withstand a future downturn in our business or the economy in general, or to otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of acquisitions or other business opportunities that arise because of the limitations that the restrictive covenants under our Credit Facility impose on us. A breach of any covenant in our Credit
37
Facility would result in a default under the applicable agreement after any applicable grace periods. A default, if not waived, could result in acceleration of the indebtedness outstanding under the Credit Facility and our inability to borrow under the Revolver (as defined in the section titled "Managements discussion and analysis of financial condition and results of operationsLiquidity and capital resources"). The accelerated indebtedness would become immediately due and payable. If that occurs, we may not be able to make all of the required payments or borrow on short notice sufficient funds to refinance such indebtedness. Even if new financing were available at that time, it may not be on terms that are acceptable to us.
We may make future acquisitions which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders.
We may choose to grow our business in part through acquisitions, which could pose a number of risks to our operations. We may not be able to complete acquisitions or integrate the operations, products, technologies or personnel gained through any such acquisition, such as our recent acquisition of Global Financial Private Capital, without a material adverse effect on our results of operations, financial condition or business. Assimilating the acquired businesses may divert significant management attention and financial resources from our other operations and could disrupt our ongoing business. We may have difficulty integrating the acquired operations, products, technologies or personnel, and may incur substantial unanticipated integration costs. Financing an acquisition could result in dilution from issuing equity securities or a weaker balance sheet from using cash or incurring debt, and we may fail to realize the potential cost savings or other financial benefits of the acquisition. In addition, acquisitions, including our recent acquisition of Global Financial Private Capital, may result in the loss of key employees or customers, particularly those of the acquired operations. Acquisitions, including our recent acquisition of Global Financial Private Capital, could further adversely affect our existing business relationships with third parties and/or cause us to incur regulatory, legal or other liabilities from the acquired businesses, including claims for infringement of intellectual property rights, for which we may not be indemnified in full or at all.
Our insurance coverage may be inadequate or expensive.
We maintain voluntary and required insurance coverage, including, among others, general liability, property, director and officer, errors and omissions, network cyber-security and privacy, employee practices liability, fidelity bond and fiduciary liability insurance and insurance required under the Employee Retirement Income Security Act of 1974, as amended (ERISA). Recently in the insurance industry, premiums and deductible costs associated with certain insurance coverage have increased, and the number of insurers has decreased. While we endeavor to purchase coverage that is appropriate to our assessment of our risk, we are unable to predict with certainty the frequency, nature or magnitude of claims for direct or consequential damages. Our business may be negatively affected if in the future our insurance proves to be inadequate or unavailable. In addition, insurance claims may harm our reputation or divert management resources away from operating our business.
Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate and operational risks could adversely affect our reputation and financial condition.
We have adopted policies and procedures to identify, monitor and manage our operational risk. These policies and procedures, however, may not be fully effective. Some of our risk evaluation methods
38
depend upon information provided by others and public information regarding markets, clients or other matters that are otherwise accessible by us. If our policies and procedures are not fully effective or we are not successful in capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be subject to litigation or regulatory actions that could have a material adverse effect on our business, results of operations or financial condition.
Risks related to our controlling stockholders ultimate parent being a PRC company with stock listed in Hong Kong and Shanghai.
Our controlling stockholder is subject to supervision by regulatory authorities in the PRC and must comply with certain PRC laws and regulations that may influence our controlling stockholders decisions relating to our business.
As a Delaware corporation with revenue and operations exclusively within the United States, we are not subject to regulation by foreign authorities. However, because our controlling stockholder is an enterprise incorporated under the laws of the Peoples Republic of China (PRC), our controlling stockholder is subject to and must comply with PRC laws and regulations promulgated by PRC governmental authorities. Such regulations may influence the decisions of our controlling stockholder, as well as those of its director appointees serving on our board of directors, regarding our business and operations. Certain of these regulations require our controlling stockholder to approve specific corporate actions taken by us, including any amendment to our certificate of incorporation; certain mergers, acquisitions, asset sales and divestments that we may seek to undertake; and certain related-party transactions in which we are involved. In addition, certain PRC regulations require our controlling stockholder to file with or obtain approval from various PRC regulators before approving certain of our corporate actions, including:
|
obtaining approval from or filing with the China National Development and Reform Commission (the NDRC), for certain debt issuances by us, or certain investments we seek to make involving a sensitive industry, country or region, as defined by the NDRC; and |
|
filing with the China Securities Regulatory Commission (the CSRC), and registering with the State Administration of Foreign Exchange, to provide us with financing or to guarantee our obligations. |
In addition, PRC regulations require our controlling stockholder to ensure that our business focuses on securities, futures, asset management, broker-dealer services, financial information services, financial information technology system services, back-office support services for specific financial businesses or products or other financial-related businesses. A failure by our controlling stockholder to comply with these or other existing or future PRC laws or regulations could result in the imposition of administrative or financial sanctions against our controlling stockholder by PRC authorities. These laws and regulations could cause our controlling stockholder and its director appointees serving on our board of directors to act in a manner that may not be perceived to be in the best interests of our other stockholders. Likewise, any failure by our controlling stockholder to obtain certain approvals, make requisite filings or otherwise comply with PRC laws and regulations could materially limit our ability to raise debt financing or make certain investments, any of which could have a material adverse effect on our financial condition or business.
39
Our controlling stockholder is required by the stock exchanges on which its shares are listed to disclose and obtain approval from its board of directors or shareholders for certain corporate actions that we undertake.
HTSC is listed on The Shanghai Stock Exchange and The Stock Exchange of Hong Kong Limited, and is therefore subject to the Rules Governing the Listing of Stocks on The Shanghai Stock Exchange (the SSE Listing Rules), and the Rules Governing the Listing of Securities on The Hong Kong Stock Exchange (the HKEX Listing Rules). Under the SSE Listing Rules and the HKEX Listing Rules, HTSC must obtain approval from its board of directors or shareholders for certain major transactions in which we, as a subsidiary of HTSC, engage, including the purchase or sale of assets, mergers and acquisitions, lending, leasing of assets, donation or acceptance of assets, debt restructuring, license agreements, research and development joint ventures, and related-party transactions, the value of which exceeds certain financial thresholds established by the applicable listing rules. In addition, the HKEX Listing Rules require our controlling stockholder to obtain shareholder approval for (i) any issuance of shares by us that results in a reduction of HTSCs equity interest in us in excess of a specified dilution threshold, (ii) the implementation of a share option scheme involving the issuance of new shares by us and (iii) any issuance of debt by us outside the ordinary course of our business.
There can be no assurance that HTSC will obtain the requisite approvals if we desired to enter into any of the above transactions, and a failure to do so would restrict our ability to engage in such transactions. Furthermore, PRC regulators including the CSRC, The Shanghai Stock Exchange or The Hong Kong Stock Exchange could impose additional restrictions or approval requirements that could impact our ability to undertake certain corporate actions. We cannot guarantee that our controlling stockholder will be able to successfully or timely obtain any of the approvals needed to permit us to undertake any of the corporate actions described above, and the failure to do so may have a material adverse effect on our results of operations, financial condition or business.
The Committee on Foreign Investment in the United States (CFIUS) may modify, delay or prevent our future acquisition or investment activities.
For so long as HTSC retains a material ownership interest in us, we will be deemed a foreign person under the regulations relating to CFIUS. As such, acquisitions of or investments in U.S. businesses or foreign businesses with U.S. subsidiaries that we may wish to pursue may be subject to CFIUS review, the scope of which was recently expanded by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), to include certain non-passive, non-controlling investments (including certain investments in entities that hold or process personal information about U.S. nationals), certain acquisitions of real estate even with no underlying U.S. business, transactions the structure of which is designed or intended to evade or circumvent CFIUS jurisdiction and any transaction resulting in a change in the rights of a foreign person in a U.S. business if that change could result in either control of the business or a covered non-controlling investment. FIRRMA also subjects certain categories of investments to mandatory filings. If a particular proposed acquisition or investment in a U.S. business falls within CFIUSs jurisdiction, we may determine that we are required to make a mandatory filing or that we will submit to CFIUS review on a voluntary basis, or to proceed with the transaction without submitting to CFIUS and risk CFIUS intervention, before or after closing the transaction. CFIUS may decide to block or delay an acquisition or investment by us, impose conditions with respect to such acquisition or investment or order us to divest all or a portion of a U.S. business that we acquired without first obtaining CFIUS approval, which may limit the attractiveness of or prevent us from pursuing certain acquisitions or investments that we believe would otherwise be beneficial to us and our stockholders. In addition, among other things, FIRRMA
40
authorizes CFIUS to prescribe regulations defining foreign person differently in different contexts, which could result in less favorable treatment for investments and acquisitions by companies from countries of special concern. If such future regulations impose additional burdens on acquisition and investment activities involving PRC and PRC-controlled entities, our ability to consummate transactions falling within CFIUSs jurisdiction that might otherwise be beneficial to us and our stockholders may be hindered.
Risks related to regulation and litigation
We are subject to extensive government regulation in the United States, and our failure or inability to comply with these regulations or regulatory action against us could adversely affect our results of operations, financial condition or business.
The financial services industry is among the most extensively regulated industries in the United States. We operate investment advisory, broker-dealer, mutual fund and custodial businesses, each of which is subject to a specific and extensive regulatory scheme. In addition, we are subject to numerous state and Federal laws and regulations of general application. It is very difficult to predict the future impact of the legislative and regulatory requirements affecting our business and our clients businesses.
Certain of our subsidiaries are registered as investment advisers with the Securities and Exchange Commission (the SEC) under the Investment Advisers Act of 1940 (as amended, the Advisers Act) and are regulated thereunder. In addition, many of our investment advisory services are conducted pursuant to the nonexclusive safe harbor from the definition of an investment company provided under Rule 3a-4 under the Investment Company Act of 1940 (as amended, the 1940 Act). If Rule 3a-4 were to cease to be available, or if the SEC were to modify the rule or its interpretation of how the rule is applied, our business could be adversely affected. Certain of our registered investment adviser subsidiaries provide advice to mutual fund clients. Mutual funds are registered as investment companies under the 1940 Act. The Advisers Act and the 1940 Act, together with related regulations and interpretations of the SEC, impose numerous obligations and restrictions on investment advisers and mutual funds, including requirements relating to the safekeeping of client funds and securities, limitations on advertising, disclosure and reporting obligations, prohibitions on fraudulent activities, restrictions on transactions between an adviser and its clients, and between a mutual fund and its advisers and affiliates, and other detailed operating requirements, as well as general fiduciary obligations.
Our subsidiary AssetMark, Inc. is a commodity pool operator registered with the Commodity Futures Trading Commission (CFTC), and is a member of the National Futures Association (the NFA). As such, it is subject to regulatory requirements under the Commodity Exchange Act (the CEA), CFTC regulations and NFA by-laws and regulations. These include disclosure and reporting requirements, restrictions on advertising, registration and licensing of certain personnel and conduct and anti-fraud requirements, among others.
In addition, AssetMark Brokerage, LLC, our limited purpose broker-dealer subsidiary, is subject to regulatory restrictions and requirements imposed by applicable statutes, regulations and policies in the jurisdictions in which we operate. U.S. government agencies and self-regulatory organizations, including U.S. state securities commissions, are empowered to enforce the regulatory restrictions and requirements applicable to us and conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer from registration or membership. AssetMark Brokerage, LLC is registered with the SEC and with all 53 U.S.
41
states and jurisdictions as a limited purpose broker-dealer providing mutual fund distribution and underwriting, and is a member of FINRA, a securities industry self-regulatory organization that supervises and regulates the conduct and activities of its members. As a registered broker-dealer, AssetMark Brokerage, LLC is subject to periodic examinations and investigations by FINRA. Further, broker-dealers are subject to regulations which cover all applicable aspects of their business, which may include sales practices, anti-money laundering, handling of material non-public information, safeguarding data, recordkeeping, reporting and the conduct and qualifications of directors, officers, employees, representatives and other associated persons.
Further, AssetMark Brokerage, LLC, along with our mutual fund businesses, are subject to the Bank Secrecy Act (the BSA), as amended by the USA PATRIOT Act of 2001 (the PATRIOT Act), and the implementing regulations thereunder, which require financial institutions, including broker-dealers, to establish anti-money laundering compliance programs, file suspicious activity and other reports with the U.S. government and maintain certain records. Broker-dealers and mutual funds must also implement related customer identification procedures and beneficial ownership identification procedures.
Additionally, ATC, our wholly owned trust company subsidiary licensed with and regulated by the Arizona Department of Financial Institutions (ADFI), is one of several custodians on our platform that offers integrated custodial, brokerage and related services to clients of our adviser clients.
All of the foregoing laws and regulations are complex and we are required to expend significant resources to monitor and maintain our compliance with such laws and regulations. Any failure on our part to comply with these and other applicable laws and regulations could result in regulatory fines, suspensions of personnel or other sanctions, including revocation of our registration or that of our subsidiaries as an investment adviser, broker-dealer, commodity pool operator or trust company, as the case may be, which could, among other things, require changes to our business practices and scope of operations or harm our reputation, which, in turn could have a material adverse effect on our results of operations, financial condition or business.
Changes to the laws or regulations applicable to us or to our financial adviser clients could adversely affect our results of operations, financial condition or business.
We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC or other U.S. or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets around the world. In addition, we may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. For example, on June 5, 2019, the SEC voted to adopt a package of rulemakings and interpretations that (i) require broker-dealers to act in the best interest of retail customers when making a recommendation, without placing the financial or other interests of the broker-dealer ahead of the interest of the retail customer, (ii) require the delivery to retail investors of a short-form disclosure document (form CRS) describing the firms relationship with and duties to the customer, (iii) clarify the scope of the solely incidental exception to Advisers Act registration by brokers when providing investment advice and (iv) clarify the SECs views on the fiduciary duty that investment advisers owe to their clients. Any legislative or regulatory actions and any required changes to our business operations resulting from such legislation and regulations, as well as any deficiencies in our compliance with such legislation and regulation, could result in significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging or otherwise adversely affect our businesses.
42
It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any current proposals will become law, and it is difficult to predict how any changes or potential changes could affect our business. Changes to laws or regulations could increase our potential liability in connection with the investment solutions and services that we provide. The introduction of any new laws or regulations could make our ability to comply with applicable laws and regulations more difficult and expensive. Any of the foregoing could have a material adverse effect on our results of operations, financial condition or business.
In 2017 we identified material weaknesses in our internal controls over financial reporting. If we experience material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
In connection with the audit of our consolidated financial statements, we identified material weaknesses in our internal controls over financial reporting and were required to restate our financial statements for the year ended December 31, 2017. A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of a companys annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses related to our procedures and controls for the review and approval of journal entries, recognition of valuation allowance for deferred tax assets and the accounting treatment of performance-vesting share-based employee compensation. We implemented measures designed to improve our internal controls over financial reporting to remediate these material weaknesses, including the engagement of technical accounting consulting resources, the hiring of additional finance department employees and the implementation of more formal policies and procedures related to critical accounting policies. No material weaknesses were identified in the year ended December 31, 2018.
We cannot assure you that the measures we have taken will be sufficient to avoid potential future material weaknesses. Accordingly, there could continue to be a possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.
If we fail to identify or remediate any future material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to conclude that our internal controls over financial reporting are effective or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting when we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the NYSE, the SEC or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and financial condition or divert financial and management resources from our regular business activities.
Failure to comply with ERISA and Internal Revenue Code regulations could result in penalties against us.
We are subject to ERISA and Sections 4975(c)(1)(A), (B), (C) and (D) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code) and to regulations promulgated thereunder, insofar
43
as we act as a fiduciary under ERISA with respect to certain benefit plan clients or otherwise deal with benefit plan clients. ERISA and applicable provisions of the Internal Revenue Code impose duties on persons who are fiduciaries under ERISA, prohibit specified transactions involving ERISA plan clients (including, without limitation, employee benefit plans (as defined in Section 3(3) of ERISA), individual retirement accounts and Keogh plans) and impose monetary penalties for violations of these prohibitions. Our failure to comply with these requirements could result in significant penalties against us that could have a material adverse effect on our business (or, at worst, severely limit the extent to which we could act as a fiduciary for any plans under ERISA).
We are subject to litigation and regulatory examinations and investigations.
The financial services industry faces substantial regulatory risks and litigation. Like many firms operating within the financial services industry, we are experiencing a difficult regulatory environment across our markets. Our current scale and reach as a provider to the financial services industry, the increased regulatory oversight of the financial services industry generally, new laws and regulations affecting the financial services industry and ever-changing regulatory interpretations of existing laws and regulations have made this an increasingly challenging and costly regulatory environment in which to operate. These examinations or investigations, including any enforcement action brought by the SEC against us relating to any failure to comply with our settlement agreement dated August 25, 2016 (relating to allegations of misleading performance advertisements created by F-Squared Investments, Inc., one of our former investment strategists) could result in the identification of matters that may require remediation activities or enforcement proceedings by the regulator. The direct and indirect costs of responding to these examinations, or of defending ourselves in any litigation could be significant. Additionally, actions brought against us may result in settlements, awards, injunctions, fines and penalties. The outcome of litigation or regulatory action is inherently difficult to predict and could have an adverse effect on our ability to offer some of our products and services.
Failure to properly disclose conflicts of interest could harm our reputation, results of operations or business.
We are party to certain compensation arrangements pursuant to which we receive payments based on client assets invested in certain investment products, including ETFs, proprietary mutual funds and third-party mutual funds. In certain circumstances, such arrangements allow us to receive payments from multiple parties based on the same client asset. Further, we operate as an investment adviser; our status as a registered investment adviser subjects us to a legal obligation to operate under the fiduciary standard. The SEC and other regulators have increased their scrutiny of potential conflicts of interest, and we have implemented policies and procedures to mitigate such conflicts of interest. However, if we fail to fully disclose conflicts of interest or if our policies and procedures are not effective, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which may adversely affect our reputation, results of operations or business.
In the event of a change of control of our company, we may be required to obtain FINRA approval and the consent of our advisory clients to the change of control, and any failure to obtain these consents could adversely affect our results of operations, financial condition or business.
As required by the Advisers Act, the investment advisory agreements entered into by our investment adviser subsidiaries provide that an assignment of the agreement may not be made without the clients consent. Under the 1940 Act, advisory agreements with registered funds provide that they
44
terminate automatically upon assignment and the board of directors and the shareholders of the registered funds must approve a new agreement for advisory services to continue. Under both the Advisers Act and the 1940 Act, a change of ownership may constitute such an assignment if it is a change of control. For example, under certain circumstances, an assignment may be deemed to occur if a controlling block of voting securities is transferred, if any party acquires control, or, in certain circumstances, if a controlling party gives up control. Under the 1940 Act, a 25% voting interest is presumed to constitute control. Upon the completion of this offering, HTSC, through its indirect subsidiary HIIHL, will hold a 73.3% voting interest in us, or 70.7% if the underwriters exercise their option to purchase additional shares in full, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). While we have concluded that this offering does not constitute such an assignment or a change of control, an assignment or a change of control could be deemed to occur in the future if we, or one of our investment adviser subsidiaries, were to gain or lose a controlling person, or in other situations that may depend significantly on facts and circumstances. In any such case we would seek to obtain the consent of our advisory clients, including any funds, to the assignment. To the extent of any failure to obtain these consents, our results of operations, financial condition or business could be adversely affected.
Further, our U.S. broker-dealer subsidiary, AssetMark Brokerage, LLC, is a member of FINRA and subject to FINRA rules, which could impede or delay a change of control. FINRAs NASD Rule 1017 generally provides that FINRA approval must be obtained in connection with any transaction resulting in a single person or entity acquiring or controlling, directly or indirectly, 25% or more of a FINRA member firms or its parent companys equity.
Risks related to our common stock and this offering
Control by our principal stockholder could adversely affect our other stockholders.
HTSC, through its indirect subsidiary HIIHL, owns a majority of the units of AssetMark Holdings LLC and will, following completion of the transactions described in the section titled Prospectus summaryRestructuring, own a majority of our capital stock, on a fully diluted basis. Upon the completion of this offering, HTSC will own approximately 73.3% of our outstanding shares of common stock, or 70.7% if the underwriters exercise their option to purchase additional shares in full, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), and will continue to control our management and affairs, including determining the outcome of matters requiring stockholder approval. So long as HTSC continues to own a significant amount of the outstanding shares of our common stock, even if such amount is less than a majority, HTSC will continue to be able to strongly influence or effectively control our decisions, including matters requiring approval by our stockholders (including the election of directors and the approval of mergers or other extraordinary transactions), regardless of whether or not other stockholders believe that the transaction is in their own best interests. Such concentration of voting power could also have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.
Further, HTSC and its affiliates engage in a broad spectrum of activities, including investments in the financial services industry in particular. In the ordinary course of their businesses, HTSC and its affiliates may engage in activities where their interests conflict with our interests or those of our
45
stockholders. In addition, HTSC or an affiliate may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. Further, although we will become a stand-alone public company following this offering, a subsidiary of HTSC will remain our majority stockholder and may from time to time make strategic decisions that may be different from the decisions that we would have made on our own. HTSCs decisions with respect to us or our business may be resolved in ways that favor HTSC and therefore HTSCs own stockholders, which may not coincide with the interests of our stockholders. After the completion of this offering, our audit committee will review and approve all proposed related party transactions, including any transactions between us and HTSC. However, we may not be able to resolve certain conflicts of interest, or the resolution may be less favorable to us and our stockholders.
We expect that our stock price will fluctuate significantly, and you may not be able to resell your shares at or above the initial public offering price.
The trading price of our common stock is likely to be volatile and subject to wide price fluctuations in response to various factors, including:
|
market conditions in the broader stock market in general, or in our industry in particular; |
|
actual or anticipated fluctuations in our quarterly financial and operating results; |
|
introduction of new products and services by us or our competitors; |
|
issuance of new or changed securities analysts reports or recommendations; |
|
sales of large blocks of our stock by our controlling stockholder or the perception that our controlling stockholder will sell our stock; |
|
additions or departures of key personnel; |
|
regulatory developments; |
|
litigation and governmental investigations; and |
|
economic, political and geopolitical conditions or events. |
These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have often instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.
An active market for our common stock may not develop, which may inhibit the ability of our stockholders to sell common stock following this offering.
Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE for our common stock or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you purchase.
46
The initial public offering price of shares of our common stock is, or will be, determined by negotiation between us and the underwriters and may not be indicative of prices that will prevail following the completion of this offering. The market price of shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of our common stock at or above the initial public offering price.
New investors in our common stock will experience immediate and substantial dilution after this offering.
The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of the outstanding common stock immediately after this offering. Based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus) and our pro forma net tangible book value as of March 31, 2019 (which assumes completion of the transactions described in the section titled Prospectus summaryRestructuring), if you purchase our common stock in this offering you will pay more for your shares than the amounts paid by our existing stockholders for their shares and you will suffer immediate dilution of approximately $8.67 per share. As a result of this dilution, investors purchasing stock in this offering may receive significantly less than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation.
If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.
If our existing stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depress our market price. Upon the completion of this offering, we will have 72,400,000 shares of common stock outstanding, including the shares sold in this offering, after giving effect to the transactions described in the section titled Prospectus summaryRestructuring. Of these shares, the 12,500,000 shares of common stock sold in this offering (including the shares sold through the directed share program described in the section titled Underwriting (conflict of interest) to participants other than our directors and executive officers and each participant who purchases more than $100,000 of shares), plus any shares sold pursuant to the underwriters option to purchase additional shares, will be immediately and freely tradable, without restriction, in the public market, unless they are purchased in this offering by our affiliates, as that term is defined in Rule 144. Our directors, executive officers and additional other equityholders will be subject to the lock-up agreements described in the section titled Underwriting (conflict of interest) and the Rule 144 holding period requirements described in the section titled Shares eligible for future sale. After all of these lock-up periods have expired and the holding periods have elapsed, up to 59,900,000 additional shares will be eligible for sale in the public market.
In addition, the holders of 53,080,798 shares of common stock will have the right, subject to certain exceptions and conditions, to require us to register their shares of common stock under the Securities Act, and they will have the right to participate in future registrations of securities by us. Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. Further, we intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable for shares of our common stock issued pursuant to our 2019 Equity Incentive Plan. Any such Form S-8 registration statements
47
will automatically become effective upon filing, and shares registered under such registration statements will be available for sale in the open market. The market price of shares of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse or upon registration of our common stock on Form S-8. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.
The foregoing share counts assume (i) no exercise by the underwriters of their option to purchase additional shares and (ii) an initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), and exclude shares underlying stock options and RSUs that we intend to grant immediately following the pricing of this offering as set forth elsewhere in this prospectus.
If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume 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 the analysts who cover us downgrade our stock or describe us or our business in a negative manner, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. In addition, if we fail to meet the expectations and forecasts for our business provided by securities analysts, our stock price could decline.
Management may apply our net proceeds from this offering to uses that do not increase our market value or improve our operating results.
We intend to use the net proceeds to us from this offering for the purposes described in the section titled Use of proceeds. The timing and amount of our use of the proceeds to us from this offering will be based on many factors, including the amount of our cash flows from operations and the anticipated growth of our business. Our management will have considerable discretion in applying our net proceeds and you will not have the opportunity, as part of your investment decision, to assess whether we are using our net proceeds appropriately. Until the net proceeds we receive are used, they may be placed in investments that do not produce income or that lose value. We may use our net proceeds for purposes that do not result in any increase in our results of operations, which could cause the price of our common stock to decline.
We are a controlled company within the meaning of the NYSE listing standards and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Upon the completion of this offering, HTSC, through its indirect subsidiary HIIHL, will continue to control a majority of the voting power of our common stock. As a result, we will be a controlled company within the meaning of the NYSE listing standards. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a controlled company and may elect not to comply with certain corporate governance requirements
48
of the NYSE, including (1) the requirement that a majority of the board of directors consist of independent directors, (2) the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities and (3) the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities. Following this offering, we intend to rely on some or all of these exemptions. As a result, we will not have a majority of independent directors and our compensation and nominating and corporate governance committees will not consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company as defined in the JOBS Act, and 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 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an emerging growth company.
Following the completion of this offering, we will be required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements will be time-consuming and will result in increased costs to us and could have a negative effect on our results of operations, financial condition or business.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934 (as amended, the Exchange Act) and the requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join our firm and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert managements attention from other business concerns, which could have a material adverse effect on our results of operations, financial condition or business.
As an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain temporary exemptions from various reporting requirements including, but not limited to, not
49
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We may also delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, as permitted by the JOBS Act.
When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. 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.
Some provisions of Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us.
Our amended and restated certificate of incorporation provides for, and our amended and restated bylaws to be adopted in connection with this offering will provide for, among other things:
|
a staggered board and restrictions on the ability of our stockholders to fill a vacancy on the board of directors; |
|
the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; |
|
advance notice requirements for stockholder proposals; |
|
certain limitations on convening special stockholder meetings; and |
|
the amendment of certain provisions of our certificate of incorporation and bylaws only by the affirmative vote of the holders of at least two-thirds in voting power of all outstanding shares of our stock entitled to vote thereon, voting together as a single class. |
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions than you desire.
Delaware law may delay or prevent a change in control, and may discourage bids for our common stock at a premium over its market price.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law (the DGCL). These provisions prohibit large stockholders, in particular a stockholder owning 15% or more of the outstanding voting stock, from consummating a merger or combination with a corporation unless this stockholder receives board approval for the transaction or 66 2/3% of the shares of voting stock not owned by the stockholder approve the merger or transaction. These provisions of Delaware law may have the effect of delaying, deferring or preventing a change in control, and may discourage bids for our common stock at a premium over its market price.
50
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States as the sole and exclusive forums for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees, agents or trustees to us or our stockholders, (iii) any action asserting a claim against us or any director or officer or other employee of ours arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim against us or any director or officer or other employee of ours that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.
Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the federal securities laws of the United States, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our amended and restated certificate of incorporation described in the preceding sentences.
These exclusive-forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. If any court of competent jurisdiction were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our results of operations or financial condition. For example, the Court of Chancery of the State of Delaware recently determined that a provision stating that U.S. federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. However, this decision may be reviewed and ultimately overturned by the Delaware Supreme Court.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our debt service and other obligations.
We have no direct operations and derive all of our cash flow from our subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments or distributions to meet any existing or future debt service and other obligations. The
51
deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could limit or impair their ability to pay dividends or other distributions to us. In addition, SEC and FINRA regulations may under certain circumstances restrict the payment of dividends by a registered broker-dealer. Compliance with this regulation may impede our ability to receive dividends from AssetMark Brokerage, LLC.
52
Special note regarding forward-looking statements
We have made statements under Prospectus summary, Risk factors, Managements discussion and analysis of financial condition and results of operations, Business and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as may, might, will, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue, the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance and financial results, our anticipated growth strategies and anticipated trends in our business and our expectations regarding our industry outlook, market position, liquidity and capital resources, acquisition targets, addressable market, investments in new products, services and capabilities, ability to close and execute on strategic transactions and ability to comply with existing, modified and new laws and regulations applying to our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed in Risk factors. You should specifically consider the numerous risks outlined under Risk factors.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations, except as required by law.
In addition, we believe and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements as predictions of future events.
53
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources, and on our knowledge of the markets for our solutions. This information involves a number of assumptions and limitations and is inherently imprecise, and you are cautioned not to give undue weight to these estimates. In addition, the industry in which we operate, as well as the projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate, are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled Risk factors and elsewhere in this prospectus, that could cause results to differ materially from those expressed in these publications and reports. We believe that these external sources and estimates are reliable, but have not independently verified them.
Some of the information contained in this prospectus is based on information from various sources, including independent industry publications by Cerulli Associates, Inc. and Fidelity Investments Inc., data compiled by a third party or other publicly available information. The sources of these publications, data and information include:
|
Cerulli Associates: The Cerulli EdgeU.S. Managed Accounts 2015 and 2018 |
|
Cerulli Associates: The Cerulli ReportAdvisor Metrics 2017 |
|
Cerulli Associates: U.S. Intermediary Distribution 2018 |
|
Cerulli Associates: U.S. Managed Accounts 2018 |
|
Cerulli Associates: U.S. Retail Investor Products and Platforms 2018 |
|
Cerulli Associates: U.S. Retirement Markets 2017 |
|
Cerulli Associates Lodestar U.S. Retail Investor Database |
|
Cerulli Associates Lodestar U.S. Intermediary Distribution Database |
|
Fidelity Investments Inc.: 2017 Financial Advisor Community Digital Advisor Adoption Study Update |
|
InvestmentNews: 2017 Adviser Technology Study |
|
PriceMetrix: The State of Retail Wealth Management 2016, 2017 and 2018 |
|
WealthAdvisor: 2018 Americas Best TAMPS |
The content of the foregoing sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein.
54
We estimate that the net proceeds to us from this offering will be approximately $112.9 million, assuming an initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase (decrease) in the assumed initial public offering price per share would increase (decrease) our net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, by $5.8 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, each increase (decrease) of 1.0 million shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $18.7 million, assuming no change to the assumed initial public offering price of $20.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds to us from this offering, together with cash on hand, to repay approximately $125 million of our Term Loan and the remainder, if any, for general corporate purposes, including working capital, operating expenses and capital expenditures. As of March 31, 2019, we had $249.4 million of debt outstanding under our Term Loan. The Term Loan matures in November 2025 and bears interest at a variable rate, initially LIBOR plus a margin of 3.50% or the Alternate Base Rate, as specified in the Term Loan, plus a margin of 2.50%. The Term Loan was incurred in November 2018, and we used the proceeds from the Term Loan to make a one-time distribution to AssetMark Holdings LLC, as described in the section titled Dividend policy, and for working capital purposes. Additionally, we may use a portion of the remaining net proceeds, if any, to acquire or invest in complementary businesses, technologies or other assets. For example, we closed our acquisition of Global Financial Private Capital in April 2019, and we may consider other acquisitions in the TAMP space, although we currently have no agreements or understandings with respect to any acquisitions or investments.
The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions. We cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. Accordingly, our management will have broad discretion in applying the net proceeds of this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their application, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade investments, certificates of deposit or guaranteed obligations of the U.S. government.
We will not receive any proceeds from the sale of common stock by the selling stockholder.
55
In the fourth quarter of 2018, we made a one-time cash distribution to AssetMark Holdings LLC, in the amount of $234 million, consisting of a $76 million dividend payment and a $158 million return of capital. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determinations relating to our dividends and earning retention policies will be made at the discretion of our board of directors, who will review such policies from time to time in light of our earnings, cash flow generation, financial position, results of operations, the terms of our indebtedness and other contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. The terms of our debt agreements limit our ability to pay dividends on our common stock.
56
The following table sets forth our cash, cash equivalents and capitalization as of March 31, 2019:
|
on an actual basis, giving effect to the filing of our amended and restated certificate of incorporation on July 5, 2019, including the 661,500-for-one forward stock split of our common stock; |
|
on a pro forma basis to give further effect to the transactions described in the section titled Prospectus summaryRestructuring; and |
|
on a pro forma as adjusted basis to further reflect the sale by us of 6,250,000 shares of common stock in this offering, at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses to be paid by us, and the application of the net proceeds to us from this offering, together with cash on hand, to repay $125 million of our Term Loan as set forth in the section titled Use of proceeds. |
This table should be read in conjunction with the sections titled Use of proceeds and Managements discussion and analysis of financial condition and results of operations, and the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.
As of March 31, 2019 | ||||||||||||
(in thousands, except share and per share data) | Actual | Pro forma |
Pro forma as
adjusted |
|||||||||
Cash and cash equivalents |
$ | 102,478 | $ | 102,478 | $ | 90,353 | ||||||
|
|
|||||||||||
Long-term debt (1) |
$ | 242,358 | $ | 242,358 | $ | 117,358 | ||||||
Stockholders equity: |
||||||||||||
Preferred stock of AssetMark Financial Holdings, Inc., $0.001 par value per share, 75,000,000 shares authorized and no shares outstanding, actual, pro forma and pro forma as adjusted |
| | | |||||||||
Common stock of AssetMark Financial Holdings, Inc., $0.001 par value per share; 675,000,000 shares authorized, 66,150,000 shares outstanding, actual and pro forma; and 675,000,000 shares authorized, 72,400,000 shares outstanding, pro forma as adjusted |
66 | 66 | 72 | |||||||||
Additional paid-in capital |
640,322 | 640,322 | 753,191 | |||||||||
Retained earnings |
66,657 | 66,657 | 66,657 | |||||||||
Accumulated other comprehensive income, net of tax |
19 | 19 | 19 | |||||||||
|
|
|||||||||||
Total stockholders equity |
707,064 | 707,064 | 819,939 | |||||||||
|
|
|||||||||||
Total capitalization |
$ | 949,422 | $ | 949,422 | $ | 937,297 | ||||||
|
(1) | Net of unamortized discount and debt issuance costs. |
57
Each $1.00 increase (decrease) in the assumed initial public offering price per share would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders equity and total capitalization by $5.8 million (assuming the number of shares offered by us remains the same). Each increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders equity and total capitalization by $18.7 million, assuming the assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus) remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The pro forma as adjusted information is illustrative only, and will depend on the actual initial public offering price, number of shares offered and other terms of this offering determined at pricing.
The number of shares of our common stock set forth in the table above is based on 66,150,000 shares of our common stock outstanding as of March 31, 2019, assuming completion of the transactions described in the section titled Prospectus summaryRestructuring, and does not include:
|
909,688 shares of common stock issuable upon the exercise of options to be granted immediately following the pricing of this offering with an exercise price equal to the initial public offering price per share, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), which options will be granted outside of our 2019 Equity Incentive Plan; |
|
94,721 shares of common stock subject to RSUs to be granted under our 2019 Equity Incentive Plan immediately following the pricing of this offering, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus); and |
|
4,792,970 additional shares of common stock reserved for future issuance under our 2019 Equity Incentive Plan, which will become effective upon the pricing of this offering, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). |
58
If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after the closing of this offering.
Our pro forma net tangible book value, which assumes completion of the transactions described in the section titled Prospectus summaryRestructuring, as of March 31, 2019 was $707.1 million or $10.69 per share of common stock. After giving effect to the sale by us of 6,250,000 shares of common stock in this offering, at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), and the receipt and application of the net proceeds to us, our pro forma as adjusted net tangible book value as of March 31, 2019, assuming completion of the transactions described in the section titled Prospectus summaryRestructuring, would have been $819.9 million or $11.33 per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $0.64 per share and an immediate dilution to new investors of $8.67 per share. Dilution per share represents the difference between the price per share to be paid by new investors for the shares of common stock sold in this offering and the pro forma as adjusted net tangible book value per share immediately after this offering. The following table illustrates this per share dilution:
|
||||||||
Assumed initial public offering price per share |
$ | 20.00 | ||||||
Pro forma net tangible book value per share as of March 31, 2019 |
$ | 10.69 | ||||||
Increase in pro forma net tangible book value per share attributable to new investors purchasing shares in this offering |
0.64 | |||||||
|
|
|||||||
Pro forma as adjusted net tangible book value per share after this offering |
$ | 11.33 | ||||||
|
|
|||||||
Dilution per share to new investors |
$ | 8.67 | ||||||
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus) would increase (decrease) our pro forma as adjusted net tangible book value after this offering by $0.08 per share and would increase (decrease) dilution to new investors purchasing shares in this offering by $0.92 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Assuming the assumed initial public offering price of $20.00 per share remains the same, after deducting underwriting discounts and commissions, each increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value by $0.10 per share, and would decrease (increase) dilution to new investors purchasing shares in this offering by $0.10 per share.
59
The following table sets forth, on a pro forma basis, immediately prior to the consummation of this offering, the number of shares of common stock purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by the new investors, at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), before deducting underwriting discounts and commissions and estimated offering expenses payable by us:
Shares purchased | Total consideration |
Average
price per share |
||||||||||||||||||
Number | Percent |
Amount (in thousands) |
Percent | |||||||||||||||||
Existing stockholders |
66,150,000 | 91 | % | $ | 779,388 | 86 | % | $ | 11.78 | |||||||||||
New investors |
6,250,000 | 9 | 125,000 | 14 | 20.00 | |||||||||||||||
|
|
|||||||||||||||||||
Total |
72,400,000 | 100 | % | $ | 904,388 | 100 | % | |||||||||||||
|
The dilution information above is for illustration purposes only. Our pro forma as adjusted net tangible book value following the consummation of this offering is subject to adjustment based on the actual initial public offering price of our shares and other terms of this offering determined at pricing. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholder in this offering, including pursuant to any exercise of the underwriters option to purchase additional shares. Accordingly, there will be no dilutive impact as a result of such sales.
The number of shares of our common stock reflected in the tables above is based on 66,150,000 shares of our common stock outstanding as of March 31, 2019, assuming completion of the transactions described in the section titled Prospectus summaryRestructuring, and does not include:
|
909,688 shares of common stock issuable upon the exercise of options to be granted immediately following the pricing of this offering with an exercise price equal to the initial public offering price per share, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), which options will be granted outside of our 2019 Equity Incentive Plan; |
|
94,721 shares of common stock subject to RSUs to be granted under our 2019 Equity Incentive Plan immediately following the pricing of this offering, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus); and |
|
4,792,970 additional shares of common stock reserved for future issuance under our 2019 Equity Incentive Plan, which will become effective upon the pricing of this offering, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). |
To the extent that additional options or other securities are issued under our equity incentive plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
60
Selected consolidated financial data
The following selected consolidated financial data of AssetMark Financial Holdings, Inc. should be read in conjunction with, and are qualified by reference to, Managements discussion and analysis of financial condition and results of operations and the consolidated financial statements and notes thereto included elsewhere in this prospectus. The consolidated statements of income data for the years ended December 31, 2018 and 2017 and the consolidated balance sheet data as of December 31, 2018 and 2017 are derived from, and qualified by reference to, the audited consolidated financial statements of AssetMark Financial Holdings, Inc. included elsewhere in this prospectus and should be read in conjunction with those consolidated financial statements and notes thereto. The consolidated statements of income data for the three months ended March 31, 2019 and 2018 and the consolidated balance sheet data as of March 31, 2019 and 2018 are derived from, and qualified by reference to, the unaudited interim condensed consolidated financial statements of AssetMark Financial Holdings, Inc. included elsewhere in this prospectus and should be read in conjunction with those unaudited interim condensed consolidated financial statements and notes thereto. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal, recurring adjustments, that are necessary to present fairly the unaudited interim condensed consolidated financial statements. Results for historical periods may not be indicative of results expected for future periods, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period.
Year ended December 31, | Three months ended March 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Consolidated statements of income data: |
||||||||||||||||
Asset-based revenue |
$ | 338,031 | $ | 282,966 | $ | 83,063 | $ | 79,076 | ||||||||
Spread-based revenue |
20,403 | 10,430 | 7,549 | 3,749 | ||||||||||||
Other income |
5,200 | 2,121 | 1,702 | 1,708 | ||||||||||||
|
|
|||||||||||||||
Total revenue |
363,634 | 295,517 | 92,314 | 84,533 | ||||||||||||
Total expenses |
309,071 | 276,174 | 86,063 | 70,870 | ||||||||||||
|
|
|||||||||||||||
Income before income taxes |
54,563 | 19,343 | 6,251 | 13,663 | ||||||||||||
Provision for (benefit from) income taxes |
17,137 | (79,635 | ) | 3,440 | 3,872 | |||||||||||
|
|
|||||||||||||||
Net income |
$ | 37,426 | $ | 98,978 | $ | 2,811 | $ | 9,791 | ||||||||
|
|
|
|
|
|
|||||||||||
Other data: |
||||||||||||||||
Capital expenditures |
$ | 17,414 | $ | 15,652 | $ | 4,712 | $ | 4,214 | ||||||||
Net cash provided by operating activities |
61,662 | 45,612 | 2,769 | 8,562 | ||||||||||||
Net cash used in investing activities |
(17,714 | ) | (15,652 | ) | (5,020 | ) | (4,214 | ) | ||||||||
Net cash provided by financing activities |
11,259 | | (625 | ) | | |||||||||||
|
61
As of December 31, | As of March 31, | |||||||||||
(in thousands, interim data unaudited) | 2018 | 2017 | 2019 | |||||||||
Consolidated balance sheet data: |
||||||||||||
Cash and cash equivalents |
$ | 105,354 | $ | 50,147 | $ | 102,478 | ||||||
Working capital (1) |
77,521 | 20,091 | 86,863 | |||||||||
Total assets |
1,147,275 | 1,097,741 | 1,146,191 | |||||||||
Total liabilities |
448,264 | 211,783 | 439,127 | |||||||||
Stockholders equity |
699,011 | 885,958 | 707,064 | |||||||||
|
(1) | Current assets less current liabilities. |
62
Managements discussion and analysis of financial condition and results of operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Special note regarding forward-looking statements and Risk factors for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year ends on December 31 each year.
Overview
AssetMark is a leading provider of extensive wealth management and technology solutions that power independent financial advisers and their clients. Our platform enables advisers to outsource high-cost and specialty services that would otherwise require significant investments of time and moneyhelping to level the playing field for independent financial advisers of all sizes. We provide an end-to-end experience, spanning nearly all elements of an advisers engagement with his or her clientfrom initial conversations to ongoing financial planning discussions, including performance reporting and billing. In addition, our platform provides tools and capabilities for advisers to better manage their day-to-day business activities, giving them more time for meaningful conversations with investors.
We believe that independent financial advisers who have a deep understanding of their communities and put the needs of investors first provide the best path for investors to achieve their long-term financial goals. We empower these adviser-entrepreneurs to start, run and grow independent advisory businesses. The compelling value of our tools for advisers and their clients has facilitated our rapid growth. From December 31, 2014 to March 31, 2019, our platform assets grew from $25 billion to $50 billion, representing a compounded annual growth rate of 17%.
Our experienced and committed executive team has provided stable leadership and a continued focus on growth. Further, our history of platform innovation and strategic acquisitions has resulted in strong growth of our platform assets. Highlights in our history including the following:
Fully integrated technology platform
|
2018: Launched AssetMark WealthBuilder, a goals-based digital advice solution |
|
2018: Launched investor portal, a modern client engagement experience |
|
2017: Launched Smarter Account Setup, a streamlined account opening process |
|
2016: Launched AssetMark PortfolioEngine, a state-of-the-art portfolio analytics tool |
Personalized and scalable adviser service
|
2018: Launched segmented business consulting offering, to scale and expand our business consulting services |
63
|
2017: Launched ensemble team, a team sales and service approach designed to provide advisers with tools and resources to grow their businesses |
|
2016: Launched Platinum Service Desk, a concierge service model for our top advisers |
|
2015: Launched new sales model, including a team designed to target new advisers and expand share of wallet with existing advisers |
Curated investment platform
|
2016-2018: Expanded Custom High-Net-Worth Solutions, a bespoke solution tailored to investor needs, as well as low-cost institutional investment offerings |
|
2016: Launched Investing Evolved, our proprietary investment framework |
|
2016: Launched Insured Cash Deposit Program, a program to safeguard a portion of assets in an FDIC-insured interest-bearing liquid vehicle |
Mergers and acquisitions
|
2019: Acquired Global Financial Private Capital, a provider of a broad suite of integrated wealth management services for institutional and individual investors |
|
2015: Acquired Clark Capitals TAMP assets |
|
2014: Acquired Aris, a wealth management firm proving retirement and trust services, to augment retirement offering |
Key factors affecting our performance
Expansion of our existing financial adviser base
We are focused on attracting new advisers to our platform with our end-to-end wealth management offering, composed of a fully integrated technology platform, high-touch sales and service support and a curated investment platform. Our extensive offering is built to enhance adviser efficiency so that advisers of all sizes can compete and grow. We also strive to increase our share of wallet, or portion of an advisers fee-based business that is invested on our platform, by providing a holistic platform for advisers and surrounding advisers with the tools they need to better serve their clients. Our business will depend in part on our ability to drive higher usage of our platform by financial advisers and their client bases.
Increase of new financial advisers on our platform
Within the wealth management industry, the percentage of assets served by independent financial advisers is forecasted to grow from 42% in 2017 to 48% in 2022, based on our internal estimates and Cerulli data on expected industry growth. We seek to capitalize on this trend and attract new financial advisers to our platform by continuing to invest in our technology platform, sales and service standards and curated investment offering. Our annual cohort of new producing advisers grew 66% from 548 new producing advisers in 2014 to 910 in 2018. Our business will depend in part on our ability to continue to attract new advisers to our platform.
64
Technology development
We invested $153 million in the development of our technology and our dedicated technology team from January 1, 2015 to March 31, 2019. We intend to continue to invest in our technology platform to address the needs of financial advisers and their investors. Our revenue growth will depend, in part, on our ability to continue to launch new offerings and deliver solutions to financial advisers efficiently. While these investments may delay or reduce our profitability, we believe they will enable us to grow our revenue meaningfully in the long term.
Investments in growth
We have made and expect to continue to make substantial investments across our business, including those related to increasing our total employee base, to support our continued growth. We intend to continue to expand our sales capacity and further improve sales productivity to drive additional revenue and support the growth of our client base. We may incur increased general and administrative expenses to support our growth and operations. Our results of operations will depend in part on our ability to continue to manage such expenses, as well as on the effectiveness of our investments. We expect to continue managing such expenses and investments to support our adjusted EBITDA margin.
Competition
We compete with a broad range of wealth management firms that offer services to independent investment advisers. Our competitive landscape is defined by three primary factors: 1) technology capabilities, 2) consulting and back office servicing and 3) investment solutions. We may compete on these factors based on products, services or fees. While we anticipate that we will see increased competition and experience fee pressure, we believe that our technology platform, along with our personalized service and curated investment solutions, will continue to drive revenue expansion.
Value of platform assets
Our revenue is subject to fluctuations due to changes in general economic conditions, including market conditions and the changing interest rate environment. Most of our revenue is based on the value of assets invested in products on our platform, which is heavily influenced by general economic conditions. Fluctuations in securities prices may affect the value of such assets and may also influence an investors decision to select, grow, maintain or reduce an investment. We generate asset-based revenue from fees billed in advance of each quarter, providing visibility into near-term revenue and helping to minimize revenue fluctuations stemming from market volatility. In addition, we realize spread-based revenue, which represents a growing portion of our revenue. Spread-based revenue is subject to change based on interest rate changes and the amount of cash held by investors at our proprietary trust company.
Acquisitions
Our ability to pursue and execute strategic transactions may impact our assets and revenue. From 2014 to 2018, we acquired the platform assets of two firms, which collectively have added $3.5 billion in assets. Subsequently, in April 2019, we closed our acquisition of Global Financial Private Capital following CFIUS clearance and FINRA approval, for a total cash purchase price of $35.9 million. This acquisition added another $3.8 billion in platform assets. We expect to continue to selectively seek
65
acquisitions that will enhance our scale, operating leverage and capabilities to further deepen our offering to advisers and investors.
Key operating metrics
In addition to our GAAP financials, we regularly review the following key metrics to measure performance, identify trends, formulate financial projections, compensate our employees and monitor our business. While we believe that these metrics are useful in evaluating our business, other companies may not use similar metrics or may not calculate similarly titled metrics in a consistent manner.
Key metrics for the years ended December 31, 2018 and 2017 and the three months ended March 31, 2019 and 2018 include the following:
Year ended December 31, | Three months ended March 31, | |||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
Operational metrics: |
||||||||||||||||
Platform assets (at period-end) (millions of dollars) |
$ | 44,855 | $ | 42,385 | $ | 49,695 | $ | 43,462 | ||||||||
Net flows (millions of dollars) |
$ | 5,916 | $ | 5,863 | $ | 1,409 | $ | 1,667 | ||||||||
Net flows (% of beginning platform assets) |
14.0 | % | 18.2 | % | 3.1 | % | 3.9 | % | ||||||||
Market impact net of fees (millions of dollars) |
$ | (3,446 | ) | $ | 4,271 | $ | 3,431 | $ | (590 | ) | ||||||
Advisers (at period-end) |
7,573 | 7,183 | 7,615 | 7,262 | ||||||||||||
Engaged advisers (at period-end) |
1,837 | 1,743 | 1,967 | 1,793 | ||||||||||||
Assets from engaged advisers (at period-end) (millions of dollars) |
$ | 38,495 | $ | 36,372 | $ | 43,277 | $ | 37,427 | ||||||||
Households (at period-end) |
133,947 | 114,377 | 137,749 | 119,491 | ||||||||||||
New producing advisers |
910 | 911 | 198 | 211 | ||||||||||||
Production lift from existing advisers (%) |
22.1 | % | 27.6 | % | 24.0 | % | 23.9 | % | ||||||||
Net flows lift from existing advisers (%) |
10.8 | % | 14.0 | % | 11.4 | % | 14.3 | % | ||||||||
ATC client cash (millions of dollars) |
$ | 1,612 | $ | 1,146 | $ | 1,411 | $ | 1,170 | ||||||||
Financial metrics: |
||||||||||||||||
Total revenue (millions of dollars) |
$ | 364 | $ | 296 | $ | 92 | $ | 85 | ||||||||
Net income margin (%) |
10.3 | % | 33.5 | % | 3.0 | % | 11.6 | % | ||||||||
Capital expenditure (millions of dollars) |
$ | 17 | $ | 16 | $ | 5 | $ | 4 | ||||||||
Non-GAAP financial metrics: |
||||||||||||||||
Organic total revenue growth (%) |
23.1 | % | 19.4 | % | 9.2 | % | 27.1 | % | ||||||||
Adjusted EBITDA (millions of dollars) |
$ | 88.9 | $ | 58.9 | $ | 22.7 | $ | 21.0 | ||||||||
Adjusted net income (millions of dollars) |
$ | 60.8 | $ | 34.3 | $ | 12.7 | $ | 15.1 | ||||||||
|
Platform assets (at period-end)
We believe that the amount of assets on our platform is an important indicator of the strength and growth of our business, our increased customer footprint and the market acceptance of our platform. We define platform assets as all assets on the AssetMark platform whether these are assets for which we provide advisory services, referred to as regulatory assets under management (AUM), or non-advisory assets under administration, assets held in cash accounts or otherwise not managed (Other Assets). There is generally no material economic difference to our financial results whether assets are considered AUM or Other Assets. We view our platform assets as reflective of our revenue
66
growth and potential for future growth. We had platform assets of $42,385 million and $44,855 million as of December 31, 2017 and December 31, 2018, respectively and $43,462 million and $49,695 million as of March 31, 2018 and March 31, 2019, respectively. Our regulatory AUM totaled $28,303 million and $29,959 million as of December 31, 2017 and December 31, 2018, respectively, and $28,909 million and $32,719 million as of March 31, 2018 and March 31, 2019, respectively. We intend to continue growing our platform assets with enhancements to our technology, services and investment solutions. We expect the growth in our platform assets will remain a significant indicator of our business momentum and results of operations as existing advisers and new advisers realize the benefits of our platform. Our platform assets in any period may continue to fluctuate as a result of several factors, including our adviser satisfaction with the functionality, features, performance or pricing of our offering, overall fluctuations in the securities markets and other factors, a number of which are beyond our control.
Net flows and market impact net of fees
The changes in our platform assets from period to period are primarily driven by the amount of new assets that are added to existing and new client accounts, which we refer to as production, and the amount of assets that are withdrawn from client accounts, which we refer to as redemptions. We refer to the difference between production and redemptions as net flows. Positive net flows indicate that the amount of assets added to client accounts exceeds the amount of assets that have been terminated or withdrawn from client accounts.
In addition to net flows, the change in the market value of investments held in client accounts between the beginning and end of a period, which we define as market impact, also influences platform assets. For each period, we show the market impact on platform assets net of the fees paid to financial advisers, AssetMark custodians and certain fees embedded in investment vehicles.
The following table provides information regarding the degree to which production, redemptions, net flows and changes in the market value of existing assets contributed to changes in assets on our platform in the periods indicated.
Year ended December 31, |
Three months ended March 31, |
|||||||||||||||
(in millions) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Beginning platform assets |
$ | 42,385 | $ | 32,251 | $ | 44,855 | $ | 42,385 | ||||||||
Production |
10,843 | 10,399 | 2,838 | 2,682 | ||||||||||||
Redemptions |
(4,927 | ) | (4,536 | ) | (1,429 | ) | (1,015 | ) | ||||||||
|
|
|||||||||||||||
Net flows |
5,916 | 5,863 | 1,409 | 1,667 | ||||||||||||
Market impact net of fees |
(3,446 | ) | 4,271 | 3,431 | (590 | ) | ||||||||||
|
|
|||||||||||||||
Ending platform assets |
$ | 44,855 | $ | 42,385 | $ | 49,695 | $ | 43,462 | ||||||||
|
Advisers (at period-end)
Adviser count reflects the total number of advisers who had at least one investor account on our platform at the end of the given period.
Engaged advisers (at period-end)
Engaged advisers are advisers with at least $5 million in platform assets.
67
Assets from engaged advisers (at period-end)
Assets from engaged advisers are total platform assets attributable to engaged advisers.
Households (at period-end)
We define a Household as one or more client accounts that are grouped together based on a relationship identification code as determined by the financial adviser.
New producing advisers
New producing advisers (NPAs) for a given period represents the number of advisers that invested their first client assets on our platform in that period.
Production lift from existing advisers
Existing advisers for a given period are defined as those who had invested client assets on our platform as of the beginning of the period. Production lift from existing advisers for a given period is calculated by dividing production attributable to existing advisers for such period by platform assets as of the beginning of the period. This metric represents both the organic growth of these advisers as well as any incremental share of wallet of the advisers business that is added to our platform.
Net flows lift from existing advisers
Net flows lift from existing advisers for a given period is calculated by dividing net flows attributable to existing advisers for such period by the platform assets as of the beginning of the period. This metric represents both the organic growth of these advisers as well as any incremental share of wallet of the advisers business that joins our platform, less redemptions from the clients of existing advisers.
ATC client cash
In general, all accounts with ATC are required to have cash at a minimum level ranging from of 1.5% to 5% of invested assets. In addition to this minimum amount, strategists and advisers have the discretion to hold additional invested assets in cash. We refer to the aggregate amount of cash held at ATC as ATC client cash. As of December 31, 2018 and March 31, 2019, ATC client cash accounted for 5% and 4%, respectively, of the total assets in custody at ATC. As of December 31, 2018 and March 31, 2019, 86% and 87%, respectively, of the ATC client cash was placed with the ATC-insured cash deposit program and was the primary source of spread-based revenue for our business.
Total revenue
Total revenue includes all revenue that we recognize, including asset-based revenue, spread-based revenue and other revenue.
Net income margin
Net income margin is defined as net income divided by total revenue.
Capital expenditure
Capital expenditure represents the long-term investments that we make on an annual basis. Capital expenditure primarily reflects investments in technology, the development of new products and
68
services and other intangible assets but also includes investments in property and equipment such as technology support and office space.
Non-GAAP financial metrics:
Organic total revenue growth
Organic total revenue growth is the growth rate of our total revenue excluding the impact of any acquisitions during the relevant period as compared to the corresponding period of the prior year.
We believe that organic total revenue growth is a useful measure of the growth and performance of our business, in addition to and not in lieu of total revenue, due to the amount of our revenue growth attributable to acquisitions.
Organic total revenue growth has limitations as an analytical tool and should not be considered in isolation to, or as a substitute for, analysis of our results as reported under U.S. GAAP.
Set forth below is a reconciliation from total revenue to organic total revenue growth for the years ended December 31, 2018 and 2017 and the three months ended March 31, 2019 and 2018.
Year ended December 31, | Three months ended March 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Total revenue growth |
$ | 68,117 | $ | 47,933 | $ | 7,781 | $ | 18,013 | ||||||||
Less: total revenue growth attributable to acquisitions |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Organic total revenue growth |
$ | 68,117 | $ | 47,933 | $ | 7,781 | $ | 18,013 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Organic total revenue growth (%) |
23.1% | 19.4% | 9.2% | 27.1% | ||||||||||||
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization and less interest income), further adjusted to exclude certain non-cash charges and other adjustments set forth below. Adjusted EBITDA is a useful financial metric in assessing our operating performance from period to period by excluding certain items that we believe are not representative of our core business, such as certain material non-cash items and other adjustments such as share-based compensation, strategic initiatives and reorganization and integration costs.
We believe that adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations for various reasons, including:
|
non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; as such, stock-based compensation expense is not a key measure of our operating performance; and |
|
costs associated with acquisitions and the resulting integrations, debt refinancing, restructuring, litigation and conversions can vary from period to period and transaction to transaction; as such, |
69
expenses associated with these activities are not considered a key measure of our operating performance. |
We use adjusted EBITDA:
|
as a measure of operating performance; |
|
for planning purposes, including the preparation of budgets and forecasts; |
|
to allocate resources to enhance the financial performance of our business; |
|
to evaluate the effectiveness of our business strategies; |
|
in communications with our board of directors concerning our financial performance; and |
|
as a consideration in determining compensation for certain employees. |
Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation to, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:
|
Adjusted EBITDA does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; |
|
Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; and |
|
Adjusted EBITDA does not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments. |
In addition, the definition of adjusted EBITDA can differ significantly from company to company and as a result has limitations when comparing similarly titled measures across companies.
Set forth below is a reconciliation from net income to adjusted EBITDA for the years ended December 31, 2018 and 2017 and the three months ended March 31, 2019 and 2018.
Year ended December 31, | Three months ended March 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Net income |
$ | 37,426 | $ | 98,978 | $ | 2,811 | $ | 9,791 | ||||||||
Provision for (benefit from) income tax |
17,137 | (79,635 | ) | 3,440 | 3,872 | |||||||||||
Interest income |
(2,433 | ) | (268 | ) | (892 | ) | (310 | ) | ||||||||
Interest expense |
1,920 | | 4,024 | | ||||||||||||
Amortization/depreciation |
26,104 | 22,981 | 6,896 | 6,037 | ||||||||||||
|
|
|||||||||||||||
EBITDA |
80,154 | 42,056 | 16,279 | 19,390 | ||||||||||||
|
|
|||||||||||||||
Share-based compensation (1) |
6,568 | 6,920 | 5,226 | 1,296 | ||||||||||||
IPO readiness (2) |
1,182 | | 568 | 51 | ||||||||||||
Reorganization and integration costs (3) |
1,041 | 3,266 | 657 | 270 | ||||||||||||
Strategic initiatives (4) |
| 2,026 | | | ||||||||||||
Settlement costs related to a non-routine legal dispute (5) |
| 2,000 | | | ||||||||||||
Acquisition expenses (6) |
| 1,339 | | | ||||||||||||
Retention bonus related to our 2016 sale to HTSC (7) |
| 1,215 | | | ||||||||||||
Transition services payment for 2015 acquisition (8) |
| 57 | | | ||||||||||||
|
|
|||||||||||||||
Adjusted EBITDA |
$ | 88,945 | $ | 58,879 | $ | 22,730 | $ | 21,007 | ||||||||
|
70
(1) | Share-based compensation represents granted share-based compensation in the form of Class C Common Units (which are incentive units) of AssetMark Holdings LLC, our parent company, to certain of our directors and employees. Although this expense occurred in each measurement period, we have added the expense back in our calculation of adjusted EBITDA because of its non-cash impact. |
(2) | IPO readiness includes professional fees related to our preparation to become a public company. These expenses primarily include services for financial and human resources systems implementation, executive compensation assessments and other consulting services. Although these expenses occurred in both 2018 and the first quarter of 2019, these expenses are non-recurring as they are limited to our public-company readiness preparation and do not include ongoing public-company compliance costs. |
(3) | Reorganization and integration costs includes costs related to our functional reorganization within our Operations, Technology and Retirement functions as well as duplicate costs related to the outsourcing of back-office operations functions. While we have incurred such expenses in all periods measured, these expenses serve varied reorganization and integration initiatives, each of which is non-recurring. We do not consider these expenses to be part of our core operations. |
(4) | Strategic initiatives includes costs related to one-time investments for exploratory work regarding potential business opportunities in 2017. These strategic initiatives were part of the initial strategic review performed by HTSC in late 2016. These costs included research into such areas as RIA expansion, international products, retirement products and cash solutions. Such costs were non-recurring. |
(5) | Settlement costs related to a non-routine legal dispute are costs related to the settlement of an unusual legal dispute with a technology vendor. We consider the settlement non-recurring. |
(6) | Acquisition expenses includes legal fees and other professional fees related to a single significant acquisition effort in 2017 that was ultimately unsuccessful. We consider such costs to be non-recurring due to the extent that we invested in that particular effort. |
(7) | Retention bonus related to our 2016 sale to HTSC includes retention incentives paid to certain of our directors as an incentive to retain their services after HTSC acquired our company in 2016. This expense was a one-time incentive provided by HTSC to such directors. |
(8) | Transition services payment for 2015 acquisition represents a 2017 expense related to a final payment pursuant to a one-time transition services agreement and is therefore non-recurring. |
Adjusted net income
Adjusted net income represents net income before: (a) share-based compensation expense, (b) amortization of acquisition-related intangible assets, (c) acquisition and related integration expenses, (d) restructuring and conversion costs and (e) certain other expenses. Reconciled items are tax effected using the income tax rates in effect for the applicable period, adjusted for any potentially non-deductible amounts.
We prepared adjusted net income to eliminate the effects of items that we do not consider indicative of our core operating performance. We have historically not used adjusted net income for internal management reporting and evaluation purposes; however, we believe that adjusted net income, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations for various reasons, including the following:
|
non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; as such, stock-based compensation expense is not a key measure of our operating performance; |
|
costs associated with acquisitions and related integrations, debt refinancing, restructuring and conversions can vary from period to period and transaction to transaction; as such, expenses associated with these activities are not considered a key measure of our operating performance; and |
|
amortization expenses can vary substantially from company to company and from period to period depending upon each companys financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; as such, the amortization of intangible assets obtained in acquisitions is not considered a key measure of our operating performance. |
71
Adjusted net income does not purport to be an alternative to net income (loss) or cash flows from operating activities. The term adjusted net income is not defined under GAAP, and adjusted net income is not a measure of net income (loss), operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, adjusted net income has limitations as an analytical tool and should not be considered in isolation to, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:
|
Adjusted net income does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; |
|
Adjusted net income does not reflect changes in, or cash requirements for, working capital needs; and |
|
Other companies in the financial services industry may calculate adjusted net income differently than we do, limiting its usefulness as a comparative measure. |
Set forth below is a reconciliation from net income to adjusted net income for the years ended December 31, 2018 and 2017 and the three months ended March 31, 2019 and 2018.
Year ended December 31, | Three months ended March 31, | |||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Net income |
$ | 37,426 | $ | 98,978 | $ | 2,811 | $ | 9,791 | ||||||||
Tax adjustments (1) |
| (90,055 | ) | | | |||||||||||
Acquisition-related amortization |
20,432 | 20,432 | 5,108 | 5,108 | ||||||||||||
Expense adjustments (2) |
2,221 | 9,903 | 1,225 | 322 | ||||||||||||
Share-based compensation |
6,568 | 6,920 | 5,226 | 1,296 | ||||||||||||
Tax effect of adjustments (3) |
(5,889 | ) | (11,831 | ) | (1,647 | ) | (1,412 | ) | ||||||||
|
|
|||||||||||||||
Adjusted net income |
$ | 60,758 | $ | 34,347 | $ | 12,723 | $ | 15,105 | ||||||||
|
(1) | Represents a non-recurring non-cash decrease in our deferred tax liability in connection with the lower federal tax rate attributable to the Tax Cuts and Jobs Act of 2017. |
(2) | Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above other than share-based compensation. |
(3) | Reflects the tax impact of expense adjustments and acquisition-related amortization. |
Components of results of operations
Revenue
Asset-based revenue
A majority of our revenue is derived from the fees we charge as a percentage of platform assets. We record this revenue as asset-based revenue. Our asset-based revenue varies based on the types of investment solutions and services that financial advisers utilize for their clients. Asset-based revenue accounted for approximately 95.8% and 93.0% of our total revenue for the years ended December 31, 2017 and 2018, respectively, and approximately 93.5% and 90.0% of our total revenue for the three months ended March 31, 2018 and 2019, respectively. The percentage of our total revenue represented by asset-based revenue declined in the periods under review principally due to increased spread-based revenue from an improved interest rate environment. In future periods, the percentage of our total revenue attributable to asset-based revenue is expected to vary based primarily on changes in platform assets and interest rate returns received from our spread-based revenue. As of December 31, 2018 and March 31, 2019, approximately $44.9 billion and $49.7 billion,
72
respectively, of platform assets subject to asset-based fees were managed or administered utilizing our technology platform by approximately 134,000 and 137,000 Households, respectively.
The level of fees we charge varies based on the nature of the investment solutions and services we provide, as well as the specific investment manager, fund and/or custodian chosen by the financial adviser. A portion of our revenue from AUM or Other Assets includes amounts paid by us to third parties for sub-advisory, strategist, third-party custodian or investment management fees. These expenses are recorded as asset-based expenses.
For the substantial majority of our revenue from platform assets, we bill the end-investor at the beginning of each quarter based on the market value of assets on our technology platform as of the end of the prior quarter. Platform fees are deducted from the clients account at the beginning of each quarter. For example, using this method, revenue from platform assets recognized during the fourth quarter of 2018 was generally based on the market value of assets as of September 30, 2018.
Spread-based revenue
Our spread-based revenue consists of the interest rate return earned on cash assets custodied through ATC. ATC is one of our wholly owned subsidiaries and one of several custodians offered on our platform. ATC utilizes third-party banks to invest client cash and uses the proceeds from those investments to credit client accounts and earn spread-based revenue for us.
Other income
Other income consists primarily of interest earned on operating cash held by us. Other one-time income items are reported under Other Income, as discussed elsewhere in this section.
Expenses
Asset-based expenses
Asset-based expenses primarily relate to costs incurred directly from the generation of asset-based revenue, including strategist, investment manager and sub-advisory fees, custody fees paid to our third-party custodian partners, payments to our broker-dealer partners and business development allowance payments for our premier advisers.
These expenses are typically calculated based upon a percentage of the market value of assets held in customer accounts measured as of the end of each fiscal quarter.
Spread-based expenses
Our spread-based expenses consist of expenses paid to ATCs third-party administrator for administering ATCs insured cash deposit program.
Employee compensation expenses
Employment and compensation expenses include salaries, commissions, non-cash stock-based compensation, profit sharing, benefits and employer-related taxes. We expect that the majority of any increase in employee and compensation expenses in the next 12 months will arise in connection with additional non-cash stock-based compensation and increased headcount to support our growth strategy.
73
General and operating expenses
General and operating expenses include occupancy expenses and expenses relating to trading, events, communications services, research and data services, website and systems development, marketing, legal services and travel and entertainment. We expect general and operating expenses to increase in absolute dollars in future periods as a result of increased costs associated with being a publicly traded company upon completion of this offering, including significant increased legal and accounting costs related to compliance with rules and regulations implemented by the SEC and NYSE, as well as additional insurance, investor relations and other costs associated with being a public company.
Professional fee expenses
Professional fee expenses primarily relate to the fees we pay to the third-party administrator of AssetMark Retirement Services, Inc., our wholly owned subsidiary that operates our retirement business, as well as fees associated with the outsourcing of administrative operations functions, audit costs and expenses related to this offering and public-company readiness.
Depreciation and amortization
Amortization expense reflects the amortization of our intangible technology assets and our other assets such as trade names, broker-dealer licenses and ATC regulatory status, from the fair value established at the date of our sale to HTSC in 2016. Depreciation expense reflects the ongoing cost of annual usage of property and equipment.
Interest income and other income (expense) net
We earn interest income on our operating cash and cash equivalents (cash and available-for-sale investments), which may fluctuate over time.
Results of operations
Three months ended March 31, 2019 compared to three months ended March 31, 2018
The following discussion presents an analysis of our results of operations for the three months ended March 31, 2019 and 2018. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where possible and practical, have quantified the impact of such items.
74
For the three months
|
||||||||||||||||
(dollars in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Revenue |
||||||||||||||||
Asset-based revenue |
$ | 83,063 | $ | 79,076 | $ | 3,987 | 5.0 | |||||||||
Spread-based revenue |
7,549 | 3,749 | 3,800 | 101.4 | ||||||||||||
Other income |
1,702 | 1,708 | (6 | ) | (0.4 | ) | ||||||||||
|
|
|||||||||||||||
Total revenue |
92,314 | 84,533 | 7,781 | 9.2 | ||||||||||||
Expenses |
||||||||||||||||
Asset-based expenses |
28,102 | 26,805 | 1,297 | 4.8 | ||||||||||||
Spread-based expenses |
478 | 361 | 117 | 32.4 | ||||||||||||
Employee compensation |
31,885 | 24,740 | 7,145 | 28.9 | ||||||||||||
General and operating expenses |
12,292 | 10,651 | 1,641 | 15.4 | ||||||||||||
Professional fees |
2,386 | 2,276 | 110 | 4.8 | ||||||||||||
Interest |
4,024 | | 4,024 | * | ||||||||||||
Depreciation and amortization |
6,896 | 6,037 | 859 | 14.2 | ||||||||||||
|
|
|||||||||||||||
Total expenses |
86,063 | 70,870 | 15,193 | 21.4 | ||||||||||||
Income (loss) before income taxes |
6,251 | 13,663 | (7,412 | ) | (54.2 | ) | ||||||||||
Provision for (benefit from) income taxes |
3,440 | 3,872 | (432 | ) | (11.2 | ) | ||||||||||
|
|
|||||||||||||||
Net income (loss) |
2,811 | 9,791 | (6,980 | ) | (71.3 | ) | ||||||||||
Other comprehensive income, net of tax |
||||||||||||||||
Unrealized gain (loss) on available for sale investments, net of tax |
16 | (2 | ) | 18 | * | |||||||||||
|
|
|||||||||||||||
Net comprehensive income (loss) |
$ | 2,827 | $ | 9,789 | $ | (6,962 | ) | (71.1 | ) | |||||||
|
* | Not meaningful. |
Asset-based revenue
Asset-based revenue increased $4.0 million, or 5.0%, from $79.1 million in the three months ended March 31, 2018 to $83.1 million in the three months ended March 31, 2019. This increase is primarily related to increased platform fees of $2.6 million associated with growth in platform assets and advisory fee revenue of $1.6 million associated with the growth of proprietary mutual funds on the platform. Administrative service fees from ATC also increased by $0.4 million due to growth in mutual fund assets. The increase was offset in part by a $0.7 million decrease in custodial support payments from our third-party custodians related to a 2018 renegotiated contract, which also resulted in us paying lower custody fees.
Spread-based revenue
Spread-based revenue increased $3.8 million, or 101.4%, from $3.7 million in the three months ended March 31, 2018 to $7.5 million in the three months ended March 31, 2019. This increase was primarily due to higher cash balances held at ATC and increased interest rates on cash invested through ATCs insured cash deposit program.
Other income
Other income decreased $6 thousand, or 0.4%, for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. This decrease primarily related to the recognition of $0.9 million due to us as a result of a legal settlement in 2018, offset in part by an
75
increase in interest income of $0.6 million attributed to higher interest rates and higher cash balances generated from our operating activities and higher termination fees collected at ATC.
Asset-based expenses
Asset-based expenses increased $1.3 million, or 4.8%, from $26.8 million in the three months ended March 31, 2018 to $28.1 million in the three months ended March 31, 2019. This increase, primarily related to increased subadvisor fees of $1.0 million, was driven by growth in our proprietary funds, and $0.9 million related to increased strategist and investment management due to growth in platform assets. We also experienced an increase in asset-based broker-dealer payments of $0.3 million driven by growth in platform assets. These increases were offset in part by lower negotiated custody fees charged by third-party custodians.
Spread-based expenses
Spread-based expenses increased $0.1 million, or 32.4%, from $0.4 million in the three months ended March 31, 2018 to $0.5 million in the three months ended March 31, 2019. This increase was due in part to increased expenses paid to ATCs third-party administrator for ATCs insured cash deposit program due to increased interest rates and higher cash balances at ATC.
Employee compensation expenses
Employee compensation expenses increased $7.1 million, or 28.9%, from $24.7 million in the three months ended March 31, 2018 to $31.9 million in the three months ended March 31, 2019. This increase primarily related to an increase in share-based compensation of $3.9 million attributed to the growth in our valuation; an increase of $2.5 million in salaries and related expenses attributable to increased associate headcount required to support our growth; and an increase of $0.6 million related to higher variable compensation related to higher associate headcount. The balance of the increase related to a $0.1 million increase in sales incentive compensation.
General and operating expenses
General and operating expenses increased $1.6 million, or 15.4%, from $10.7 million in the three months ended March 31, 2018 to $12.3 million in the three months ended March 31, 2019. This increase was primarily related to expanded promotional events for our top advisers and increased employee travel expenses of $1.2 million. We also experienced an increase of $0.3 million related to higher IT-related subscriptions attributed to growth in associate headcount.
Professional fee expenses
Professional fee expenses increased $0.1 million, or 4.8%, from $2.3 million in the three months ended March 31, 2018 to $2.4 million in the three months ended March 31, 2019. This increase is primarily related to increased audit costs.
Interest expense
Interest expense increased from $0 in the three months ended March 31, 2018 to $4.0 million in the three months ended March 31, 2019. This increase related to the interest we paid on our long-term debt issued in November 2018.
76
Depreciation and amortization expense
Depreciation and amortization expense increased $0.9 million, or 14.2%, from $6.0 million in the three months ended March 31, 2018 to $6.9 million in the three months ended March 31, 2019. This increase related to the incremental assets placed in service during 2018. When HTSC acquired us on October 31, 2016, all intangible assets were fair valued, and those assets with definite-lives commenced amortization schedules ranging from five- to 20-year schedules. Because less than three years had elapsed since the 2016 acquisition, we had minimal fully amortized asset run-off in 2017 and 2018 with which to offset the incremental assets recently placed in service.
Provision for (benefit from) income taxes
Provision for income taxes decreased $0.4 million from $3.9 million in the three months ended March 31, 2018 to $3.4 million in the three months ended March 31, 2019. This decrease was due to the decrease in our income before income taxes, and was offset in part by the increase to share-based compensation, which is not deductible for tax purposes, and the effect of discrete items unrelated to our current-year business operations.
Other comprehensive income
Other comprehensive income increased $18 thousand for the three months ended March 31, 2018 compared to the three months ended March 31, 2019. This increase relates to the fair market valuation of our available-for-sale investments related to seed funding of certain proprietary funds that we established.
Net comprehensive income (loss)
Net comprehensive income decreased $7.0 million, or 71.1%, from $9.8 million in the three months ended March 31, 2018 to $2.8 million in the three months ended March 31, 2019, despite a 9.2% growth in total revenue over the same period, due in part to a $5.5 million loss of market value in platform assets in the fourth quarter of 2018 as a result of market volatility. The decrease in net comprehensive income was also due to increased expenses incurred in the quarter ended March 31, 2019, including (i) a $3.9 million increase in the carrying value of share-based compensation expenses attributed to the growth in our valuation, (ii) $4 million in interest expense incurred in the quarter ended March 31, 2019 resulting from our draw down on our Credit Facility to make a one-time distribution to AssetMark Holdings LLC and (iii) an increase in our effective tax rate from 28.3% in the quarter ended March 31, 2018 to 55% in the quarter ended March 31, 2019 due to the fact that share-based compensation is not deductible, which resulted in our tax expenses remaining relatively constant over the same period despite lower pre-tax income in the quarter ended March 31, 2019.
77
Year ended December 31, 2018 compared to year ended December 31, 2017
The following discussion presents an analysis of our results of operations for the years ended December 31, 2018 and 2017. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where possible and practical, have quantified the impact of such items.
For the years ended
December 31 |
||||||||||||||||
(dollars in thousands) | 2018 | 2017 | $ Change | % Change | ||||||||||||
Revenue |
||||||||||||||||
Asset-based revenue |
$ | 338,031 | $ | 282,966 | $ | 55,065 | 19.5 | |||||||||
Spread-based revenue |
20,403 | 10,430 | 9,973 | 95.6 | ||||||||||||
Other income |
5,200 | 2,121 | 3,079 | 145.2 | ||||||||||||
Total revenue |
363,634 | 295,517 | 68,117 | 23.1 | ||||||||||||
Expenses |
||||||||||||||||
Asset-based expenses |
116,763 | 98,401 | 18,362 | 18.7 | ||||||||||||
Spread-based expenses |
1,671 | 976 | 695 | 71.2 | ||||||||||||
Employee compensation |
107,091 | 105,413 | 1,678 | 1.6 | ||||||||||||
General and operating expenses |
45,383 | 38,781 | 6,602 | 17.0 | ||||||||||||
Professional fees |
10,139 | 9,622 | 517 | 5.4 | ||||||||||||
Interest |
1,920 | | 1,920 | * | ||||||||||||
Depreciation and amortization |
26,104 | 22,981 | 3,123 | 13.6 | ||||||||||||
Total expenses |
309,071 | 276,174 | 32,897 | 11.9 | ||||||||||||
Income before income taxes |
54,563 | 19,343 | 35,220 | 182.1 | ||||||||||||
Provision for (benefit from) income taxes |
17,137 | (79,635 | ) | 96,772 | 121.5 | |||||||||||
Net income |
$ | 37,426 | $ | 98,978 | $ | (61,552 | ) | (62.2 | ) | |||||||
Other comprehensive income, net of tax |
||||||||||||||||
Unrealized gain (loss) on available for sale investments, net of tax |
(5 | ) | 8 | (13 | ) | (162.5 | ) | |||||||||
Net comprehensive income |
$ | 37,421 | $ | 98,986 | $ | (61,565 | ) | (62.2 | ) | |||||||
|
* | Not meaningful. |
Asset-based revenue
Asset-based revenue increased 19.5% from $283.0 million in the year ended December 31, 2017 to $338.0 million in the year ended December 31, 2018. The increase was primarily due to increased platform fees of $50.8 million from growth in platform assets, primarily driven by positive net flows and strong market conditions. Administrative service fees also increased by $4.4 million due to growth in mutual fund assets.
Spread-based revenue
Spread-based revenue increased 95.6% from $10.4 million in the year ended December 31, 2017 to $20.4 million in the year ended December 31, 2018. The increase was primarily due to higher cash balances held at ATC and increased interest rates on cash invested through ATCs insured cash deposit program.
78
Other income
Other income increased 145.2% from $2.1 million in the year ended December 31, 2017 to $5.2 million in the year ended December 31, 2018. The increase was primarily due to an increase in interest income of $2.2 million attributable to higher interest rates and higher cash balances generated from operating activities and the establishment of a receivable from a settled legal matter.
Asset-based expenses
Asset-based expenses increased 18.7% from $98.4 million in the year ended December 31, 2017 to $116.8 million in the year ended December 31, 2018. The increase was primarily due to a $16.0 million increase in strategist and investment management fees attributed to growth in platform assets, a $2.0 million increase in asset-based broker-dealer payments driven by growth in platform assets, a $0.7 million increase in sub-adviser fees associated with the expansion of our proprietary mutual funds and a $0.5 million increase in business development allowance provided due to growth in our largest platform advisers, partially offset by lower custody fees from improved negotiated rates with third-party custodians.
Spread-based expenses
Spread-based expenses increased 71.2% from $1.0 million in the year ended December 31, 2017 to $1.7 million in the year ended December 31, 2018. The increase was primarily due to increased expenses paid to ATCs third-party administrator for ATCs insured cash deposit program attributable to increased interest rates and higher cash balances at the custodian.
Employee compensation
Employee compensation increased 1.6% from $105.4 million in the year ended December 31, 2017 to $107.1 million in the year ended December 31, 2018. The increase was primarily due to a $7.3 million increase in salaries and related expenses from an increased associate headcount to support our ongoing growth. Salaries for the year ended December 31, 2017 included adjusted expenses, which included $1.7 million higher reorganization and integration costs than for the year ended December 31, 2018, and $0.9 million related to strategic initiatives. Salaries for the year ended December 31, 2018 included adjusted expenses of $0.2 million related to our preparation for becoming a public company. The increase in employee compensation expenses from the year ended December 31, 2017 to the year ended December 31, 2018 was offset in part by (i) a $2.3 million decrease in sales incentive compensation expense in the year ended December 31, 2018 as a result of sales in the year ended December 31, 2017 exceeding projections, requiring higher incentive compensation payouts in 2017; (ii) a $2.8 million decrease in contractor liability costs in the year ended December 31, 2018; (iii) $1.2 million in retention bonuses related to our sale to HTSC in 2016 that we incurred in 2017; and (iv) a $0.4 million decrease in share-based compensation from the year ended December 31, 2017. The balance of the increase in employee compensation expense from the year ended December 31, 2017 to the year ended December 31, 2018 related to $0.8 million in higher variable compensation expense in 2018 related to the performance of our business and $0.2 million related to higher overall employee count and lower capitalization of employee time.
General and operating expenses
General and operating expenses increased 17.0% from $38.8 million in the year ended December 31, 2017 to $45.4 million in the year ended December 31, 2018. This increase was primarily due to a $2.5
79
million increase in expenses related to events for our top advisers and higher travel expense, a $2.1 million increase in subscription-based software expenditures and a $2.2 million increase in legal fees associated with actual and prospective mergers and acquisitions activity, strategic projects and preparation for becoming a public company. General and operating expenses for the year ended December 31, 2017 included $1.7 million of expenses that we added back to our adjusted earnings for the year ended December 31, 2017, including $1.0 million in acquisition-related expenses, $0.4 million in reorganization and integration costs and $0.2 million in strategic initiatives. General and operating expenses for the year ended December 31, 2018 included $0.1 million of expenses that we added back to our adjusted earnings for the year ended December 31, 2018 related to our preparation for becoming a public company
Professional fees
Professional fee expenses increased 5.4% from $9.6 million in the year ended December 31, 2017 to $10.1 million in the year ended December 31, 2018. Professional fees in the year ended December 31, 2017 included $3.5 million of expenses that were added back to our adjusted earnings for the year ended December 31, 2017, including $2.0 million related to settlement costs related to non-routine litigation, $0.9 million in strategic initiatives, $0.3 million in reorganization and integration costs and $0.3 million in acquisition-related expenses. The balance of our adjusted expenses in the year ended December 31, 2017 related to a transition services payment to Clark Capital Management Group in connection with our purchase of the TAMP assets of Clark Capital Management Group in 2015. Professional fees in the year ended December 31, 2018 included $1.1 million of expenses that we added back to our adjusted earnings for the year ended December 31, 2018, including $0.9 million related to our preparation for becoming a public company and $0.2 million in reorganization and integration costs. Excluding all adjusted expenses, professional fees increased $2.9 million from December 31, 2017 to December 31, 2018. The increase was attributed primarily to $1.1 million related to the outsourcing of certain back-end operations functions, a $0.7 million increase in third-party administrator fees related to our retirement business and $0.7 million in increased audit costs and costs associated with platform enhancements made within our investments, marketing and technology functions.
Interest expense
Interest expense increased from $0 in the year ended December 31, 2017 to $1.9 million in the year ended December 31, 2018. The increase related to the interest paid for long-term debt incurred in November 2018.
Depreciation and amortization expense
Depreciation and amortization expense increased 13.6% from $23.0 million in the year ended December 31, 2017 to $26.1 million in the year ended December 31, 2018. The increase was primarily due to incremental assets placed in service during 2017 and 2018. When HTSC acquired us on October 31, 2016, all intangible assets were adjusted to fair value, and assets with definite lives commenced amortization schedules ranging from 3- to 20-years. Due to the short amount of time that has passed since the 2016 acquisition, we had minimal fully amortized asset run-off in 2017 and 2018, to offset the incremental assets recently placed in service.
80
Provision for (benefit from) income taxes
Provision for income taxes increased $96.8 million in the year ended December 31, 2018 compared to the year ended December 31, 2017. Our tax expense for the year ended December 31, 2017 included a $90.1 million decrease in our deferred tax liability in connection with the lower federal tax rate attributable to the Tax Cuts and Jobs Act of 2017, which did not recur in the year ended December 31, 2018. The remaining increase related to higher pre-tax income in the year ended December 31, 2018 as compared to the prior year.
Other comprehensive income
Other comprehensive income decreased $13 thousand for the year ended December 31, 2018 compared to the year ended December 31, 2017. The decrease relates to the fair market valuation of our available for sale investments related to seed funding of certain proprietary funds that we established.
Liquidity and capital resources
Liquidity
Since 2016, our operations have been financed primarily through cash flows from operations and we generated positive cash flows in eleven of the twelve quarters through the quarter ended December 31, 2018. In November of 2018, we also established a credit facility consisting of a $250.0 million term loan and a $20.0 million revolving credit facility with Credit Suisse AG, Cayman Islands Branch (Credit Suisse). As of December 31, 2017 and December 31, 2018, we had cash and cash equivalents of $50.1 million and $105.4 million, respectively, and restricted cash of $7.0 million and $7.0 million, respectively. Over the next twelve months, we expect that our cash and liquidity needs will continue to be met by cash generated by our ongoing operations as well as our credit facility. To the extent that existing cash, cash from operations and our credit facility are not sufficient to fund our future operations, we may need to raise additional funds through public or private equity or additional debt financing. Although we currently are not a party to any agreement and do not have any understanding with any third parties with respect to potential investments in, or acquisitions of, businesses or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. We cannot assure you that such additional financing will be available on terms acceptable to us, or at all. In addition, we may opportunistically seek to raise additional capital to fund our continued growth. To the extent that we are unsuccessful in additional debt or equity financings, our plans for continued growth may be curtailed.
Credit facility
In November 2018, we entered into a credit agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent (collectively, the Agent), and the lenders party thereto (the Credit Agreement), consisting of a $250.0 million term loan (the Term Loan) and a $20.0 million revolving credit facility (the Revolver, and together with the Term Loan, collectively, the Credit Facility). Our obligations under the Credit Facility are guaranteed by our immediate parent company, AssetMark Holdings LLC, and certain of our subsidiaries and are secured by substantially all of our assets, and all of the assets of AssetMark Holdings LLC and certain of our subsidiaries, subject to certain exceptions. As of December 31, 2018, $250.0 million aggregate principal amount of the Term Loan remained outstanding and the Revolver was undrawn.
81
In preparation for this offering, on June 28, 2019, we entered into an amendment to the Credit Agreement that allows AssetMark Holdings LLC to be released from its guarantee and collateral obligations under the Credit Agreement and the related loan documents when it is liquidated and dissolved upon the consummation of the transactions described in the section titled Prospectus summaryRestructuring. The Credit Facility will continue to be guaranteed by certain of our subsidiaries and secured by substantially all of our assets following such release.
The Term Loan matures in November 2025 and requires quarterly amortization payments equal to $625,000, subject to prepayment adjustment. The Revolver matures in November 2023 with outstanding loans thereunder payable within 364 days of the applicable drawdown date. Both the Term Loan and the Revolver bear interest at (x) the London InterBank Offered Rate (LIBOR) plus a margin of 3.50%, with a step down to 3.25% or (y) the Alternate Base Rate, as specified in the Credit Agreement, plus a margin of 2.50%, with a step down to 2.25%, in each case based on our achievement of a specified first-lien leverage ratio. Additionally, the Term Loans margin will be reduced by 0.25% following our initial public offering. With respect to the Revolver, a quarterly fee of 0.50% is due for the unused amounts thereunder with a stepdown to 0.375% based on our achievement of a specified first-lien leverage ratio. The Credit Agreement includes a process by which a successor rate to LIBOR will be determined in the event that LIBOR is no longer available in the market, whereby we and the Agent will endeavor to establish an alternative rate of interest giving consideration to the then-prevailing market conditions for syndicated loans in the United States.
The Credit Agreement contains customary affirmative and negative covenants, including reporting requirements and restrictions, subject to various exceptions, on the incurrence of additional indebtedness, the creation of liens, the making of acquisitions and investments, the disposal of assets and the making of restricted payments. Additionally, the Revolver includes a springing financial covenant, which provides that if, on the last day of a fiscal quarter, the principal amount of our revolving loans and letters of credit, subject to certain exceptions, exceeds $6.0 million, our total leverage ratio shall not exceed 4.75 to 1.00 for the fiscal quarters between March 31, 2019 and December 31, 2019 or 4.50 to 1.00 for the fiscal quarters ending on or after March 31, 2020. As of December 31, 2018, we were in compliance with all applicable covenants.
The Credit Agreement also contains customary events of default, which could result in acceleration of amounts due under the Credit Facility. Such events of default include, subject to the grace periods specified therein, our failure to pay principal or interest when due, our failure to satisfy or comply with covenants, a change of control, the imposition of certain judgments and the invalidation of liens we have granted.
We intend to use the net proceeds to us from this offering, together with cash on hand, to repay approximately $125 million of our Term Loan. See the section titled Use of proceeds for additional information regarding our intended use of our net proceeds from this offering.
82
Cash flows
The following table presents information regarding our cash flows, cash, cash equivalents and restricted cash for the periods indicated:
Year ended
December 31, |
Three months
ended March 31, |
|||||||||||||||
(in thousands) | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Cash flow from operating activities |
$ | 61,662 | $ | 45,612 | $ | 2,769 | $ | 8,562 | ||||||||
Cash used in investing activities |
(17,714 | ) | (15,652 | ) | (5,020 | ) | (4,214 | ) | ||||||||
Cash flow from financing activities |
11,259 | | (625 | ) | | |||||||||||
Net change in cash, cash equivalents and restricted cash |
55,207 | 29,960 | (2,876 | ) | 4,348 | |||||||||||
Cash, cash equivalents and restricted cash at beginning of period |
57,147 | 27,187 | 112,354 | 57,147 | ||||||||||||
Cash, cash equivalents and restricted cash at end of period |
$ | 112,354 | $ | 57,147 | $ | 109,478 | $ | 61,495 | ||||||||
|
Cash flows from operating activities
Cash flows from operating activities increased by $16.1 million in the year ended December 31, 2018 compared to the same period in 2017, primarily due to adjustments to net income related to deferred income taxes of $90.1 million and depreciation and intangible amortization of $3.1 million. Such increases were partially offset by a decrease in net income of $61.5 million, decreases in adjustments related to the timing of payables, receivables and current income taxes of $15.6 million and a decrease in share-based compensation of $0.3 million.
Cash flows from operating activities decreased by $5.8 million in the three months ended March 31, 2019 compared to the same period in 2018, primarily due to a decrease in net income, adjustments related to the timing of receivables of $2.1 million and income tax payable of $1.3 million. Such decreases were partially offset by an increase of adjustments to net income related to share-based compensation expense of $3.9 million, and depreciation and amortization of $0.9 million.
Cash used in investing activities
Cash used in investing activities increased by $2.1 million in the year ended December 31, 2018 compared to the same period in 2017, primarily due to a $1.8 million increase in capital expenditures and $0.3 million in purchases of available-for-sale investments.
Cash used in investing activities increased by $0.8 million in the three months ended March 31, 2019 compared to the same period in 2018, primarily due to a $0.5 million increase in capital expenditures and $0.3 million in purchases of available-for-sale investments.
Cash flows from financing activities
Cash flows from financing activities increased by $11.3 million in the year ended December 31, 2018 compared to the same period in 2017 primarily due to net proceeds received of $245.1 million related to the Term Loan. The increase was partially offset by a one-time distribution to AssetMark Holdings LLC of $234 million through a $76 million dividend payment and $158 million return of capital.
83
Cash flows from financing activities decreased by $0.6 million in the three months ended March 31, 2019 compared to the same period in 2018, primarily due to principal payments made of $0.6 million related to the Term Loan.
Contractual obligations
The following table describes our contractual obligations as of December 31, 2018:
Payments due by period
|
||||||||||||||||||||
(in thousands) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Operating lease obligations (1) |
$ | 16,467 | $ | 3,431 | $ | 10,386 | $ | 2,650 | | |||||||||||
Purchase obligations (2) |
8,697 | 4,573 | 4,124 | | | |||||||||||||||
Debt principal and interest (3) |
348,348 | 17,244 | 50,744 | 280,360 | | |||||||||||||||
|
|
|||||||||||||||||||
Total contractual obligations |
$ | 373,512 | $ | 25,248 | $ | 65,254 | $ | 283,010 | | |||||||||||
|
(1) | Represents minimum operating lease payments under operating leases for office facilities, excluding potential lease renewals. |
(2) | Represents future minimum payments under non-cancelable purchase commitments. For those agreements with variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing. |
(3) | Debt principal and interest includes payments under the Term Loan. Interest payments were calculated using the forecasted rate as of December 31, 2018. |
Off-balance sheet arrangements
As of December 31, 2017 and 2018 and as of March 31, 2019, we had no off-balance sheet arrangements.
Critical accounting policies and estimates
Our financial statements are prepared in accordance with GAAP. The preparation of consolidated financial statements in accordance with GAAP requires certain estimates, assumptions and judgments to be made that may affect our consolidated financial statements. Accounting policies that have significant impact on our results are described in Note 2 to our consolidated financial statements included elsewhere in this prospectus. The accounting policies discussed in this section are those that we consider to be the most critical. We consider an accounting policy to be critical if the policy is subject to a material level of judgment and if changes in those judgments are reasonably likely to materially impact our results.
Valuation of goodwill, purchased intangible assets and impairment of long-lived assets
Goodwill is not amortized but is tested for impairment annually, and whenever events or changes in circumstances indicate the varying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in client asset values or a significant decrease in expected cash flows.
Purchased intangible assets related to trade names, the AssetMark broker-dealer license and the regulatory status of ATC are amortized over their estimated useful life. The estimated useful life for these assets is twenty years.
Definite-lived intangible assets are tested for impairment when their carrying value may not be recoverable and can be initially based on undiscounted cash flows, which requires the use of estimates and judgment, and, if impaired, can be written down to fair value. There were no impairments of definite-lived intangibles for any periods presented.
84
Intangible assets with indefinite lives are tested at least annually for impairment based on comparing the current carrying value to fair value and written down to fair value if the carrying value exceeds the fair value.
Income tax
We use the asset-and-liability method of accounting for income taxes. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled.
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we consider our historical levels of income, expectations of future taxable income and ongoing tax planning strategies.
We recognize and measure tax benefits from uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions.
Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We evaluate our uncertain tax position on a regular basis and evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of an audit and effective settlement of issues.
Recent accounting pronouncements
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for us for annual periods beginning after December 15, 2017. The ASU was adopted as of January 1, 2018 using a retrospective transition method.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions. ASU 2016-09 requires all companies to (1) recognize excess tax benefits and tax deficiencies in the income statement (i.e., the standard eliminates the APIC pool) and (2) present excess tax benefits as an operating activity in the statement of cash flows. The standard also allows all companies to (1) elect whether to use an estimated forfeiture rate or to recognize forfeitures as they occur and (2) withhold up to the maximum individual statutory tax rate without classifying the awards as a liability. Nonpublic companies can elect to (1) use a practical expedient to determine the expected term of certain share-based payment awards and (2) change the measurement basis for all liability-classified awards to intrinsic value on adoption. ASU 2016-09 is effective for us for annual
85
periods in fiscal years beginning after December 15, 2017. Companies must adopt all amendments at the same time and follow the transition methods as outlined in the standard. The ASU was adopted as of January 1, 2018 and did not have a significant impact on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires a company to recognize revenue when the company transfers control of promised goods and services to the customer. Revenue is recognized in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. A company also is required to disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB also has issued several amendments to the standard, which are intended to promote a more consistent interpretation and application of the principles outlined in the standard.
Companies are permitted to adopt the standard using a retrospective transition method (i.e., restate all prior periods presented) or a cumulative effect method (i.e., recognize the cumulative effect of initially applying the guidance at the date of initial application with no restatement of prior periods). However, both methods allow companies to elect certain practical expedients on transition that will help to simplify how a company restates its contracts. We have evaluated our recognition of revenue as principal or agent. Beginning on January 1, 2018, we recognized certain service fee revenues on a net basis related to contracts with investment advisers in which we are the agent and the delivery of advisory services is controlled by the investment advisers. Adopting this ASU on January 1, 2018 did not affect our retained earnings. There was a decrease of $173,422 to both asset-based revenue and asset-based expenses for the year ended December 31, 2017.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use (ROU) model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for non-emerging growth companies on January 1, 2019, with early adoption permitted. We are currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and we plan to adopt the new standard on January 1, 2020.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies how to classify certain types of cash payments and receipts on the statement of cash flows. The following amendments in ASU 2016-15 are or may be relevant to us: (1) debt prepayment or extinguishment costs should be classified as financing cash outflows; (2) cash consideration payments made soon after an acquisitions consummation date (approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (3) proceeds from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement); (4) for distributions received from equity method investments, companies may elect either a cumulative earnings approach or the nature of distribution approach to determine whether distributions received from the equity method investees are returns on investment (operating cash inflows) or returns of investment (investing cash inflows); and (5) in the absence of specific guidance, companies determine each separately identifiable cash
86
source and classify the receipt or payment based on the nature of the cash flow. ASU 2016-15 was effective for non-emerging growth companies on January 1, 2018, and required retrospective application. Companies were required to adopt all amendments at the same time. We adopted this ASU on January 1, 2019, and it did not have a significant impact on our consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which makes targeted improvements to the accounting for, and presentation and disclosure of, financial instruments. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. ASU 2016-01 does not affect the accounting for investments that would otherwise be consolidated or accounted for under the equity method. The new standard also affects financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The provisions of ASU 2016-01 were effective for non-emerging growth companies on January 1, 2018. The provisions of ASU 2016-01 were effective for us in fiscal years beginning after December 15, 2018. We will adopt this ASU in 2019, and we do not expect it to have a significant impact on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and OtherInternal-Use Software (Subtopic 350-40), which provides guidance to evaluate the accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a license to internal-use-software, then the software license is accounted for by the customer in accordance with Subtopic ASC 350-40. An intangible asset is recognized for the software license and a liability is also recognized. The new standard is effective for non-emerging growth companies on January 1, 2020, with early adoption permitted. We are currently evaluating the effect that ASU 2018-15 will have on our consolidated financial statements and we plan to adopt the new standard on January 1, 2021.
Quantitative and qualitative disclosure about market risk
Market risk
Our exposure to market risk is directly related to revenue from service and management fees earned based upon a percentage of assets on our platform. In the years ended December 31, 2017 and 2018, 96% and 93% of our total revenue, respectively, was based on the market value of assets on the platform and were recurring in nature. We expect this percentage to vary over time. A 1% decrease in the aggregate value of assets on the platform for the years ended December 31, 2017 and 2018 would have caused our total revenue to decline by 1% and 1%, respectively, and would have caused our pre-tax income to decline by 10% and 4%, respectively.
Interest rate risk
Changes in interest rates will impact our spread-based revenue. As of December 31, 2018, client cash assets participating in the insured cash deposit program at ATC totaled $1.4 billion. A change in short-term interest rates of 1% would result in an increase or decrease in income before income taxes of approximately $14.0 million on an annual basis (based on total client cash assets at December 31, 2018 and subject to any changes to interest credited to the end-investor). Actual impacts may vary depending on interest rate levels and the significance of change.
Additionally, changes to interest rates will impact the cost of our borrowing. Borrowing under both the Term Loan and the Revolver bears interest at (x) LIBOR plus a margin of 3.50%, with a step down to 3.25% or (y) the Alternate Base Rate, as specified in the Credit Agreement, plus a margin of 2.50%,
87
with a stepdown to 2.25%, in each case based on our achievement of a specified first-lien leverage ratio. Additionally, the Term Loans margin will be reduced by 0.25% following our initial public offering. With respect to the Revolver, a quarterly fee of 0.50% is due for the unused amounts thereunder, with a stepdown to 0.375% based on our achievement of a specified first-lien leverage ratio. If LIBOR-based interest rates increased by 1% of this amount, our interest expense on an annualized basis would increase by approximately $2.5 million based on amounts drawn down under the Term Loan as of December 31, 2018 and assuming no draw down of the Revolver.
Operational risk
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes. We operate in diverse markets and are reliant on the ability of our employees and systems to process a large number of transactions. These risks are less direct and quantifiable than market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes. In the event of a breakdown or improper operation of systems or improper action by employees or advisers, we could suffer financial loss, regulatory sanctions and damage to our reputation. Business continuity plans exist for critical systems, and redundancies are built into the systems as deemed appropriate. To mitigate and control operational risk, we have developed and continue to enhance specific policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout our organization and within various departments. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our employees operate within established corporate policies and limits.
JOBS Act
We are an emerging growth company under the JOBS Act. The JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We are not choosing to opt out of such extended transition period and, as a result, we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public non-emerging growth companies.
Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company, we choose to rely on certain exemptions we may not be required to, among other things, (i) provide an auditors attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements (auditor discussion and analysis) or (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the CEOs compensation to median employee compensation. These exemptions will apply until the earliest to occur of: the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; the date on which we qualify as a large accelerated filer; the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; and the last day of the fiscal year in which the fifth anniversary of our initial public offering occurs.
88
President and Chief Executive Officer
Each and every day, we come to work to make a difference in the lives of advisers and their clients. That is our mission and the bright shining light that guides our actions.
We run AssetMark on four simple ideas:
1. | Be mission driven : Come to work to make a difference in the world by being a part of something bigger and more important than any of us can be as individuals. |
2. | Deliver on that mission through our strategic pillars : We design and align our strategy to the things that matter most to clients and that differentiate us in the marketplace. |
3. | Act with intent through articulated values : Hire and manage to values that are intended to ensure that we, as an organization, live up to the highest standards. |
4. | Build a great culture : Create and manage a culture that puts clients at the center of all decisions, fosters fact-based debate and delivers executional excellence. |
How we started
AssetMark was founded in 1996 by financial advisers for financial advisers. Three advisers who were working together realized that they did not have the skills, technology or time to deliver world class solutions to their retail clients. So as is often the motivation for entrepreneurs, these three individuals started a company to try to solve this challenge.
Our founders also saw that fee-based advice, delivered by independent fiduciary advisers, was the future. Those trends dominate our industry today.
Who we serve
Advisers help families plan for the future. They see themselves as financial planners, not asset managers or technologists. Advisers are relationship builders who know how to help families, across the wealth spectrum, develop and plan for goals such as college, travel, retirement and legacy. Advisers take the time to work with each family to articulate these dreams and to convert them into hard numbers. Those numbers become implementable plans by informing decisions about savings, spending, risk tolerance, investments, insurance, estate planning and more.
Advisers are also there to support families through challenging times, whether it is providing peace of mind to a couple nearing retirement or helping a single mother save so that her kids can go to college. In other words, advisers have a full-time job even before they get to investments, technology, running a business and driving growth.
89
AssetMark today
Our prospectus should give you a clear vision of what we do. In summary, we are an outsource platform serving the large and growing market for independent financial advice. Our platform provides advisers with capabilities and scale that would be almost impossible for all but the largest advisers to build on their own. Our scale and capabilities allow advisers to focus on their true value proposition: working with families to achieve their dreams. Our capabilities include:
1. | Fully integrated technology platform : We provide a compelling, fully integrated technology platform that allows advisers to do research and portfolio analysis, create proposals, open and maintain accounts, implement investments and meet reporting obligations. |
2. | Personalized and scalable service: We deliver our platform and solutions through people who get to know our clients. We become an integral part of our advisers everyday lives, enabling us to build deep, long-lasting relationships. We empower our employees with tools that allow them to serve our advisers more efficiently. |
3. | Curated investment solutions : We provide access to a diligenced, curated platform of investment options in an intuitive investment framework. |
We believe that what we do is differentiated and valuable. But it is the how we do it that makes AssetMark special.
The how is all about values and culture .
We share our values and culture with our clients and our employees every chance we get. We want our values and culture to be at the top of mind when we hire, train, and promote, when clients choose and interact with us, and when we make decisions.
Values
Oir values are:
We start with Heart because we are in the dreams and fears business. We connect with our advisers at the emotional level, understanding that they are going through challenges in their own lives and businesses while trying to navigate the fears and aspirations of the families they serve. Starting with emotions, instead of tasks, technology or investments, connects us at a very personal level with our clients.
We are responsible for significant investor savings so Integrity is paramount. For advisers, we are responsible in many ways for the success of their businesses, and we feel great responsibility for the success of the families that our advisers serve. These responsibilities mean that we have to do the
90
right thing every time. To ensure that we deliver on integrity, we hire carefully, manage the details, live by a culture of compliance and hold ourselves accountable to the highest standards of behavior.
Excellence is where the rubber meets the road. Our business is complex and everything is urgent. We strive at all times to get it right and to do it quickly, and we believe that differentiates us from many of our competitors. More importantly, as a value, excellence is an expectation that our clients needs come before ours. We are driven to be better every day.
Respect is our way of saying that we need diversity in our company and industry. We understand that we must be a part of making society better. We also understand that our industry must reflect and respect the heritage, perspectives and beliefs of the investors we serve. We believe that the way to focus on diversity is to respect and encourage different ideas and perspectives making AssetMark a welcoming place for everyone willing to put the client first.
Culture
The other component of how is our culture . We understand that culture cant be managed. However, articulating culture, and sharing that articulation with clients, employees and shareholders, holds us accountable to a way of working together that gives us the best chance to accomplish our mission.
Our culture is designed around the client:
We know that it is easy to say that the client comes first and it is hard to make that a reality. At AssetMark, we live this idea by putting the client at the center of our interactions. Client outcomes matter most and are at the center of our decisions.
Core to our interactions are being in it together , which means we are one team focusing on client outcomes; designing clear decision rights so that our teams know who is empowered to make decisions , which drives speed; engaging with each other in honest and respectful conversations and debate that drive fact-based decisions , which helps us get to better answers; and driving to excellence in execution , which, again, is where the rubber meets the road.
The path forward
As we embark on our journey as a public company, we intend to manage as we always have by putting the client first. We will strive to focus on our mission, design and implement strategies that are differentiating and deliver through our values and culture, while focusing on driving growth and financial returns.
91
We will continue to help advisers do the best work that they can to make a difference for the families they serve.
On behalf of our associates, clients, and stockholders, we look forward to investing in our future together.
Sincerely,
Charles Goldman | President & CEO
AssetMark Financial Holdings, Inc.
92
Overview
AssetMark is a leading provider of extensive wealth management and technology solutions that power independent financial advisers and their clients. Our platform enables advisers to outsource high-cost and specialty services that would otherwise require significant investments of time and moneyhelping to level the playing field for independent financial advisers of all sizes. We provide an end-to-end experience, spanning nearly all elements of an advisers engagement with his or her clientfrom initial conversations to ongoing financial planning discussions, including performance reporting and billing. In addition, our platform provides tools and capabilities for advisers to better manage their day-to-day business activities, giving them more time for meaningful conversations with investors.
We believe that independent financial advisers who have a deep understanding of their communities and put the needs of investors first provide the best path for investors to achieve their long-term financial goals. We empower these adviser-entrepreneurs to start, run and grow independent advisory businesses.
The compelling value of our tools for advisers and their clients has facilitated our rapid growth. From December 31, 2014 to March 31, 2019, our platform assets grew from $25 billion to $50 billion, representing a compounded annual growth rate of 17%, and more recently, grew 45% from March 31, 2017 to March 31, 2019. Further, our investors value the services they receive from advisers as evidenced by the growth in our net flows from $2.4 billion in 2016 to $5.9 billion in 2018, representing 8% and 14% of beginning platform assets, respectively. As of March 31, 2019, our platform served approximately 137,000 investor Households through our approximately 7,600 adviser relationships.
Our platform provides advisers with an integrated suite of products and services that facilitates growth, streamlines workflows and provides scale to advisers businesses so they can better serve their clients, who are large and small investors. Highlights of our platform include:
|
Fully integrated technology platform : Our integrated platform is built for advisers, providing advisers access to a broad range of highly automated processes, including new account opening, portfolio construction, streamlined financial planning, customer billing, investor reporting, progress to goal analysis and client activity tracking. Our dual focus on technology utility and design has resulted in a platform that is accessible, easy-to-use, intuitive and expansive. |
|
Personalized and scalable adviser service : We surround our advisers with highly experienced consulting and service support. We provide a full spectrum of services for many aspects of the advisers firm. These services include high-value day-to-day business support from field professionals, operations and service support teams and specialty teams including business management consultants, investment specialists and retirement consultants. Our offering is guided by extensive intellectual capital and well-established business performance benchmarking tools and responsive back- and middle-office outsourcing support from highly tenured service and operations professionals. We aim for every adviser to feel that their AssetMark service and consulting team is an integral part of their business. |
|
Curated investment platform : We provide independent advisers with a curated set of over 20 thoroughly vetted specialty and leading third-party asset managers, in addition to our two proprietary investment providers. Our due diligence team narrows the universe of potential |
93
investment solutions to a select group of time-tested and emerging investment choices. In effect, we equip each adviser with a team of skilled investment professionals that act as a virtual extension of their investment staff, who deliver our solutions through an array of technology-enabled tools that assist in the creation and monitoring of goal-based portfolios. Further, the flexibility and breadth of our platform allows us to offer custom portfolios designed to meet the unique needs of investors, specifically mass-affluent and high-net-worth investors. |
Our offerings distinctive combination of a compelling technology platform, extensive and scalable value-added services and curated investment solutions has been a key driver of our market share expansion from 8% to 10% from December 31, 2014 to December 31, 2018. We define our market share based on assets managed by third-party vendors as calculated by Cerulli, excluding non-advisory assets managed by Schwabs Marketplace and Fidelitys Separate Account Network, and, for SEI Investments, including only assets reported in Advisor Network, their third-party asset management segment. Additionally, our platform can act as a critical accelerant for the success of our advisers businesses, which in turn can result in an increase in assets on our platform; the success of our advisers is reflected in our record $5.9 billion in net flows in 2018. Further, given that our platform and services are tightly integrated into our advisers businesses, we believe that we have engendered and will continue to engender deep loyalty from our advisers.
94
Our revenue model is almost entirely composed of fees that are recurring in nature, which provides a high level of visibility into our near-term financial performance. The two main components of our revenue are asset-based revenue and spread-based revenue. We generate asset-based revenue from fees billed to investors on a bundled basis in advance of each quarter. The quarterly nature of our asset-based revenue provides significant visibility into near-term revenue and helps minimize unexpected revenue fluctuations stemming from market volatility. Our spread-based revenue is driven by interest rates on the cash assets held by investors at our proprietary trust company. In the year ended December 31, 2018, we generated $338.0 million in asset-based revenue and $20.4 million in spread-based revenue (excluding interest income).
In the year ended December 31, 2018, we generated total revenue of $363.6 million, net income of $37.4 million, adjusted EBITDA of $88.9 million and adjusted net income of $60.8 million. We generated total revenue of $92.3 million, net income of $2.8 million, adjusted EBITDA of $22.7 million and adjusted net income of $12.7 million in the three months ended March 31, 2019 compared with $84.5 million, $9.8 million, $21.0 million and $15.1 million for the three months ended March 31, 2018. From January of 2015, the first full year in which the members of our current senior management team were together at our company, to December 31, 2018, our total revenue and net income have grown at compounded annual growth rates of 17% and 55%, respectively.
See the section titled Prospectus summarySummary consolidated financial and other data for the definitions of adjusted EBITDA and adjusted net income and reconciliations of net income to adjusted EBITDA and net income to adjusted net income.
95
Market opportunity
We serve fee-based, independent advisers who provide wealth management advice to U.S. investors. The wealth management market is large and has a long history of rapid growth fueled by several secular trends. According to Cerulli, in aggregate across the United States, 311,305 advisers managed $20.3 trillion in assets as of December 31, 2017, and total industry assets have grown at a compounded annual growth rate of 9% over the five years ended December 31, 2017. Cerulli expects these assets to grow to $25.5 trillion by 2022. Our current offering and growth plans are built to capitalize on favorable industry trends, which we expect will continue to support our growth.
|
Total U.S. investible wealth is massive and growing, accelerated by a shifting retirement segment : According to Cerulli, U.S. households had $96.6 trillion in net worth as of December 31, 2017, which has grown at a compounded annual growth rate of 8.3% over the five years ended December 31, 2017. As of December 31, 2017, advisers managed $20.3 trillion (approximately 21%) of this wealth, indicating ample runway for future growth of the financial advisory industry. As the U.S. population has aged and Baby Boomers have moved into retirement, employer-sponsored retirement plan assets have shifted into IRAs, fueling growth of the retail asset segment. Cerulli estimates that this movement of assets will result in approximately $4.0 trillion of new IRA assets from 2016 to 2022. |
|
Investor demand for financial advisers is expanding : As investors have aged and their financial goals have become more complex, the demand for financial advice has expanded. According to Cerulli, demand for financial advice has increased from 38% to 44% from 2013 to 2017, measured by the percentage of investor households surveyed receiving assistance or direction from financial advisers relative to investor households self-managing their financial affairs. |
|
Advisers are transitioning to an independent model, and we expect this trend to continue : The U.S. wealth management industry consists primarily of two types of channels, independent and traditional. We consider the independent channel to comprise RIAs, hybrid and independent broker-dealers and insurance broker-dealer advisers, and the traditional channel to comprise national and regional broker-dealers, bank broker-dealers and wirehouse advisers. According to Cerulli data and internal estimates of expected growth of the wealth management industry, from 2012 to 2017, independent channels have grown faster than traditional channels in terms of market share measured by assets, expanding by nearly 11% annually at the expense of traditional channels. This trend is expected to continue, with independent assets forecasted to grow from $8.4 trillion in 2017 to $12.1 trillion in 2022, from 42% to 48% of total adviser-managed assets over the same period. |
|
Shift from commissions to fee-based models : According to PriceMetrix, in 2018, advisers received over 60% of their total revenue from fees, which represented a record level relative to commissions. The long-term adviser trend towards a fiduciary standard of advice, catalyzed in part by the DOLs 2016 rule (later vacated) that expanded the definition of fiduciary investment advice to include all financial professionals providing retirement advice, has helped drive this shift to a fee-based revenue model. |
96
Notes: | Based on data from The State of Retail Wealth Management, PriceMetrix, 2016, 2017 and 2018. |
|
Advisers are increasingly reliant on technology to remain price competitive and achieve scale while serving evolving client needs : Individual investors are increasingly turning to independent financial advisers for their wealth management and investment needs. From 2013 to 2016, the average number of investors served by an RIA adviser increased by 20% according to Fidelity. Advisers are increasingly relying on technology to meet the needs of an expanding client base while continuing to scale their advisory businesses, as indicated by a 24% increase in the average number of software solutions used by advisers from 2013 to 2017, according to the 2017 InvestmentNews Adviser Technology Study. Investor preferences for service models delivered via mobile applications and online portals are also increasing advisers focus on the quality of their technology. 61% of investors surveyed recently stated that they prefer an advice model that combines human and digital elements to one that is either purely digital or limited to direct interaction with an adviser, according to the Fidelity 2017 Digital Advisor Adoption Study Update. |
|
Advisers are rapidly expanding their use of model portfolios : Advisers are increasingly choosing to outsource key components of the asset management aspect of their role as financial advisers, including the choice of investment manager. As such, the use of model portfolios (which we define as mutual fund advisory, ETF-advisory, unified managed account and separate account assets) among financial advisers grew at a compounded annual growth rate of 15% from 2012 to 2017, based on data from Cerulli and internal estimates. |
Our offering is built around technology, investment solutions and expert support, positioning us to benefit from these trends. Combined with our scalable, fee-based platform and services that help advisers put investors needs first, we believe that these favorable industry trends will give us the opportunity to continue to gain market share. Our gains in market share since 2014 have been due largely to organic growth, an area on which we plan to continue to focus.
Our offering and business model
AssetMarks purpose
Our over 600 employees come to work focused on our mission: to make a difference in the lives of our advisers and the investors they serve. Our mission is guided by a singular focus on successful
97
outcomes for those investors. We strive to execute our mission through our stated corporate values of heart, integrity, excellence and respect, in everything that we do.
The AssetMark offering to advisers and the investors they serve
We provide independent financial advisers with an array of tools and services designed to streamline their workflow, help them develop and expand their businesses and provide goal-oriented investment solutions. We believe that the quality of our offering, coupled with our deep relationships with our advisers, has generated significant adviser satisfaction, as measured by our exceptional NPS of 65 as of June 30, 2018. Our offering is defined by solutions in three focus areas:
|
Fully integrated technology platform : Independent financial advisers and their teams are faced with a multitude of marketing, administrative and business management tasks in addition to the work involved in simultaneously providing customized client solutions to meet evolving investor preferences and scaling their businesses. Independent advisers, as defined by Cerulli, spend on average 45% of their working time on non-client-facing activities, and consequently devote less time to value-added services that deepen client relationships. We offer a compelling technology suite that fully integrates leading third-party technology solutions with our core proprietary technology and helps advisers perform these tasks. |
Our solution helps advisers streamline their operations while providing a superior experience for their staff and clients. The combined capabilities of our technology platform support advisers throughout the investor life cycle, from initial prospecting and onboarding through ongoing service and reporting, and replace a complex array of technologies with a single, streamlined solution. With less time spent navigating multiple systems and technologies, advisers are able to focus on enhancing productivity. As advisers come to rely on our integrated platform, it becomes integral to their daily practices. This reliance, in conjunction with high adviser satisfaction due to our platforms ability to optimize adviser workflow, has contributed to our strong growth in assets and net flows.
98
Our technology suite is composed of a core proprietary technology platform, eWealthManager, as well as modules that focus on specific aspects of an advisers workflow, all designed to simplify and support the investor lifecycle, from prospecting and client acquisition to ongoing business administration.
Prospecting and client acquisition. The adviser relationship starts with outreach from the adviser to the investor, followed by a set of discussions during which the adviser lays out a detailed proposal and financial plan. Advisers typically spend a meaningful amount of time preparing marketing, investment materials and proposals for these initial discussions. Our technology resources streamline and automate the advisers marketing and investor acquisition strategies to support an informative and engaging conversation with prospects and clients. These tools include:
|
Marketing portal: Allows advisers to customize and order high-quality printed marketing materials to support conversations with clients and prospects. |
|
Portfolio analytics: Our proprietary tool, PortfolioEngine, visually illustrates portfolio dynamics in various market conditions to help advisers guide investor conversations about risk and return to meet investor objectives at their level of risk. Using PortfolioEngine, advisers can compare an illustrative portfolio to existing investor holdings and benchmarks. |
|
Proposal: Our proprietary digital solutions proposal engine allows advisers to create customizable goals-based proposals that highlight investor goals, the probability of success given a particular investing strategy, scenarios that increase or decrease these probabilities and before and after portfolio comparisons. Our standard proposal provides information about portfolio holdings and potential returns and risk across market cycles. |
Account opening and management. Once the investor agrees to work with an adviser, the adviser will need to open one or more accounts depending on the investors needs and the details of the plan. Account opening and management activities have historically been extremely inefficient for advisers, often requiring multiple systems, manual data entry and various forms and signatures.
Our platform offers advisers a streamlined process that meaningfully reduces the amount of time spent on operational tasks, enabling them to focus on their clients. Our streamlined Smarter
99
Account Setup allows advisers to easily create client profiles and auto-fill data, upload new account documents and ensure documents are in good order. These capabilities minimize errors, reduce account paperwork and speed the account opening process. For advisers using our proprietary custodian, our streamlined solution has facilitated a meaningful reduction in account paperwork based on client feedback.
Portfolio review and construction. Once an investor has been brought on to the platform, the adviser constructs a portfolio to meet the investors stated needs and risk profile. We help simplify this process by providing advisers the flexibility and resources to deliver a unique client experience, including detailed investment research and multiple portfolio construction options, all delivered via a scalable digital platform. Our tools serve as an extension of the advisers investment resources and enable advisers to hold informed and meaningful conversations with their clients.
|
Investment research: A hub where advisers can easily locate a standard set of materials about each strategy and manager available on the platform, including portfolio manager commentary, fact sheets, video overviews, research, presentations and performance metrics. |
|
Portfolio construction: Our advisers can choose to fully outsource investment management or build their own portfolios using our curated set of strategists, providing advisers with both flexibility and control. |
|
Digital advice: Our proprietary technology and planning solution, WealthBuilder, enables an adviser-assisted digital investment experience. It streamlines and scales businesses, while offering clients personalized, goals-based advice using diversified portfolios constructed to meet varying risk tolerances. |
Reporting and client-directed activity management. After assets have been invested in the constructed portfolios, advisers are responsible for providing their investors with ongoing reporting on the portfolios performance. As technology has evolved, investors increasingly view customization and digital delivery of these reports as a standard requirement. Our tools provide advisers with a digital platform from which to view and provide quarterly and on-demand reports to investors and enable advisers to customize their engagement, tailoring to the particular needs of each client, while driving efficiency through our user-friendly, modern interface.
|
Investor portal: The centralized hub enhances investor engagement by allowing investors to monitor investments and progress towards goals, and facilitates and stores key documents. |
|
Quarterly investment and on-demand reporting: Our quarterly investment reviews and on-demand reports are constructed to feature the advisers brand and may be tailored by the adviser based on investor conversations. These reports provide investors with an overview of their performance, cash flow and holdings and help advisers understand and communicate performance and goal-tracking. We believe our offering enables advisers to have meaningful conversations with investors that help investors stay the course over the long-term. |
|
Investor activity: eWeathManagers Client Center provides advisers with real-time visibility into all client-directed activity including contributions, withdrawals, investments and new accounts. At any time, our advisers can monitor activity and see the status of each client request. Advisers are fully aware of their clients accounts and can engage with clients knowledgeably. |
Adviser administration. We provide advisers with tools designed to enhance their productivity, improve their business strategy and drive the growth of their businesses. Our continued
100
administration support, including but not limited to billing and trading, and accessible business resources help enable advisers to maximize their time and practices.
|
Fee calculation and billing: Our technology supports a wide range of fee and billing structures, including breakpoint pricing. Our fees aggregate investor assets held by the same Household and lower fees are applied as assets meet thresholds. |
|
Trading and rebalancing: Our in-house trading team reviews and executes trade orders and reallocates strategist models offered on our platform, thereby minimizing administrative tasks for advisers and allowing advisers to optimize client-facing activities. |
|
Business tools and resources: Advisers can elevate their business strategies, optimize their firms and grow their businesses by utilizing our proprietary tools and benchmarking. |
|
Business assessment tool: Our proprietary business assessment technology gives advisers a fulsome analysis of their business performance, peer benchmarks and valuation insights, allowing advisers to make informed business decisions that maximize enterprise value. |
Third-party integrations . We believe in offering our advisers choice and flexibility, particularly in areas of specialty technology. Our open-architecture platform supports seamless integrations with leading technology providers for financial planning, risk assessment and customer relationship management. These integrations aim to streamline adviser operations and help advisers scale their businesses. Our goal is to provide our advisers with best in class technology solutions that help simplify their experiences so they can spend more time delivering value to their clients.
We are dedicated to innovation and strive to continually improve our offering through the development of new tools and services. From January 1, 2015 to March 31, 2019, we invested $153 million in technology development and our dedicated technology team, and we have a proven track record of delivering innovative solutions that deepen our advisers offerings to their investor clients while also enhancing advisers scale. Recent innovations include a new portfolio construction and analysis tool that assists advisers in creating and monitoring investor portfolios, a streamlined account opening solution that reduces the time to onboard new accounts on our platform, a goals-based investor portal that serves as a hub for communications between advisers and their clients and a fully automated digital advice tool that connects our advisers with their clients. We are committed to continuing our technology development and innovation efforts to help ensure that our advisers are well-positioned for growth and scale.
|
Personalized and scalable adviser service . Providing advisers access to high-quality service is a critical component of our value proposition. We develop deep, multi-level relationships with advisers firms, helping to ensure that, at all levels, advisers and their teams are connected with AssetMark. We tailor our services to the size of the adviser, allowing us to provide high service levels to a wide-range of adviser business sizes while also maintaining our operating leverage. |
101
AssetMark field support. Our experienced and knowledgeable field support acts as the extension of our advisers businesses. The Regional Consultant is the centerpiece of an advisers relationship with AssetMark. Our highly experienced Regional Consultants ensure that advisers can draw from a wide array of resources and institutional knowledge as they build and grow their businesses. These professionals are the single point of contact for the adviser and bring in expertise to help the adviser grow and compete. Our over 100 field experts as of March 31, 2019 provide initial and ongoing platform support to further cultivate strong relationships and accelerate adviser growth. The value our clients place on our sales model is reflected in our high Sales NPS of 63 as of June 30, 2018.
AssetMark service and operations teams. Our service and operations teams go to great lengths to support advisers so advisers can focus on what matters mostserving clients and helping them achieve their goals. We segment our teams to provide tailored service at each stage of the AssetMark journey. During the first year, advisers receive expert hands-on guidance from our New Adviser Team, providing specialized training and servicing, opening new accounts and completing asset transfers to help ensure a smooth transition. Ongoing service levels are tailored based on the size of the adviser to help ensure we are meeting the needs of advisers regardless of business size. As our advisers businesses grow, so does the level of support they receive. Our services range from a team supporting broad-based needs to a dedicated Relationship Manager providing customized adviser support.
The Relationship Manager is at the heart of the back-office professionals relationship with us. Our Relationship Managers work to ensure operational activity is accurately executed and seek to promptly resolve any issues investors may encounter. We feature high-touch, accurate and rapid client servicing from dedicated teams who strive to enhance the responsiveness of the advisers back office. In addition, our Relationship Managers provide productivity and client-service best practices, gained through deep industry experience, to the advisers back office teams. Like our Regional Consultants, our Relationship Managers are go-to resources for our advisers and their offices. Our service model is highly valued by advisers of all sizes, as demonstrated by our high Service NPS of 66 as of June 30, 2018. Further, approximately 81% of those advisers who were identified as promoters of our services in the NPS surveys from June 30, 2018 selected service as a key reason for their high satisfaction with us.
102
AssetMark specialty teams. Depending on the advisers business needs, our consultants introduce advisers to investment experts, business development professionals, retirement consultants and business consultants who can help the adviser reach his or her goals. Our investment specialists help advisers better understand our curated investment platform and our specialized due diligence philosophy and process. For example, investment experts provide advisers with insights into portfolio construction and how specific investments help investors reach their goals. In addition to our investment experts, our team of business consultants helps advisers build more efficient and scalable businesses. These consultants specialize in providing customized, strategic solutions for optimizing day-to-day operations, building marketing strategies and driving sustainable business growth. Our specialty teams are dedicated to creating an end-to-end solution that enables advisers to have informed investor conversations and to build scalable businesses.
AssetMark senior leadership. Our engagement model provides advisers with access to our senior executives through myriad educational programs and events we offer. Our leadership team is highly engaged with our advisers, allowing our leadership to better understand and support adviser needs. Our executives listen to advisers challenges, perspectives and preferences to continually construct a platform built for advisers and their businesses. Open communication and ongoing interaction foster deep relationships between our executives and our advisers.
Custody. We provide our advisers with an open-architecture custodial platform that allows investors to select among our third-party custodial options or ATC, our proprietary trust company. We offer custody service through ATC, which has provided independent advisers and their clients with custodial and recordkeeping services since 1994. Our proprietary custodial solutions offer streamlined recordkeeping and cash management solutions. As of March 31, 2019, ATC had $35.6 billion in assets under custody, or approximately 72% of our platform assets. Assets under custody at ATC grew 117.0% from March 31, 2015 to March 31, 2019. Our spread-based revenue is driven by interest rates on the cash assets held by investors at our proprietary trust company, ATC.
|
Curated investment solutions . Financial planning is the core competency and value proposition for most wealth managers. The various investment management functions that compose this role, such as formulating capital market assumptions, conducting manager due diligence, constructing portfolios and monitoring markets, managers and portfolios, can take time away from advisers ability to help their investors stay on track to reach their goals. As a result, many advisers outsource these activities to independent platforms like AssetMark. |
103
We perform this challenging work for the adviser through our dedicated team of investment professionals who assess markets, conduct due diligence on asset managers and construct model portfolios for advisers to offer to their clients. Our framework, Investing Evolved, can help determine the right mix for investors to meet their goals, feel comfortable with the amount of risk and work to achieve their long-term financial goals. We deliver these capabilities through a portfolio construction methodology that can be broadly described in three categories:
With our approach, advisers are equipped to help investors understand what to expect from each strategy in various market conditions.
Investment team. Our investment solutions are backed by careful due diligence, research and analysis. We have an experienced and dedicated team of investment professionals that act as a virtual extension of the advisers investment staff, including Chartered Financial Analyst (CFA) charter holders and Chartered Alternative Investment Analyst (CAIA) charter holders.
Our investment team is divided into two groups: due diligence and portfolio management. Our due diligence team conducts searches for new strategies and performs ongoing monitoring with deliverables on a monthly, quarterly and annual basis. Through this research, the team evaluates which strategies meet expectations and which warrant a more in-depth review. Our portfolio management team utilizes fundamental research and an in-house quantitative research team to construct holistic portfolios designed to meet client goals. The work that both teams provide helps enable advisers to spend less time sifting through the entire investment universe and more time deeply understanding their investments and delivering value to their clients.
Investment solutions. We offer an open-architecture investment platform that features an extensively vetted set of third-party and proprietary investment solutions. Our third-party strategists include asset managers who offer a variety of managed portfolios, including ETF wrap, mutual fund wrap, unified managed accounts, separately managed accounts and fixed income. We believe in giving our advisers choice, thus we do not promote or advantage our proprietary offerings above those of third parties. Our proprietary strategists include Savos and AssetMark. Assets have grown 24% compounded annually from December 31, 2016 to March 31, 2019 and net flows have grown from $443.8 million to $1.4 billion from the year ended December 31, 2016 to the year ended December 31, 2018 for proprietary strategists. Through our proprietary offerings, we strive to create value for investors by reducing total cost, while maintaining our adjusted EBITDA margin by capturing more of the value chain.
104
Portfolio construction. There are two ways advisers can work with AssetMark: using our turnkey portfolios or building their own portfolios. Advisers who prefer to fully outsource portfolio construction may select from among our Guided Portfolio Solutions (GPS). These diversified strategies incorporate our best thinking into a complete, professionally managed portfolio designed to enhance returns and limit losses. Our GPS portfolios have seen assets grow from $1.4 billion to $2.3 billion, representing a compound annual growth rate of 26% from December 31, 2016 to March 31, 2019. Alternatively, advisers who prefer to be more directly involved in portfolio construction may construct portfolios using proprietary and/or leading third-party strategists on our curated investment platform. These solutions serve investors spanning the wealth spectrum. For high-net-worth investors we also offer custom solutions. Our proprietary and leading third-party strategists work in conjunction with our sales team to provide high-touch, quality service to advisers and can accommodate for a wide array of investor situations and preferences. Our wealth management solution includes tailored investments, cash management and wealth transfer and tax tools. We help to ensure our advisers are competitive across all investor wealth tiers, from mass affluent to high-net-worth. In addition, we offer advisers investment flexibility by allowing them to build their own portfolios using our open-design investment platform tailored to their clients goals and needs.
The AssetMark business model
To achieve our mission, we have built a business model that allows us to reinvest in our advisers and their clients success. Our business model has delivered a track record of attractive revenue growth and adjusted EBITDA margin expansion, both driven by strong fundamentals including:
|
Strong asset growth : We have experienced (1) platform asset growth from existing clients of approximately 32% from December 31, 2014 to March 31, 2019, (2) $15.4 billion in assets attracted from new advisers to the platform over the same period and (3) $3.5 billion in assets added to our platform through acquisitions of competitors over the same period, measured at the date of acquisition. Subsequently, in April 2019, we closed our acquisition of Global Financial Private Capital for a cash purchase price of $35.9 million, which added another $3.8 billion in platform assets. |
|
Recurring and resilient revenue model : In the year ended December 31, 2018, 99% of our total revenue was recurring in nature (based on revenue generated from assets that are under contract and not dependent on trading activity) and derived from either asset-based revenue or spread-based revenue from investor cash held at our proprietary custodian. In the year ended December 31, 2018, 93% of our total revenue was derived from asset-based revenue and 6% of our total revenue was derived from spread-based revenue. Since asset-based revenue is influenced by sector, asset class and market returns, while spread-based revenue is influenced by Federal Reserve movements and the amount of cash investors hold, our two sources of revenue are relatively uncorrelated, which has helped us establish a sustainable business model through various market fluctuations. |
Revenue d ynamics.
|
Asset-based r evenue. Asset-based revenue is primarily driven by fees earned from investors on their assets invested on our platform. The amount of revenue generated from any given investor varies based on several factors. First, the investment solution selected by the adviser for an investor varies based on the investors needs and risk tolerances. We offer a broad array of investment solutions on our platform to satisfy those varied needs and risk tolerances, enabling |
105
us to capture a greater share of the investors wallet and to deepen our relationship with advisers and investors. Our fee rates for our solutions vary depending on the complexity of the solution, with strategic fixed income typically at the low end and complex personal portfolios typically at the high end of the range. Second, our asset-based revenue is influenced by the size of the investors account and Household size. As account and Household sizes increase, our pricing declines to encourage deeper client relationships. Lastly, mix shift between asset categories may impact asset-based revenue. As of December 31, 2018, our platform asset mix was 57% equities, 36% fixed income, 5% other and 2% cash, and our weighted average asset-based fee rate across all of our platform assets for the three months ended March 31, 2019 was 74.1 bps annualized. However, this asset mix may shift over time depending on investor preferences, which can be influenced by economic conditions, prevailing interest rates and other factors. |
The amount of platform assets and, consequently, our asset-based revenue for a given period may fluctuate with market conditions. Market conditions and competitive factors may also affect our advisers choice of investment solutions for their clients and the fee rates we charge for particular solutions, any of which may affect our asset-based revenue for a given period.
|
Spread-based revenue. Spread-based revenue is driven by the amount of client cash held at our proprietary custodian, ATC. This revenue is primarily influenced by two factors: total cash balances held at ATC and the Federal Funds Rate. As of March 31, 2019, 72% of the assets on our platform were held at our proprietary custodian and ATC client cash accounted for 4% of total assets in custody at ATC. Changes in the number of advisers selecting our proprietary custodian and, consequently, changes in our cash balances could impact our spread-based revenue. Variations in interest rates may also impact spread-based revenue positively or negatively, depending on the interest rate environment. The combination of these two factors may partially mitigate spread-based revenue fluctuations in either direction. |
|
Total revenue. Our average total revenue yield for the three months ended March 31, 2019 was 82.3 bps annualized. |
|
Attractive margin profile driven by a mix of proprietary and third-party solutions : Our open-architecture technology, investment solutions and custodial platform offer choice and superior capabilities for advisers. In addition, since we offer a balance of third-party and proprietary solutions, we capture incremental economics, which has led to enhanced margins. By offering proprietary solutions alongside third-party technology, asset management and custody solutions, we foster competition across our offering. This competition drives participants (including us) to improve their offerings or risk losing favor with advisers. Each solution competes on its own value proposition and merits, and we do not promote or advantage our proprietary offerings above those of third parties. Our trust company held approximately 72% of our platform assets, and our proprietary strategists served 20% of our platform assets as of March 31, 2019, evidencing the strength of our proprietary offerings. |
|
Consistently strong and growing net flows : Because our platform offers an array of solutions to advisers and our technology is deeply integrated into advisers businesses, our net flows grew from $1.5 billion in 2014 to $5.9 billion in 2018, representing 7% and 14% of beginning platform assets, respectively. |
|
Significant operating leverage : Our purpose-built platform and upfront investments in our business have positioned us to benefit from upside growth and continued scale with meaningful operating leverage. Our net income margin was 33.5% for the year ended December 31, 2017 and 10.3% for |
106
the year ended December 31, 2018. Our net income for the year ended December 31, 2017 was impacted by a non-recurring $90.1 million benefit related to the Tax Cuts and Jobs Act of 2017. The power of the operating leverage in our model is apparent both from our ability to expand our adjusted EBITDA margin and our relationships with advisers over time. Our adjusted EBITDA margin (defined as adjusted EBITDA divided by total revenue) expanded from 19.9% for the year ended December 31, 2017 to 24.5% for the year ended December 31, 2018, while we delivered enhanced platform capabilities and solutions to advisers. |
Our strengths
For more than 20 years, we have focused on providing solutions that enhance and simplify the lives of our advisers and the investors they serve. We believe that this approach distinguishes us from many of our competitors. The following strengths underpin our competitive advantage:
|
Our mission-driven, client-focused culture : We believe that our exceptional client-centric culture has driven our historical performance. The AssetMark team is dedicated to its mission of making a difference in the lives of advisers and investors through a culture that rests on our core pillars of heart, integrity, excellence and respect. We are also committed to helping advisers and the communities they serve. Through our Summer of Service and Community Inspiration Awards we seek to ensure that our firms and our advisers communities benefit from our charitable contributions. We believe that our focus on doing the right thing while also running a great business not only results in higher adviser loyalty and referrals, but also increases our employee tenure. |
|
A deep understanding of fee-based, independent advisers : Our frequent, value-added interactions with our diverse group of advisers help us tailor offerings to meet their needs, at scale and in the context of their business opportunities and challenges. We also benefit from tracking and evaluating advisers extensive activity in our ecosystem. This allows us to create responsive service models, operational processes and solutions that help advisers reduce the time associated with administrative tasks. In addition, members of our community of advisers have access to each others best practices as well as data about their specific business activity, which helps our advisers grow their businesses and drives our extensive best practices library. |
|
Proven ability to execute superior outsource solutions facilitated by a leading technology offering : We create outsource solutions that transform advisers businesses. We believe the transformation that we enable for the advisers on our platform is the result of our deeply integrated service model and robust, user-friendly technology, which together help advisers improve responsiveness to investors. Collectively, our outsource offerings optimize advisers time and, as a result, help improve investor outcomes. |
|
We are a scale provider : We are an established leader as an outsource service provider for independent, fee-based financial advisers. Our scale and access enable us to establish favorable partnerships with technology and asset management institutions and provide attractive pricing for our advisers clients. In addition, our feature-rich technology solution scales to serve a broad-range of business sizes, from solo practices to ensemble firms. The scope and scale of our offering has made us an essential part of our advisers businesses, in turn making us the third largest outsource provider of the components of a managed account platform (known in the industry as a Turnkey Asset Management Program, or TAMP) in terms of platform assets in 2017, according to WealthAdvisors 2018 Americas Best TAMPs report. As of December 31, 2018, our market share among U.S. TAMPs was 10%. |
107
|
We are a disciplined acquirer : Growth through acquisition of small, subscale, outsource providers is a core competency of our business. Our value creation through acquisition is generated by purchase price discipline and our ability to grow relationships formed through these acquisitions. In 2014 and 2015, respectively, we acquired the platform assets of two firms that collectively added $3.5 billion in assets to our platform at the time of acquisition. On average, three years post-acquisition, these acquired assets had grown by 17% compounded annually. Subsequently, in April 2019, we closed our acquisition of Global Financial Private Capital for a cash purchase price of $35.9 million, which added another $3.8 billion in platform assets. |
|
Our experienced and committed management team : Our experienced and committed senior leadership team has provided stable leadership for our business since 2014. Our management team has played a significant role in almost doubling the size of our business (measured by platform assets) while also expanding our net income margin from 3.4% in the year ended December 31, 2014 to 10.3% in the year ended December 31, 2018. Our executives have strong relationships in the wealth management industry and with our clients, and are aligned with future stockholders through their significant equity ownership in our company. |
Our growth strategy
|
Increase the adviser base : Through our marketing efforts and the outreach of our more than 100-person field force, we expect to continue building on our existing relationships with advisers and growing business from new relationships. |
|
Expand share of wallet from existing adviser clients : According to our internal share of wallet study, as of March 31, 2019, we have approximately 33% of the total assets and 61% of the total advisory assets of our advisers with at least $5 million in positive net flows on our platform over the life of our relationship with them. We plan to work with existing advisers to add investment solutions to our platform that they otherwise obtain elsewhere. This work aims to help advisers further their operational efficiencies and improve their investor experience by shifting an increasing portion of their business to AssetMark. |
|
Help advisers grow their business es: Our turnkey, holistic platform and adviser engagement model are designed to help advisers grow and build sustainable businesses. We plan to continue to help advisers grow through our deep business consulting engagements and comprehensive platform support. |
|
Expand our services to new segments : We are focused on introducing new products and enhancing services and capabilities in areas including cash management, business consulting and trading to further expand our reach into the RIA market, retirement services and the high-net-worth segment. We believe that these solutions will enhance our offering to existing advisers while also deepening and extending our relationships with high-growth segments of advisers. |
|
Continue to pursue strategic transactions : We expect to continue to selectively pursue acquisitions that we believe will enhance the scale and operating leverage of our business. In addition, we may pursue acquisitions that expand the appeal of our offering to independent, fee-based advisers and the investors they serve. |
Competition
We compete with a broad range of wealth management firms that offer services to independent investment advisers. Our value proposition is built upon the quality and breadth of the integrated
108
technology, scalable services and curated investment solutions we provide to advisers and the investors they serve. Our dedicated, client-focused culture is designed to deepen adviser relationships and drive adviser engagement on our platform. We believe that these strengths, among others, differentiate us from our competitors. The principal bases on which participants in our industry compete are the breadth of technological capabilities, the quality of consulting and back-office servicing and the quality of investment solutions. We believe that we compete favorably on each of these factors. As a holistic wealth platform, we offer advisers a solution set that adheres to exacting quality standards and offers an extensive suite of services that provide advisers a turnkey platform with which to build and grow their businesses.
Our competitors offer a variety of products and services that compete with one or more of the investment solutions and services provided through our platform. Our principal competitors include:
|
Other turnkey asset management platform providers: Most providers of turnkey asset management platforms typically provide financial advisers with one or more types of products and services, and vary in the number of choices offered in terms of custodians, technology features, investments and quality of service. |
|
Independent broker-dealer proprietary wealth platforms: Many broker-dealers provide integrated proprietary wealth management platforms that offer an array of asset management solutions to their affiliated financial advisers. |
|
Providers of specific service applications: Several of our competitors provide financial advisers with a product or service designed to address one or a limited number of specific needs, such as financial planning or performance reporting. |
|
Adviser-built solutions: Some financial advisers have developed in-house solutions that overlap with some or all of the technology or services that we currently provide, including portfolio construction, portfolio analytics and model management. |
We believe that our broad set of solutions featuring a fully integrated technology platform, extensive suite of technology features, personalized and scalable service, curated investment offerings and high quality service differentiate us from other competitors in the marketplace. With our continued focus on enhancing our platform and the services we provide to advisers, we believe that we will continue to compete favorably.
Employees
As of March 31, 2019, we had over 620 full-time employees, all of whom are located in the United States. None of our employees is represented by a labor union or subject to a collective bargaining agreement governing employment with us, and we have never experienced a work stoppage.
Corporate structure
In April 2016, HTSC, a Chinese securities group with brokerage and investment services, acquired our collective businesses from Aquiline Capital Partners and Genstar Capital. Through the acquisition, HTSC became the ultimate parent company of our collective businesses through its subsidiary HIIHL, a company organized under the laws of the Cayman Islands. HIIHL holds 98.6% of the equity interests in our parent company, AssetMark Holdings LLC, with the remaining 1.4% held by members of our senior management and board of directors and certain of our employees. In turn, AssetMark Holdings LLC holds 100% of the equity interests in our company.
109
In connection with this offering, AssetMark Holdings LLC will be liquidated and dissolved and the members of AssetMark Holdings LLC will become our stockholders. See the section titled Prospectus summaryRestructuring for more information.
AssetMark Financial Holdings, Inc. is a holding company for AssetMark Financial, Inc., which in turn holds our separate operating business units. Our limited purpose broker-dealer, AssetMark Brokerage, LLC, was formed in 2013 and provides mutual fund underwriting and distribution services for our GuideMark, GuidePath and Savos mutual funds. ATC, which was formed in 1994, is an integrated custodian that provides trust and custodial services to our advisers clients. Through AssetMark, Inc., our investment adviser subsidiary that was formed in 1999, we operate our TAMP platform and provide investment advisory services for certain assets on the platform. Finally, AssetMark Retirement Services, Inc., which was acquired as part of our acquisition of Aris Corporation of America in early 2015, provides recordkeeping and administrative services for retirement accounts.
In addition to Aris Corporation, we have grown our business through a number of opportunistic acquisitions. Most recently, on April 16, 2019, we closed our acquisition of Global Financial Private Capital, a registered investment adviser that provides a broad suite of integrated wealth management services for institutional and individual investors. We expect this acquisition to strengthen our turnkey asset management services and add assets to our platform.
Regulation
Overview
The financial services industry is among the most extensively regulated industries in the United States. We operate investment advisory, broker-dealer, custodian and mutual fund businesses, each of which is subject to a specific regulatory scheme. Our subsidiaries are subject to regulation primarily at the federal level, including regulation by the SEC under the Advisers Act and the 1940 Act, the CFTC, the NFA, the DOL under ERISA and by the SEC, FINRA and the Financial Crimes Enforcement Network of the Department of the Treasury for our broker-dealer subsidiary. Our proprietary custodian, ATC, is an Arizona trust company regulated by the ADFI.
The Advisers Act and the 1940 Act
AssetMark, Inc. and Global Financial Private Capital, our investment adviser subsidiaries, are registered with the SEC under the Advisers Act. The Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary duties to clients, compliance and disclosure obligations, recordkeeping requirements and operational requirements, as well as regulations related to receipt of performance fees, solicitation arrangements, conflicts of interest, advertising, agency cross and principal transactions between the adviser and advisory clients and general anti-fraud provisions. In addition, certain of our investment adviser subsidiaries sponsor registered funds in the United States. These activities subject those subsidiaries to additional regulatory requirements, including regulation by the SEC under the 1940 Act. The 1940 Act imposes significant requirements and limitations on a registered fund, including with respect to its capital structure, investments and transactions. The registered funds that are advised by our investment adviser subsidiaries are subject to oversight and management by each funds board of directors. Under the 1940 Act, a majority of the directors of registered funds must not be interested persons with respect to us (sometimes referred to as the independent director requirement) in order to rely on certain exemptive rules under the
110
1940 Act relevant to the operation of registered funds. The responsibilities of the funds board include, among other things, approving the investment advisory agreement, approving other service providers, determining the method of valuing assets and monitoring transactions involving affiliates. The 1940 Act also imposes on the investment adviser to a registered fund a fiduciary duty with respect to the receipt of the advisers investment management fees. That fiduciary duty may be enforced by the SEC, administrative action or litigation by investors in the fund pursuant to a private right of action. In addition, many state securities commissions impose filing requirements on investment advisers that operate or have places of business in their states. Similarly, many states require certain client-facing employees of registered investment advisers and FINRA-registered broker-dealers to become state licensed.
The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act and the 1940 Act, ranging from fines and censure to termination of an investment advisers registration. Non-compliance with the Advisers Act or other federal and state securities laws and regulations could result in investigations, sanctions, disgorgement, fines or other similar consequences. Though we believe we are in compliance in all material respects with the requirements of the Advisers Act and the 1940 Act and the rules and interpretations promulgated thereunder, our failure to comply with such laws, rules and interpretations could have a material adverse effect on us.
Under the Advisers Act and the 1940 Act, certain offerings of our shares could be deemed a change of control of our investment adviser subsidiaries, and unless our investment adviser subsidiaries clients consent to the change of control, our investment advisory agreements with such clients could be terminated. See the section titled Risk factorsRisks related to regulation and litigationIn the event of a change of control of our company, we may be required to obtain FINRA approval and the consent of our advisory clients to the change of control, and any failure to obtain these consents could adversely affect our results of operations, financial condition or business. While we have concluded that this offering does not constitute an assignment or change of control, an assignment or change of control could be deemed to occur in the future if we or one of our investment adviser subsidiaries were to gain or lose a controlling person, or in other situations that may depend significantly on particular facts and circumstances. In any such case we would seek to obtain the consent of our investment adviser subsidiaries advisory clients, including any funds, to the assignment.
Broker-dealer regulation
Our subsidiary AssetMark Brokerage, LLC is a limited purpose SEC-registered broker-dealer that distributes and underwrites mutual funds. Broker-dealers and their personnel are regulated, to a large extent, by the SEC and self-regulatory organizations, principally FINRA. In addition, state blue sky commissions have supervisory authority over broker-dealer activities conducted in their states. Broker-dealers are subject to regulations which cover virtually all aspects of their business, including sales practices, trading practices, order handling, best execution, use and safekeeping of clients funds and securities, anti-money laundering, handling of material non-public information, safeguarding data, recordkeeping, reporting and the conduct and qualifications of directors, officers, employees, representatives and other associated persons.
Broker-dealers are also subject to net capital rules that mandate that they maintain certain levels of capital. The SECs net capital rule specifies the minimum level of net capital a broker-dealer must maintain and also requires that a significant part of a broker-dealers assets be kept in relatively liquid form. The SEC and various self-regulatory organizations impose rules that require notification when
111
net capital falls below certain predefined criteria, limit the ratio of subordinated debt to equity in the regulatory capital composition of a broker-dealer and constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the SECs uniform net capital rule and FINRA regulations impose certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to the SEC and FINRA for certain withdrawals of capital.
ERISA regulation
Certain of our subsidiaries, including AssetMark, Inc. and AssetMark Retirement Services, Inc., are also subject to regulation by the DOL under ERISA and related regulations with respect to investment advisory and management, recordkeeping and administrative services provided with regard to retirement plans covered by ERISA and IRAs. Among other requirements, ERISA imposes duties on persons who are fiduciaries under ERISA and prohibits certain transactions between plans and related parties. A failure to comply with the requirements of ERISA could result in significant monetary penalties and could limit the ability of our subsidiaries to act as fiduciaries.
CFTC regulation
Our subsidiary AssetMark, Inc. is registered with the CFTC as a commodity pool operator with respect to some of the funds it manages. AssetMark, Inc. is also a member of the NFA. The CFTC is a federal independent agency responsible for implementing and enforcing the CEA, which governs commodity derivative markets, including those for swaps and futures, and intermediaries operating in those markets. The NFA is a self-regulatory organization to which the CFTC has delegated some of its authority under the CEA, including the administration and enforcement of registration requirements for commodity pool operators and other intermediaries and the regulation of the conduct of its members. As a registered commodity pool operator, AssetMark, Inc. is subject to regulation by the NFA and CFTC and is subject to legal requirements and restrictions under the CEA, CFTC regulations and NFA rules and by-laws. These include, among others, reporting and disclosure requirements, investor protection requirements, conduct requirements, anti-fraud prohibitions and recordkeeping requirements. AssetMark, Inc. is also subject to periodic inspections and audits by the NFA.
From time to time, our subsidiaries have provided, and in certain cases continue to provide, information and documents to the various regulators specified above regarding our compliance with commodities, securities and other laws and regulations regarding the conduct of our businesses.
In the event of noncompliance, the SEC, CFTC, NFA or other governmental regulatory authorities may institute administrative or judicial proceedings that may result in censure, fines, the issuance of cease-and-desist orders, trading prohibitions, the suspension or expulsion of a member, its officers, registered representatives or employees or other similar sanctions against AssetMark, Inc.
Trust company regulation
ATC, our wholly owned state-licensed trust company subsidiary that acts as a custodian for client investment assets, is an Arizona licensed trust company subject to regulation and examination by the ADFI. As a bank, for the purposes of the Exchange Act, effectuating securities transactions in a fiduciary capacity, ATC is exempt from registration as a broker-dealer under the Exchange Act, but is subject to Arizona state trust company laws, as well as certain federal laws including those related to anti-money laundering.
112
As an Arizona regulated trust company, ATC is subject to annual examination by the ADFI staff. Arizona requirements also include minimum capital requirements, limitations regarding declaration of dividends, requirements regarding maintenance of a fidelity bond, recordkeeping requirements, certain required audits and maintenance of disaster recovery and business continuity plans. ATC is also subject to reporting requirements with the U.S. Internal Revenue Service regarding activity of its clients investment assets, and must comply with Internal Revenue Code requirements when acting as trustee for its clients IRAs.
Because ATC is not a bank under the Bank Holding Company Act of 1956 (as amended, the BHCA), our affiliation with ATC does not cause us to be regulated as a bank holding company or financial holding company under the BHCA.
Anti-money laundering
ATC, AssetMark Brokerage, LLC (our U.S. broker-dealer subsidiary) and the mutual funds advised by AssetMark, Inc. are subject to the BSA, as amended by the PATRIOT Act, and implementing regulations, which require financial institutions, including custodians and broker-dealers, to establish anti-money laundering compliance programs, file suspicious activity and other reports with the U.S. government and maintain certain records. A financial institutions anti-money laundering compliance program generally must include policies, procedures and controls reasonably designed to achieve compliance with the BSA and its implementing regulations and to detect and report suspicious activity, the training of relevant employees, the designation of an anti-money laundering compliance officer, periodic independent audits to test the effectiveness of the program, and customer due diligence and ongoing monitoring. Certain financial institutions, including trust companies, broker-dealers and mutual funds, are also required to implement customer identification procedures and beneficial ownership identification procedures. We have established policies, procedures and systems designed to comply with these regulations.
Privacy
Regulatory activity in the areas of privacy and data protection continues to grow worldwide and is generally being driven by the growth of technology and related concerns about the rapid and widespread dissemination and use of information. To the extent applicable, we must comply with federal and state information-related laws and regulations in the United States, including the Gramm-Leach-Bliley Act of 1999, which requires financial institutions to disclose their privacy policies and practices related to sharing customer information with affiliates and non-affiliates and give customers the ability to opt out of having non-public information disclosed to third parties or receiving marketing solicitations from affiliates and non-affiliates based on non-public information received from financial institutions. Further, to the extent applicable, we must comply with additional privacy-related regulations including the Fair Credit Reporting Act of 1970, as amended by the 2003 Fair and Accurate Credit Transactions Act, Regulation S-P under the Gramm-Leach-Bliley Act, Regulation S-ID and the California Consumer Privacy Act, and may also be subject to new federal and state requirements in the future.
In particular, Regulation S-P requires that we (i) safeguard the security and confidentiality of all client records and information, (ii) protect against any anticipated threats or hazards to the security or integrity of client records and information and (iii) protect against any unauthorized access or use of such information that could result in substantial harm or inconvenience to any client, and we must install and abide by appropriate policies, procedures and practices to meet these requirements. Such
113
procedures include physical and structural safeguards that prevent data from being accessed by affiliates or any third party except where properly protected and necessary for the delivery of services to the client. In addition, we maintain strict policies to prevent the sharing of data outside of the United States, including to prevent the sharing of client data with HTSC. We operate as an independent firm separate from HTSC; we maintain network separation from HTSC; and we do not share client information or technology with HTSC. Further, we undergo regular third-party audits of our security protocols to help ensure the ongoing integrity of our data protection and privacy measures.
PRC and Hong Kong regulations
Our ultimate parent company and controlling stockholder, HTSC, which is incorporated in the PRC and listed on The Shanghai Stock Exchange, The Stock Exchange of Hong Kong Limited and the Shanghai segment of the London Stock Exchange, is subject to regulations governing PRC-incorporated companies, as well as the listing rules of such stock exchanges. Certain of these rules and regulations require our controlling stockholder to file with or obtain approval from various PRC regulators or HTSCs shareholders or board of directors before approving certain of our corporate actions. See the section titled Risk factorsRisks related to our controlling stockholders ultimate parent being a PRC company with stock listed in Hong Kong and Shanghai.
Additional regulatory reform
Our subsidiaries are subject to the numerous regulatory reform initiatives in the United States. New laws or regulations, or changes in enforcement of existing laws or regulations, could have a material and adverse impact on the scope or profitability of our business activities or require us to change business practices and incur additional costs as well as potential reputational harm. For example, on April 18, 2018, the SEC proposed a package of rulemakings and interpretations that, if adopted, would (i) require broker-dealers to act in the best interest of retail customers when making a recommendation, without placing the financial or other interests of the broker-dealer ahead of the interest of the retail customer, (ii) require the delivery to retail investors of a short-form disclosure document describing the firms relationship with and duties to the customer, (iii) restrict the use of the term adviser or advisor by broker-dealers who are not also registered as investment advisers and (iv) clarify the SECs views on the fiduciary duty that investment advisers owe to their clients. Any legislative or regulatory actions and any required changes to our business operations, or the business operations of our adviser clients, resulting from such legislation and regulations, as well as any deficiencies in our compliance with such legislation and regulation, could result in significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging or otherwise adversely affect our businesses.
In addition, financial regulators are increasing their enforcement and examination attention across a wide range of activities and business practices, including disclosure, conflicts of interest, cyber-security, business continuity and succession planning. Such enhanced scrutiny may increase the likelihood of enforcement actions or violation findings or cause us or our subsidiaries to change business practices or incur additional costs. It is also not possible to predict how such changes may impact the businesses of our competitors and the competitive dynamics of the industry.
Intellectual property
We rely on a combination of trademark, copyright and trade secret laws to protect our proprietary technology and intellectual property. We have registered certain of our trademarks and service marks
114
in the United States with the U.S. Patent and Trademark Office, including the mark ASSETMARK. In addition, we have registered our domain names, including www.assetmark.com and www.ewealthmanager.com, with MarkMonitor. We believe the AssetMark name and the marks associated with it are of significant value and are important to our business. Accordingly, as a general policy, we monitor the use of our marks and vigorously oppose any unauthorized use of the marks. We rely on common law protection of our copyrighted works. Such copyrighted materials are not material to our business.
We seek to control access to and distribution of our proprietary information, including our algorithms, implementation and business on-boarding functions and applications software. We enter into confidentiality, nondisclosure, non-interference and invention assignment agreements with our employees, consultants, customers and vendors that generally provide that any confidential or proprietary information developed by us or on our behalf be kept confidential, and we limit access to our confidential and proprietary information to a need to know basis. In the normal course of business, we provide our intellectual property to third parties through licensing or restricted use agreements. We have established a system of security measures to help protect our computer systems from security breaches and computer viruses. We have employed various technology and process-based methods, such as clustered and multi-level firewalls, intrusion detection mechanisms, vulnerability assessments, content filtering, antivirus software and access control mechanisms. We also use encryption techniques for data transmission.
Facilities
Our headquarters are located in Concord, California and consist of approximately 72,536 square feet of leased space. Our lease on this space expires on August 31, 2022. We lease an additional combined 97,348 square feet of office space in Phoenix, Arizona; Chicago, Illinois; State College, Pennsylvania; Encino, California; Atlanta, Georgia and Sarasota, Florida. We believe that our headquarters and other offices are adequate for our immediate needs and that additional or substitute space is available if needed to accommodate growth and expansion.
Legal proceedings
We are, from time to time, involved in various legal proceedings, litigation and regulatory matters that arise in the normal course of our business. We do not believe that the resolutions of any such matters we are currently involved in, individually or in the aggregate, will have a material adverse impact on our financial condition or results of operations. However, we can provide no assurance that any pending or future matters will not have a material effect on our financial condition or results of operations in the future.
115
The following table sets forth information regarding the executive officers and directors of AssetMark Financial Holdings, Inc. as of June 30, 2019:
Name | Age | Position | ||
Charles Goldman |
58 | Director, President and Chief Executive Officer | ||
Gary Zyla |
47 | EVP, Chief Financial Officer | ||
Ted Angus |
48 | EVP, General Counsel | ||
Jeremiah Chafkin |
60 | EVP, Chief Investment Officer | ||
Carrie Hansen |
49 | EVP, Chief Operating Officer | ||
Michael Kim |
49 | EVP, Chief Client Officer | ||
Mukesh Mehta |
53 | EVP, Chief Information Officer | ||
Natalie Wolfsen |
49 | EVP, Chief Solutions Officer | ||
Xiaodan Liu |
47 | Chairman of the Board | ||
Rohit Bhagat |
55 | Director | ||
Patricia Guinn |
64 | Director | ||
Bryan Lin |
49 | Director | ||
Ying Sun |
43 | Director | ||
Yi Zhou |
50 | Director | ||
|
Executive officers and directors
Charles Goldman has served as our President and Chief Executive Officer since 2014 and as a director since 2013. Prior to joining our company, he served as Senior Advisor at Bain & Company from 2010 to 2014 and President of Fidelity Investments, Custody & Clearing from 2009 to 2010. From 2001 to 2008, Mr. Goldman served in various senior roles at The Charles Schwab Corporation, including head of Schwab Institutional, Chief Operating Officer of Schwab Institutional and head of Strategy, M&A and Venture Capital. From 1996 to 2000, he served as President of Paramount Farms, Inc. From 1991 to 1996, Mr. Goldman was a consultant with The Boston Consulting Group, prior to which he spent two years with Bankers Trust Company. Mr. Goldman holds a B.S. degree in finance, magna cum laude , from the University of Southern California and an M.B.A. degree, with honors, from the University of California, Los Angeles. We believe Mr. Goldman is qualified to serve as a member of our board of directors because of the perspective he brings as our Chief Executive Officer and his experience in senior management positions.
Gary Zyla has served as our Chief Financial Officer since 2011. From 2004 to 2011, Mr. Zyla served in the Corporate and Retirement and Protection segments at Genworth Financial, Inc., where he led the Capital Management team and served as Vice President of Financial Planning & Analysis. Mr. Zyla holds a B.S. degree in Computer Science-Mathematics and a B.A. degree in History from the State University of New York-Binghamton and an M.B.A. from the University of Maryland.
Ted Angus has served as our General Counsel since joining us in 2013. From 2010 to 2013, Mr. Angus served as the General Counsel at Genworth Financial Wealth Management, and from 2000
116
to 2010 he served in various roles at The Charles Schwab Corporation, including as Vice President and Associate General Counsel. From 1998 to 2000, Mr. Angus was an Associate in the securities litigation group at the law firm Brobeck, Phleger & Harrison LLP, and from 1995 to 1998, he was an Associate at Keesal, Young & Logan. Mr. Angus holds B.A. degrees in History and Economics from the University of California, Los Angeles and a J.D. from the University of California, Hastings College of the Law.
Jeremiah Chafkin has served as our Chief Investment Officer since 2014. Prior to joining our company, Mr. Chafkin served as the President and Chief Executive Officer at AlphaSimplex Group, an investment management firm, from 2008 to 2014. From 2006 to 2007, Mr. Chafkin was the Chief Executive Officer at IXIS Asset Management U.S., L.P. From 1991 to 2006, Mr. Chafkin held a range of leadership roles with The Charles Schwab Corporation, including Executive Vice President of the Advised Investor Division (2002 2006), President of Charles Schwab Investment Management (1991-2001) and Executive Vice President of Asset Management Products and Services (1999-2001). Mr. Chafkin began his career at Bankers Trust Company, where he spent almost fifteen years in a variety of asset management roles, including Chief Executive Officer of the Structured Investment Management business (1997-1999) and President of Japan Bankers Trust (1994-1996). Mr. Chafkin holds a B.A. degree in Economics from Yale University and an M.B.A. degree from Columbia Business School.
Carrie Hansen joined our company in 2000, and has served as our Chief Operating Officer since 2008 and as President of our Mutual Funds division since 2007. Prior to becoming our Chief Operating Officer, Ms. Hansen served as our Chief Financial Officer (2003-2006) and Chief Compliance Officer (2004-2008). From 1998 to 2000, Ms. Hansen served as head of the Investment Operations Group in the Tokyo office of Barclays Global Investors, prior to which she spent over four years at Coopers & Lybrand Consulting, finishing her career there as an Audit Manager. Ms. Hansen holds a B.S. degree in Business Administration from the University of California, Berkeley.
Michael Kim joined our company in 2010 and has served as our Chief Client Officer and National Sales Leader since January 2018. Prior to becoming our Chief Client Officer, Mr. Kim served as our National Sales Manager from 2014 to 2018, and Head of our RIA Channel from 2010 to 2014. Prior to joining our company, Mr. Kim spent over twelve years with Fidelity Investments, Inc., including as a Senior Vice President from 1998 to 2010. From 1995 to 1998, Mr. Kim served as Senior Vice President at Transamerica, and from 1991 to 1995, Mr. Kim was a Senior Associate at Coopers & Lybrand Consulting. Mr. Kim holds a B.A. degree in Economics from the University of California, Los Angeles.
Mukesh Mehta has served as our Chief Information Officer since joining our company in 2017. From 2014 to 2017, Mr. Mehta served as the Chief Information and Technology Officer at Cetera Financial Group, a shared services organization serving a family of affiliated independent broker-dealers. From 2010 to 2013, Mr. Mehta served as Chief Information Officer at TD Ameritrade, a brokerage firm, where he also served as a Managing Director in Business Technologies from 2009 to 2010. From 2002 to 2008, Mr. Mehta served as Senior Vice President and Chief Information Officer at Schwab Institutional, Platform Development & Technology, prior to which he served as a Vice President of Finance & Corporate Administration Technology at The Charles Schwab Corporation from 1999 to 2002. Mr. Mehta has also held positions with Bankers Trust (Vice President, Defined Contribution & Participant Services, 1995-1999), Kwasha Lipton (Pension Design & Systems Consultant, 1987-1994), ER Keller & Co. (Investment Account Manager, 1987) and Bell Communications Research (Analyst, 1984-1987). Mr. Mehta holds a B.A. degree in Mathematics & Economics from Rutgers University and is a graduate of the Stanford University Graduate School of Business Executive Program.
117
Natalie Wolfsen joined our company in 2014 and has served as our Chief Solutions Officer since January 2018, prior to which she served as our Chief Commercialization Officer from May 2014 to December 2017. Prior to joining our company, Ms. Wolfsen served as head of Marketing and Product Development for First Eagle Investment Management, an investment management company, from 2011 to 2014. From 2009 to 2011, Ms. Wolfsen served as head of Product Management and Development for Pershing LLC. From 1999 to 2009, Ms. Wolfsen held numerous roles with The Charles Schwab Corporation, including Senior Marketing Manager (1999-2000), Senior Manager and Director of Technology (2000-2001), Director of Segment Management (2002-2004), Vice President of Strategy (2004-2007), Vice President of Product Management and Development (2007-2008) and Vice President of Equity Product Management and Development (2008-2009). Ms. Wolfsen holds a B.A. degree in Political Science from the University of California, Berkeley and an M.B.A. degree from the University of California, Los Angeles.
Non-employee directors
Xiaodan Liu has served as the Chairman of our board of directors since 2016. Ms. Liu has served as President of Huatai United Securities Co., Ltd., the specialized investment banking subsidiary of HTSC and one of our affiliates, since 2010 and as Chairperson of Huatai United Securities Co., Ltd. since 2017. Ms. Liu also served as a member of the M&A and Restructuring Committee of the China Securities Regulatory Committee from 2012 to 2016. Ms. Liu has over 16 years of experience in the investment banking industry, including time at HolyHigh Investment Advisory and Hantang Securities, and has participated in the drafting and revisions of Chinese regulations on M&A and restructuring practices in China. Ms. Liu graduated from Peking University with a Masters degree in Law. Ms. Lius qualifications to serve on our board of directors are primarily based on her two years of experience as a member of our board of directors, her knowledge of Chinese regulations and authorities gained through her time with the CSRC and working in the financial industry in China, and her knowledge of the investment banking industry gained through her 16 years of experience.
Rohit Bhagat has served as a director of our company since 2017. Mr. Bhagat was a Senior Partner at The Boston Consulting Group from 1992 to 2005, Global Chief Operating Officer of Barclays Global Investors from 2005 to 2009 and Chairman, Asia Pacific of BlackRock, Inc. from 2009 to 2012. Mr. Bhagat currently serves on the boards of Axis Bank Limited (since 2013), Franklin Templeton ETF Trust (since 2016) and FreeCharge Payment Technologies Pvt. Ltd. (since 2018). He also serves as a Senior Advisor to B Capital Group (since 2017) and Advisor to Optimal Asset Management (since 2016). Mr. Bhagat received a B. Tech. (Mechanical Engineering) degree (with distinction) from the Indian Institute of Technology, Delhi, an M.Sc. (Engineering) degree from the University of Texas at Austin and an M.B.A. degree (with honors) from the Kellogg School at Northwestern University. Mr. Bhagats qualifications to serve on our board of directors are primarily based on his significant corporate governance experience, including his tenure as a member of our board of directors and decade of experience serving as a director of other companies (including service on audit, risk management, nomination, compensation and mergers and acquisitions committees), his extensive experience in financial services and fintech as a business leader, investor and advisor, his knowledge of the financial services industry, his experience working with regulators in multiple jurisdictions while at Barclays and BlackRock and his education in finance, marketing, strategy and managerial economics.
Patricia Guinn has served as a director of our company since 2019. From 1976 to 2019, Ms. Guinn held various positions at Willis Towers Watson (formerly Towers Watson and Towers Perrin), a global advisory, brokerage and solutions company, including Chief Risk Officer from 2017 to 2019 and
118
Managing Director of the Risk and Financial Services Segment from 2001 to 2015. Ms. Guinn currently serves as a member of the board of directors of Reinsurance Group of America, Inc., a global life and health reinsurance firm, and is a member of its audit and FIRM (finance, investment and risk management) committees, positions she has held since 2016. She also served as a director of Allied World Assurance Company Holdings AG from 2015 to 2017. Ms. Guinn currently serves as an Association Member of Bupa, an international healthcare group, an Emeritus Trustee of The Actuarial Foundation, a member of the Social Security Advisory Boards 2019 Technical Panel on Assumptions and Methods, a governance fellow of the National Association of Corporate Directors, a fellow of the Society of Actuaries and a member of the American Academy of Actuaries, and is a Chartered Enterprise Risk Analyst. Ms. Guinn holds a B.A. degree in Mathematics from Hendrix College. Ms. Guinns qualifications to serve on our board of directors are primarily based on her significant professional and leadership experience in the advisory and brokerage industries and her experience as a director of other financial services companies, including as an audit committee member.
Bryan Lin has served as a director of our company since 2019. Mr. Lin is currently the CEO of Huatai Securities (USA), Inc., a wholly owned U.S.-based indirect subsidiary of HTSC, a position he has held since March 2018. Prior to joining Huatai Securities (USA), Inc., Mr. Lin spent over eleven years, from 2006 to 2017, as a senior private equity investment professional with The Carlyle Group, where he focused on various infrastructure sections including transportation and logistics, energy and utilities. Prior to joining The Carlyle Group, Mr. Lin spent over nine years, from 1997 to 2006, as an investment banker with Citigroup, where he focused on financial advisory and capital raising for clients in the infrastructure and energy sectors. Mr. Lin started his career as a banking analyst at the Federal Reserve of New York, where he spent two years working in the areas of bank supervision and regulation. Mr. Lin served on the board of directors at several portfolio companies of The Carlyle Group, serving on various executive, audit and compensation committees. Mr. Lin holds a B.S. in Business Management from State University of New York at Binghampton and an M.B.A. degree from the University of Chicago, Booth School of Business, and is a CFA charter holder. Mr. Lins qualifications to serve on our board of directors are primarily based on his significant professional experience in the financial industry, including in private equity, investment banking and financial regulation, as well as his experience serving on executive, audit and compensation committees of the boards of directors of various portfolio companies.
Ying Sun has served as a director of our company since 2016. Ms. Sun currently serves as a Managing Director and Head of Corporate Development of our parent company, HTSC, positons she has held since December 2014. Prior to joining HTSC, she worked in capital markets and cross-border mergers and acquisitions at Citigroup Asia Investment Banking (2013 through 2014) and Deutsche Bank Asia (2005 to 2012). Ms. Sun currently serves as a director of HIIHL, a subsidiary of our ultimate parent company HTSC. She has held this directorship since 2016. Ms. Sun holds a Bachelors degree in Economics from Peking University. Ms. Suns qualifications to serve on our board of directors are primarily based on her two years of experience as a member of our board of directors and two years serving as a director for other companies, as well as her knowledge of the financial industry acquired through her experience at Citigroup Asia and Deutsche Bank Asia.
Yi Zhou has served as a director of our company since 2016. Mr. Zhou has been the Executive Director and President of HTSC since 2007 and Chairman of the board of HTSC since 2016. Prior to joining HTSC, Mr. Zhou worked in technology management for the Jiangsu Posts & Telecommunications Bureau, an affiliated department of the Jiangsu Provincial government, from 1998 to 1999 and in administrative management at Jiangsu Mobile Communication Co., Ltd., a state-owned communications company in Jiangsu province, from 1999 to 2000. From 2005 to 2006,
119
Mr. Zhou was the Deputy General Manager of Shanghai Beier Fortune Communications Company. Mr. Zhou has served on the boards of directors of Jiangsu Beier Co., Ltd. (from April to July 2000), Nanjing Xinwang Technology Co., Ltd. (from 2000 to 2005), Jiangsu Province Emerging Industry Investment Management Limited (an investment management company that invests primarily in the Jiangsu Province equity market) (from 2013 to 2018), Huatai Securities (Shanghai) Assets Management Ltd., one of our affiliates (from 2014 to 2018), and Huatai International Financial Holdings Company Limited, our direct parent (from 2017 to 2018), and continues to serve on the boards of Huatai Financial Holdings (Hong Kong) Limited (an HTSC subsidiary engaged in investment banking, asset management and wealth management businesses) (since 2006) and CSOP Asset Management Limited (a fund management company located in Hong Kong) (since 2017). Mr. Zhou graduated from Nanjing University of Posts and Telecommunications with a Bachelors degree in Computer Communications. Mr. Zhous qualifications to serve on our board of directors are primarily based on his two years of experience as a member of our board of directors and 11 years of experience as a member of the boards of other entities, his knowledge of investment services gained through his 11 years with Huatai affiliates, and his knowledge of PRC-related regulations gained through his extensive experience working with Chinese entities, both in management and as a director.
Family relationships
There are no family relationships among any of our executive officers or directors.
Controlled company
Upon completion of this offering, HTSC will continue to control a majority of the voting power of our outstanding common stock through its indirect subsidiary HIIHL. As a result, we will be a controlled company under the NYSE corporate governance standards. As a controlled company, we will be exempt from certain NYSE corporate governance requirements, including the requirements:
|
that a majority of our board of directors consists of independent directors, as defined under the NYSE rules; |
|
that the compensation of our executive officers be determined, or recommended to the board of directors for determination, by majority vote of the independent directors or by a compensation committee composed solely of independent directors; and |
|
that director nominees be selected, or recommended to the board of directors for selection, by majority vote of the independent directors or by a nomination committee composed solely of independent directors. |
Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements. In the event that we cease to be a controlled company, we will be required to comply with these provisions within the transition periods specified in the NYSE rules.
These exemptions do not modify the independence requirements for our audit committee, and we expect to satisfy the member independence requirement for the audit committee by the end of the transition period provided under the NYSE listing standards and SEC rules and regulations for companies completing their initial public offering. See the section titled Board committeesAudit committee.
120
Board structure and compensation of directors
Upon completion of this offering, our board of directors will consist of seven members. Our board of directors has undertaken a review of the independence of the directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independence judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning such directors background, employment and affiliations, including family relationships, our board of directors has determined that each of Rohit Bhagat and Patricia Guinn is independent under applicable NYSE rules.
Our directors will be divided into three classes serving staggered three-year terms. Class I, Class II and Class III directors will serve until our annual meetings of stockholders in 2020, 2021 and 2022 respectively. Mr. Bhagat and Mr. Lin will serve as Class I directors, Ms. Guinn and Ms. Sun will serve as Class II directors and Mr. Goldman, Ms. Liu and Mr. Zhou will serve as Class III directors. At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired. This classification of our board of directors could have the effect of increasing the length of time necessary to change the composition of a majority of the board of directors. In general, at least two annual meetings of stockholders will be necessary for stockholders to effect a change in a majority of the members of the board of directors.
Directors who are also full-time officers or employees of our company will receive no additional compensation for serving as directors. All independent directors will receive an annual retainer of $65,000. In addition, the chairman of the audit committee (if independent) will receive an annual fee of $20,000, the chairman of the compensation committee (if independent) will receive an annual fee of $15,000 and the chairman of the nominating and corporate governance committee (if independent) will receive an annual fee of $10,000. Each independent director also will receive an annual grant of RSUs with one-year cliff vesting under our 2019 Equity Incentive Plan having a fair market value (as defined in the plan) of $130,000.
Board committees
Audit committee
The members of our audit committee are Patricia Guinn, Rohit Bhagat, and Bryan Lin. Patricia Guinn is the chairman of our audit committee. We will phase-in to the independence requirements of the NYSE corporate governance rules, which require us to have one independent audit committee member upon the listing of our common stock on the NYSE, a majority of independent audit committee members within 90 days of listing and an audit committee consisting entirely of independent members within one year of listing. Our board of directors has determined that Patricia Guinn and Rohit Bhagat satisfy the independence requirements of the NYSE and the Exchange Act. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Patricia Guinn and Rohit Bhagat are qualified as audit committee financial experts as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is directly responsible for, among other things:
|
selecting a firm to serve as the independent registered public accounting firm to audit our financial statements; |
|
ensuring the independence and qualifications of the independent registered public accounting firm; |
121
|
discussing the scope and results of the audit with the independent registered public accounting firm and reviewing, with management and that firm, our interim and year-end operating results; |
|
establishing procedures for employees to anonymously submit concerns about questionable accounting or audit matters; |
|
considering the adequacy of our internal controls and internal audit function; |
|
reviewing material related party transactions or those that require disclosure; and |
|
approving or, as permitted, pre-approving all audit and non-audit services to be performed by the independent registered public accounting firm. |
Compensation committee
The members of our compensation committee are Ying Sun, Patricia Guinn and Bryan Lin. Ying Sun
is the chairman of our compensation committee. We intend to avail ourselves of certain exemptions afforded to controlled companies under NYSE corporate governance rules, which will exempt us from the requirement that we have a compensation committee composed entirely of independent directors. Our compensation committee is responsible for, among other things:
|
reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers; |
|
reviewing and recommending to our board of directors the compensation of our directors; |
|
administering our stock and equity incentive plans; |
|
reviewing and approving, or making recommendations to our board of directors with respect to, incentive compensation and equity plans; and |
|
reviewing our overall compensation philosophy. |
Nominating and governance committee
The members of our nominating and governance committee are Rohit Bhagat, Charles Goldman and Ying Sun. Rohit Bhagat is the chairman of our nominating and governance committee. We intend to avail ourselves of certain exemptions afforded to controlled companies under NYSE corporate governance rules, which will exempt us from the requirement that we have a nominating and governance committee composed entirely of independent directors. Our nominating and governance committee is responsible for, among other things:
|
identifying and recommending candidates for membership on our board of directors; |
|
reviewing and recommending our corporate governance guidelines and policies; |
|
reviewing proposed waivers of the code of conduct for directors and executive officers; |
|
overseeing the process of evaluating the performance of our board of directors; and |
|
assisting our board of directors on corporate governance matters. |
Code of business conduct and ethics
In connection with this offering, our board of directors will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including our President and Chief
122
Executive Officer, Chief Financial Officer, EVPs and other executive and senior financial officers. Upon completion of this offering, the full text of our code of business conduct and ethics will be posted on the investor relations section of our website. We intend to disclose future amendments to our code of business conduct and ethics, or any waivers of such code, on our website or in public filings.
Compensation committee interlocks and insider participation
None of our executive officers currently serves, or in the past year has served, as a member of a board of directors or compensation committee of any other entity that has an executive officer serving as a member of our board of directors or compensation committee.
123
We are currently considered an emerging growth company for purposes of the SECs executive compensation disclosure rules. In accordance with such rules, we are required to provide a Summary Compensation Table and an Outstanding Equity Awards at Fiscal Year End Table, as well as certain limited narrative disclosures. Further, our reporting obligations extend only to the individuals serving as our chief executive officer and our two other most highly compensated executive officers. For fiscal year 2018, our named executive officers were:
|
Charles Goldman, President and Chief Executive Officer; |
|
Jeremiah Chafkin, Executive Vice President and Chief Investment Officer; and |
|
Michael Kim, Executive Vice President and Chief Client Officer. |
Summary compensation table
The following table sets forth information concerning the compensation paid to our named executive officers for the fiscal year ended December 31, 2018.
Name and principal
position |
Year |
Salary
($) |
Bonus
($) |
Stock
awards ($) |
Non-equity
incentive plan compensation ($) |
Nonqualified
deferred compensation earnings ($) |
All other
compensation ($) |
Total
($) |
||||||||||||||||||||||||
Charles Goldman, |
2018 | 510,000 | 660,000 | | | | 324,603 | (1) | 1,494,603 | |||||||||||||||||||||||
President and Chief Executive Officer |
||||||||||||||||||||||||||||||||
Jeremiah Chafkin, |
2018 | 500,000 | 564,300 | | | | 16,072 | (2) | 1,080,372 | |||||||||||||||||||||||
EVP, Chief Investment Officer (5) |
||||||||||||||||||||||||||||||||
Michael Kim, |
2018 | 350,000 | (3) | 649,761 | (3) | | | | 31,706 | (4) | 1,031,467 | |||||||||||||||||||||
EVP, Chief Client Officer (5) |
||||||||||||||||||||||||||||||||
|
(1) | Includes: $102,902 for payments under an arrangement related to the sale of AssetMark, matching contributions totaling $13,750 under our 401(k) plan and $205,209 for employer-paid commuting expenses from his home in Colorado to our headquarters in Concord, California. |
(2) | Includes matching contributions totaling $13,750 under our 401(k) plan. |
(3) | Mr. Kim elected to defer a total of $609,355 from his salary and bonus for 2018 under our NQDC Plan, discussed in Pension benefits and nonqualified deferred compensation. |
(4) | Includes $15,831 for payments under an arrangement related to the sale of our company and matching contributions totaling $13,750 under our 401(k) plan. |
(5) | Mr. Chafkin and Mr. Kim are officers of AssetMark, Inc., one of our subsidiaries, and will become officers of the Company prior to the consummation of this offering. |
Employment agreements
Charles Goldman
We are party to an employment agreement with Charles Goldman that was originally dated as of January 10, 2014. This agreement was last amended as of October 31, 2016 in connection with HTSCs acquisition of our collective businesses from Aquiline Capital Partners and Genstar Capital, and will remain in effect until October 31, 2019, the third anniversary of the closing of that acquisition,
124
or, if earlier, the termination of Mr. Goldmans employment. The following narrative summarizes the key terms of that agreement:
Performance of services . Mr. Goldman will serve as our President and Chief Executive Officer, and as a member of our board of directors. Mr. Goldman is required to devote his full business time, attention and skill to performance of his duties, but is allowed to serve on the boards of directors of non-competing businesses, with the prior written consent of our board of directors. Mr. Goldman will work primarily out of our headquarters in Concord, California, but will not be required to relocate from his home in Boulder, Colorado.
Compensation package . During the term of the agreement, Mr. Goldman will receive (i) an annual salary, initially $500,000, subject to annual review by our board of directors and increases as may be determined by our board of directors in its sole discretion; (ii) an annual incentive bonus with a target opportunity of 150% of base salary, payable based on the achievement of company and individual performance objectives, as determined by the board of directors; (iii) health insurance, retirement and other benefits provided to our executives; (iv) reimbursement on an after-tax basis for travel between his Boulder, Colorado residence and our headquarters in Concord, California; and (iv) life insurance in the amount of $5,000,000, subject to Mr. Goldmans insurability at standard or better rates, which we will exert reasonable business efforts to acquire.
Severance pay and benefits . Mr. Goldman will be entitled to certain payments and benefits under his employment agreement in connection with termination of his employment.
Termination of employment due to death or disability . Upon termination of employment due to death or disability, Mr. Goldman, or his estate or beneficiaries as the case may be, would be entitled to a pro-rated bonus for the fiscal year of termination to the extent that the performance conditions for that bonus are satisfied, along with any bonus earned but not yet paid for the fiscal year ending before the date of termination.
Termination for cause or resignation without good reason . Upon termination of Mr. Goldmans employment for cause or his resignation without good reason, Mr. Goldman would not be entitled to any payments under his employment agreement other than any amounts already accrued and payable for services through the date of termination.
For purposes of Mr. Goldmans employment agreement, cause includes (i) material acts of personal dishonesty in connection with his responsibilities that have, or could be reasonably expected to have, an adverse impact on performance of duties; (ii) willful misconduct in the course of employment; (iii) willful failure or refusal to perform duties or responsibilities in any material respect; (iv) misappropriation (or attempted misappropriation) of assets or material business opportunities; (v) embezzlement or fraud committed or attempted, whether by Mr. Goldman, at his direction or with his prior actual knowledge; (vi) conviction of or pleading guilty or no contest to, (x) a felony or (y) any other criminal charge that has (or could be reasonably expected to have) an adverse impact on the performance of duties or result in material injury to our reputation or business; (vii) material violation of our written policies (unless curable and cured within 30 days of written notice), including but not limited to those relating to sexual harassment or business conduct, that has (or could be reasonably expected to have), an adverse impact on performance of duties or otherwise result in material injury to our reputation or business; or (viii) material breach of any confidentiality or restrictive covenant.
If, within 90 days after termination of Mr. Goldmans employment for any reason other than cause, we determine that his employment could have been terminated for cause based on misappropriation,
125
embezzlement or fraud or material violation of our written policies, as described above, Mr. Goldman would be treated as if he had been terminated for cause, and would be required to disgorge all amounts received on account of his termination that would not have been payable on termination for cause.
Termination without cause or resignation for good reason . Upon termination of Mr. Goldmans employment without cause or his resignation for good reason, Mr. Goldman will be entitled to: (w) a pro-rated bonus for the fiscal year that includes the date of termination, to the extent that the performance conditions for that bonus are satisfied; (x) any bonus earned but not yet paid for the fiscal year that ends before the date of termination; (y) continued payment of his salary for a severance period of twelve months (24 months if termination occurs after January 10, 2019) after termination; and (z) a monthly payment equal to the monthly COBRA premium cost (on an after-tax basis) during the severance period described above, to the extent he enrolls in and remains eligible for COBRA.
For purposes of Mr. Goldmans agreement, good reason includes (i) a substantial and material diminution in base salary, annual bonus target, title, duties or responsibilities and (ii) our material breach of a material term of the employment agreement, in each case unless we cure the failure in questions within 40 days of notice. In order to resign for good reason Mr. Goldman would need to provide us with 30 days advance written notice of his resignation setting forth the event that constitutes good reason within 60 days after the occurrence of such event.
Conditions to severance payments . Our obligation to provide the payments and benefits described above, other than any amounts accrued and payable for services through the date of termination, is conditioned on Mr. Goldmans general release of claims in our favor. In addition, any obligation we may have to provide these payments and benefits shall immediately terminate if Mr. Goldman breaches any provision of his non-interference agreement with us, described further below.
Confidentiality, non-interference and invention assignment agreement. Mr. Goldman has also entered into a Confidentiality, Non-Interference and Invention Assignment Agreement, which includes his agreements: (x) not to disclose or use our confidential information without our written authorization, both during employment and thereafter; (y) to assign to us all rights to any intellectual property conceived of, developed or reduced to practice during the executives service; and (z) not to compete with us, or solicit or interfere with our employees or clients for twelve months after termination of employment.
Offer letters with other named executive officers
We have entered into offer letters with each of our other named executive officers. The offer letters generally provide for at-will employment and describe the executives initial base salary, target variable compensation, and eligibility for employee benefits.
The agreement with Mr. Chafkin also sets forth the terms of initial equity grants and severance benefits on a qualifying termination. Upon Mr. Chafkins termination without cause prior to vesting of all equity grants, Mr. Chafkin will receive severance of one year of base salary (paid according to normal payroll practices), a prorated bonus and an additional one year of bonus payments (paid one year after separation).
Mr. Chafkin has also entered into a Non-Solicitation Agreement, under which he has agreed, during his employment and for a period of one year after termination, not to (x) solicit, or interfere with our
126
relationship with, any of our employees, representatives or contractors; or (y) induce any person or company with whom he had contact as our employee to cease to do business with us.
Mr. Kim has entered into a Non-Solicitation Agreement under which he has agreed, during his employment and for a period of one year after termination, not to (x) solicit, or interfere with our relationship with, any of our employees, representatives or contractors; (y) use our confidential information to provide products or services substantially similar to ours; or (z) induce any person or company with whom he had contact as our employee to cease to do business with us.
Severance plan
Additionally, we maintain a broad-based severance plan under which each of our named executive officers is eligible for benefits in the event that his or her position is eliminated in connection with a layoff.
Benefits for any eligible executive officers under this plan would include: (x) two weeks of advance notice prior to elimination of the named executive officers position; (y) a lump sum severance payment equal to the sum of (i) one week of base salary for each year of continuous service, plus (ii) $2,500; and (z) at our discretion, accelerated vesting of all or a portion of the equity payment for the year of termination, which will be pro-rated based on the timing of termination of employment within the calendar year. The minimum payment under clause (y)(1) of the previous sentence is eight weeks of base salary. Payment of these severance benefits is conditioned on the executive officers delivery and non-revocation of a general release of claims in our favor.
Variable incentive compensation program
We currently maintain a Variable Incentive Compensation Program that rewards our executive officers for our performance against business goals, and each executive officer for performance against his or her individual goals. Our board of directors establishes performance goals for this program each year and evaluates performance to these established goals to determine the amount of each award. This program is based on performance over a calendar year and provides for a cash benefit payable on or before March 15 of the following year, subject to the executives continued service through the payment date. The award for our chief executive officer under this program is subject to board discretion. All other awards under this program are subject to management discretion.
Pension benefits and nonqualified deferred compensation
We currently maintain a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code. Our named executive officers are eligible to participate in the 401(k) plan on the same basis as our other employees. The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. For 2017 and 2018, we provided matching contributions under our 401(k) Plan representing 100% of participant contributions up to 5% of eligible compensation.
We also maintain a Deferred Compensation Plan (the NQDC Plan), for the benefit of our named executive officers and other officers and senior employees. Each of our named executive officers may elect to defer from 5% to 75% of their eligible compensation under this plan, without regard to the 401(k) plans prescribed limits, and the resulting deferrals will be allocated to the officers individual
127
plan account. In addition, we reserve the right to make non-elective contributions to this plan, in our sole discretion, to be allocated to participant accounts according to our determination. A participant in the NQDC Plan vests in the non-elective contributions allocated to his or her account upon attaining three years of service. Accounts in this plan will accrue earnings based on the performance of a market basket of predetermined investment benchmarks. Each participant may elect the investment benchmarks used to determine earnings on his or her individual account. Each participant may also elect the timing of distributions from their NQDC Plan account, including whether distribution upon separation from service will be in a lump sum or installments, and whether payment should be triggered upon a change in control.
We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan and NQDC Plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.
Outstanding equity awards at fiscal year end
The following table sets forth information concerning unexercised options, stock that has not vested and equity incentive plan awards for the executive officers named in the Summary Compensation Table during 2018.
Option awards | Stock awards | |||||||||||||||||||||||||||||||||||
Name |
Numbers of
securities underlying unexercised options (#) exercisable |
Numbers of
securities underlying unexercised options (#) unexercisable |
Equity
incentive plan awards: number of securities underlying unexercised unearned options (#) |
Option
exercise price ($) |
Option
expiration date |
Number of
shares or units of stock that have not vested (#) (1) |
Market
value of shares or units of stock that have not vested ($) (2) |
Equity
incentive plan awards: number of unearned shares, units or other rights that have not vested (#) (3) |
Equity
incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested * ($) (2) |
|||||||||||||||||||||||||||
Charles Goldman |
| | | | | 1,692 | 9,573,690 | 1,692 | 9,573,690 | |||||||||||||||||||||||||||
Jeremiah Chafkin |
| | | | | 333 | 1,886,453 | 333 | 1,886,453 | |||||||||||||||||||||||||||
Michael Kim |
| | | | | 250 | 1,414,832 | 250 | 1,414,832 | |||||||||||||||||||||||||||
|
(1) | Represents the number of outstanding time-vesting incentive unit awards in AssetMark Holdings LLC, vesting in three equal installments on the third, fourth and fifth anniversaries of October 31, 2016, as discussed in Additional narrative disclosure relating to incentive unit awards. |
(2) | Amounts shown are based on an estimated intrinsic value of the incentive unit awards as of December 31, 2018, assuming that the target goals for the applicable period will be met, and that the target (and maximum) amount of such securities will vest. |
(3) | Represents the number of outstanding performance-vesting incentive unit awards in AssetMark Holdings LLC for which vesting is evaluated annually over a five-year period on the first February 1 to follow each of the fourth, fifth, sixth, seventh and eighth anniversaries of October 1, 2016, based on satisfaction of certain internal rate of return goals through the date of vesting, as discussed in Additional narrative disclosure relating to incentive unit awards. |
Additional narrative disclosure relating to incentive unit awards
Each of the named executive officers has received incentive unit awards that were initially structured as awards of Class C Common Units in AssetMark Holdings LLC, and designed as profits interest
128
awards. A profits interest award provides the award holder with value only if and to the extent that we grow in value following the grant of the award.
Incentive unit awardscurrent terms and conditions
One-half of the incentive units granted to each recipient, referred to here as time-vesting units, are scheduled to vest in three (3) equal installments on the third, fourth and fifth anniversaries of October 31, 2016, subject to the recipients continued employment through the applicable vesting date.
The other half of the incentive units granted to each recipient, referred to here as performance-vesting units, are eligible to vest over a five-year period on the 1st of February that occurs immediately following the fourth, fifth, sixth, seventh and eighth anniversaries of October 31, 2016, subject to the recipients continued employment through the applicable vesting date, and subject to our satisfaction of designated performance goals relating to our internal rate of return (IRR), net of any dilution from incentive unit awards, through the date of vesting, with threshold and target goals of 8% and 12%, respectively. The amount, if any, that vests on each vesting date will be based on the attainment of our IRR measured as of that date, with 50% of the award vesting on the first vesting date on which our IRR equals 8% and 100% of any unvested portion of the award vesting on the first vesting date on which our IRR equals or exceeds 12%.
Upon a change in control as defined under the incentive unit award agreements while the recipient is performing services, all time vesting units that are unvested would vest and all performance vesting units that are unvested would vest to the extent that the designated performance goals are satisfied by the IRR realized by HTSC in that transaction. For purposes of these agreements, a change in control is defined as (i) the sale or disposition, in one or a series of related transactions, of all or substantially all of our assets to any person or group other than HTSC or any of its affiliates, or any group or persons that includes HTSC or any of its affiliates; (ii) any person or group other than HTSC or one or more other permitted holders becomes the beneficial owner of more than 50% of the total units of AssetMark Holdings LLC or 50% of our equity securities including by way of merger, recapitalization, reorganization, redemption, issuance of capital stock, consolidation, tender or exchange offer or otherwise; or (iii) the merger of AssetMark Holdings LLC or us with or into another person (other than one of the permitted holders) in which members of the merger cease to hold at least 50% of the units of AssetMark Holdings LLC or 50% of our equity securities immediately following such merger.
Incentive unit awardsconversion in connection with this offering
In connection with this offering, we intend to convert the value of all time vesting units and performance vesting units into restricted share awards of AssetMark Financial Holdings, Inc., referred to here as RSAs, in connection with the transactions described in the section titled Prospectus summaryRestructuring. In converting performance-vesting units, we intend to take into account actual performance through the date of the offering to their pre-established goals. We expect that our internal rate of return at the time of this offering will be greater than the target goal of 12%, and, as a result, the full value of outstanding performance vesting units will be converted to time vested RSAs.
We expect that RSAs issued in connection with this conversion will be subject to the same vesting schedule as the incentive units they replace, with RSAs issued with respect to time-vesting units scheduled to vest in three (3) equal installments on the third, fourth and fifth anniversaries of October 31, 2016 and RSAs issued with respect to performance-vesting units scheduled to vest in full
129
on February 2021, the first vesting opportunity for those awards. The termination and change in control provisions for the converted awards will remain the same.
Equity awards upon this offering
Immediately following the pricing of this offering, we intend to grant to certain of our employees and members of management (i) stock options to purchase an aggregate of 909,688 shares of common stock outside of our 2019 Equity Incentive Plan, with an exercise price equal to the initial public offering price per share, of which stock options to purchase an aggregate of 711,903 shares of common stock would be granted to our executive officers, as a group, and (ii) RSUs covering 94,721 shares of common stock under our 2019 Equity Incentive Plan, in each case, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). We further intend for each such stock option or RSU to become vested and exercisable as to one-third of the shares underlying the stock option or constituting the RSU on each of the first three anniversaries of the grant date, subject to the recipients continued employment or service with us on each such date. The additional terms of such intended equity awards will be governed by a stock option award agreement or restricted stock unit award agreement, as applicable, the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part.
Director compensation
The following table summarizes all compensation awarded to, earned by or paid to each of our non-employee directors during 2018.
Name |
Fees
earned or paid in cash ($) |
Stock
awards ($) |
Option
awards ($) |
Non-equity
incentive plan compensation ($) |
Non-qualified
deferred compensation earnings ($) |
All other
compensation ($) |
Total
($) |
|||||||||||||||||||||
Rohit Bhagat |
50,000 | | (2) | | | | 22,710 | (3) | 72,710 | |||||||||||||||||||
Xiaodan Liu |
75,226 | (1) | | | | | 8,772 | (3) | 83,998 | |||||||||||||||||||
Ying Sun |
| | | | | | | |||||||||||||||||||||
Yi Zhou |
| | | | | | | |||||||||||||||||||||
|
(1) | We generally do not compensate directors for service representing HTSCs interests on our board of directors. However, under an arrangement with HTSC, we provided Ms. Liu with a stipend at an annual rate of $150,000 for her services while she was working in the United States for part of 2017 and 2018. The figure provided represents a pro-rated amount of that stipend paid for the portion of 2018 during which she worked in the United States. |
(2) | Mr. Bhagat held 66.67 unvested Class C Common Units, valued at $339,903, as of December 31, 2018. |
(3) | Represents the cost to us of certain welfare benefits extended to Ms. Liu and Mr. Bhagat. |
We have two outside directors, Mr. Rohit Bhagat and Ms. Patricia Guinn, who joined our board of directors in 2018 and 2019, respectively. For service on our board of directors, Mr. Bhagat receives an annual retainer of $50,000, along with certain medical, dental and vision insurance benefits. In connection with Ms. Guinns election to our board of directors and appointment as chairman of the Audit Committee in 2019, our board of directors approved compensation for Ms. Guinn including a retainer of $65,000 per year for service on our board of directors, a retainer of $20,000 per year for service as chairman of the Audit Committee and, on the effective date of the registration statement of which this prospectus forms a part, a restricted stock unit award with a then-current value of $130,000.
Our directors Ms. Liu, Mr. Lin, Ms. Sun and Mr. Zhou all represent the interests of HTSC on our board of directors. We generally do not provide compensation to directors for service on our board of directors representing HTSCs interests. However, under an arrangement with HTSC, we provided
130
Ms. Liu with a stipend for her services while she was working in the United States for part of 2017 and 2018, along with certain welfare benefits. We do not expect to pay any compensation to any board members who represent HTSC on our board of directors after this offering.
Following this offering, directors who are also full-time officers or employees of our company will receive no additional compensation for serving as directors. All independent directors will receive an annual retainer of $65,000. In addition, the chairman of the audit committee (if independent) will receive an annual fee of $20,000, the chairman of the compensation committee (if independent) will receive an annual fee of $15,000 and the chairman of the nominating and corporate governance committee (if independent) will receive an annual fee of $10,000. Each independent director will also receive an annual grant of RSUs with one-year cliff vesting under our 2019 Equity Incentive Plan having a fair market value (as defined in the plan) of $130,000.
Compensation following this offering
2019 Equity Incentive Plan
Our board of directors has adopted, and our stockholder has approved, a 2019 Equity Incentive Plan (the 2019 Plan) which will become effective upon the pricing of this offering. The 2019 Plan provides for grants of equity-based awards to our employees, certain of our non-employee directors and consultants or advisers.
Administration. The 2019 Plan will be administered by the compensation committee of our board of directors (unless another committee is designated by our board of directors), which will have the authority to determine when awards will be granted under the 2019 Plan, eligible participants, the types of awards to be granted, the number of shares covered by awards, the terms and conditions of awards (and amendments to any terms and conditions thereof) and the methods by which awards may be settled, exercised, cancelled, forfeited or suspended, and to make any other determination and take any other action that it deems necessary or desirable for the administration of the 2019 Plan and due compliance with applicable laws, stock market or exchange rules and regulations or accounting or tax rules and regulations. Anyone involved in the administration of the 2019 Plan as a member of the board of directors or applicable committee thereof or due to a delegation of authority under the 2019 Plan shall be indemnified against any liability resulting from any action, claim or proceeding arising from such administration.
Shares available for awards. The maximum number of shares of our common stock available for issuance under the 2019 Plan as of the effectiveness of the registration statement of which this prospectus forms a part will be 4,887,691 shares. Any shares underlying awards outstanding under the 2019 Plan that are forfeited, cancelled, expired, terminated or are otherwise lapsed or settled in cash, in whole or in part, will become available for future grant under the 2019, provided that any shares underlying awards that are tendered or withheld in respect of taxes or to pay the exercise price of an award, will not become available for future grant under the 2019 Plan.
In the event the administrator of the 2019 Plan determines that, as a result of certain changes in our corporate structure, including any extraordinary dividend or other distribution, recapitalization, stock split, reorganization, merger, consolidation, spin-off or similar corporate transaction or event affecting our common stock, an adjustment is appropriate to prevent disproportionate dilution or enlargement of the benefits intended to be made available under the 2019 Plan, then the administrator will make equitable adjustments to prevent undue enrichment or harm to the number and type of shares that thereafter may be made the subject of awards, the number and type of shares subject to outstanding awards and the grant, purchase, exercise or hurdle price of any outstanding awards.
131
The maximum number of shares available for issuance under the 2019 Plan with respect to incentive stock options (ISOs) is the maximum number of shares of our common stock available for issuance under the 2019 Plan.
Stock options. The 2019 Plan permits the grant of ISOs to employees and/or nonstatutory stock options (NSOs) to all eligible participants. The exercise price of stock options will be determined by the administrator. However, except in the case of substitute awards, the exercise price may not be less than the fair market value of our common stock on the grant date. The administrator may determine the terms and conditions applicable to each grant of stock options, including the term of the options (which may not exceed 10 years), the time or times at which options become vested and exercisable and the method of payment of the exercise price. The terms of any award of ISOs are required to comply in all respects with the provisions of Section 422 of the Internal Revenue Code of 1986, as amended.
Stock appreciation rights. The 2019 Plan permits the grant of stock appreciation rights (SARs), which entitle the holder to receive shares of our common stock or cash having an aggregate value equal to the appreciation in the fair market value of our common stock between the grant date and the exercise date, times the number of shares subject to the SAR. SARs may be granted to participants either alone or in tandem with other awards granted under the 2019 Plan. The exercise price of a SAR will be determined by the administrator. However, except in the case of substitute awards, the exercise price may not be less than the fair market value of our common stock on the grant date. The administrator may determine the terms and conditions applicable to each grant of SARs, including the term of the SARs (which may not exceed 10 years) and the time or times at which a SAR may be exercised or settled.
Restricted stock awards and RSUs. The 2019 Plan permits the grant of restricted stock awards and RSUs. Restricted stock awards are grants of shares of our common stock, subject to certain conditions and restrictions as specified in the applicable award agreement. RSUs represent the right to receive shares of our common stock (or a cash amount equal to the value of our common stock) on future dates as specified in the applicable award agreement.
Performance awards. The 2019 Plan permits the grant of performance awards that are payable upon the achievement of performance goals determined by the administrator. The administrator may, in its discretion, increase or reduce the amount of a settlement otherwise to be made in connection with a performance award. Performance goals may include one or more of the following performance measures with respect to our company: net flows; platform assets; new producing advisers; production lift from existing advisers; net flows lift from existing advisers; gross or net revenue; revenue growth; operating income; income or loss (before or after allocation of corporate overhead and bonus); net earnings; earnings per share; net income or loss; return on equity; total shareholder return; return on assets or net assets; appreciation in and/or maintenance of share price; market share; gross profits; earnings or loss (including earnings or loss before taxes, before interest and taxes or before earnings before interest, taxes, depreciation and amortization, with or without adjustments); economic value-added models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; improvement in or attainment of expense levels or working capital levels (including cash and accounts receivable); operating margin; gross margin; cash margin; year-end cash; debt reduction; shareholder equity; operating efficiencies; market share; customer satisfaction; customer growth or household growth; employee satisfaction; research and development achievements; financial ratios, including those measuring liquidity, activity, profitability or leverage; cost of capital or
132
assets under management; financing and other capital raising transactions (including sales of our equity or debt securities; factoring transactions; sales or licenses of our assets, including our intellectual property, whether in a particular jurisdiction or territory or globally; or through partnering transactions); implementation, completion or attainment of measurable objectives with respect to research, development, products or services, acquisitions or divestitures; factoring transactions; recruiting or maintaining personnel; or such other performance measures (GAAP and non-GAAP) as may be determined by the administrator from time to time. Performance criteria may be measured on an absolute (e.g., plan or budget) or relative basis; before or after taxes; with or without adjustments; and may be established on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries or business segments. Performance may be measured against a group of peer companies, a financial market index or other acceptable objective and quantifiable indices. An award agreement may provide that if the administrator determines that a change in our business, operations, corporate structure or capital structure, or the manner in which the administrator conducts its business, or other events or circumstances render the performance objectives unsuitable, the administrator may modify the performance objectives or the related minimum acceptable level of achievement, in whole or in part, as the administrator deems appropriate and equitable. Performance measures may vary from performance award to performance award, respectively, and from participant to participant, and may be established on a stand-alone basis, in tandem or in the alternative.
Other cash-based awards and other stock-based awards. The 2019 Plan permits the grant of other cash-based and other stock-based awards, the terms and conditions of which will be determined by the administrator.
Effect of termination of service or a change in control on awards. In the event of a participants termination of service, the administrator may determine the extent to which an award may be exercised, settled, vested, paid or forfeited prior to the end of a performance period, or the vesting, exercise or settlement of such award. In the event of a change in control of our company (as defined in the 2019 Plan), the administrator may, in its discretion, take certain actions with respect to outstanding awards, including the continuation or assumption of awards, substitution or replacement of awards by a successor entity, acceleration of vesting and lapse of restrictions, determination of the attainment of performance conditions for performance awards or cancellation of awards in consideration of a payment.
Amendment and termination. Our board of directors has the authority to amend, alter, suspend, discontinue or terminate the 2019 Plan, provided that no such action may be taken without stockholder approval, if the approval is necessary to comply with applicable law or stock exchange rules, or without the consent of the affected participant, if such action would materially adversely affect the rights of such participant (unless such action is taken to cause the 2019 Plan to comply with applicable laws, stock market or exchange rules and regulations or accounting or tax rules and regulations or to impose any recoupment provisions on an award).
No repricing. Except pursuant to an adjustment by the administrator permitted under the 2019 Plan, no action may directly or indirectly reduce the exercise or hurdle price of any award established at the time of grant without stockholder approval.
Term of the 2019 Plan. No awards may be granted under the 2019 Plan after the earliest of (i) the 10-year anniversary of the effectiveness of the registration statement, (ii) the maximum number of shares of our common stock available for issuance under the 2019 Plan has been issued or (iii) our board of directors terminates the 2019 Plan.
133
Certain relationships and related party transactions
We describe below transactions and series of similar transactions, since January 1, 2016 or currently proposed, in which:
|
we or any of our subsidiaries have been or will be a participant; |
|
the amounts involved exceeded or will exceed $120,000; and |
|
any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member of, or person sharing a household with, any of these individuals, had or will have a direct or indirect material interest. |
Other than as described below, there have not been, nor are there any currently proposed, transactions or series of similar transactions meeting this criteria to which we have been or will be a party other than compensation and employment arrangements, which are described where required under Management and Executive compensation.
Distribution to AssetMark Holdings LLC
In the fourth quarter of 2018, we made a one-time cash distribution to AssetMark Holdings LLC in the amount of $234 million, consisting of a $76 million dividend payment and a $158 million return of capital. As members of AssetMark Holdings LLC, the following persons had a beneficial interest in such distribution in the amounts set forth below:
Name | Interest | |||
Huatai International Investment Holdings Limited |
$ | 230,525,739 | ||
Charles Goldman (Director, President and Chief Executive Officer) |
1,480,471 | |||
Jeremiah Chafkin (EVP, Chief Investment Officer) |
298,523 | |||
Carrie Hansen (EVP, Chief Operating Officer) |
208,142 | |||
Natalie Wolfsen (EVP, Chief Solutions Officer) |
150,654 | |||
|
Credit facility
In November 2018, we, AssetMark Holdings LLC and certain of our subsidiaries entered into a Credit Agreement with Credit Suisse as administrative agent and collateral agent and the lenders party thereto, which provides for a $250.0 million term loan and a $20.0 million revolving credit facility. Our obligations under the Credit Agreement are guaranteed by AssetMark Holdings LLC and such subsidiaries and are secured by substantially all of our assets and all of the assets of AssetMark Holdings LLC and such subsidiaries, subject to certain exceptions. As of March 31, 2019, $249.4 million aggregate principal amount of the term loan remained outstanding and the revolving credit facility was undrawn. See the section titled Managements discussion and analysis of financial condition and results of operationsLiquidity and capital resourcesCredit facility for more information on the Credit Agreement.
Altegris Holdings, Inc. promissory notes
Prior to being acquired by HTSC in 2016, we were owned by AqGen Liberty, LLC (AqGen), a Delaware limited liability company. From December 2013 until the HTSC acquisition closed on October 31, 2016, we held two promissory notes totaling $6.6 million (one for $5.0 million, the other
134
for $1.6 million) issued by Altegris Holdings, Inc., an alternative investment provider and subsidiary of AqGen. Each note carried an annual interest rate of 6.5%. Aggregate interest income on the two notes was $358,000 from the period January 1, 2016 to October 31, 2016. In April 2016, we wrote off both notes as bad debt (recorded in the financial statements under general and operating expense), due to Altegris inability to pay either note. As of November 1, 2016, Altegris was no longer a related party of ours.
Altegris Holdings, Inc. marketing payments
We have provided and continue to provide certain marketing services for Altegris Holdings, Inc. investment products offered on the AssetMark platform. For the years ended December 31, 2018, December 31, 2017 and December 31, 2016 Altegris Holdings, Inc. paid AssetMark Financial Holdings, Inc. $543,000, $467,000 and $464,000, respectively. As of November 1, 2016, Altegris was no longer a related party of ours.
Registration rights agreement
Upon the pricing of this offering, we will enter into a Registration Rights Agreement (the Registration Rights Agreement) with HIIHL. The Registration Rights Agreement grants HIIHL demand and piggyback registration rights pursuant to which HIIHL may demand that we file a registration statement or request that its shares of common stock be covered by a registration statement that we are otherwise filing. We will be required to pay the registration expenses in connection with such registrations, other than any underwriting discounts or commissions and internal administrative and similar costs of the selling stockholder. For a more detailed description of these registration rights, which will continue after the closing of this offering, see the section titled Description of Capital StockRegistration Rights.
Indemnification
Our amended and restated certificate of incorporation contains provisions limiting the liability of directors, and will provide that we will indemnify each of our directors and officers, and that we may indemnify our employees and agents, to the fullest extent permitted under Delaware law. In addition, in connection with this offering, we will enter into an indemnification agreement with each of our directors and executive officers, which will require us to indemnify them. For more information regarding these agreements, see the section titled Description of Capital StockLimitation of liability of directors and officers and Description of Capital StockIndemnification and Insurance.
Policies and procedures for related party transactions
In connection with this offering, we have adopted a written related party transaction policy pursuant to which a director or executive officer who is in any way interested in a contract or transaction with us, including through an immediate family member, will declare the nature of his or her interest to our corporate secretary via written notice. Such written notice must include the name of the related person, the basis on which such person constitutes a related person, the related persons interest in the transaction with us, the approximate dollar value involved in the transaction, the approximate dollar value of the related persons interest in the transaction and any other information regarding the transaction or the related person that could be material to the board in light of the particular facts and circumstances. Our corporate secretary will present any new or proposed related party transactions
135
to the audit committee, and the audit committee must review such transactions on an annual basis to determine whether they should be approved or continue. In reviewing the transaction, the audit committee will consider all relevant facts and circumstances, including without limitation the commercial reasonableness of the terms, the benefit or perceived benefit (or lack thereof) to us, the opportunity costs of alternate transactions, the materiality and character of the related persons direct or indirect interest in the transaction and the actual or apparent conflict of interest of the related person. The audit committee cannot approve or ratify a related party transaction unless it has determined that, upon consideration of all relevant information the transaction is in, or not inconsistent with, the best interests of us and our stockholders. In addition, our written code of business conduct and ethics that will be in effect upon completion of this offering requires that directors and executive officers make appropriate disclosure of potential conflicts of interest situations to our General Counsel, who must then notify our nominating and corporate governance committee.
Prior to this offering, we have not had a written policy for the review and approval of transactions with related persons. However, our board of directors has reviewed and approved any transaction where a director or executive officer had a financial interest, including the transactions described above. Prior to approving such a transaction, the material facts as to a directors or an officers relationship or interest as to the agreement or transaction were disclosed to our board of directors. Our board of directors would take this information into account when evaluating the transaction and in determining whether such transaction was fair to us and in the best interest of all of our stockholders.
136
Principal and selling stockholders
The following table sets forth information regarding beneficial ownership of our common stock as of March 31, 2019, on a pro forma basis to give effect to the liquidation and dissolution of AssetMark Holdings LLC and the issuance of securities by us to the former holders of equity interests in AssetMark Holdings LLC, as described in the section titled Prospectus summaryRestructuring, by:
|
each person whom we know to own beneficially more than 5% of our common stock; |
|
each of our directors; |
|
each of our named executive officers; |
|
all of our directors and executive officers as a group; and |
|
the selling stockholder. |
In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes any shares issuable pursuant to stock options that are exercisable within 60 days of March 31, 2019. Shares issuable pursuant to stock options are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the percentage of any other person. The numbers of shares beneficially owned and percentages of beneficial ownership for the following table (i) are based on 66,150,000 shares of common stock outstanding as of March 31, 2019 on a pro forma basis to give effect to the transactions described under Prospectus summaryRestructuring, and 72,400,000 shares of common stock outstanding after the completion of this offering, assuming no exercise of the underwriters option to purchase additional shares, (ii) exclude any shares of our common stock that our directors and executive officers may purchase through the directed share program described in the section titled Underwriting (conflict of interest), and (iii) are based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). Unless otherwise indicated, the address for each listed beneficial owner is: c/o AssetMark Financial Holdings, Inc., 1655 Grant Street, 10 th Floor, Concord, California, 94520. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
137
Pro forma shares
beneficially owned before this offering |
Number of shares sold
in this offering |
Shares beneficially owned after this offering | ||||||||||||||||||||||||||||||
Name and address of
beneficial owner |
Number |
Percent
(%) |
Excluding
exercise of option to purchase additional shares |
Including
exercise of option to purchase additional shares |
Excluding exercise of
option to purchase additional shares |
Including exercise of
option to purchase additional shares |
||||||||||||||||||||||||||
Number |
Percent
(%) |
Number |
Percent
(%) |
|||||||||||||||||||||||||||||
5% or greater stockholders and selling stockholder: |
||||||||||||||||||||||||||||||||
Huatai International Investment Holdings Limited (1) |
59,330,798 | 89.7% | 6,250,000 | 8,125,000 |
|
53,080,798 |
|
73.3% | 51,205,798 | 70.7% | ||||||||||||||||||||||
Directors and Named Executive Officers |
||||||||||||||||||||||||||||||||
Charles Goldman (2) |
2,671,023 | 4.0% | | | 2,671,023 | 3.7% | 2,671,023 | 3.7% | ||||||||||||||||||||||||
Rohit Bhagat |
45,125 | * | | | 45,125 | * | 45,125 | * | ||||||||||||||||||||||||
Patricia Guinn |
| | | | | | | | ||||||||||||||||||||||||
Bryan Lin |
| | | | | | | | ||||||||||||||||||||||||
Xiaodan Liu |
| | | | | | | | ||||||||||||||||||||||||
Ying Sun |
| | | | | | | | ||||||||||||||||||||||||
Yi Zhou |
| | | | | | | | ||||||||||||||||||||||||
Jeremiah Chafkin |
528,063 | * | | | 528,063 | * | 528,063 | * | ||||||||||||||||||||||||
Michael Kim |
359,348 | * | | | 359,348 | * | 359,348 | * | ||||||||||||||||||||||||
All Directors and Executive Officers as a Group (14 persons) |
5,205,648 | 7.9% | | | 5,205,648 | 7.2% | 5,205,648 | 7.2% | ||||||||||||||||||||||||
|
* | Represents beneficial ownership of less than 1%. |
(1) | HIIHL has sole voting and dispositive power over the shares it holds. The principal business address of HIIHL is PO Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands. |
(2) | Mr. Goldman has sole voting and dispositive power over all shares that he beneficially owns. Includes 294,427 shares of our common stock held by Tulie LLC, a Delaware limited liability company of which Mr. Goldman is the manager. |
138
The following descriptions are summaries of the material terms of our capital stock, as expected to be in effect upon the pricing of this offering. We filed an amended and restated certificate of incorporation on July 5, 2019, and we expect to adopt amended and restated bylaws in connection with the pricing of this offering; and these descriptions summarize the provisions that are included or expected to be included in such documents. Reference is made to the more detailed provisions of, and the descriptions are qualified in their entirety by reference to, these documents, copies of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part, and applicable law.
General
Following this offering, our authorized capital stock will consist of 675,000,000 shares of common stock, par value $0.001 per share, and 75,000,000 shares of preferred stock, par value $0.001 per share.
Common stock
Common stock outstanding . As of March 31, 2019 there were 7,794,876.4281 units in AssetMark Holdings LLC outstanding which were held of record by 40 unitholders. Immediately following the consummation of this offering, we will have 72,400,000 shares of common stock outstanding, after giving effect to the transactions described under Prospectus summaryRestructuring and the sale of the shares of common stock offered hereby, assuming no exercise of the underwriters option to purchase additional shares and based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus). The shares of common stock that will be outstanding upon completion of this offering will be fully paid and non-assessable.
Voting rights . The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.
Dividend rights . Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. See the section titled Dividend policy.
Rights upon liquidation . In the event of our liquidation, dissolution or winding up, the holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.
Other rights . The holders of our common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock.
Preferred stock
Our board of directors has the authority to issue the preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders.
139
The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of AssetMark without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. At present, no shares of preferred stock are outstanding and we have no plans to issue any of the preferred stock.
Registration rights
The Registration Rights Agreement to be in effect upon the pricing of this offering grants to HIIHL, a holder of more than 5% of our outstanding capital stock and an affiliate of certain of our directors, certain registration rights with respect to its shares of our common stock (the registrable securities), subject to certain exceptions. All 53,080,798 shares of our common stock held by HIIHL upon completion of the transactions described in the section titled Prospectus summaryRestructuring and upon completion of this offering (assuming no exercise by the underwriters of their option to purchase additional shares and based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus) are entitled to the registration rights described below. The registration of shares of our common stock pursuant to the exercise of such registration rights would enable HIIHL to sell these shares without restriction under the Securities Act when the applicable registration statement is declared effective. We will pay the registration expenses, other than underwriting discounts and commissions and internal administrative and similar costs of the selling stockholder, of HIIHL associated with the registrable securities registered pursuant to the demand and piggyback registration rights described below.
Generally, in an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include. The demand and piggyback registration rights described below will expire on the first date on which neither HIIHL nor an HIIHL affiliate to which HIIHL has transferred or assigned all or a portion of its rights under the Registration Rights Agreement holds any registrable shares.
Demand registration rights . At any time following the pricing of this offering, parties to the Registration Rights Agreement holding in the aggregate at least 25% of the registrable securities then outstanding may request that we file a registration statement to register the offer and sale of their registrable securities. We are not required to effect a demand registration unless the aggregate gross proceeds expected to be received from the sale of the registrable shares by the requesting holders equals or exceeds $60,000,000, and we are not required to support more than one demand registration in any rolling six-month period or more than four demand registrations in total (other than demand registrations to be effected pursuant to a registration statement on Form S-3, for which an unlimited total number of demand registrations are permitted). We have the right to defer a demand registration in certain circumstances once during any period of six consecutive months and for not more than 180 days in any 12-month period.
Piggyback registration rights . If, at any time following the pricing of this offering, we propose to register the offer and sale of shares of our common stock or other equity securities under the Securities Act, other than with respect to a demand registration, a registration statement on Form S-4, Form S-8 or similar forms, and certain other exceptions, the holders of registrable securities are entitled to notice of the registration and have the right to include their registrable securities in such registration, subject to certain marketing and other limitations, including limitations that the underwriters may impose on the number of share included in the offering.
140
The foregoing summary is qualified in its entirety by reference to the Registration Rights Agreement, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part.
Anti-takeover provisions
Some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make the following more difficult:
|
acquisition of control of us by means of a proxy contest or otherwise, or |
|
removal of our incumbent officers and directors. |
These provisions, as well as our ability to issue preferred stock, are designed to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us, and that the benefits of this increased protection outweigh the disadvantages of discouraging those proposals, because negotiation of those proposals could result in an improvement of their terms.
Election of directors; no cumulative voting. Our board of directors will consist of seven directors, or such other number as determined from time to time by our board of directors. Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our amended and restated certificate of incorporation does not authorize cumulative voting.
Removal of directors; vacancies. Our amended and restated certificate of incorporation provides that directors may be removed with or without cause so long as HTSC or any of its affiliates collectively own at least 50% of the voting power of the stock of our company entitled to vote generally in the election of directors, and that directors may only be removed for cause, and only by the affirmative vote of holders of at least a majority of all outstanding shares of stock of our company entitled to vote thereon, voting together as a single class, if HTSC or any of its affiliates collectively own less than 50% in voting power of the stock of our company entitled to vote generally in the election of directors. Any vacancy occurring on the board of directors and any newly created directorship may be filled only by a majority of the remaining directors in office.
Staggered board. In connection with this offering, our board of directors will be will be divided into three classes serving staggered three-year terms. Class I, Class II and Class III directors will serve until our annual meetings of stockholders in 2020, 2021 and 2022 respectively. At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired. This classification of our board of directors could have the effect of increasing the length of time necessary to change the composition of a majority of the board of directors. In general, at least two annual meetings of stockholders will be necessary for stockholders to effect a change in a majority of the members of the board of directors.
Limits on written consents. Our amended and restated certificate of incorporation provides that holders of our common stock will not be able to act by written consent without a meeting, at any time when HTSC or any of its affiliates collectively own less than 50% in voting power of the stock of our company entitled to vote generally in the election of directors.
141
Special stockholder meetings. Our amended and restated certificate of incorporation and our amended and restated bylaws provide that special meetings of our stockholders may be called only by the chairman of our board of directors or a majority of the directors. Our amended and restated certificate of incorporation and our amended and restated bylaws prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting; provided, however, that so long as HTSC or any of its affiliates collectively own at least 50% of the voting power of the stock of our company entitled to vote generally in the election of directors, any action required or permitted to be taken at an annual or special meeting may be taken by written consent without a meeting, without prior notice and without a vote.
Amendment of certificate of incorporation. The provisions of our amended and restated certificate of incorporation described under Election of directors; no cumulative voting, Removal of directors; vacancies, Staggered board, Limits on written consents, Special stockholder Meetings and the voting thresholds described in this section may be amended, altered, repealed or rescinded only by the affirmative vote of the holders of at least two-thirds in voting power of all outstanding shares of stock of our company entitled to vote thereon, voting together as a single class. The affirmative vote of holders of at least a majority of the voting power of our outstanding shares of stock will generally be required to amend other provisions of our certificate of incorporation.
Amendment of bylaws. Any amendment, alteration, rescission or repeal of certain provisions of our amended and restated bylaws will require either (i) the affirmative vote of a majority of directors present at any regular or special meeting of the board of directors called for that purpose; or (ii) the affirmative vote of the holders of two-thirds of the voting power of our outstanding shares of voting stock, voting together as a single class.
Delaware business combination statute. From and after the time at which HTSC and its affiliates own, in the aggregate, less than 15% of the voting power of all outstanding shares of the stock of our company entitled to vote generally in the election of directors, we will elect to be subject to Section 203 of the DGCL, which regulates corporate acquisitions. Section 203 prevents an interested stockholder, which is defined generally as a person owning 15% or more of a corporations voting stock, or any affiliate or associate of that person, from engaging in a broad range of business combinations with the corporation for three years after becoming an interested stockholder unless:
|
the board of directors of the corporation had previously approved either the business combination or the transaction that resulted in the stockholders becoming an interested stockholder; |
|
upon completion of the transaction that resulted in the stockholders becoming an interested stockholder, that person owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, other than statutorily excluded shares; or |
|
following the transaction in which that person became an interested stockholder, the business combination is approved by the board of directors of the corporation and holders of at least two-thirds of the outstanding voting stock not owned by the interested stockholder. |
Under Section 203, the restrictions described above also do not apply to specific business combinations proposed by an interested stockholder following the announcement or notification of designated extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporations directors, if such extraordinary transaction is approved or not opposed by a majority of the directors who were directors prior to any person becoming an
142
interested stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors.
Section 203 may make it more difficult for a person who would be an interested stockholder to effect various business combinations with a corporation for a three-year period. Section 203 also may have the effect of preventing changes in our management and could make it more difficult to accomplish transactions which our stockholders may otherwise deem to be in their best interests.
Other limitations on stockholder actions. Our amended and restated bylaws will also impose some procedural requirements on stockholders who wish to:
|
make nominations in the election of directors; |
|
propose that a director be removed; |
|
propose any repeal or change in our bylaws; or |
|
propose any other business to be brought before an annual or special meeting of stockholders. |
Under these procedural requirements, to bring a proposal before a meeting of stockholders, a stockholder must deliver timely notice of a proposal pertaining to a proper subject for presentation at the meeting to our corporate secretary along with the following:
|
a description of the business or nomination to be brought before the meeting and the reasons for conducting such business at the meeting; |
|
the stockholders name and address; |
|
any material interest of the stockholder in the proposal; |
|
the number of shares beneficially owned by the stockholder and evidence of such ownership; and |
|
the names and addresses of all persons with whom the stockholder is acting in concert and a description of all arrangements and understandings with those persons, and the number of shares such persons beneficially own. |
To be timely, a stockholder must generally deliver notice:
|
in connection with an annual meeting of stockholders, not less than 90 nor more than 120 days prior to the date on which the annual meeting of stockholders was held in the immediately preceding year, but in the event that the date of the annual meeting is more than 30 days before or more than 70 days after the anniversary date of the preceding annual meeting of stockholders, a stockholder notice will be timely if received by us not earlier than the 120th day prior to the annual meeting and not later than the close of business on the later of (1) the 90th day prior to the annual meeting and (2) the 10th day following the day on which we first publicly announce the date of the annual meeting; or |
|
in connection with the election of a director at a special meeting of stockholders, not less than 90 nor more than 120 days prior to the date of the special meeting, but in no event later than the 10th day following the day on which we first publicly announce the date of the special meeting and the nominees proposed by our board to be elected. |
143
To submit a nomination for our board of directors, a stockholder must also submit any information with respect to the nominee that we would be required to include in a proxy statement, as well as some other information. If a stockholder fails to follow the required procedures, the stockholders proposal or nominee will be ineligible and will not be voted on by our stockholders.
Limitation of liability of directors and officers
Our amended and restated certificate of incorporation provides that no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except as required by applicable law, as in effect from time to time. Currently, Delaware law requires that liability be imposed for the following:
|
any breach of the directors duty of loyalty to our company or our stockholders; |
|
any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; |
|
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; and |
|
any transaction from which the director derived an improper personal benefit. |
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the DGCL is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the DGCL.
As a result, neither we nor our stockholders have the right, through stockholders derivative suits on our behalf, to recover monetary damages against a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior, except in the situations described above.
Such limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.
Indemnification and insurance
Our amended and restated bylaws will provide that, to the fullest extent permitted by law, we will indemnify any officer or director of our company against all damages, claims and liabilities arising out of the fact that the person is or was our director or officer, or served any other enterprise at our request as a director, officer, employee, agent or fiduciary. Amending this provision will not reduce our indemnification obligations relating to actions taken before an amendment.
Further, our amended and restated certificate of incorporation provides that we will indemnify, to the fullest extent permitted by law, any person who is or was 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, by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated certificate of incorporation also provides that we must advance expenses incurred by or on behalf of a director
144
or officer, and that we may advance expenses incurred by or on behalf of an employee, trustee or agent, in advance of the final disposition of any civil or criminal action, suit or proceeding. In addition, we have entered into an indemnification agreement with each of our directors and executive officers. With certain exceptions, these agreements will provide for indemnification for related expenses including attorneys fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these provisions in our amended and restated certificate of incorporation and our amended and restated bylaws and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
We also maintain standard policies of insurance under which coverage is provided to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and to us with respect to payments which may be made by us to such directors and officers pursuant to the above indemnification provision or otherwise as a matter of law.
The indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, executive officers or persons controlling us, 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.
Forum selection
The Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, employees, agents or trustees to us or our stockholders, (iii) any action asserting a claim against us or any director or officer or other employee of ours arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim against us or any director or officer or other employee of ours that is governed by the internal affairs doctrine, in each case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. This exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.
Our amended and restated certificate of incorporation further provides that, to the fullest extent permitted by applicable law, the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the federal securities laws of the United States, subject to and contingent upon a final adjudication in the State of Delaware regarding the enforceability of such exclusive forum provision. The Court of Chancery of the State of Delaware recently determined that a provision stating that U.S. federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act is not enforceable. However, this decision may be reviewed and ultimately overturned by the Delaware Supreme Court.
145
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and consented to the foregoing forum selection provisions. These exclusive-forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons.
Listing
We have applied to list our common stock on the NYSE under the symbol AMK.
Transfer agent and registrar
The transfer agent and registrar for our common stock will be Computershare Trust Company, N.A. The transfer agent and registrars address is 250 Royall Street, Canton, Massachusetts 02021-1011.
146
Material U.S. federal tax considerations for non-U.S. holders of common stock
The following is a discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a non-U.S. holder. A non-U.S. holder is a beneficial owner of a share of our common stock that is, for U.S. federal income tax purposes:
|
a non-resident alien individual, other than a former citizen or resident of the United States subject to U.S. tax as an expatriate, or |
|
a foreign estate or trust. |
If a partnership or other pass-through entity (including an entity or arrangement treated as a partnership or other type of pass-through entity for U.S. federal income tax purposes) owns our common stock, the tax treatment of a partner or beneficial owner of the entity may depend upon the status of the owner, the activities of the entity and certain determinations made at the partner or beneficial owner level. Partners and beneficial owners in partnerships or other pass-through entities that own our common stock should consult their own tax advisers as to the particular U.S. federal income and estate tax consequences applicable to them.
This discussion is based on the Internal Revenue Code, and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein (possibly with retroactive effect). This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to non-U.S. holders in light of their particular circumstances and does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Prospective holders are urged to consult their tax advisers with respect to the particular tax consequences to them of owning and disposing of our common stock, including the consequences under the laws of any state, local or foreign jurisdiction.
Dividends
As discussed in Dividend policy above, we made a one-time cash distribution to AssetMark Holdings LLC in the fourth quarter of 2018 in the amount of $234 million. Any future determinations relating to our dividends and earnings retention policies will be made at the discretion of our board of directors, who will review such policies from time to time in light of our earnings, cash flow generation, financial position, results of operations, the terms of our indebtedness and other contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In the event that we do pay dividends out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), such dividends paid to a non-U.S. holder generally will be subject to U.S. federal withholding tax at a 30% rate, or a reduced rate specified by an applicable income tax treaty, subject to the discussion of Foreign Account Tax Compliance Act (FATCA) withholding taxes below. To obtain a reduced rate of withholding under an applicable income tax treaty, a non-U.S. holder generally will be required to provide a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, certifying its entitlement to benefits under the treaty. This certification must be provided to us or our withholding agent before the payment of dividends and must be updated periodically.
No amounts in respect of U.S. federal withholding tax will be withheld from dividends paid to a non-U.S. holder if the dividends are effectively connected with the non-U.S. holders conduct of a
147
trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States) and the non-U.S. holder provides a properly executed IRS Form W-8ECI. Instead, the effectively connected dividends will generally be subject to regular U.S. income tax as if the non-U.S. holder were a U.S. person as defined under the Internal Revenue Code. A non-U.S. holder that is a treated as a corporation for U.S. federal income tax purposes receiving effectively connected dividends may also be subject to an additional branch profits tax imposed at a rate of 30% (or a lower treaty rate) on its effectively connected earnings and profits (subject to certain adjustments).
Gain on disposition of common stock
Subject to the discussions of backup withholding and FATCA withholding taxes below, a non-U.S. holder generally will not be subject to U.S. federal income tax on gain realized on a sale or other disposition of our common stock unless:
|
the gain is effectively connected with a trade or business of the non-U.S. holder in the United States, subject to an applicable income tax treaty providing otherwise, in which case the gain will be subject to U.S. federal income tax generally in the same manner as effectively connected dividend income as described above; |
|
the non-U.S. holder is an individual present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met, in which case the gain (net of certain U.S.-source losses) generally will be subject to U.S. federal income tax at a rate of 30% (or a lower treaty rate); or |
|
we are or have been a United States real property holding corporation (as described below), at any time within the five-year period preceding the disposition or the non-U.S. holders holding period, whichever period is shorter, and either (i) our common stock is not regularly traded on an established securities market prior to the beginning of the calendar year in which the sale or disposition occurs or (ii) the non-U.S. holder has owned or is deemed to have owned, at any time within the five year period preceding the disposition or the non-U.S. holders holding period, whichever period is shorter, more than 5% of our common stock. |
We will be a United States real property holding corporation at any time that the fair market value of our United States real property interests, as defined in the Internal Revenue Code and applicable Treasury Regulations, equals or exceeds 50% of the aggregate fair market value of our worldwide real property interests and our other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). We believe that we are not, and do not anticipate becoming in the foreseeable future, a United States real property holding corporation.
Information reporting requirements and backup withholding
Information returns are required to be filed with the IRS in connection with payments of dividends. A non-U.S. holder may have to comply with certification procedures to establish that it is not a United States person to avoid additional information reporting and backup withholding. The certification procedures required to claim a reduced rate of withholding under a treaty will generally satisfy the certification requirements necessary to avoid backup withholding as well. The amount of any backup withholding from a payment to a non-U.S. holder will be allowed as a credit against the non-U.S. holders U.S. federal income tax liability and may entitle the non-U.S. holder to a refund, provided that the required information is furnished to the IRS in a timely manner.
148
FATCA withholding taxes
Payments to certain foreign entities of dividends on and, subject to the discussion below, the gross proceeds of dispositions of common stock of a U.S. issuer will be subject to a withholding tax (separate and apart from, but without duplication of, the withholding tax described above) at a rate of 30%, unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied or an exemption from these rules applies. Under applicable Treasury Regulations, this withholding tax currently applies to payments of dividends on our common stock, although under recently proposed Treasury Regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending their finalization), no withholding will apply to payments of gross proceeds from a sale or other disposition of our common stock. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Non-U.S. holders should consult their tax advisers regarding the possible implications of this withholding tax on their investment in our common stock.
Federal estate tax
Individual non-U.S. holders (as specifically defined for U.S. federal estate tax purposes) and entities the property of which is potentially includible in such an individuals gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that our common stock will be treated as U.S. situs property subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
149
Shares eligible for future sale
Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have 72,400,000 shares of common stock outstanding. Of these shares, 12,500,000 shares, or 14,375,000 shares if the underwriters exercise their option to purchase additional shares in full, sold in this offering will be freely transferable without restriction or registration under the Securities Act, except for any shares purchased by one of our existing affiliates, as that term is defined in Rule 144 under the Securities Act, and any shares purchased in this offering by our directors and executive officers in the directed share program described in the section titled Underwriting (conflict of interest), by participants in the directed share program who purchase more than $100,000 of shares or by other participants who are otherwise restricted from selling such shares by Rule 144 under the Securities Act. The remaining approximately 59,900,000 shares of common stock outstanding are restricted shares as defined in Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration, including under Rules 144 or 701 of the Securities Act. As a result of the contractual 180-day lock-up period described below and the provisions of Rules 144 and 701 of the Securities Act, these shares will be available for sale in the public market as follows:
|
all the shares of common stock sold in this offering, except for any shares purchased by our affiliates and any shares purchased in this offering by our directors and executive officers in our directed share program or by other participants in the directed share program who purchase more than $100,000 of shares, will be eligible for immediate sale upon the closing of this offering; and |
|
the remaining approximately 59,900,000 shares of common stock will be eligible for sale in the public market upon expiration of lock-up agreements 180 days after the date of this prospectus, subject in certain circumstances to the volume, manner of sale and other limitations under Rule 144 and Rule 701 and, in the case of the RSAs, the vesting conditions applicable to such RSAs. |
Rule 144
In general, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell such securities in reliance upon Rule 144, provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three month period only a number of securities that does not exceed the greater of either of the following:
|
1% of the number of shares of our common stock then outstanding, which will equal approximately 724,000 shares immediately after this offering; or |
150
|
the average weekly trading volume of our common stock on the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale; |
provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144 to the extent applicable.
The foregoing share counts assume an initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus).
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisers 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 resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements or other restrictions contained in Rule 701.
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. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than affiliates, as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its one-year minimum holding period requirement.
Registration rights
Upon completion of this offering and based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), HIIHL, the holder of 53,080,798 shares of our common stock, or 51,205,798 shares if the underwriters exercise their option to purchase additional shares in full, and its transferees will be entitled to various rights with respect to the registration of these shares under the Securities Act described in the section titled Description of capital stockRegistration rights. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates.
Restricted stock awards and stock options
As of March 31, 2019, no options to purchase units of AssetMark Holdings LLC or our common stock were outstanding. Upon and following the pricing of this offering, we intend to issue options to purchase 909,688 shares of our common stock and RSUs covering 94,721 shares of our common stock to certain of our officers, employees and directors, based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover of this prospectus), in addition to the RSAs to be distributed in connection with the transactions described in the section titled Prospectus summaryRestructuring. All of the shares subject to such options, RSUs and RSAs would be subject to lock-up agreements. An additional 4,792,970 shares of common stock would be available for future grants under our stock plans, based on an assumed initial public offering price of $20.00 per share (the midpoint of the range set forth on the cover of this prospectus).
151
Upon completion of this offering, we intend to file a registration statement under the Securities Act covering all shares of common stock subject to outstanding options or issuable pursuant to our 2019 Equity Incentive Plan. Subject to Rule 144 volume limitations applicable to affiliates, shares registered under any registration statements will be available for sale in the open market, beginning 90 days after the date of the prospectus, except to the extent that the shares are subject to vesting restrictions with us or the contractual restrictions described below.
Lock-up agreements
All of our directors and executive officers and substantially all of our equityholders have agreed, and each participant in our directed share program who purchases more than $100,000 of shares will agree (with respect to such purchased shares), subject to certain exceptions, not to 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, or otherwise transfer or dispose of, directly or indirectly, 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 any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of our or certain of our affiliates equity securities for a period of 180 days after the date of this prospectus, without the prior written consent of the representatives of the underwriters. See the section titled Underwriting (conflict of interest).
152
Underwriting (conflict of interest)
We and the selling stockholder are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC are acting as joint book-running managers of the offering and as representatives of the underwriters. We and the selling stockholder have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we and the selling stockholder have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
Name | Number of shares | |||
J.P. Morgan Securities LLC |
||||
Goldman Sachs & Co. LLC |
||||
Credit Suisse Securities (USA) LLC |
||||
Huatai Securities (USA), Inc. |
||||
BMO Capital Markets Corp. |
||||
Raymond James & Associates, Inc. |
||||
William Blair & Company, L.L.C. |
||||
|
|
|||
Total |
12,500,000 | |||
|
The underwriters are committed to purchase all the shares of common stock offered by us and the selling stockholder if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
The underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares to the public, if all of the shares of common stock are not sold at the initial public offering price, the underwriters may change the offering price and the other selling terms. Sales of shares made outside of the United States may be made by affiliates of the underwriters.
The underwriters have an option to buy up to 1,875,000 additional shares of common stock from the selling stockholder to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option to purchase additional shares, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
At our request, the underwriters have reserved up to 5% of the shares offered by this prospectus for sale at the initial public offering price for our directors, officers, certain of our employees and certain other persons associated with us who have expressed an interest in purchasing common stock in this offering. The sales will be made at our direction by J.P. Morgan Securities LLC and its affiliates through a directed share program. The number of shares available for sale to the general public in this
153
offering will be reduced to the extent that such participants purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. Our directors and executive officers and each participant in the directed share program who purchases more than $100,000 of shares in this program have agreed that any shares purchased through this program will be subject to a 180-day lock-up restriction on the terms described below; other participants in this program will not be subject to lock-up restrictions with the underwriters or with us with respect to any shares purchased through the program. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sale of the shares reserved for the directed share program.
The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us and the selling stockholder per share of common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Per share |
Total without
exercise of option to purchase additional shares |
Total with full
exercise of option to purchase additional shares |
||||||||||
Shares sold by us |
$ | $ | $ | |||||||||
Shares sold by the selling stockholder |
$ | $ | $ | |||||||||
Total |
$ | $ | $ | |||||||||
|
We and the selling stockholder estimate that the total expenses of this offering payable by us, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts and commissions, will be approximately $4,000,000. We have also agreed to reimburse the underwriters for reasonable fees and expenses of counsel related to the review by FINRA of the terms of sale of the shares of common stock offered hereby in an amount not to exceed $40,000.
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed, subject to specified limited exceptions, that we will not (i) offer, pledge, announce the intention to sell, 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 or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC, during the period ending on and including the 180th day after the date of this prospectus.
154
Our directors and executive officers, the selling stockholder, holders of substantially all of our outstanding stock and securities convertible into or exchangeable or exercisable for our common stock and each participant who purchases more than $100,000 of shares in the directed share program (with regard to the shares purchased through such program) have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with specified limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC, (1) 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, or otherwise transfer or dispose of, directly or indirectly, any shares of our or certain of our affiliates equity securities or any securities convertible into or exercisable or exchangeable for our or certain of our affiliates equity securities (including, without limitation, common stock or such other securities, which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant), (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our or certain of our affiliates equity securities, or any security convertible into or exercisable or exchangeable for our or certain of our affiliates equity securities.
We and the selling stockholder have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
We have applied to have our common stock approved for listing on the NYSE under the symbol AMK.
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters option to purchase additional shares referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. 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 that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters
155
purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discounts and commissions received by them.
These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us, the selling stockholder and the representatives of the underwriters. In determining the initial public offering price, we, the selling stockholder and the representatives of the underwriters expect to consider a number of factors including:
|
the information set forth in this prospectus and otherwise available to the representatives; |
|
our prospects and the history and prospects for the industry in which we compete; |
|
an assessment of our management; |
|
our prospects for future earnings; |
|
the general condition of the securities markets at the time of this offering; |
|
the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
|
other factors deemed relevant by the underwriters and us. |
Neither we, the selling stockholder nor the underwriters can assure investors that an active trading market will develop for our shares of common stock, or that the shares will trade in the public market at or above the initial public offering price.
Conflict of interest
We and Huatai Securities (USA), Inc., an underwriter in this offering, are under common control by HTSC. As such, Huatai Securities (USA), Inc. is deemed to have a conflict of interest under Rule 5121(f)(5)(B) of FINRA. In addition, affiliates of Huatai Securities (USA), Inc. and Credit Suisse Securities (USA) LLC will each receive more than 5% of the net offering proceeds from this offering and will each be deemed to have a conflict of interest pursuant to FINRA Rule 5121(f)(5)(C). Accordingly, this offering is being made in compliance with the requirements of FINRA Rule 5121, pursuant to which the appointment of a qualified independent underwriter is not required in connection with this offering as the FINRA members primarily responsible for managing the public offering do not have a conflict of interest, are not affiliates of any FINRA member that has a conflict of interest and meet the requirements of FINRA Rule 5121(f)(12)(E). Neither Huatai Securities (USA), Inc. nor Credit Suisse Securities (USA) LLC will confirm sales of common stock to any account over which they exercise discretionary authority without the specific written approval of the account holder.
Other relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory,
156
investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses. For example, Credit Suisse AG, Cayman Islands Branch, an affiliate of Credit Suisse Securities (USA) LLC, serves as administrative agent and collateral agent under our Credit Facility and will receive a portion of the net proceeds received by us in this offering due to the use of proceeds from this offering contemplating the repayment of indebtedness incurred under the Term Loan.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Selling restrictions
Other than in the United States, no action has been taken by us, the selling stockholder or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Notice to prospective investors in Canada
The shares 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 shares 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 purchasers province or
157
territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers 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.
Notice to prospective investors in the European Economic Area
In relation to each Member State of the European Economic Area (each, a Relevant Member State), no offer of shares may be made to the public in that Relevant Member State other than:
|
to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
|
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; or |
|
in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares shall require us or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. |
Each person in a Relevant Member State who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the representatives and us that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
We, the selling stockholder, the representatives and their respective affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
This prospectus has been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for us or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither we, the selling stockholder nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for us or the underwriters to publish a prospectus for such offer.
For the purposes of this provision, the expression an offer of shares to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor
158
to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC (as amended by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State.
Notice to prospective investors in the United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order), and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the shares in the United Kingdom within the meaning of the Financial Services and Markets Act 2000.
Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.
Notice to prospective investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaning of, and has been prepared without regard to the disclosure standards for issuance prospectuses under, art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company or the shares has been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to prospective investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement,
159
invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, 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 of Hong Kong (except if permitted to do so under the securities 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 as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to prospective investors in 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 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 pursuant to Section 275(1), 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.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) 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 of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(a) | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(b) | where no consideration is or will be given for the transfer; |
(c) | where the transfer is by operation of law; |
(d) | as specified in Section 276(7) of the SFA; or |
(e) | as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Notice to prospective investors in Japan
The shares have not been and will not be registered pursuant to Article 4, Paragraph 1 of the Financial Instruments and Exchange Act. Accordingly, none of the shares nor any interest therein may be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which
160
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 or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan in effect at the relevant time.
Notice to prospective investors in the Peoples Republic of China
This prospectus may not be circulated or distributed in the PRC and the shares may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of the PRC except pursuant to applicable laws, rules and regulations of the PRC. For the purpose of this paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
Notice to prospective investors in Taiwan
The shares have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be sold, issued or offered within Taiwan through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Act of Taiwan that requires a registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer, sell, give advice regarding or otherwise intermediate the offering and sale of the shares in Taiwan.
161
The validity of the issuance of the shares of common stock offered hereby will be passed upon for AssetMark Financial Holdings, Inc. and the selling stockholder by Davis Polk & Wardwell LLP, Menlo Park, California. Cooley LLP, Palo Alto, California is representing the underwriters.
The consolidated financial statements of AssetMark Financial Holdings, Inc. and its subsidiaries as of December 31, 2017 and for the year then ended included in this prospectus have been so included in reliance on the report of Crowe LLP, independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of AssetMark Financial Holdings, Inc. and its subsidiaries as of December 31, 2018, and for the year then ended, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
Where you can find more information
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to our company and our common stock, reference is made to the registration statement and the exhibits and any schedules filed therewith. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance, if such contract or document is filed as an exhibit, reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by such reference. The SEC maintains an Internet site at www.sec.gov, which contains reports and other information about issuers that, like us, file electronically with the SEC. Interested persons can visit www.sec.gov to electronically access such reports and information, as well as the registration statement of which this prospectus constitutes a part, including the exhibits and any schedules thereto.
As a result of the offering, we will be required to file periodic reports, proxy and information statements and other information with the SEC. These periodic reports, proxy and information statements and other information will be available for inspection and copying at the website of the SEC referred to above.
We also maintain an Internet site at www.assetmark.com. Our website and the information contained in or accessible through our website shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part, and the inclusion of our website address in this prospectus is only as an inactive textual reference.
162
AssetMark Financial Holdings, Inc.
Index to Consolidated Financial Statements
Audited Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017
Pages | ||||
Report of KPMG LLP, Independent Registered Public Accounting Firm |
F-2 | |||
Report of Crowe LLP, Independent Registered Public Accounting Firm |
F-3 | |||
Consolidated Financial Statements |
||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 |
Unaudited Interim Condensed Consolidated Financial Statements for the Three Months Ended March 31, 2019 and 2018:
Condensed Consolidated Financial Statements |
||||
F-28 | ||||
F-29 | ||||
F-30 | ||||
F-31 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements |
F-32 |
F-1
Report of KPMG LLP, Independent Registered Public Accounting Firm
The Shareholder and the Board of Directors
AssetMark Financial Holdings, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of AssetMark Financial Holdings, Inc. and its subsidiaries (the Company) as of December 31, 2018, the related consolidated statements of income and comprehensive income, stockholders equity, and cash flows for the year ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Companys auditor since 2007.
/s/ KPMG LLP
San Francisco, California
March 11, 2019, except as to
note 15, which is as of July 8, 2019
F-2
Report of Crowe LLP, Independent Registered Public Accounting Firm
Board of Directors of AssetMark Financial Holdings, Inc.
Concord, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of AssetMark Financial Holdings, Inc. (the Company) as of December 31, 2017, the related consolidated statements of income and comprehensive income, changes in stockholders equity, and cash flows for the year ended December 31, 2017, and the related notes to the consolidated financial statements (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Crowe LLP
We were engaged in 2018 to audit the 2017 financial statements.
New York, New York
March 11, 2019, except as to note 15, which is as of July 8, 2019
F-3
AssetMark Financial Holdings, Inc.
December 31, | ||||||||
(in thousands except share data and par value) | 2018 | 2017 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 105,354 | $ | 50,147 | ||||
Restricted cash |
7,000 | 7,000 | ||||||
Available-for-sale investments, at fair value |
333 | 38 | ||||||
Fees and other receivables |
8,760 | 7,311 | ||||||
Federal income tax receivable |
586 | | ||||||
State income tax receivable |
332 | 670 | ||||||
Other current assets |
4,391 | 3,367 | ||||||
|
|
|||||||
Total current assets |
126,756 | 68,533 | ||||||
Property and equipment, net of accumulated depreciation of $3,817 and $1,754, respectively |
7,040 | 7,068 | ||||||
Capitalized software, net of accumulated amortization of $40,191 and $20,185, respectively |
72,644 | 77,271 | ||||||
Intangible assets, net of accumulated amortization of $8,740 and $4,706, respectively |
642,420 | 646,454 | ||||||
Goodwill |
298,415 | 298,415 | ||||||
|
|
|||||||
Total assets |
$ | 1,147,275 | $ | 1,097,741 | ||||
|
|
|||||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 730 | $ | 2,292 | ||||
Accrued expenses and other current liabilities |
38,200 | 31,956 | ||||||
Payable to AssetMark Holdings LLC |
| 3,040 | ||||||
Federal income tax payable |
| 3,154 | ||||||
Current portion of long-term debt |
2,305 | | ||||||
Current portion of acquisition earn-out |
8,000 | 8,000 | ||||||
|
|
|||||||
Total current liabilities |
49,235 | 48,442 | ||||||
Long-term debt |
242,817 | | ||||||
Other long-term liabilities |
5,097 | 14,224 | ||||||
Deferred income tax liabilities, net |
151,115 | 149,117 | ||||||
|
|
|||||||
Total long-term liabilities |
399,029 | 163,341 | ||||||
Total liabilities |
$ | 448,264 | $ | 211,783 | ||||
|
|
|||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock $0.001 par value (675,000,000 shares authorized, and 66,150,000 shares issued) |
66 | 66 | ||||||
Additional paid-in capital |
635,096 | 784,464 | ||||||
Retained earnings |
63,846 | 101,420 | ||||||
Accumulated other comprehensive income, net of tax |
3 | 8 | ||||||
|
|
|||||||
Total stockholders equity |
699,011 | 885,958 | ||||||
|
|
|||||||
Total liabilities and stockholders equity |
$ | 1,147,275 | $ | 1,097,741 | ||||
|
See accompanying notes to the consolidated financial statements.
F-4
AssetMark Financial Holdings, Inc.
Consolidated Statements of Income and Comprehensive Income
For the Years ended December 31, | ||||||||
(in thousands) | 2018 | 2017 | ||||||
Revenue |
||||||||
Asset-based revenue |
$ | 338,031 | $ | 282,966 | ||||
Spread based-revenue |
20,403 | 10,430 | ||||||
Other revenue |
5,200 | 2,121 | ||||||
|
|
|||||||
Total revenue |
363,634 | 295,517 | ||||||
Expenses |
||||||||
Asset-based expenses |
116,763 | 98,401 | ||||||
Spread-based expenses |
1,671 | 976 | ||||||
Employee compensation |
107,091 | 105,413 | ||||||
General and operating expenses |
45,383 | 38,781 | ||||||
Professional fees |
10,139 | 9,622 | ||||||
Interest |
1,920 | | ||||||
Depreciation and amortization |
26,104 | 22,981 | ||||||
|
|
|||||||
Total expenses |
309,071 | 276,174 | ||||||
Income before income taxes |
54,563 | 19,343 | ||||||
Provision for (benefit from) income taxes |
17,137 | (79,635 | ) | |||||
|
|
|||||||
Net income |
$ | 37,426 | $ | 98,978 | ||||
Other comprehensive income, net of tax |
||||||||
Unrealized (loss) gain on available for sale investments, net of tax |
(5 | ) | 8 | |||||
|
|
|||||||
Net comprehensive income |
$ | 37,421 | $ | 98,986 | ||||
Net income per share, basic |
$ | 0.57 | $ | 1.50 | ||||
|
|
|
|
|||||
Weighted-average shares outstanding used in calculating net income per share, basic |
66,150,000 | 66,150,000 | ||||||
|
|
|
|
|||||
|
See accompanying notes to the consolidated financial statements.
F-5
AssetMark Financial Holdings, Inc.
Consolidated Statements of Changes in Stockholders Equity
For the Years ended December 31, 2018 and 2017
Common stock |
Additional
paid-in capital |
Retained
earnings |
Accumulated
other comprehensive income |
Total
stockholders equity |
||||||||||||||||||||
(in thousands except
share data) |
Shares | Amount | ||||||||||||||||||||||
Balance at December 31, 2016 |
66,150,000 | $ | 66 | $ | 777,544 | $ | 2,442 | $ | | $ | 780,052 | |||||||||||||
Net income |
| | | 98,978 | | 98,978 | ||||||||||||||||||
Other comprehensive income, net |
| | | | 8 | 8 | ||||||||||||||||||
Share-based employee compensation |
| | 6,920 | | | 6,920 | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at December 31, 2017 |
66,150,000 | 66 | 784,464 | 101,420 | 8 | 885,958 | ||||||||||||||||||
Net income |
| | | 37,426 | | 37,426 | ||||||||||||||||||
Other comprehensive income, net |
| | | | (5 | ) | (5 | ) | ||||||||||||||||
Share-based employee compensation |
| | 6,568 | | | 6,568 | ||||||||||||||||||
Capital contribution |
| | 2,910 | | | 2,910 | ||||||||||||||||||
Return of capital |
| | (158,846 | ) | | | (158,846 | ) | ||||||||||||||||
Dividends |
| | | (75,000 | ) | | (75,000 | ) | ||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at December 31, 2018 |
66,150,000 | $ | 66 | $ | 635,096 | $ | 63,846 | $ | 3 | $ | 699,011 | |||||||||||||
|
See accompanying notes to the consolidated financial statements.
F-6
AssetMark Financial Holdings, Inc.
Consolidated Statements of Cash Flows
For the Years ended December 31, | ||||||||
(in thousands) | 2018 | 2017 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 37,426 | $ | 98,978 | ||||
Adjustment to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
26,104 | 22,981 | ||||||
Deferred income taxes |
1,736 | (88,688 | ) | |||||
Share-based compensation |
6,568 | 6,920 | ||||||
Change in certain assets and liabilities: |
||||||||
Fees and other receivables |
(1,449 | ) | (43 | ) | ||||
Payable to AssetMark Holdings LLC |
(130 | ) | 225 | |||||
Other current assets |
(1,024 | ) | (730 | ) | ||||
Accounts payable, accrued expenses and other current liabilities |
(4,167 | ) | 2,228 | |||||
Income tax receivable and payable |
(3,402 | ) | 3,741 | |||||
|
|
|||||||
Net cash provided by operating activities |
61,662 | 45,612 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of available-for-sale investments |
(300 | ) | | |||||
Purchase of property and equipment |
(2,034 | ) | (2,709 | ) | ||||
Purchase of computer software |
(15,380 | ) | (12,943 | ) | ||||
|
|
|||||||
Net cash used in investing activities |
(17,714 | ) | (15,652 | ) | ||||
Cash flows from financing activities: |
||||||||
Capital distributions |
(158,846 | ) | | |||||
Dividends paid |
(75,000 | ) | | |||||
Proceeds from issuance of long-term debt |
245,105 | | ||||||
|
|
|||||||
Net cash provided by financing activities |
11,259 | | ||||||
Net change in cash, cash equivalents, and restricted cash |
55,207 | 29,960 | ||||||
Cash, cash equivalents, and restricted cash at beginning of period |
57,147 | 27,187 | ||||||
|
|
|||||||
Cash, cash equivalents, and restricted cash at end of period |
$ | 112,354 | $ | 57,147 | ||||
|
|
|||||||
Supplemental cash flow information |
||||||||
Income taxes paid |
$ | 19,497 | $ | 4,773 | ||||
Interest paid |
$ | 1,258 | $ | | ||||
|
See accompanying notes to the consolidated financial statements.
F-7
AssetMark Financial Holdings, Inc.
Notes to Consolidated Financial Statements
For the Years ended December 31, 2018 and 2017
All dollar amounts presented are in thousands other than per share and per unit amounts.
(1) Organization and Nature of Business
These consolidated financial statements include AssetMark Financial Holdings, Inc. and its subsidiaries, which include AssetMark Financial, Inc., which is the parent company of AssetMark, Inc., AssetMark Trust Company, AssetMark Brokerage, LLC, and AssetMark Retirement Services, Inc. (collectively, the Company).
The Companys legal entity structure as of December 31, 2018 and 2017:
The Company is a wholly owned subsidiary of AssetMark Holdings LLC (AssetMark Holdings), which was organized for the purpose of acquiring the Company effective October 31, 2016. AssetMark Holdings is 98.58% owned by affiliates of Huatai Securities (Huatai) and 1.42% owned by management. The Company was acquired from the private equity firms Aquiline Capital Partners LLC and Genstar Capital LLC.
The Company offers a broad array of wealth management solutions to individual investors through financial advisers by providing an open-architecture product platform along with tailored client advice, asset allocation options, practice management, support services and technology to the financial adviser channel.
AssetMark, Inc. (AMI) is a Registered Investment Advisory firm located in Concord, CA and was incorporated under the laws of the State of California on May 13, 1999. AMI offers a broad array of
F-8
wealth management solutions to individual investors through financial advisers by providing an open-architecture product platform along with tailored client advice, asset allocation options, practice management, support services and technology to the financial adviser channel.
AMI serves as investment adviser to the proprietary GuideMark Funds, GuidePath Funds and the Savos Dynamic Hedging Fund. The GuideMark and GuidePath Funds and the Savos Dynamic Hedging Fund are mutual funds offered to clients of financial advisers.
AssetMark Trust Company (AssetMark Trust) is a licensed trust company incorporated under the laws of the State of Arizona on August 24, 1994 and regulated by the Arizona Department of Financial Institutions. AssetMark Trust provides custodial recordkeeping services primarily to investor clients of registered investment advisers (including AMI) located throughout the United States.
AssetMark Brokerage, LLC is a limited-purpose broker-dealer located in Concord, CA and was incorporated under the laws of the State of Delaware on September 25, 2013. Its primary function is to distribute the mutual funds of the Company and to sponsor the FINRA licensing of those AssetMark associates who provide distribution support through promotion of the AssetMark programs and strategies that employ the Companys mutual funds.
AssetMark Retirement Services, Inc. (ARS), formerly known as Aris Corporation of America, was incorporated under the laws of the State of Pennsylvania on April 30, 1974. ARS serves as the record-keeper and third-party administrator for the Aris Retirement product, which are 401(k) or 403(b) investment offerings utilized by small businesses.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
Certain prior year balances have been reclassified to conform with the current year presentation. Service and management fee revenue consists primarily of fees assessed against customer account values based on selling agent agreements. These fee revenues were re-classified as asset-based revenue and spread-based revenue during 2018. Custodial fees are primarily based on percentages of the market value of the assets in custody. These fees were re-classified as asset-based revenue during 2018.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to intangible assets and goodwill, useful lives of intangible assets and property and
F-9
equipment, internal use software, income taxes and contingent liabilities, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Segment Information
The Company operates as one operating segment. The Companys chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources.
Concentration of Credit Risk and Significant Clients and Suppliers
The Companys financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company deposits its cash primarily with one financial institution, and accordingly, such deposits regularly exceed federally insured limits.
Geographic Information
All of the Companys revenue was generated in the United States.
All of the Companys property and equipment was located in the United States.
No single customer accounted for more than 10% of the Companys revenue in any of the periods presented. There were two customers that represented 43% and 51% of the Companys accounts receivable balance as of December 31, 2018 and 2017, respectively.
Cash, Cash Equivalents, and Restricted Cash
Certificates of deposit, money market funds and other time deposits with original maturities of three months or less are considered cash equivalents.
Restricted cash consists of certificate of deposits the Company maintains in liquid capital in accordance to Arizona Revised Statutes requirements governing trust companies. See note 13 for details regarding capital requirements.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
December 31,
2018 |
December 31,
2017 |
|||||||
Cash and cash equivalents |
$ | 105,354 | $ | 50,147 | ||||
Restricted cash |
7,000 | 7,000 | ||||||
|
|
|||||||
Total cash, cash equivalents and restricted cash shown in the statements of cash flows |
$ | 112,354 | $ | 57,147 | ||||
|
Investment Securities
The Companys investments comprise equity investment and alternative investment securities funds. The Company determined the appropriate classification of its investment securities at the time of
F-10
purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its investments as available for sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. Available-for-sale investment securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, are reported as a separate component of accumulated other comprehensive income until realized. Realized gains and losses from the sales are determined on a specific-identification basis. Dividend and interest income are recognized when earned.
Fees and Other Receivables and Allowances
Fee and other receivables represent service fees and advisory fees receivable, as well as custody fees in arrears. Fee and other receivables are recorded at the invoiced amount, net of allowances. These allowances are based on historical experience and evaluation of potential risk of loss associated with delinquent accounts. There were $85 and $0 allowance for doubtful accounts recorded as of December 31, 2018 and 2017.
Fair Value Measurements
The carrying amounts of the Companys financial instruments, which include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other accrued expense, approximate their fair values due to their relatively short maturity, and in the case of leases, market interest rates.
The accounting guidance for fair value measurements establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
|
Level 1 Observable inputs that reflect quoted prices for identical assets or liabilities in active markets. |
|
Level 2 Inputs that are directly or indirectly observable in the marketplace. |
|
Level 3 unobservable inputs that are supported by little or no market activity. |
As of each reporting period, all assets recorded at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has marketable exchange-traded funds and equity securities that were carried at fair value of $338 and $38 as of December 31, 2018 and 2017, respectively, and these investments were classified as Level 1. The Company does not have any assets or liabilities that utilize Level 2 or Level 3 (unobservable) inputs.
Business Combinations
When the Company acquires a business, management allocates the purchase price to the net tangible and identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable.
F-11
Goodwill, Acquired Intangible Assets and Impairment of Long-Lived Assets
Goodwill represents the excess purchase consideration of an acquired business over the fair value of the net tangible and identifiable intangible assets. Goodwill is evaluated for impairment annually on October 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate or a significant decrease in expected cash flows. An impairment loss is recognized to the extent that the carrying amount exceeds the reporting units fair value. The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount and determine whether further action is needed. If after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. No impairment charges were recorded during the years ended December 31, 2018 and 2017. See note 3 for additional information related to goodwill.
AssetMarks broad array of wealth management solutions are sold to individual investors through financial advisers associated with broker-dealers. The Company has long-standing, established relationships with these broker-dealers that are expected to result in future revenue and profit. While the relationships with the broker-dealers are contractual and may be terminated pursuant to the terms of the relevant agreements, the agreements have no fixed expiration dates or renewal terms, and there have been no instances of terminated agreements by either side to date. Based on the foregoing, the acquired relationships with broker-dealers are identified and valued as a discrete indefinite-lived intangible asset. Indefinite-lived intangible assets are tested for impairment annually. An impairment exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value.
Acquired definite-lived intangible assets consist of trade names, the AssetMark broker-dealer license, and the AssetMark Trust regulatory status, resulting from the Companys acquisitions. Acquired definite-lived intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives on a straight-line basis.
The carrying amounts of long-lived assets, including property and equipment, capitalized internal-use software, and acquired definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future undiscounted cash flows that the assets or the asset group are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value exceeds its fair value. There were no events or changes in circumstances identified that indicated that the carrying amount of the long-lived assets were not recoverable during the years ended December 31, 2018 and 2017.
See note 3 for additional information related to intangible assets.
Property and Equipment
Property and equipment consist primarily of hardware, furniture and equipment and leasehold improvements. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related asset, generally three to ten years. Leasehold improvements are depreciated over the shorter of the economic useful life of the improvement or the remaining lease term. Depreciation expense for the years ended December 31, 2018 and 2017 was $2,063 and $1,513, respectively.
F-12
The following table shows balances of major classes of depreciable assets as of the date shown:
December 31,
2018 |
December 31,
2017 |
|||||||
Computer software and equipment |
$ | 5,271 | $ | 4,202 | ||||
Furniture and equipment |
2,603 | 2,043 | ||||||
Leasehold improvements |
2,983 | 2,577 | ||||||
|
|
|||||||
Total property and equipment |
10,857 | 8,822 | ||||||
Less: accumulated depreciation |
(3,817 | ) | (1,754 | ) | ||||
|
|
|||||||
Property and equipment, net |
$ | 7,040 | $ | 7,068 | ||||
|
Capitalized InternalUse Software
The Company capitalizes certain costs incurred during the application development stage in connection with software development for its platform. Costs related to the preliminary project activities and post-implementation activities are expensed as incurred. Capitalized costs are recorded as part of intangible assets. Maintenance and training costs are expensed as incurred.
Capitalized internal-use software costs are amortized on a straight-line basis over the software estimated useful life, which is generally five years. The Company records amortization related to capitalized internal-use software within depreciation and amortization expense in the consolidated statements of income and comprehensive income. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were no impairments of internally developed software during the years ended December 31, 2018 and 2017.
Amortization expense for the years ended December 31, 2018 and 2017 was $19,935 and $17,434, respectively.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, using the full retrospective transition method. As such, results for reporting periods prior to January 1, 2018 are presented under Topic 606.
The Company recognizes revenue from services related to asset-based revenue, spread-based revenue and other revenue.
|
Asset-based revenueThe Company primarily derives revenue from fees assessed against customers assets under management or administration for services the Company provides to its customers. Such services include investment manager due diligence and research, portfolio diagnostics, proposal generation, investment model management, rebalancing and trading, portfolio performance reporting and monitoring solutions, billing, and back office and middle-office operations and custody services. Investment decisions for assets under management or administration are made by the Companys customers. The fee arrangements are based on a percentage applied to the customers assets under management or administration. The performance obligation is satisfied over time because the customer is receiving and consuming the benefits as they are provided by the Company. Fees are received monthly and quarterly, and are recognized as revenue at the time the services are provided in the period. Fees related to assets |
F-13
under management or administration increase or decrease based on values of existing customer accounts. The values are affected by inflows or outflows of customer funds and market fluctuations. As part of the services the Company provides, the Company collects all fees from end-investors on behalf of both itself and third-party advisers who have separate contractual services and fees included within the transaction price paid by the end-investors. The Company does not record any revenue or expense for providing this service. Asset-based fees relate to revenue for services provided to end-investors by the Company, and the net fees collected and remitted on behalf of third-party advisers are recorded as a liability in the Accrued expenses and other current liabilities line item in the Companys consolidated financial statements, as the Company is acting as an agent with regard to fees collected on behalf of third-party advisers. |
|
Spread-based revenueSpread-based revenue consists of the interest rate return earned on cash assets custodied through AssetMark Trust, one of several custodians offered on the Companys platform. AssetMark Trust utilizes third-party banks to invest customer cash and uses the proceeds from those investments to credit customer accounts and earn spread income for the Company. |
|
Other revenueOther revenue consists primarily of interest earned on operating cash held by the Company. |
Asset-Based Expenses
Asset-based expenses are costs incurred by the Company directly related to the generation of asset-based revenue. Fees paid to third-party strategists, investment managers, proprietary fund sub-advisers, investment advisers and third-party custodians are calculated based on a percentage of the customers assets under management or administration. As a practical expedient, these costs are paid monthly and quarterly, and expensed as incurred over the period of time that the services are expected to be provided to customers, since the amortization of costs are in one year or less. See note 6 for a breakout of these costs.
Spread-Based Expenses
The Company recognizes spread-based expenses when costs are incurred. Spread-based expenses relate to expenses paid to AssetMark Trusts third-party administrator for administering the custodians insured cash deposit program.
Share-Based Compensation
Share-based compensation issued to certain employees of the Company under the terms of the Amended & Restated Limited Liability Company Agreement of AssetMark Holdings LLC (the LLC Agreement) is measured based on the grant date fair value of the award and recognized as an expense over the requisite service and performance period for the Class C common units.
The Companys use of a Monte Carlo simulation to estimate the fair value of the Class C common units requires the input of various estimates and assumptions. The assumptions and estimates are as follows:
|
Fair value The fair value of the shares underlying the Class C common units had been established by the Company based in part upon a valuation provided by a third-party valuation firm. |
|
Risk free rate The Company uses the U.S. Treasury yield that corresponds with the expected term. |
|
Expected volatility Expected volatility is a measure of the amount by which the stock price is expected to fluctuate. Since the Company does not have sufficient trading history of its common |
F-14
stock, it estimates the expected volatility of its stock options at their grant date by taking the weighted-average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of options. |
|
Dividend yield The Company utilizes a dividend yield of zero, given no expectations of or actual dividends to date on the Class C common units. |
|
Discount for lack of marketability The discount in value for lack of marketability was estimated using generally accepted valuation practices provided by a third-party valuation firm. |
The Company accounts for forfeitures as they occur.
Income Taxes
The Company uses the asset-and-liability method of accounting for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled.
The Company records a valuation allowance to reduce its deferred tax assets to the net amount that the Company believes is more likely than not to be realized. In assessing the need for a valuation allowance, the Company has considered its historical levels of income, existence of available offsetting deferred tax liabilities, expectations of future taxable income and ongoing tax planning strategies.
The Company recognizes and measure tax benefits from uncertain tax positions using a two-step approach.
The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions.
Although the Company believes that it has adequately reserved for its uncertain tax positions, it can provide no assurance that the final tax outcome of these matters will not be materially different. The Company evaluates its uncertain tax position on a regular basis and evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of an audit and effective settlement of issues.
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. The number of shares outstanding did not change during the period.
F-15
Recent Accounting PronouncementsCurrent Adoptions
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for the Company for annual periods beginning after December 15, 2017. The Company adopted the ASU as of January 1, 2018 using a retrospective transition method.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting , which simplifies several aspects of the accounting for employee share-based payment transactions. ASU 2016-09 requires all companies to (1) recognize excess tax benefits and tax deficiencies in the income statement (i.e., the standard eliminates the APIC pool) and to (2) present excess tax benefits as an operating activity in the statement of cash flows. The standard also allows all companies to (1) elect whether to use an estimated forfeiture rate or to recognize forfeitures as they occur and (2) withhold up to the maximum individual statutory tax rate without classifying the awards as a liability. Nonpublic companies can elect to (1) use a practical expedient to determine the expected term of certain share-based payment awards and (2) change the measurement basis for all liability-classified awards to intrinsic value on adoption. ASU 2016-09 is effective for the Company for annual periods in fiscal years beginning after December 15, 2017. Companies must adopt all amendments at the same time and follow the transition methods as outlined in the standard. The Company adopted the ASU as of January 1, 2018 and the ASU did not have a significant impact on the Companys consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , which requires a company to recognize revenue when the company transfers control of promised goods and services to the customer. Revenue is recognized in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. A company also is required to disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB also has issued several amendments to the standard, which are intended to promote a more consistent interpretation and application of the principles outlined in the standard.
Companies are permitted to adopt the standard using a retrospective transition method (i.e., restate all prior periods presented) or a cumulative effect method (i.e., recognize the cumulative effect of initially applying the guidance at the date of initial application with no restatement of prior periods). However, both methods allow companies to elect certain practical expedients on transition that will help to simplify how a company restates its contracts. The Company has evaluated its recognition of revenue as principal or agent. Beginning on January 1, 2018, the Company recognized certain service fee revenue on a net basis related to contracts with investment advisers in which the Company is the agent and the delivery of advisory services is controlled by the investment advisers. There is no effect to retained earnings from adopting this ASU on January 1, 2018. There was a decrease of $173,422 to both asset-based revenue and asset-based expenses for the year ended December 31, 2017.
F-16
Recent Accounting PronouncementsIssued but Not Effective
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for the Company on January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect that ASU 2016-02 will have on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments , which clarifies how to classify certain types of cash payments and receipts on the statement of cash flows. The following amendments in ASU 2016-15 are or may be relevant to the Company: (1) debt prepayment or extinguishment costs should be classified as financing cash outflows; (2) cash consideration payments made soon after an acquisitions consummation date (approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (3) proceeds from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement); (4) for distributions received from equity method investments, companies may elect either a cumulative earnings approach or the nature of distribution approach to determine whether distributions received from the equity method investees are returns on investment (operating cash inflows) or returns of investment (investing cash inflows); and (5) in the absence of specific guidance, companies determine each separately identifiable cash source and classify the receipt or payment based on the nature of the cash flow. ASU 2016-15 is effective for the Company in fiscal years beginning after December 15, 2018, and requires retrospective application. Companies must adopt all amendments at the same time. The Company does not believe that this ASU will have a significant impact on the Companys consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , which makes targeted improvements to the accounting for, and presentation and disclosure of, financial instruments. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. ASU 2016-01 does not affect the accounting for investments that would otherwise be consolidated or accounted for under the equity method. The new standard also affects financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The provisions of ASU 2016-01 are effective for the Company for annual periods in fiscal years beginning after December 15, 2018. The Company will adopt the new standard on January 1, 2019, and is currently evaluating the effect that ASU 2016-01 will have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and Other, Internal-Use Software (Subtopic 350-40), which provides guidance to evaluate the accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a license to internal-use-software, then the software license is accounted for by the customer in accordance with Subtopic ASC 350-40. An intangible asset is recognized for the software license and a liability also recognized. The new standard is effective for the Company beginning December 15, 2020, with early adoption permitted. The Company is currently evaluating the effect that ASU 2018-15 will have on its consolidated financial statements.
F-17
(3) Goodwill and Intangible Assets
Goodwill
The Companys goodwill balance was $298,415 as of both December 31, 2018 and 2017. The Company, which has one reporting unit, performed an annual test for goodwill impairment in October of the year ended December 31, 2018 and determined that goodwill was not impaired. In addition, there have been no significant events or circumstances affecting the valuation of goodwill subsequent to the Companys annual assessment.
Intangible Assets
Information regarding the Companys intangible assets is as follows:
Gross carrying
amount |
Accumulated
amortization |
Net carrying
amount |
||||||||||
Indefinite-lived intangible assets: |
||||||||||||
Broker-dealer relationships |
$ | 570,480 | $ | | $ | 570,480 | ||||||
Definite-lived intangible assets: |
||||||||||||
Trade names |
45,830 | (4,965 | ) | 40,865 | ||||||||
Broker-dealer license |
11,550 | (1,251 | ) | 10,299 | ||||||||
AssetMark Trust regulatory status |
23,300 | (2,524 | ) | 20,776 | ||||||||
|
|
|||||||||||
December 31, 2018 |
$ | 651,160 | $ | (8,740 | ) | $ | 642,420 | |||||
|
Gross carrying
amount |
Accumulated
amortization |
Net carrying
amount |
||||||||||
Indefinite-lived intangible assets: |
||||||||||||
Broker-Dealer Relationships |
$ | 570,480 | $ | | $ | 570,480 | ||||||
Definite-lived intangible assets: |
||||||||||||
Trade Names |
45,830 | (2,673 | ) | 43,157 | ||||||||
Broker-Dealer License |
11,550 | (674 | ) | 10,876 | ||||||||
AssetMark Trust Regulatory Status |
23,300 | (1,359 | ) | 21,941 | ||||||||
|
|
|||||||||||
December 31, 2017 |
$ | 651,160 | $ | (4,706 | ) | $ | 646,454 | |||||
|
The weighted average estimated remaining useful life at December 31, 2018 was 17.8 years for trade names, broker-dealer license and AssetMark Trust regulatory status. Amortization expense for both years ended December 31, 2018 and 2017 was $4,034.
Estimated amortization expense for definite-lived intangible assets for future years is as follows:
Estimated
amortization |
||||
Year ended December 31, |
|
|||
2019 |
$ | 4,034 | ||
2020 |
4,034 | |||
2021 |
4,034 | |||
2022 |
4,034 | |||
2023 and thereafter |
55,804 | |||
|
|
|||
Total |
$ | 71,940 | ||
|
F-18
(4) Accrued Expenses and Other Current Liabilities
The following table shows the breakdown of accrued expenses and other current liabilities:
December 31,
2018 |
December 31,
2017 |
|||||||
Accrued bonus |
$ | 14,553 | $ | 14,712 | ||||
Compensation and benefits payable |
5,882 | 3,711 | ||||||
Asset-based payables |
4,041 | 4,882 | ||||||
Other accrued expenses |
13,724 | 8,651 | ||||||
|
|
|||||||
Total |
$ | 38,200 | $ | 31,956 | ||||
|
(5) Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
December 31,
2018 |
December 31,
2017 |
|||||||
Contractor liability |
$ | 3,825 | $ | 5,022 | ||||
Deferred rent |
1,272 | 1,202 | ||||||
Earn-out liability |
| 8,000 | ||||||
|
|
|||||||
Total |
$ | 5,097 | $ | 14,224 | ||||
|
(6) Asset-Based Expenses
Asset-based expenses incurred by the Company relating to the generation of asset-based revenue are:
Year ended
December 31, 2018 |
Year ended
December 31, 2017 |
|||||||
Strategist and manager fees |
$ | 93,385 | $ | 77,013 | ||||
Premier broker-dealer fees |
8,107 | 6,084 | ||||||
Custody fees |
6,208 | 7,106 | ||||||
Fund advisory fees |
5,701 | 4,969 | ||||||
Marketing allowance |
2,573 | 2,066 | ||||||
External managers |
788 | 1,151 | ||||||
Other |
1 | 12 | ||||||
|
|
|||||||
Total asset-based expenses |
$ | 116,763 | $ | 98,401 | ||||
|
(7) Debt
On November 14, 2018, the Company executed a Credit Agreement with Credit Suisse for a $250,000 term loan and a revolving line of credit that permits the Company to borrow up to $20,000. Interest on amounts borrowed under the term loan and the revolving line of credit accrues at LIBOR plus 3.50% and is paid quarterly. Payments of principal on the outstanding amounts borrowed under the term loan of 0.25% are due quarterly with a maturity date of November 14, 2025. Outstanding amounts borrowed under the revolving line of credit have a maturity date of November 14, 2023. There was no amount borrowed under the revolving line of credit as of December 31, 2018.
F-19
(8) Income Taxes
The income tax provision (benefit) was as follows:
Year ended
December 31, 2018 |
Year ended
December 31, 2017 |
|||||||
Current provision |
||||||||
Federal |
$ | 12,921 | $ | 7,902 | ||||
State |
2,480 | 1,151 | ||||||
|
|
|||||||
Subtotal |
15,401 | 9,053 | ||||||
|
|
|||||||
Deferred provision (benefit) |
||||||||
Federal |
(1,846 | ) | (88,913 | ) | ||||
State |
3,582 | 225 | ||||||
|
|
|||||||
Subtotal |
1,736 | (88,688 | ) | |||||
|
|
|||||||
Total income tax expense (benefit) |
$ | 17,137 | $ | (79,635 | ) | |||
|
Income taxes paid were $19,497 and $4,773 for the years ended December 31, 2018 and 2017, respectively.
The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows:
Year ended
December 31, 2018 |
Year ended
December 31, 2017 |
|||||||
Statutory U.S. federal income tax rate: |
21.00% | 35.00% | ||||||
Increase in rate resulting from: |
||||||||
Non-deductible meals & entertainment |
0.44% | 1.01% | ||||||
Equity compensation |
2.53% | 12.52% | ||||||
State income tax, net of federal income tax effect |
8.51% | 4.50% | ||||||
Federal deferred re-measurement due to change in federal tax rate |
0.00% | -465.57% | ||||||
Valuation allowance change |
| | ||||||
Research & development tax credit |
-1.48% | 0.00% | ||||||
Other, net |
0.41% | 0.84% | ||||||
|
|
|||||||
Effective rate |
31.41% | -411.70% | ||||||
|
The Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law on December 22, 2017. Under the Tax Act, the corporate income tax rate is reduced from a maximum marginal rate of 35% to a flat 21% rate. Under ASC Topic 740, Income Taxes , total effect of tax rate changes on deferred tax balances is recorded as a component of the income tax provision related to continuing operations for the period in which the law is enacted, even if the assets and liabilities relate to other components of the financial statements, such as discontinued operations, a prior period business combination, or items of accumulated other comprehensive income. As a result, the Companys deferred tax assets and liabilities were revalued using the enacted tax rate of 21% and the total tax effect on deferred tax balances was a tax benefit of $(90,055) during the year ended December 31, 2017. The Tax Act includes other provisions with effective dates for the Company beginning January 1, 2018 and beyond. The Company accounted for these provisions with changes to business-related income, exclusions, deductions and/or credits based on currently available information that is subject to interpretation and continues to evolve. Accounting for these items may be impacted by a number of
F-20
additional considerations, including but not limited to the state-level income tax impacts of the Tax Act, clarifications of or changes to the Tax Act (including the issuance of final regulations) and additional guidance issued by the Securities and Exchange Commission or the Financial Accounting Standards Board.
The components of the net deferred income tax liability were as follows:
December 31, 2018 | December 31, 2017 | |||||||
Assets: |
||||||||
Accrued expenses |
$ | 6,156 | $ | 6,131 | ||||
Federal benefit of state tax expense |
4,094 | 3,098 | ||||||
State net operating loss carrryforwards |
14,231 | 15,822 | ||||||
Tax credit carryforwards |
961 | | ||||||
Earn-out liability |
2,117 | 4,160 | ||||||
Other |
884 | 1,366 | ||||||
|
|
|||||||
Gross deferred income tax assets |
28,443 | 30,577 | ||||||
Valuation allowance |
| | ||||||
|
|
|||||||
Total deferred income tax assets |
$ | 28,443 | $ | 30,577 | ||||
|
|
|||||||
Liability: |
||||||||
Other intangible assets |
159,095 | 158,855 | ||||||
Property and equipment, and capitalized software |
20,237 | 20,815 | ||||||
Other |
226 | 24 | ||||||
|
|
|||||||
Total deferred income tax liabilities |
179,558 | 179,694 | ||||||
|
|
|||||||
Net deferred income tax liability |
$ | 151,115 | $ | 149,117 | ||||
|
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making this assessment. During 2018 and 2017, the Company evaluated realizability of its net deferred tax assets based on available positive and negative evidence. The Company concluded that it is more likely than not that all of the benefits of the deferred tax assets will be realized. As a result, the Company has not established a valuation allowance.
The Companys state net operating loss carryforwards amounted to $279,444 and $297,661 as of December 31, 2018 and 2017, respectively. It is expected that the utilization limitations of Internal Revenue Code Section 382 will cause $113,873 of the Companys state net operating loss carryforwards to expire unused, and these amounts are not included in the Companys gross deferred income tax asset. If unused, the Companys state net operating loss carryforwards will expire beginning in 2027. The Company had state tax credit carryforwards of $831 as of December 31, 2018, which do not expire and can be carried forward indefinitely.
The Company had unrecognized tax benefits of $530 as of December 31, 2018 solely related to research and development tax credits. The total amount of unrecognized tax benefits that, if recognized, would affect the Companys effective tax rate was $495 as of December 31, 2018.
F-21
The consolidated statements of operations for the years ended December 31, 2018 and December 31, 2017 include no amounts for interest or penalties related to unrecognized tax benefits, and no such amounts were recognized as components of income tax expense.
The Company files U.S. Federal income tax returns and various state and local tax returns. The Company is no longer subject to U.S. Federal or state tax examinations for years through 2013.
(9) Stockholders Equity
The holder of common stock is entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, is entitled to receive all assets available for distribution to such holder. The holder has no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. As of both December 31, 2018 and 2017, AssetMark Holdings owned all outstanding shares of common stock of the Company. See note 15 for subsequent events related to the stock split.
The following information represents the equity information of AssetMark Holdings and does not impact the outstanding common shares of the Company. Such information is presented because the Company recognizes share-based compensation expense related to the Class C common units described below pursuant to the service member unit issuance agreements between employees of the Company and AssetMark Holdings.
Under the terms of the Amended & Restated Limited Liability Company Agreement of AssetMark Holdings LLC (the LLC Agreement), approved by all AssetMark Holdings common members in October 2016, three common unit classes were authorized and issued as follows:
|
Class A and B common units have equal rights and voting privileges |
|
Class C common units are non-voting units that were issued to AssetMark directors and employees as part of a share-based employee compensation arrangement. (see note 10) |
F-22
|
The table below shows by unit class the number of units outstanding and the related capital contribution as of December 31, 2018 and 2017. Service members are directors and employees of the Company. |
Huatai
International Investment Holdings Ltd. |
Service Members | Total | ||||||||||
Class A common units |
||||||||||||
Capital contribution |
$ | | $ | 4,069 | $ | 4,069 | ||||||
Common units |
| 40,693 | 40,693 | |||||||||
Class B common units |
||||||||||||
Capital contribution |
$ | 768,419 | $ | 6,980 | $ | 775,399 | ||||||
Common units |
7,684,191 | 69,993 | 7,754,184 | |||||||||
Class C common units |
||||||||||||
Capital contribution |
$ | | $ | 14,540 | $ | 14,540 | ||||||
Common units |
| 8,817 | 8,817 | |||||||||
|
|
|||||||||||
Total capital contribution |
$ | 794,008 | ||||||||||
(less capital contributions held at parent) |
(158,846 | ) | ||||||||||
|
|
|||||||||||
Total Equity for AssetMark Holdings LLC at December 31, 2018 |
$ | 635,162 | ||||||||||
|
|
|||||||||||
Class A common units |
||||||||||||
Capital contribution |
$ | | $ | 4,069 | $ | 4,069 | ||||||
Common units |
| 40,693 | 40,693 | |||||||||
Class B common units |
||||||||||||
Capital contribution |
$ | 768,419 | $ | 7,110 | $ | 775,529 | ||||||
Common units |
7,684,191 | 71,093 | 7,755,284 | |||||||||
Class C common units |
||||||||||||
Capital contribution |
$ | | $ | 7,972 | $ | 7,972 | ||||||
Common units |
8,550 | 8,550 | ||||||||||
|
|
|||||||||||
Total capital contribution |
$ | 787,570 | ||||||||||
(less capital contributions held at parent) |
(3,040 | ) | ||||||||||
|
|
|||||||||||
Total Equity for AssetMark Holdings LLC at December 31, 2017 |
$ | 784,530 | ||||||||||
|
(10) Share-Based Employee Compensation
AssetMark Holdings granted share-based compensation in the form of Class C common units (or incentive units) to certain directors and employees of the Company pursuant to the terms of the LLC Agreement.
The incentive units have both service and performance vesting provisions. The incentive units are divided into two tranches: one tranche consists of time vesting units with a service condition while the other tranche consists of performance vesting units with both service and market conditions. The fair value of both time vesting units and performance vesting units is measured on grant date and remeasured to fair value at the end of each reporting period. Compensation cost for the time vesting units and performance vesting units is recognized on a straight-line basis over a 5-year requisite
F-23
service period for 50% of the units and over an 8-year requisite service period for the remaining 50% of the units. An implied service period of 8 years is inferred from the performance condition of the performance vesting units because the performance conditions may be met at multiple dates (i.e. following the 4 th , 5 th , 6 th , 7 th and 8 th anniversaries of the issuance date). The requisite service period is based on the longer of the derived service period, implicit or explicit service periods.
The Company recorded share-based compensation expense of $6,568 and $6,920 for the years ended December 31, 2018 and 2017, respectively. These amounts were included in employee compensation in the accompanying consolidated statements of income and comprehensive income.
For purposes of determining the fair value of the share-based payment awards on the date of the grant and at the end of each reporting period, the Company used a Monte Carlo simulation to evaluate a number of possible outcomes. While the Class C common units have no expiration date, the Company forecasted the possible value of the common units 8 years in the future. Management will periodically evaluate the assumption and methodologies used to calculate the fair value of the share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies.
2018 | 2017 | |||||||
Valuation assumptions: |
||||||||
Risk free rate |
2.49% | 2.32% | ||||||
Expected volatility |
35.0% | 37.2% | ||||||
Dividend yield |
0% | 0% | ||||||
Discount for lack of marketability |
15.2% | 18.4% | ||||||
|
Incentive unit activity during the years ended December 31, 2018 and 2017 is as follows:
Number of units |
Weighted
average remaining contractual term |
|||||||
Balance at December 31, 2016 |
8,075.04 | 7.80 | ||||||
Granted |
623.35 | 7.37 | ||||||
Forfeited |
(148.26 | ) | 6.83 | |||||
|
|
|||||||
Balance at December 31, 2017 |
8,550.13 | 6.87 | ||||||
|
|
|||||||
Granted |
283.37 | 7.47 | ||||||
Forfeited |
(16.67 | ) | 7.58 | |||||
|
|
|||||||
Balance at December 31, 2018 |
8,816.83 | 5.93 | ||||||
|
There was $29,051 and $37,199 of total unrecognized compensation cost related to unvested incentive units granted under the plan as of December 31, 2018 and 2017, respectively. These costs are expected to be recognized over a weighted average period of 5.93 and 6.87 years as of December 31, 2018 and 2017, respectively. The total fair value of incentive units vested was zero during both the years ended December 31, 2018 and 2017.
(11) Employee Benefit Plan
The Company has a tax-qualified defined contribution plan (the Plan). All full-time and part-time employees are eligible to participate in the Plan upon hire. The Plan provides retirement benefits,
F-24
including provisions for early retirement and disability benefits, as well as a tax-deferred savings feature. Participants must attain two years of service to reach full vesting on Company matching contributions. The Company contributed $3,334 and $2,985 to the Plan for the years ended December 31, 2018 and 2017, respectively.
(12) Commitments and Contingencies
Litigation
The Company faces the risk of litigation and regulatory investigations and actions in the ordinary course of operating its business, including the risk of class action lawsuits. The Companys pending legal and regulatory actions include proceedings specific to the Company and others generally applicable to business practices in the industries in which the Company operates. Plaintiffs in class action and other lawsuits against the Company may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. The Company is also subject to litigation arising out of its general business activities such as the Companys contractual and employment relationships. In addition, the Company is also subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and other authorities. A substantial legal liability or a significant regulatory action against the Company could have an adverse effect on its business, financial condition and results of operations. Moreover, even if the Company ultimately prevails in the litigation, regulatory action or investigation, the Company could suffer significant reputational harm, which could have an adverse effect on the Companys business, financial condition or results of operations.
The Company has accrued a loss contingency of $2,000 related to a legal dispute with a vendor and this amount is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet as of December 31, 2017. The case was settled and $2,000 was paid in 2018.
The Company is subject to various other legal proceedings. In the opinion of management, after discussions with legal counsel, the ultimate resolution of these matters is not likely to have a material effect on the consolidated financial condition, results of operations or cash flows of the Company.
Operating Lease Obligations
The Company has various lease obligations for field offices throughout the United States. These obligations are part of a normal business function. As of December 31, 2018, aggregate minimum future rental commitments under these leases are as follows:
Cash obligations | ||||
Year ended December 31, |
|
|||
2019 |
$ | 3,431 | ||
2020 |
3,539 | |||
2021 |
3,679 | |||
2022 |
3,168 | |||
2023 and thereafter |
2,650 | |||
|
|
|||
Total |
$ | 16,467 | ||
|
F-25
Total rental expense of $3,126 and $2,858 under operating leases were charged to operations for the years ended December 31, 2018 and 2017, respectively, and was included in general and operating expenses in the consolidated statements of income and comprehensive income.
(13) Net Capital and Minimum Capital Requirements
AssetMark Trust, regulated by the Arizona Department of Financial Institutions (ADFI) is required by state regulation 6-856 to maintain $5,750 and $5,250 in liquid capital (as defined by the ADFI) based on asset levels as of December 31, 2018 and 2017, respectively.
AssetMark Brokerage, LLC, regulated by the Securities and Exchange Commission (the SEC) is required to maintain $18 and $5 in net capital (as defined by the SEC) as of December 31, 2018 and 2017, respectively.
As of December 31, 2018 and 2017, these entities have met the liquid capital requirements set forth by their respective regulatory authority.
(14) Related Party Transactions
As of December 31, 2017, the Company maintains a liability payable to AssetMark Holdings of $3,040, which represents the cash collected as part of a Regulation D offering by AssetMark Holdings of Class B common units to employees. The amount was settled in 2018 through an investment of $2,910 in the Company by AssetMark Holdings.
In December 2018, the Company paid cash dividends and return of capital to AssetMark Holdings totaling $233,846.
Additionally, due to the outstanding Class C common units being accounted for as a liability-classified award, AssetMark Holdings maintains an investment in the Company and an offsetting share-based compensation liability of $14,014 and $7,444 as of December 31, 2018 and 2017, respectively, which represents the estimated value of the share-based employee compensation. The Company recorded these amounts as expense and an increase to paid-in capital.
See note 10 for more detail on the share-based employee compensation.
(15) Subsequent Events
On August 11, 2018, the Company entered into a unit purchase agreement to acquire Global Financial Private Capital for $55,000, subject to a purchase price adjustment based on a client attrition calculation and closing conditions that include the approval from the Committee on Foreign Investment in the United States (CFIUS). On April 16, 2019, the Company closed the acquisition and paid a final purchase price of $35,906, net of the client attrition and working capital adjustments.
F-26
On July 5, 2019, the Company filed an amended and restated certificate of incorporation effecting a 661,500-for-one forward stock split of its issued and outstanding common stock. The par value was adjusted to $0.001 per share in connection with such filing. The authorized shares of common stock were increased to 675,000,000 and 75,000,000 shares of preferred stock were authorized to be issued, however, no preferred stock has been issued as of July 8, 2019. All share and per share data shown in the accompanying consolidated financial statements and related notes have been retroactively revised to reflect the forward stock split. The following table sets forth the calculation of basic net income per share during the periods presented (in thousands, except share and per share data):
Year ended
December 31, 2018 |
Year ended
December 31, 2017 |
|||||||
Numerator: |
||||||||
Net income |
$ | 37,426 | $ | 98,978 | ||||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted-average shares outstanding |
66,150,000 | 66,150,000 | ||||||
|
|
|
|
|||||
Net income per share, basic |
$ | 0.57 | $ | 1.50 | ||||
|
|
|
|
|
F-27
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands except share data and par value) |
March 31,
2019 |
December 31,
2018 |
||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 102,478 | $ | 105,354 | ||||
Restricted cash |
7,000 | 7,000 | ||||||
Available-for-sale investments, at fair value |
657 | 333 | ||||||
Fees and other receivables |
12,515 | 8,760 | ||||||
Federal income tax receivable |
| 586 | ||||||
State income tax receivable |
| 332 | ||||||
Other current assets |
5,206 | 4,391 | ||||||
|
|
|||||||
Total current assets |
127,856 | 126,756 | ||||||
Property and equipment, net of accumulated depreciation of $4,287 and $3,817, respectively |
6,663 | 7,040 | ||||||
Capitalized software, net of accumulated amortization of $45,608 and $40,191, respectively |
71,846 | 72,644 | ||||||
Intangible assets, net of accumulated amortization of $9,749 and $8,740, respectively |
641,411 | 642,420 | ||||||
Goodwill |
298,415 | 298,415 | ||||||
|
|
|||||||
Total assets |
$ | 1,146,191 | $ | 1,147,275 | ||||
|
|
|||||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 22 | $ | 730 | ||||
Accrued expenses and other current liabilities |
28,519 | 38,200 | ||||||
Federal income tax payable |
1,884 | | ||||||
State income tax payable |
257 | | ||||||
Current portion of long-term debt |
2,311 | 2,305 | ||||||
Current portion of acquisition earn-out |
8,000 | 8,000 | ||||||
|
|
|||||||
Total current liabilities |
40,993 | 49,235 | ||||||
Long-term debt |
242,358 | 242,817 | ||||||
Other long-term liabilities |
4,793 | 5,097 | ||||||
Deferred income tax liabilities, net |
150,983 | 151,115 | ||||||
|
|
|||||||
Total long-term liabilities |
398,134 | 399,029 | ||||||
Total liabilities |
439,127 | 448,264 | ||||||
|
|
|||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock $0.001 par value (675,000,000 shares authorized, and 66,150,000 shares issued) |
66 | 66 | ||||||
Additional paid-in capital |
640,322 | 635,096 | ||||||
Retained earnings |
66,657 | 63,846 | ||||||
Accumulated other comprehensive income, net of tax |
19 | 3 | ||||||
|
|
|||||||
Total stockholders equity |
707,064 | 699,011 | ||||||
|
|
|||||||
Total liabilities and stockholders equity |
$ | 1,146,191 | $ | 1,147,275 | ||||
|
See accompanying notes to the unaudited condensed consolidated financial statements.
F-28
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income
For the three months ended March 31, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Revenue |
||||||||
Asset-based revenue |
$ | 83,063 | $ | 79,076 | ||||
Spread-based revenue |
7,549 | 3,749 | ||||||
Other revenue |
1,702 | 1,708 | ||||||
|
|
|||||||
Total revenue |
92,314 | 84,533 | ||||||
Expenses |
||||||||
Asset-based expenses |
28,102 | 26,805 | ||||||
Spread-based expenses |
478 | 361 | ||||||
Employee compensation |
31,885 | 24,740 | ||||||
General and operating expenses |
12,292 | 10,651 | ||||||
Professional fees |
2,386 | 2,276 | ||||||
Interest |
4,024 | | ||||||
Depreciation and amortization |
6,896 | 6,037 | ||||||
|
|
|||||||
Total expenses |
86,063 | 70,870 | ||||||
Income before income taxes |
6,251 | 13,663 | ||||||
Provision for income taxes |
3,440 | 3,872 | ||||||
|
|
|||||||
Net income |
2,811 | 9,791 | ||||||
Other comprehensive income, net of tax |
||||||||
Unrealized gain (loss) on available for sale investments, net of tax |
16 | (2 | ) | |||||
|
|
|||||||
Net comprehensive income |
$ | 2,827 | $ | 9,789 | ||||
Net income per share, basic |
$ | 0.04 | $ | 0.15 | ||||
|
|
|
|
|||||
Weighted-average shares outstanding used in calculating net income per share, basic |
66,150,000 | 66,150,000 | ||||||
|
|
|
|
|||||
|
See accompanying notes to the unaudited condensed consolidated financial statements.
F-29
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders Equity
For the three months ended March 31, 2019 and 2018
Common stock |
Additional
paid-in
|
Retained
earnings (deficit) |
Accumulated
other comprehensive income |
Total
stockholders equity |
||||||||||||||||||||
(in thousands except
share data) |
Shares | Amount | ||||||||||||||||||||||
Balance at December 31, 2017 |
66,150,000 | $ | 66 | $ | 784,464 | $ | 101,420 | 8 | $ | 885,958 | ||||||||||||||
Net income |
| | | 9,791 | | 9,791 | ||||||||||||||||||
Other comprehensive loss |
| | | | (2 | ) | (2 | ) | ||||||||||||||||
Share-based employee compensation |
| | 1,296 | | | 1,296 | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at March 31, 2018 |
66,150,000 | $ | 66 | $ | 785,760 | $ | 111,211 | $ | 6 | $ | 897,043 | |||||||||||||
|
|
|||||||||||||||||||||||
Balance at December 31, 2018 |
66,150,000 | $ | 66 | 635,096 | 63,846 | 3 | 699,011 | |||||||||||||||||
Net income |
| | | 2,811 | | 2,811 | ||||||||||||||||||
Other comprehensive income |
| | | | 16 | 16 | ||||||||||||||||||
Share-based employee compensation |
| | 5,226 | | | 5,226 | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Balance at March 31, 2019 |
66,150,000 | $ | 66 | $ | 640,322 | $ | 66,657 | $ | 19 | $ | 707,064 | |||||||||||||
|
See accompanying notes to the unaudited condensed consolidated financial statements.
F-30
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 2,811 | $ | 9,791 | ||||
Adjustment to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
6,896 | 6,037 | ||||||
Interest |
172 | |||||||
Deferred income taxes |
(132 | ) | (57 | ) | ||||
Shared-based compensation |
5,226 | 1,296 | ||||||
Change in certain assets and liabilities: |
||||||||
Fees and other receivables, net |
(3,755 | ) | (1,614 | ) | ||||
Payable to AssetMark Holdings LLC |
| (2 | ) | |||||
Other current assets |
(815 | ) | (87 | ) | ||||
Accounts payable, accrued expenses and other current liabilities |
(10,694 | ) | (11,198 | ) | ||||
Income tax receivable and payable |
3,060 | 4,396 | ||||||
|
|
|||||||
Net cash provided by operating activities |
2,769 | 8,562 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of certificate of deposit (restricted cash) |
| | ||||||
Purchase of available for sale investments |
(308 | ) | ||||||
Purchase of property and equipment |
(93 | ) | (26 | ) | ||||
Purchase of computer software |
(4,619 | ) | (4,188 | ) | ||||
|
|
|||||||
Net cash used in investing activities |
(5,020 | ) | (4,214 | ) | ||||
Cash flows from financing activities: |
||||||||
Payments on long-term debt |
(625 | ) | | |||||
|
|
|||||||
Net cash used in financing activities |
(625 | ) | | |||||
Net change in cash, cash equivalents, and restricted cash |
(2,876 | ) | 4,348 | |||||
Cash, cash equivalents, and restricted cash at beginning of period |
112,354 | 57,147 | ||||||
|
|
|||||||
Cash, cash equivalents, and restricted cash at end of period |
$ | 109,478 | $ | 61,495 | ||||
|
|
|||||||
Supplemental cash flow information |
||||||||
Income taxes paid |
$ | | $ | 3 | ||||
|
See accompanying notes to the unaudited condensed consolidated financial statements.
F-31
AssetMark Financial Holdings, Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
For the three months ended March 31, 2019 and 2018
All dollar amounts presented are in thousands other than per share and per unit amounts.
(1) Organization and Nature of Business
These consolidated financial statements include AssetMark Financial Holdings, Inc. and its subsidiaries, which include AssetMark Financial, Inc., which is the parent company of AssetMark, Inc., AssetMark Trust Company, AssetMark Brokerage, LLC, and AssetMark Retirement Services, Inc. (collectively, the Company).
The Companys legal entity structure as of March 31, 2019:
The Company is a wholly owned subsidiary of AssetMark Holdings LLC (AssetMark Holdings), which was organized for the purpose of acquiring the Company effective October 31, 2016. AssetMark Holdings is 98.58% owned by affiliates of Huatai Securities (Huatai) and 1.42% owned by management. The Company was acquired from the private equity firms Aquiline Capital Partners LLC and Genstar Capital LLC.
The Company offers a broad array of wealth management solutions to individual investors through financial advisers by providing an open-architecture product platform along with tailored client advice, asset allocation options, practice management, support services and technology to the financial advisor channel.
F-32
AssetMark Trust Company (AssetMark Trust) is a licensed trust company incorporated under the laws of the State of Arizona on August 24, 1994 and regulated by the Arizona Department of Financial Institutions. AssetMark Trust provides custodial recordkeeping services primarily to investor clients of registered investment advisers (including AMI) located throughout the United States.
AssetMark Brokerage, LLC is a limited-purpose broker-dealer located in Concord, California and was incorporated under the laws of the State of Delaware on September 25, 2013. Its primary function is to distribute the mutual funds of the Company and to sponsor the FINRA licensing of those AssetMark associates who provide distribution support through promotion of the AssetMark programs and strategies that employ the Companys mutual funds.
AssetMark Retirement Services, Inc., formerly known as Aris Corporation of America, was incorporated under the laws of the State of Pennsylvania on April 30, 1974. ARS serves as the record-keeper and third-party administrator for the Aris Retirement product, which are 401(k) or 403(b) investment offerings utilized by small businesses.
(2) Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statement and footnotes thereto included elsewhere in this registration statement for the years ended December 31, 2018 and 2017. There have been no significant changes to those policies during the three months ended March 31, 2019.
Recent Accounting Pronouncements Current Adoptions
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments , which clarifies how to classify certain types of cash payments and receipts on the statement of cash flows. The following amendments in ASU 2016-15 are or may be relevant to the Company: (1) debt prepayment or extinguishment costs should be classified as financing cash outflows; (2) cash consideration payments made soon after an acquisitions consummation date (approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (3) proceeds from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement); (4) for distributions received from equity-method investments, companies may elect either a cumulative-earnings approach or the nature-of-distribution approach to determine whether distributions received from the equity method investees are returns on investment (operating cash inflows) or returns of investment (investing cash inflows); and (5) in the absence of specific guidance, companies determine each separately identifiable cash source and classify the receipt or payment based on the nature of the cash flow. ASU 2016-15 was effective for non-emerging growth companies on January 1, 2018, and required retrospective application. Companies were required to adopt all amendments at the
F-33
same time. The Company adopted this ASU on January 1, 2019, and it did not have a significant impact on the Companys consolidated financial statements and related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , which makes targeted improvements to the accounting for, and presentation and disclosure of, financial instruments. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. ASU 2016-01 does not affect the accounting for investments that would otherwise be consolidated or accounted for under the equity method. The new standard also affects financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The provisions of ASU 2016-01 are effective for the Company in fiscal years beginning after December 15, 2018. The Company will adopt this ASU in 2019, and does not expect it to have a significant impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use (ROU) model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for non-emerging growth companies on January 1, 2019, with early adoption permitted. The Company is currently evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and plans to adopt the new standard on January 1, 2020.
In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and Other, Internal-Use Software (Subtopic 350-40) , which provides guidance to evaluate the accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a license to internal-use-software, then the software license is accounted for by the customer in accordance with Subtopic ASC 350-40. An intangible asset is recognized for the software license and a liability is also recognized. The new standard is effective for non-emerging growth companies on January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect that ASU 2018-15 will have on its consolidated financial statements and plans to adopt the new standard on January 1, 2021.
(3) Goodwill and Intangible Assets
Goodwill
The Companys goodwill balance was $298,415 as of March 31, 2019 and December 31, 2018. The Company, which has one reporting unit, performed an annual test for goodwill impairment in December of the years ended December 31, 2018 and 2017 and determined that goodwill was not impaired. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the Companys annual assessment.
F-34
Intangible Assets
Information regarding our intangible assets is as follows:
Gross carrying
amount |
Accumulated
amortization |
Net carrying
amount |
||||||||||
Indefinite-lived intangible assets: |
||||||||||||
Broker-dealer relationships |
$ | 570,480 | $ | | $ | 570,480 | ||||||
Definite-lived intangible assets: |
||||||||||||
Trade names |
45,830 | (5,538 | ) | 40,292 | ||||||||
Broker-dealer license |
11,550 | (2,815 | ) | 8,735 | ||||||||
AssetMark Trust regulatory status |
23,300 | (1,396 | ) | 21,904 | ||||||||
|
|
|||||||||||
March 31, 2019 |
$ | 651,160 | $ | (9,749 | ) | $ | 641,411 | |||||
|
Gross carrying
amount |
Accumulated
amortization |
Net carrying
amount |
||||||||||
Indefinite-lived intangible assets: |
||||||||||||
Broker-dealer relationships |
$ | 570,480 | $ | | $ | 570,480 | ||||||
Definite-lived intangible assets: |
||||||||||||
Trade names |
45,830 | (4,965 | ) | 40,865 | ||||||||
Broker-dealer license |
11,550 | (1,251 | ) | 10,299 | ||||||||
AssetMark Trust regulatory status |
23,300 | (2,524 | ) | 20,776 | ||||||||
|
|
|||||||||||
December 31, 2018 |
$ | 651,160 | $ | (8,740 | ) | $ | 642,420 | |||||
|
The weighted average estimated remaining useful life is 17.5 years for trade names, the broker-dealer license and AssetMark Trust regulatory status as of March 31, 2019. Amortization expense was $1,009 for the three months ended March 31, 2019 and 2018. The Company performed an annual test for intangible assets impairment in December of the years ended December 31, 2018 and 2017 and determined that intangible assets were not impaired. There have been no significant events or circumstances affecting the valuation of intangible assets subsequent to the Companys annual assessment.
(4) Accrued Expenses and Other Current Liabilities
The following table shows the breakdown of accrued expenses and other current liabilities:
March 31,
2019 |
December 31,
2018 |
|||||||
Compensation and benefits payable |
$ | 6,152 | $ | 5,882 | ||||
Accrued bonus |
5,955 | 14,553 | ||||||
Asset-based payables |
2,041 | 4,041 | ||||||
Other accrued expenses |
14,371 | 13,724 | ||||||
|
|
|||||||
Total |
$ | 28,519 | $ | 38,200 | ||||
|
F-35
(5) Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
March 31,
2019 |
December 31,
2018 |
|||||||
Contractor liability |
$ | 3,576 | $ | 3,825 | ||||
Deferred rent |
1,217 | 1,272 | ||||||
|
|
|||||||
Total |
$ | 4,793 | $ | 5,097 | ||||
|
(6) Asset-Based Expenses
Asset-based expenses incurred by the Company relating to the generation of asset-based revenues are:
Three months
ended March 31, |
||||||||
2019 | 2018 | |||||||
Strategist and manager fees |
$ | 22,460 | $ | 21,516 | ||||
Premier broker-dealer fees |
2,092 | 1,793 | ||||||
Custody fees |
1,174 | 2,077 | ||||||
Fund advisory fees |
1,718 | 661 | ||||||
Marketing allowance |
515 | 539 | ||||||
External managers |
142 | 218 | ||||||
Other |
1 | 1 | ||||||
|
|
|||||||
Total asset-based expenses |
$ | 28,102 | $ | 26,805 | ||||
|
(7) Debt
On November 14, 2018, the Company executed a Credit Agreement with Credit Suisse AG for a $250,000 term loan and a revolving line of credit that permits the Company to borrow up to $20,000. Interest on amounts borrowed under the term loan and line of credit is incurred at a variable rate, initially LIBOR plus 3.50% or the Alternate Base Rate (as defined in the Credit Agreement) plus 2.50%, and is paid quarterly. Principal payments on the outstanding amounts borrowed under the term loan of 0.25% are due quarterly. The term loan matures on November 14, 2025 and the revolving line of credit matures on November 14, 2023. As of March 31, 2019, $249.4 million aggregate principal amount of the term loan remained outstanding and the revolving line of credit was undrawn.
(8) Commitments and Contingencies
Litigation
The Company faces the risk of litigation and regulatory investigations and actions in the ordinary course of operating its businesses, including the risk of class action lawsuits. The Companys pending legal and regulatory actions include proceedings specific to the Company and others generally applicable to business practices in the industries in which the Company operates. Plaintiffs in class action and other lawsuits against the Company may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. The Company is also subject to litigation arising out of its general business activities such as its contractual and employment relationships. In addition,
F-36
the Company is subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and other authorities. A substantial legal liability or a significant regulatory action against the Company could have an adverse effect on its business, financial condition and results of operations. Moreover, even if the Company ultimately prevails in the litigation, regulatory action or investigation, the Company could suffer significant reputational harm, which could have an adverse effect on its business, financial condition or results of operations.
(9) Related Party Transactions
Due to the outstanding Class C common units being accounted for as a liability-classified award, AssetMark Holdings maintains an investment in the Company and an offsetting share-based compensation liability of $19,766 as of March 31, 2019, which represents the estimated value of the share-based employee compensation. The Company recorded these amounts as an expense and an increase to paid-in capital.
(10) Subsequent Events
On August 11, 2018, the Company entered into a unit purchase agreement to acquire Global Financial Private Capital for $55,000, subject to a purchase price adjustment based on a client attrition calculation and closing conditions that included approval from the Committee on Foreign Investment in the United States (CFIUS). On April 16, 2019, the Company closed the acquisition and paid a final purchase price of $35,906, net of the client attrition and working capital adjustments.
On July 5, 2019, the Company filed an amended and restated certificate of incorporation effecting a 661,500-for-one forward stock split of its issued and outstanding common stock. The par value was adjusted to $0.001 per share in connection with such filing. The authorized shares of common stock were increased to 675,000,000 and 75,000,000 shares of preferred stock were authorized to be issued, however, no preferred stock has been issued as of July 8, 2019. All share and per share data shown in the accompanying unaudited condensed consolidated financial statements and related notes have been retroactively revised to reflect the forward stock split. The following table sets forth the calculation of basic net income per share during the periods presented (in thousands, except share and per share data):
Three Months Ended
March 31, 2019 |
|
Three Months Ended
March 31, 2018 |
||||||||||
Numerator: Net income |
$ | 2,811 | $ | 9,791 | ||||||||
|
|
|
|
|
|
|||||||
Denominator: Weighted-average shares outstanding |
66,150,000 | 66,150,000 | ||||||||||
|
|
|
|
|
|
|||||||
Net income per share, basic |
$ | 0.04 | $ | 0.15 | ||||||||
|
|
|
|
|
|
Any material subsequent events have been considered for disclosure through July 8, 2019, the date on which the financial statements were made available.
F-37
Part II
Information not required in prospectus
Item 13. Other expenses of issuance and distribution
The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the listing fee.
Amount to
Be Paid |
||||
SEC registration fee |
$ | 36,588 | ||
FINRA filing fee |
45,782 | |||
Listing fee |
295,000 | |||
Transfer agents fees |
4,000 | |||
Printing and engraving expenses |
380,000 | |||
Legal fees and expenses |
2,000,000 | |||
Accounting fees and expenses |
900,000 | |||
Miscellaneous |
338,630 | |||
|
|
|||
Total |
$ | 4,000,000 | ||
|
Item 14. Indemnification of directors and officers
Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent to the registrant. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Article IX of the registrants amended and restated certificate of incorporation provides for indemnification by the registrant of its directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law. Prior to the consummation of this offering, the registrant will have entered into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the registrants amended and restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the registrant for which indemnification is sought.
Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the directors duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions or (iv) for any transaction from which the director derived an
II-1
improper personal benefit. The registrants amended and restated certificate of incorporation provides for such limitation of liability.
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.
Item 15. Recent sales of unregistered securities
Since January 1, 2016, the registrant has sold no securities without registration under the Securities Act of 1933, as amended (the Securities Act). Since January 1, 2016, AssetMark Holdings LLC has sold the following securities without registration under the Securities Act:
Class A and B unit issuances
On November 1, 2016, a total of 8 employees of the Company who are accredited investors (as defined in Rule 501 of Regulation D under the Securities Act) purchased an aggregate of 40,692.5630 Class A Common Units and 40,692.5630 Class B Common Units in AssetMark Holdings LLC at a price of $100 per unit for an aggregate consideration of $8,138,512.61 pursuant to that certain Rollover Agreement by and between Huatai International Finance Ltd. and each such employee.
On December 15, 2016, AssetMark Holdings LLC sold to a total of 33 employees of the Company who are accredited investors (as defined in Rule 501 of Regulation D under the Securities Act) an aggregate of 28,150 Class B Common Units in AssetMark Holdings LLC at a price of $100 per unit for an aggregate consideration of $2,815,000 pursuant to a series of subscription agreements by and between AssetMark Holdings LLC and each such employee or affiliate.
On March 27, 2017, AssetMark Holdings LLC sold to one executive officer who joined the Company who is an accredited investor (as defined in Rule 501 of Regulation D under the Securities Act) an aggregate of 3,000 Class B Common Units in AssetMark Holdings LLC at a price of $100 per unit for an aggregate consideration of $300,000 pursuant to a subscription agreement by and between AssetMark Holdings LLC and the executive officer.
Class C unit issuances
On November 18, 2016, AssetMark Holdings LLC granted to 52 executive officers and service providers of the Company an aggregate of 8,056.79 Class C Common Units in AssetMark Holdings LLC. On March 27, 2017, AssetMark Holdings LLC granted to one executive officer of the Company an aggregate of 500 Class C Common Units in AssetMark Holdings LLC. On November 1, 2017, AssetMark Holdings LLC granted to five employees of the Company an aggregate of 123.35 Class C Common Units in AssetMark Holdings LLC. On January 31, 2018, AssetMark Holdings LLC granted to one director of the Company an aggregate of 66.67 Class C Common Units in AssetMark Holdings LLC. On August 21, 2018, AssetMark Holdings LLC granted to 10 employees of the Company an aggregate of 216.70 Class C Common Units in AssetMark Holdings LLC. On January 18, 2019,
II-2
AssetMark Holdings LLC granted to seven employees of the Company an aggregate of 120.02 Class C Common Units in AssetMark Holdings LLC. All such grants were made pursuant to those certain Service Member Unit Issuance Agreements by and between AssetMark Holdings LLC and each such director, executive officer or service provider. Since November 1, 2016, AssetMark Holdings LLC has recalled an aggregate of 146.68 Class C Common Units.
The sales, offers and issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering, Section 3(a)(9) of the Securities Act as exchange transactions involving securities exchanged by the issuer with its existing securityholders exclusively where no commission or other remuneration is paid or given for soliciting such exchange, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering under compensatory benefit plans and contracts relating to compensation. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were affixed to the securities issued in these transactions.
Item 16. Exhibits and financial statement schedules
(a) | Exhibits. |
See the Exhibit Index prior to the signature page below for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
(b) | Financial statement schedules. |
No schedules are included in the consolidated financial statements that form part of this registration statement.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this registration statement 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 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 hereunder, 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 of whether such indemnification by it is against public policy as expressed in the 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. |
II-3
(2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-4
Exhibit index
II-5
* | To be filed by amendment. |
| Indicates management contract or compensatory plan. |
+ | Portions of this exhibit have been omitted as the registrant has determined that (i) the omitted information is not material and (ii) the omitted information would likely cause competitive harm to the registrant if publicly disclosed. |
# | Previously filed. |
II-6
Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Concord, State of California, on the 8th day of July, 2019.
AssetMark Financial Holdings, Inc. | ||
By: |
/s/ Charles Goldman |
|
Name: | Charles Goldman | |
Title: | Chief Executive Officer |
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Charles Goldman Charles Goldman |
Director and Chief Executive Officer
(principal executive officer) |
July 8, 2019 | ||
/s/ Gary Zyla Gary Zyla |
Chief Financial Officer
(principal financial officer) |
July 8, 2019 | ||
/s/ John Hahn John Hahn |
Senior Vice President, Finance
(principal accounting officer) |
July 8, 2019 | ||
* Xiaodan Liu |
Chairman of the Board | July 8, 2019 | ||
* Rohit Bhagat |
Director | July 8, 2019 | ||
* Patricia Guinn |
Director | July 8, 2019 | ||
* Bryan Lin |
Director | July 8, 2019 | ||
* Ying Sun |
Director | July 8, 2019 |
II-7
Signature | Title | Date | ||
* Yi Zhou |
Director | July 8, 2019 | ||
|
*By: |
/s/ Gary Zyla |
|
Gary Zyla Attorney-in-Fact |
II-8
Exhibit 3.1
Delaware
The First State
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF ASSETMARK FINANCIAL HOLDINGS, INC., FILED IN THIS OFFICE ON THE FIFTH DAY OF JULY, A.D. 2019, AT 12:38 OCLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.
|
/s/ Jeffrey W. Bullock | |||
Jeffrey W. Bullock, Secretary of State | ||||
5308921 8100 SR# 20195827502 |
Authentication: 203161702 Date: 07-05-19 |
|||
You may verify this certificate online at corp.delaware.gov/authver.shtml |
Page 1
State of Delaware Secretary of State Division of Corporations Delivered 12:38 PM 07/05/2019 FILED 12:38 PM 07/05/2019 SR 20195827502 - File Number 5308921 |
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ASSETMARK FINANCIAL HOLDINGS, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
AssetMark Financial Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware (the Corporation ), certifies that:
A. The name of the Corporation is AssetMark Financial Holdings, Inc. The date of filing of the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware was March 25, 2013 (the Original Certificate of Incorporation ). The name under which the Corporation filed the Original Certificate of Incorporation was AqGen Liberty Management II, Inc.
B. This Amended and Restated Certificate of Incorporation ( Certificate of Incorporation ) was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, and has been duly approved by the written consent of the stockholders of the Corporation in accordance with Section 228 of the General Corporation Law of the State of Delaware.
C. The text of the Certificate of Incorporation as amended and restated shall read in full as follows:
ARTICLE I
NAME
The name of the corporation is AssetMark Financial Holdings, Inc. (the Corporation ).
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the Corporations registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporations registered agent at such address is The Corporation Trust Company.
ARTICLE III
PURPOSE AND POWERS
The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the DGCL ).
ARTICLE IV
CAPITALIZATION
Section 4.1 Authorized Stock . The Corporation shall be authorized to issue 750,000,000 shares of capital stock, of which (a) 675,000,000 shares shall be shares of Common Stock, par value $0.001 per share (the Common Stock ), and (b) 75,000,000 shares shall be shares of Preferred Stock, par value $0.001 per share ( Preferred Stock ). Subject to the rights of the holders of any series of Preferred Stock then outstanding, the number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares of Common Stock or Preferred Stock, as the case may be, then outstanding) by the affirmative vote of the holders of shares of capital stock of the Corporation, voting as a single class, representing a majority of the Total Voting Power, irrespective of the provisions of Section 242(b)(2) of the DGCL, and no vote of the holders of either Common Stock or Preferred Stock, voting separately as a class, shall be required therefor. Capitalized terms used in this Certificate of Incorporation without definition shall have the meanings assigned thereto in Article XII .
Section 4.2 Preferred Stock .
(a) The Board of Directors of the Corporation (the Board of Directors ) is hereby authorized to provide by resolution or resolutions from time to time for the issuance, out of the unissued shares of Preferred Stock, of one or more classes or series of Preferred Stock, without any action or vote by the Corporations stockholders (except as may otherwise be required by the terms of any class or series of Preferred Stock then outstanding), and, with respect to each such class or series, fix the designations, powers, preferences and relative, participating, optional or other rights (including with respect to voting), if any, and the qualifications, limitations or restrictions thereof, if any, with respect to each such class or series of Preferred Stock and the number of shares constituting each such class or series, and to increase or decrease the number of shares of any such class or series to the extent permitted by the DGCL. The designations, powers, preferences and relative, participating, optional or other rights of each class or series of Preferred Stock, and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other classes and series at any time outstanding.
(b) Without limiting the generality of Section 4.2(a), the resolution or resolutions providing for issuance of any class or series of Preferred Stock may provide that such class or series shall be superior to, rank equally with or be junior to any other class or series of Preferred Stock to the extent permitted by applicable law. The voting, dividend and liquidation rights of the holders of Common Stock are subject to and qualified by the rights of the holders of Preferred Stock of any class or series as may be designated by the Board of Directors upon any issuance of Preferred Stock.
(c) Any shares of any class or series of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by applicable law or by the terms of any such class or series of Preferred Stock.
2
Section 4.3 Provisions Applicable to Common Stock and Preferred Stock .
(a) Voting Rights . Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided , however , that, except as otherwise required by applicable law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation relating to any class or series of Preferred Stock) that relates solely to the terms of one or more outstanding classes or series of Preferred Stock if the holders of such affected class or series of Preferred Stock are entitled, either separately or together with the holders of one or more other outstanding classes or series of Preferred Stock, to vote thereon pursuant to this Certificate of Incorporation or the DGCL.
(b) No Preemptive Rights . No stockholder shall be entitled to any preemptive right to subscribe for, purchase or receive any part of any new or additional issue of Stock of any class or series of the Corporation, whether now or hereafter authorized, or of bonds, debentures or other securities convertible into or exchangeable for Stock of the Corporation, solely by virtue of being a stockholder of the Corporation.
(c) Forward Stock Split . Upon the effective time (the Effective Time ) of the filing of this Certificate of Incorporation, each one (1) share of the Corporations Common Stock that is issued and outstanding or held by the Corporation as treasury stock immediately prior to the Effective Time (which shall include each fractional interest in Common Stock in excess of one (1) share held by any stockholder) is and shall be subdivided and reclassified into 661,500 fully paid, nonassessable shares of Common Stock (or, with respect to such fractional interests, such lesser number of shares as may be applicable based upon such 661,500-to-one ratio) (the Forward Stock Split ). The par value per share of the Common Stock shall not be affected by the Forward Stock Split.
ARTICLE V
CORPORATE OPPORTUNITIES AND RELATED MATTERS
Section 5.1 Huatai Entities . Except as otherwise agreed in writing between the Corporation, on the one hand, and a Huatai Entity on the other hand, the Huatai Entities shall, to the fullest extent permitted by law, have no duty to refrain from (1) engaging in the same or similar activities or lines of business as any Corporation Entity, (2) doing business with any client, contractor, customer or vendor of any Corporation Entity or (3) employing, or otherwise engaging or soliciting for such purpose, any officer, director or employee of any Corporation Entity. To the fullest extent permitted by law, no Huatai Entity shall be deemed to have breached its fiduciary duties, if any, to any Corporation Entity or its stockholders solely by reason of engaging in any activity described in clauses (1) through (3) of the immediately preceding sentence. If any Huatai Entity is offered, or acquires knowledge of, a potential transaction or business opportunity that is or may be a corporate opportunity for any Corporation Entity, the Corporation, on behalf of itself and each Corporation Entity, to the fullest extent permitted by law, renounces any interest or expectancy in such potential transaction or business opportunity or being offered an opportunity to participate therein and waives any claim that such potential transaction or business opportunity constituted a corporate opportunity that should have been
3
presented to any Corporation Entity unless such corporate opportunity is subject to Section 5.2(b) . In the case of any potential transaction or business opportunity in which the Corporation has renounced its interest and expectancy in accordance with the immediately preceding sentence, the Huatai Entities shall, to the fullest extent permitted by law, not be liable to any Corporation Entity or its stockholders for breach of any fiduciary duty as a direct or indirect stockholder of any Corporation Entity by reason of the fact that any one or more of the Huatai Entities pursues or acquires such potential transaction or business opportunity for itself, directs such potential transaction or business opportunity to another Person, or otherwise does not communicate information regarding such potential transaction or business opportunity to the Corporation or any Corporation Entity.
Section 5.2 Officials .
(a) If a Corporation Official who is also a Huatai Entity Official is offered, or acquires knowledge of, a potential transaction or business opportunity that is or may be a corporate opportunity in any manner for any Corporation Entity, except as provided in Section 5.2(b) , (i) the Corporation, on behalf of itself and each Corporation Entity, to the fullest extent permitted by law, renounces any interest or expectancy in such potential transaction or business opportunity or being offered an opportunity to participate therein and waives any claim that such potential transaction or business opportunity constituted a corporate opportunity that should have been presented to the Corporation or any such Corporation Entity and (ii) such Corporation Official shall have no duty to communicate or present such potential transaction or business opportunity to the Corporation or any Corporation Entity and shall, to the fullest extent permitted by law, not be liable to any Corporation Entity or its stockholders for breach of any fiduciary duty as a Corporation Official, including, without limitation, by reason of the fact that any one or more of the Huatai Entities pursues or acquires such potential transaction or business opportunity for itself, directs such potential transaction or business opportunity to another Person, or otherwise does not communicate information regarding such potential transaction or business opportunity to the Corporation or any Corporation Entity.
(b) Notwithstanding anything to the contrary in this Article V , the Corporation does not renounce any interest or expectancy it may have in any corporate opportunity that is expressly offered to any Corporation Official in writing solely in his or her capacity as a Corporation Official.
Section 5.3 Amendments . No amendment, repeal or termination of this Article V shall apply to or have any effect on the liability or alleged liability of any Huatai Entity or any Corporation Official for or with respect to any corporate opportunity that such Huatai Entity or such Corporation Official was offered, or of which such Huatai Entity or such Corporation Official acquired knowledge, prior to such amendment, repeal or termination.
Section 5.4 Notice . Any Person purchasing or otherwise acquiring or holding any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article V.
4
Section 5.5 Termination . Notwithstanding any other provision of this Certificate of Incorporation to the contrary, the provisions of Article V (other than Section 5.3) shall automatically terminate, expire and have no further force and effect from and after the date that the Huatai Entities cease to beneficially own in the aggregate shares of capital stock of the Corporation representing a majority of the Total Voting Power.
ARTICLE VI
BOARD OF DIRECTORS
Section 6.1 Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
Section 6.2 Number . The number directors that shall constitute the Board of Directors shall be determined in the manner set forth in the Bylaws.
Section 6.3 Election of Directors .
(a) Classified Board . The Board of Directors, other than those directors elected by the holders of any class or series of Preferred Stock the terms of which do not include classification, shall be divided into three (3) classes, designated Class I, Class II and Class III, with each class consisting, as nearly as may be practicable, of one-third of the total number of directors specified in accordance with Section 6.2 . Each director shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected; provided that directors initially designated as Class I directors shall serve for a term ending on the date of the first annual meeting of stockholders following the date on which the Common Stock is first publicly traded (the IPO Date ), directors initially designated as Class II directors shall serve for a term ending on the date of the second annual meeting of stockholders following the IPO Date and directors initially designated as Class III directors shall serve for a term ending on the date of the third annual meeting of stockholders following the IPO Date. Notwithstanding the foregoing, each director shall hold office until such directors successor shall have been duly elected and qualified or until such directors earlier death, resignation or removal. In the event of any change in the number of directors, the Board of Directors shall apportion any newly created directorships among, or reduce the number of directorships in, such class or classes as shall equalize, as nearly as possible, the number of directors in each class. In no event will a decrease in the number of directors shorten the term of any incumbent director. The Board of Directors is authorized to assign directors already in office to Class I, Class II or Class III.
(b) No Cumulative Voting . There shall be no cumulative voting in the election of directors.
(c) No Written Ballot . Election of directors need not be by written ballot unless the Bylaws so provide.
Section 6.4 Vacancies . Except as required by law, any vacancy on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors shall be filled solely by a majority of the remaining directors then in office (although less than a quorum) or by the sole remaining director, and each director so elected shall hold office for a term that shall coincide with the remaining term of the Class to which such director shall have been elected.
5
Section 6.5 Removal . So long as the Huatai Entities beneficially own in the aggregate shares of capital stock of the Corporation representing a majority of the Total Voting Power, directors may be removed from office by the stockholders with or without cause with the affirmative vote of holders of not less than a majority of the Total Voting Power. From and after the date that the Huatai Entities cease to beneficially own in the aggregate shares of capital stock of the Corporation representing a majority of the Total Voting Power, directors may be removed from office by the stockholders only for cause with the affirmative vote of the holders of not less than a majority of the Total Voting Power.
Section 6.6 Preferred Stock Directors . Notwithstanding anything else contained herein, whenever the holders of one or more class or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of such class or series of Preferred Stock, including pursuant to a certificate of designation, adopted by resolution or resolutions adopted by the Board of Directors pursuant to Section 4.2 , and such directors so elected shall not be subject to the provisions of this Article VI unless otherwise provided therein. In the event that the rights of any class or series of Preferred Stock to elect directors would preclude the holders of Common Stock from electing at least one director, the Board of Directors shall increase the number of directors prior to the issuance of such class or series of Preferred Stock to the extent necessary to allow such holders of Common Stock to elect at least one (1) director in accordance with the provisions of this Article VI .
Section 6.7 Quorum . A majority of the Board of Directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors and, except as otherwise expressly required by law, by this Certificate of Incorporation or by the Bylaws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.
ARTICLE VII
STOCKHOLDER ACTION
Section 7.1 Annual Meetings . An annual meeting of the stockholders for the Corporation for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting shall be held at such place, if any, and on such date and at such time as the Board of Directors shall determine.
Section 7.2 Special Meetings . Except as otherwise required by law or fixed pursuant to any certificate of designation relating to the rights of the holders of any class or series of Preferred Stock, special meetings of stockholders of the Corporation may be called only by (1) the Chairperson of the Board of Directors or (2) the Board of Directors pursuant to a resolution adopted by the vote of a majority of the directors then in office. No business other than that stated in the Corporations notice of a special meeting of stockholders (or any supplement thereto) shall be transacted at such special meeting.
Section 7.3 Written Consent . At any time when the Huatai Entities beneficially own in the aggregate shares of capital stock of the Corporation representing a majority of the Total Voting Power, any action required or permitted to be taken at any annual or special meeting of
6
stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting of stockholders at which all shares entitled to vote thereon were present and voted. At any time when the Huatai Entities do not beneficially own in the aggregate shares of capital stock of the Corporation representing a majority of the Total Voting Power, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by stockholders; provided , however , that any action required or permitted to be taken by the holders of any class or series of Preferred Stock, voting separately as a series or together with the holders of one or more other classes or series of Preferred Stock, may be taken without a meeting, without prior notice and without a vote, to the extent expressly so provided by the applicable terms of such class or series of Preferred Stock.
ARTICLE VIII
BYLAWS
In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized and empowered to adopt, amend and repeal the Bylaws.
The stockholders may also adopt, amend or repeal the Bylaws with the affirmative vote of the holders of not less than 66 2 ⁄ 3 % of the Total Voting Power, subject to the rights of holders of any class or series of Preferred Stock then outstanding.
ARTICLE IX
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
Section 9.1 Limited Liability . To the fullest extent permitted by law, no director of this Corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the DGCL is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Section 9.2 Indemnity . The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any individual (and the heirs, executors or administrators of such individual) (a Covered Person ) who was or is made or is threatened to be made a party or is otherwise 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 he or she, or an individual for whom he or she is the legal representative, 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 of another corporation or of a limited liability company, partnership, joint venture, trust or other enterprise, and such indemnification shall continue as to an individual who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators. Notwithstanding the preceding sentence,
7
the Corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors. The Corporation may, by the action of the Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers as the Board of Directors shall determine to be appropriate and authorized by applicable law.
Section 9.3 Expenses . The Corporation shall to the fullest extent permitted by applicable law pay the expenses (including attorneys fees and expenses) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided , however , that such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article IX or otherwise. The rights contained in this Section 9.3 shall inure to the benefit of a Covered Persons heirs, executors and administrators. By action of the Board of Directors, the Corporation may advance expenses to employees and agents of the Corporation with the same scope and effect as the foregoing rights to advancement of expenses of directors and officers as the Board of Directors shall determine to be appropriate and authorized by applicable law.
Section 9.4 Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the DGCL.
Section 9.5 No Duplication . The Corporations obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise shall be reduced by any amount such Covered Person has been paid as indemnification or advancement of expenses from such other corporation, limited liability company, partnership, joint venture, trust or other enterprise.
Section 9.6 Severability . If this Article IX or any portion hereof is invalidated on any ground by any court of competent jurisdiction, then the Corporation will nevertheless indemnify each Covered Person entitled to indemnification under Section 9.2 hereof to the fullest extent permitted by any applicable portion of this Article IX that shall not have been invalidated and to the fullest extent permitted by applicable law.
Section 9.7 Non-Exclusivity . The rights conferred on any Covered Person by this Article IX shall not be exclusive of any other rights that such Covered Person may have or hereafter acquire. This Article IX shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to individuals other than Covered Persons, to a greater extent or in a manner otherwise different than provided for in this Article IX when and as authorized by appropriate corporate action.
8
Section 9.8 Preservation of Rights . Neither the amendment nor repeal of this Article IX , nor the adoption of any provision of this Certificate of Incorporation or the Bylaws, nor, to the fullest extent permitted by the DGCL, any modification of law, shall adversely affect any right or protection of any person granted pursuant to this Article IX existing at, or arising out of or related to any event, act or omission that occurred prior to, the time of such amendment, repeal, adoption or modification (regardless of when any proceeding (or part thereof) relating to such event, act or omission arises or is first threatened, commenced or completed).
ARTICLE X
EXCLUSIVE FORUM
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law and subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the Corporation, (2) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer, employee, agent or trustee of the Corporation to the Corporation or the Corporations stockholders, (3) any action asserting a claim against the Corporation or any director, officer or other employee of the Corporation arising pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or arising pursuant to this Certificate of Incorporation or the Bylaws (in each case, as they may be amended from time to time) or (4) any action asserting a claim against the Corporation or any director, officer or other employee of the Corporation that is governed by the internal affairs doctrine. This Article X shall not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or any other claim for which the federal courts have exclusive jurisdiction.
Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision with respect to the Securities Act of 1933, as amended.
Any Person purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article X .
ARTICLE XI
BUSINESS COMBINATIONS
The Corporation hereby elects not to be governed by Section 203 of the DGCL until such time as the Huatai Entities cease to beneficially own in the aggregate shares of capital stock of the Corporation representing at least 15% of the Total Voting Power, whereupon the Corporation shall, immediately and automatically, without further action on the part of the Corporation or any holder of capital stock of the Corporation, become governed by Section 203 of the DGCL, except that any Person who acquires capital stock of the Corporation in a transfer from a Huatai
9
Entity (i) for which such Huatai Entity designates such Person as a transferee of such Huatai Entity in writing, and (ii) immediately before which transfer the Huatai Entities beneficially owned in the aggregate shares of capital stock of the Corporation representing at least 15% of the Total Voting Power and immediately after which transfer the Huatai Entities cease to beneficially own in the aggregate shares of capital stock of the Corporation representing at least 15% of the Total Voting Power, shall be deemed to not be an interested stockholder, as such term is defined in Section 203 of the DGCL, as a result of such transfer and such transfer shall be deemed to have been approved by the Board of Directors without such Person becoming an interested stockholder.
ARTICLE XII
CERTAIN DEFINITIONS
As used in this Certificate of Incorporation, the following terms have the following meanings:
(a) Affiliate of any Person means any entity that controls, is controlled by, or is under common control with such Person. Affiliated shall have a correlative meaning.
(b) beneficial owner and beneficial ownership (including the term beneficially own ) have the meanings ascribed to such terms in Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
(c) Bylaws means the Amended and Restated Bylaws of the Corporation, as may be amended from time to time.
(d) control (including the terms controlling , controlled by and under common control with ) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a legal entity, whether through the ownership of voting interests, by contract, or otherwise.
(e) corporate opportunity includes, but not be limited to, (1) business opportunities that (i) the Corporation or any Corporation Entity is financially able, contractually permitted and legally able to undertake, (ii) are, from their nature, in the line of the business of the Corporation or any Corporation Entity and (iii) are of practical advantage to the Corporation or any Corporation Entity and (2) business opportunities in which the Corporation or any Corporation Entity, but for the provisions of Article V , would have an interest or a reasonable expectancy.
(f) Corporation Entities means the Corporation or any of its Subsidiaries.
(g) Corporation Official means each natural person who is a director or an officer (or both) of the Corporation or one or more Corporation Entities.
(h) Huatai means Huatai International Investment Holdings Limited, a company organized under the laws of the Cayman Islands, any of its successors by way of merger, consolidation or share exchange, any acquiror of all or substantially all of its assets and any Person of which Huatai International Investment Holdings Limited becomes a Subsidiary.
10
(i) Huatai Entities means Huatai and each of its Affiliates (other than the Corporation Entities).
(j) Huatai Entity Official means each natural person who is a director, officer and/or employee of one or more Huatai Entities.
(k) Person means an individual, a partnership (including a limited partnership), a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or other entity, including governmental authorities; each reference to a record holder or record owner of shares, if a natural person, shall be deemed to include in his or her representative capacity a guardian, committee, executor, administrator or other legal representative of such natural person or record holder.
(l) Stock means shares of capital stock (whether denominated as common stock or preferred stock), beneficial, partnership or membership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or business trust, whether voting or non-voting.
(m) Subsidiary means, as to any Person, a corporation, partnership, limited liability company, joint venture, association or other legal entity (1) in which such Person beneficially owns voting interests representing 50% or more in voting power of the outstanding voting interests or (2) if no governing body exists at such legal entity, in which such Person beneficially owns capital stock, partnership interests, limited liability company interests or other ownership interests representing 50% or more in voting power of such ownership interests, with such Person being deemed to have beneficial ownership of 50% or more in voting power of such voting interests or ownership interests of a partnership or limited liability company if such Person or a Subsidiary of such Person (or a combination thereof) shall be, or shall control (directly or indirectly), the sole general partner or the managing general partner of such partnership or the managing member of such limited liability company.
(n) Total Voting Power means the aggregate voting power of all issued and outstanding shares of capital stock of the Corporation generally entitled to vote in the election of directors of the Corporation, voting together as a single class.
(o) voting interests means, with respect to any legal entity, capital stock, partnership interests, limited liability company interests or other ownership interests entitled generally to vote on the election of directors, managers or other voting members of the governing body of such legal entity.
ARTICLE XIII
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Except as otherwise provided in this Certificate of Incorporation, the Corporation reserves the right to amend and repeal any provisions contained in this Certificate of Incorporation in the manner prescribed by the DGCL, and all rights and powers conferred upon stockholders, directors and officers herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Section 4.3(a) (Voting Rights), Article V (Corporate Opportunities and Related Matters), ARTICLE VI (Board of Directors), Article
11
VII (Stockholder Action), Article VIII (Bylaws), ARTICLE IX (Limitations on Liability and Indemnification), Article X (Exclusive Forum), Article XI (Business Combinations), this Article XIII and any definitions related to any of the foregoing in Article XII (Certain Definitions) may not be repealed or amended in any respect, and no other provision may be adopted, amended or repealed which would have the effect of modifying or permitting the circumvention of any of such provisions, unless, in addition to any affirmative vote required by applicable law or any other provision of this Certificate of Incorporation, such action is approved by the affirmative vote of the holders of shares of capital stock of the Corporation representing not less than 66 2 ⁄ 3 % of the Total Voting Power.
12
IN WITNESS WHEREOF, the Corporation has executed this Amended and Restated Certificate of Incorporation this fifth day of July, 2019.
ASSETMARK FINANCIAL HOLDINGS, INC. | ||
By: | /s/ Ted Angus | |
Name: | Ted Angus | |
Title: | Executive Vice President and General Counsel |
[ Signature Page to Certificate of Incorporation ]
Exhibit 3.2
BYLAWS
OF
AQGEN LIBERTY MANAGEMENT II, INC.
(a Delaware corporation)
ARTICLE I
Stockholders
SECTION 1. Annual Meetings . The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at such date and time, within or without the State of Delaware, as the Board of Directors shall determine.
SECTION 2. Special Meetings . Special meetings of stockholders for the transaction of such business as may properly come before the meeting may be called by order of the Board of Directors or by stockholders holding together at least a majority of all the shares of AqGen Liberty Management II, Inc. (the Corporation) entitled to vote at the meeting, and shall be held at such date and time, within or without the State of Delaware, as may be specified by such order. Whenever the directors shall fail to fix such place, the meeting shall be held at the principal executive office of the Corporation.
SECTION 3. Notice of Meetings . Written notice of all meetings of the stockholders, stating the place, date and hour of the meeting and the place within the city or other municipality or community at which the list of stockholders may be examined, shall be mailed or delivered to each stockholder not less than ten (10) nor more than sixty (60) days prior to the meeting. Notice of any special meeting shall state in general terms the purpose or purposes for which the meeting is to be held.
SECTION 4. Stockholder Lists . The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. 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.
The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 5. Quorum . Except as otherwise provided by law or the Corporations Certificate of Incorporation, a quorum for the transaction of business at any meeting of stockholders shall consist of the holders of record of a majority of the issued and outstanding shares of the capital stock of the Corporation entitled to vote at the meeting, present in person or by proxy. At all meetings of the stockholders at which a quorum is present, all matters, except as otherwise provided by law or the Certificate of Incorporation, shall be decided by the vote of the holders of a majority of the shares entitled to vote thereat present in person or by proxy. If there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time, without further notice, until a quorum shall have been obtained. When a quorum is once present it is not broken by the subsequent withdrawal of any stockholder.
SECTION 6. Organization . Meetings of stockholders shall be presided over by the Chairman, if any, or if none or in the Chairmans absence the Vice-Chairman, if any, or if none or in the Vice-Chairmans absence the President, if any, or if none or in the Presidents absence a Vice-President, or, if none of the foregoing is present, by a chairman to be chosen by the stockholders entitled to vote who are present in person or by proxy at the meeting. The Secretary of the Corporation, or in the Secretarys absence an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall appoint any person present to act as secretary of the meeting.
SECTION 7. Voting; Proxies; Required Vote . (a) At each meeting of stockholders, every stockholder shall be entitled to vote in person or by proxy appointed by instrument in writing, subscribed by such stockholder or by such stockholders duly authorized attorney-in-fact, and, unless the Certificate of Incorporation provides otherwise, shall have one vote for each share of stock entitled to vote registered in the name of such stockholder on the books of the Corporation on the applicable record date fixed pursuant to these Bylaws. At all elections of directors the voting may but need not be by ballot and a plurality of the votes cast there shall elect. Except as otherwise required by law or the Certificate of Incorporation, any other action shall be authorized by a majority of the votes cast.
(b) Any action required or permitted to be taken at any meeting of stockholders may, except as otherwise required by law or the Certificate of Incorporation, be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of record of a number of the issued and outstanding shares of capital stock of the Corporation representing the number of votes necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
2
SECTION 8. Inspectors . The Board of Directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by such inspector or inspectors and execute a certificate of any fact found by such inspector or inspectors.
ARTICLE II
Board of Directors
SECTION 1. General Powers . The business, property and affairs of the Corporation shall be managed by, or under the direction of, the Board of Directors.
SECTION 2. Qualification; Number; Term; Remuneration . (a) Each director shall be at least 18 years of age. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of directors constituting the entire Board shall be the number fixed from time to time by affirmative vote of a majority of the Directors then in office. The use of the phrase entire Board herein refers to the total number of directors which the Corporation would have if there were no vacancies.
(b) Directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal.
(c) Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
3
SECTION 3. Quorum and Manner of Voting . Except as otherwise provided by law, a majority of the entire Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting from time to time to another time and place without notice. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
SECTION 4. Places of Meetings . Meetings of the Board of Directors may be held at any place within or without the State of Delaware, as may from time to time be fixed by resolution of the Board of Directors, or as may be specified in the notice of meeting.
SECTION 5. Action by Communications Equipment . Members of the Board of Directors or any committee thereof may participate in a meeting of such Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting.
SECTION 6. Annual Meeting . Following the annual meeting of stockholders, the newly elected Board of Directors shall meet for the purpose of the election of officers and the transaction of such other business as may properly come before the meeting. Such meeting may be held without notice immediately after the annual meeting of stockholders at the same place at which such stockholders meeting is held.
SECTION 7. Regular Meetings . Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time by resolution determine. Notice need not be given of regular meetings of the Board of Directors held at times and places fixed by resolution of the Board of Directors.
SECTION 8. Special Meetings . Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board of Directors, President or by a majority of the directors then in office.
SECTION 9. Notice of Meetings . A notice of the place, date and time and the purpose or purposes of each meeting of the Board of Directors shall be given to each director by mailing the same at least two days before the special meeting, or by telegraphing or telephoning the same or by delivering the same personally not later than the day before the day of the meeting. Notice of any meeting of the Board of Directors need not be given to any director, however, if waived by him in writing whether before or after such meeting be held, or if he shall be present at such meeting, and any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given, if all the directors then in office shall be present thereat.
4
SECTION 10. Organization . At all meetings of the Board of Directors, the Chairman, if any, or if none or in the Chairmans absence or inability to act the President, or in the Presidents absence or inability to act any Vice-President who is a member of the Board of Directors, or in such Vice-Presidents absence or inability to act a chairman chosen by the directors, shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board of Directors when present, and, in the Secretarys absence, the presiding officer may appoint any person to act as secretary.
SECTION 11. Resignation . Any director may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any or all of the directors may be removed, with or without cause, by the holders of a majority of the shares of stock outstanding and entitled to vote for the election of directors.
SECTION 12. Vacancies . Unless otherwise provided in these Bylaws, vacancies on the Board of Directors, whether caused by resignation, death, disqualification, removal, an increase in the authorized number of directors or otherwise, may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum, or by a sole remaining director, or at a special meeting of the stockholders, by the holders of shares entitled to vote for the election of directors.
SECTION 13. Action by Written Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the directors consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors.
ARTICLE III
Committees
SECTION 1. Appointment . From time to time the Board of Directors by a resolution adopted by a majority of the entire Board may appoint any committee or committees for any purpose or purposes, to the extent lawful, which shall have powers as shall be determined and specified by the Board of Directors in the resolution of appointment.
SECTION 2. Procedures, Quorum and Manner of Acting . Each committee shall fix its own rules of procedure, and shall meet where and as provided by such rules or by resolution of the Board of Directors. Except as otherwise provided by law, the presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee, and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee. Each committee shall keep minutes of its proceedings, and actions taken by a committee shall be reported to the Board of Directors.
5
SECTION 3. Action by Written Consent . Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if all the members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the committee.
SECTION 4. Term; Termination . In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors.
ARTICLE IV
Officers
SECTION 1. Election and Qualifications . The Board of Directors shall elect the officers of the Corporation, which shall include a President and a Secretary, and may include, by election or appointment, one or more Vice-Presidents (any one or more of whom may be given an additional designation of rank or function), a Treasurer and such Assistant Secretaries, such Assistant Treasurers and such other officers as the Board of Directors may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these Bylaws and as may be assigned by the Board of Directors or the President.
SECTION 2. Term of Office and Remuneration . The term of office of all officers shall be one year and until their respective successors have been elected and qualified, but any officer may be removed from office, either with or without cause, at any time by the Board of Directors. Any vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors. The remuneration of all officers of the Corporation may be fixed by the Board of Directors or in such manner as the Board of Directors shall provide.
SECTION 3. Resignation; Removal . Any officer may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any officer shall be subject to removal, with or without cause, at any time by vote of a majority of the entire Board.
SECTION 4. Chairman of the Board . The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors.
6
SECTION 5. President and Chief Executive Officer . The President shall be the chief executive officer of the Corporation, and shall have such duties as customarily pertain to that office. The President shall have general management and supervision of the property, business and affairs of the Corporation and over its other officers; may appoint and remove assistant officers and other agents and employees; and may execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations and instruments.
SECTION 6. Vice-President . A Vice-President may execute and deliver in the name of the Corporation contracts and other obligations and instruments pertaining to the regular course of the duties of said office, and shall have such other authority as from time to time may be assigned by the Board of Directors or the President.
SECTION 7. Treasurer . The Treasurer shall in general have all duties incident to the position of Treasurer and such other duties as may be assigned by the Board of Directors or the President.
SECTION 8. Secretary . The Secretary shall in general have all the duties incident to the office of Secretary and such other duties as may be assigned by the Board of Directors or the President.
SECTION 9. Assistant Officers . Any assistant officer shall have such powers and duties of the officer such assistant officer assists as such officer or the Board of Directors shall from time to time prescribe.
ARTICLE V
Books and Records
SECTION 1. Location . The books and records of the Corporation may be kept at such place or places within or outside the State of Delaware as the Board of Directors or the respective officers in charge thereof may from time to time determine. The record books containing the names and addresses of all stockholders, the number and class of shares of stock held by each and the dates when they respectively became the owners of record thereof shall be kept by the Secretary as prescribed in the Bylaws and by such officer or agent as shall be designated by the Board of Directors.
SECTION 2. Addresses of Stockholders . Notices of meetings and all other corporate notices may be delivered personally or mailed to each stockholder at the stockholders address as it appears on the records of the Corporation.
SECTION 3. Fixing Date for Determination of Stockholders of Record .
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date
7
upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or 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. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporations registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by this chapter, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VI
Certificates Representing Stock
SECTION 1. Certificates; Signatures . The shares of the Corporation shall be represented by certificates or shall be uncertificated. Every holder of stock
8
represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate, signed by or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares registered in certificate form. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The name of the holder of record of the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the books of the Corporation.
SECTION 2. Transfers of Stock . The shares of stock of the Corporation shall be transferable on the books of the Corporation by the holders thereof in person, or by their duly authorized attorneys or legal representatives, on delivery of an assignment or power of transfer. A record shall be made of each transfer.
SECTION 3. Lost, Stolen or Destroyed Certificates . The Corporation may issue a new certificate of stock in place of any certificate, theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify the Corporation 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 any such new certificate.
ARTICLE VII
Dividends
Subject always to the provisions of law and the Certificate of Incorporation, the Board of Directors shall have full power to determine whether any, and, if any, what part of any, funds legally available for the payment of dividends shall be declared as dividends and paid to stockholders; the division of the whole or any part of such funds of the Corporation shall rest wholly within the lawful discretion of the Board of Directors, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds among or to the stockholders as dividends or otherwise; and before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
9
ARTICLE VIII
Ratification
Any transaction, questioned in any law suit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or stockholder, non-disclosure, miscomputation, or the application of improper principles or practices of accounting, may be ratified before or after judgment, by the Board of Directors or by the stockholders, and if so ratified shall have the same force and effect as if the questioned transaction had been originally duly authorized. Such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.
ARTICLE IX
Corporate Seal
The Corporation shall have no corporate seal.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors. Unless otherwise fixed by the Board of Directors, the fiscal year of the Corporation shall be the calendar year.
ARTICLE XI
Waiver of Notice
Whenever notice is required to be given by these Bylaws or by the Certificate of Incorporation or by law, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice.
ARTICLE XII
Bank Accounts, Drafts, Contracts, Etc.
SECTION 1. Bank Accounts and Drafts . In addition to such bank accounts as may be authorized by the Board of Directors, the primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said primary financial officer, or other person so designated by the Treasurer.
10
SECTION 2. Contracts . The Board of Directors may authorize any person or persons, in the name and on behalf of the Corporation, to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments . The Chairman, the President or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers incident to the ownership of stock by the Corporation. The Chairman, the President or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Corporation may attend and vote at any meeting of stockholders of any company in which the Corporation may hold stock, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board of Directors, from time to time, may confer like powers upon any other person.
SECTION 4. Financial Reports . The Board of Directors may appoint the primary financial officer or other fiscal officer or any other officer to cause to be prepared and furnished to stockholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law.
ARTICLE XIII
Electronic Transmission
The Corporation is authorized to use electronic transmissions as defined in the General Corporation Law of the State of Delaware to the full extent allowed by the General Corporation Law of the State of Delaware, including, but not limited to the purposes of notices, proxies, waivers, resignations, and any other purpose for which electronic transmissions are permitted. Any reference in these Bylaws to the delivery of consents, approvals or waivers or to the taking of any other actions by a writing, shall be satisfied by use of an electronic transmission. An electronic transmission by a stockholder consenting to an action to be taken is considered to be written, signed, and dated for the purposes of this article if the transmission sets forth or is delivered with information from which the Corporation can determine that the transmission was transmitted by the stockholder and the date on which the stockholder transmitted the transmission. The date of transmission is the date on which the consent was signed. Consent given by electronic transmission may not be considered delivered until the consent is reproduced in paper form and the paper form is delivered to the Corporation at its registered office in this state or its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of stockholder
11
meetings are recorded. Notwithstanding the foregoing limitations on delivery, consent given by electronic transmission may be delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book in which proceedings of stockholder meetings are recorded to the extent and in the manner provided by resolution of the Board of Directors of the Corporation.
ARTICLE XIV
Amendments
The Board of Directors shall have power to adopt, amend or repeal Bylaws. Bylaws adopted by the Board of Directors may be repealed or changed, and new Bylaws made, by the stockholders, and the stockholders may prescribe that any Bylaw made by them shall not be altered, amended or repealed by the Board of Directors.
12
Delaware | PAGE 1 | |||
The First State |
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF AQGEN LIBERTY MANAGEMENT II, INC., CHANGING ITS NAME FROM AQGEN LIBERTY MANAGEMENT II, INC. TO ASSETMARK FINANCIAL HOLDINGS, INC., FILED IN THIS OFFICE ON THE ELEVENTH DAY OF DECEMBER, A.D. 2013, AT 1:29 OCLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.
|
|
|||
Jeffrey W. Bullock, Secretary of State | ||||
5308921 8100
|
AUTHENTICATION: 1047701
|
|||
131413756 |
DATE: 01-09-14 |
You may verify this certificate online
at corp.delaware.gov/authver.shtml
From: | 12/11/2013 11:41 | #090 P. 003/003 |
State of Delaware Secretary of State Division of Corporations Delivered 01:29 PM 12/11/2013 FILED 01:29 PM 12/11/2013 SRV 131413756 - 5308921 FILE |
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCOPORATION
December 4, 2013
The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:
FIRST: The Board of Directors of AqGen Liberty Management II, Inc. resolutions (obtained pursuant to Section 141 of the General Corporation Law of the State of Delaware) were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and for stockholder of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered I so that, as amended, said Article shall be and read as follows:
The name of the corporation (the Corporation) is: AssetMark Financial Holdings, Inc.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, and in accordance with Section 228 of the General Corporation Law of the State of Delaware, the written consent of the stockholders in favor of the amendment (in lieu of a meeting), was obtained.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF , said corporation has caused this Certificate to be signed this 4 th day of December, 2013.
|
Gurinder S. Ahluwalia |
President |
|
Naomi J. McKean |
Assistant Secretary |
AQGEN LIB MANAGEMENT II - S/H RES NAME CHANGE 11/25/2013
Exhibit 3.3
AMENDED AND RESTATED BYLAWS
OF
ASSETMARK FINANCIAL HOLDINGS, INC.
Incorporated under the Laws of the State of Delaware
As of [ ], 2019
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Offices . The address of the registered office of AssetMark Financial Holdings, Inc. (the Corporation ) and the name of the Corporations registered agent are as set forth in the Amended and Restated Certificate of Incorporation of the Corporation (as amended and/or restated from time to time, including the terms of any Certificate of Designation relating to a class or series of Preferred Stock, the Certificate of Incorporation ). The Corporation may have other offices, either within or without the State of Delaware, as the Board of Directors of the Corporation (the Board of Directors ) may designate or as the business of the Corporation may from time to time require.
Section 1.2 Books and Records . The books and records of the Corporation shall be kept at its principal executive offices or such other place or places within or without the State of Delaware as may from time to time be designated by the Board of Directors.
Section 1.3 Defined Terms . Capitalized terms used in these Amended and Restated Bylaws (these Bylaws ) without definition shall have the meanings assigned thereto in Article VII .
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting . An annual meeting of the stockholders of the Corporation for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such time as may be determined by the Board of Directors. For so long as the Corporation is an overseas subsidiary of the Huatai Entities within the meaning of the rules and regulations of the China Securities Regulatory Commission, such other business shall include deliberation on the following with respect to the Corporation, as applicable: (i) the business and investment strategy, (ii) the annual budget, (iii) the election of directors, (iv) capitalization, (v) amendments to the Bylaws, (vi) business combinations, divestitures, dissolutions or liquidations, (vii) acquisitions and divestitures, loans, guarantees and related party transactions involving more than 10% of the assets of the Corporation and (x) other acquisitions and joint ventures, in the cases of clauses (i) through (x), to the extent such matters are not confidential and the Corporation would not otherwise be harmed by such disclosure. The Board of Directors may postpone, recess, reschedule or cancel any previously scheduled annual meeting of the stockholders of the Corporation.
Section 2.2 Special Meeting . Except as otherwise required by law or provided by the Certificate of Incorporation, special meetings of the stockholders of the Corporation may be called only by (1) the Chairperson of the Board of Directors (the Chairperson ) or (2) the Board of Directors pursuant to a resolution adopted by the vote of a majority of the directors then in office. No business other than that stated in the Corporations notice of a special meeting of the stockholders (or any supplement thereto) shall be transacted at such special meeting. The Board of Directors or the Chairperson may postpone, recess, reschedule or cancel any special meeting of the stockholders previously scheduled.
Section 2.3 Place of Meeting . The Board of Directors or the Chairperson shall designate the place of meeting, if any, for any annual meeting and for any special meeting of the stockholders. Notwithstanding the foregoing, the Board of Directors may determine that the meeting shall not be held at any place, but may instead be held by means of remote communication. If no designation is so made, the place of meeting shall be the principal executive offices of the Corporation.
Section 2.4 Notice of Meeting . Written notice of any meeting of the stockholders, which notice shall state the place, if any, date and time of the meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, the record date for determining 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 was called. Unless otherwise provided by the DGCL, such notice shall be given by the Corporation in any manner permitted by the DGCL and, unless otherwise required by applicable law, such notice shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting as of the record date for notice of such meeting.
Section 2.5 Quorum and Adjournment .
(a) Except as otherwise required by express provision of applicable law, the rules or regulations of the Exchange, the Certificate of Incorporation or these Bylaws, which express provision shall govern, the presence, in person or represented by proxy, of the holders of a majority of the total voting power of all outstanding securities of the Corporation generally entitled to vote at a meeting of the stockholders shall constitute a quorum for the transaction of business at a meeting of the stockholders; provided , however , that, where a separate vote by a class or series or classes or series of Preferred Stock is required for a vote on a matter or specified business, the presence, in person or represented by proxy, of holders of a majority of the total voting power of all outstanding securities of such class or series or classes or series shall constitute a quorum entitled to take action with respect to the vote on that matter or specified business. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, unless and until such meeting is adjourned in accordance with Section 2.5(b).
2
(b) The chairperson of a meeting of the stockholders or the Board of Directors may adjourn a meeting of the stockholders from time to time, whether or not a quorum is present. No notice of the time and place, if any, of the adjourned meeting need be given if the place, if any, date and time of the adjourned meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed present and vote at the adjourned meeting are announced at the meeting at which such adjournment is made. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in accordance with Section 2.4. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the meeting to be held following the adjournment, and shall give notice of such meeting to each stockholder of record entitled to vote at such meeting as of the record date so fixed for notice of such meeting in accordance with Section 2.4. At the meeting duly held following the adjournment, the Corporation may transact any business which might have been transacted at the original meeting.
Section 2.6 Proxies . Each stockholder entitled to vote at a meeting of the 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, appointed by an instrument in writing subscribed by such stockholder or by such stockholders attorney-in-fact, or by proxy sent by any other means (including electronic communication) permitted by law that results in a writing from such stockholder or such stockholders attorney-in-fact. Such proxy must be delivered to the secretary of the Corporation or his or her representative at or before the time of the meeting at which such proxy will be voted. No proxy shall be valid after three (3) years from the date of its execution, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power.
Section 2.7 Conduct of Business . At each meeting of the stockholders, the Chairperson, if one shall have been elected, or in the Chairpersons absence or if one shall not have been elected, the director designated by a majority of the directors present at such meeting, shall act as chairperson of the meeting. Except as otherwise provided by resolution of the Board of Directors, the Chairperson may also designate any other director or any officer or representative of the Corporation to act in his or her stead as chairperson of the meeting for any meeting of the stockholders. The secretary of the Corporation (or in the secretarys absence or inability to act, the person whom the chairperson of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. To the extent not prohibited by law, the Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairperson of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as in the judgment of the chairperson of the meeting are appropriate for the proper conduct of the meeting, including determining the order of business to be conducted at the meeting.
3
Section 2.8 Nomination of Directors and Proposals of Other Business .
(a) Annual Meetings of Stockholders .
(i) Nominations of persons for election to the Board of Directors and proposals of other business to be considered by the stockholders at an annual meeting of the stockholders may be made only (1) pursuant to the Corporations notice of meeting (or any supplement thereto), (2) by or at the direction of the Board of Directors or any committee thereof or (3) by any stockholder of the Corporation (A) who is a stockholder of record at the time of giving of notice provided for in Section 2.8(a)(ii) and Section 2.8(a)(iii) and at the time of the annual meeting, (B) who is entitled to vote at the meeting upon such election of directors or upon such business, as the case may be, and (C) who complies with the procedures set forth in this Section 2.8 ; except as otherwise required by law, any failure to comply with these procedures shall result in the nullification of such nomination or proposal.
(ii) For nominations of persons for election to the Board of Directors or proposals of other business to be properly brought before an annual meeting by a stockholder pursuant to Section 2.8(a)( i )(3) , the subject matter of any proposed business must be proper for stockholder action at such meeting and the stockholder (1) must have given timely notice thereof in writing to the secretary of the Corporation and (2) must provide any updates or supplements to such notice at such times and in the forms required by this Section 2.8 . To be timely, a stockholders notice shall be delivered to, or mailed to and received by, the secretary of the Corporation at the principal executive offices of the Corporation not earlier than the 120th day, nor later than 5:00 p.m. Eastern Time on the 90th day, prior to the first anniversary of the preceding years annual meeting; provided , however , that in the event that the date of any annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder, to be timely, must be so delivered, or mailed and received, not earlier than the 120th day prior to such annual meeting and not later than 5:00 p.m. Eastern Time on the later of (x) the 90th day prior to such annual meeting and (y) the 10th day following the day on which notice of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment, postponement or recess of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholders notice as described above. For purposes of the first annual meeting following the initial public offering of the Common Stock, the date of the first anniversary of the preceding years annual meeting shall be deemed to be September 15, 2020.
(iii) Notwithstanding anything in Section 2.8(a)(ii) to the contrary, in the event that the number of directors to be elected to the Board of Directors at an annual meeting of the stockholders is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding years annual meeting of the stockholders, a stockholders notice required by this Section 2.8(a) shall also be considered timely, but only with respect to nominees for the additional directorships, if it is received by the secretary of the Corporation at the principal
4
executive offices of the Corporation not later than 5:00 p.m. Eastern Time on the 10th day following the day on which such public announcement is first made by the Corporation (it being understood that such notice must nevertheless comply with the requirements of this Section 2.8(a) and Section 2.8(c) ).
(b) Special Meetings of Stockholders .
(i) Except as otherwise required by law or fixed pursuant to any Certificate of Designation relating to the rights of the holders of any series of Preferred Stock then outstanding, directors may only be elected at a special meeting of the stockholders if so determined by the Board of Directors or any authorized committee thereof. If the business stated in the Corporations notice of a special meeting of the stockholders includes electing one or more directors to the Board of Directors, nominations of persons for election to the Board of Directors at such special meeting may be made, subject to any rights provided to any series of Preferred Stock then outstanding, (x) by or at the direction of the Board of Directors or any committee thereof or (y) by any stockholder of the Corporation (A) who is a stockholder of record at the time of giving of notice provided for in Section 2.8(b)(ii) and at the time of the special meeting, (B) who is entitled to vote at such meeting and upon such election and (C) who complies with the notice procedures set forth in this Section 2.8(b) and Section 2.8(c) ; provided , however , that a stockholder may nominate persons for election at a special meeting only to such position(s) as specified in the Corporations notice of the meeting.
(ii) If a special meeting has been called in accordance with the terms of these Bylaws for the purpose of electing one or more directors to the Board of Directors, then for nominations of persons for election to the Board of Directors to be properly brought before such special meeting by a stockholder pursuant to this Section 2.8(b ), the stockholder (1) must have given timely notice thereof in writing and in the proper form to the secretary of the Corporation at the principal executive offices of the Corporation and (2) must provide any updates or supplements to such notice at such times and in the forms required by this Section 2.8 . To be timely, a stockholders notice relating to a special meeting shall be delivered to, or mailed to and received by, the secretary of the Corporation at the principal executive offices of the Corporation not earlier than 5:00 p.m. Eastern Time on the 120th day prior to such special meeting and not later than 5:00 p.m. Eastern Time on the later of (A) the 90th day prior to such special meeting and (B) the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment, postponement or recess of a special meeting commence a new time period (or extend any time period) for the giving of a stockholders notice as described above. To be in proper form for purposes of this Section 2.8(b) , such notice shall set forth the information required by Section 2.8(c) . For purposes of this Section 2.8(b )( ii) , public announcement shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
5
(c) Form of Notice .
(i) To be in proper form for purposes of this Section 2.8 , a stockholders notice to the secretary of the Corporation (whether pursuant to Section 2.8(a) or Section 2.8(b) ) must set forth:
(1) as to each Proposing Person: (A) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporations books and records); (B) the class or series and number of shares of capital stock of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person ( provided , that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of capital stock of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future); (C) a description of any agreement, arrangement or understanding between or among such Proposing Person and any other person or persons (including their names) acting in concert with such Proposing Person in connection with the proposal of such nomination or other business; and (D) a description of any agreement, arrangement or understanding (including, regardless of the form of settlement, any derivative, long or short position, profit interest, forward, future, swap, option, warrant, convertible security, stock appreciation or similar right, hedging transaction and borrowed or loaned security) that has been entered into by or on behalf of, or any other agreement, arrangement or understanding that has been made the effect or intent of which is to create or mitigate loss to, manage risk of or accrue a benefit from share price changes for, or increase or decrease the voting power of, such Proposing Person with respect to the Corporations securities;
(2) if such notice pertains to the nomination by the stockholder of a person or persons for election to the Board of Directors (each, a Nominee ), as to each Nominee, (A) the name, age, business and residential addresses and principal occupation or employment of the Nominee; (B) all other information relating to the Nominee that would be required to be disclosed about such Nominee if proxies were being solicited for the election of the Nominee as a director in an election contest (whether or not such proxies are or will be solicited), or that is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act; (C) a reasonably detailed description of any compensatory, payment or other financial agreement, arrangement or understanding that such Nominee has with any other person or entity other than the Corporation including the amount of any payment or payments received or receivable thereunder, in each case in connection with candidacy or service as a director of the Corporation (a Third-Party Compensation Arrangement ); (D) such Nominees written consent to being named in the Corporations proxy statement as a Nominee and to serving as a director if elected; and (E) all information with respect to such Nominee that would be required to be set forth in a stockholders notice pursuant to this Section 2.8 if such nominee were a Proposing Person;
6
(3) if the notice relates to any business other than the nomination of persons for election to the Board of Directors that the stockholder proposes to bring before the meeting, (A) a reasonably brief description of the business desired to be brought before the meeting, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration and if such business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), (C) the reasons for conducting such business at the meeting, (D) any direct or indirect material interest in such business of each Proposing Person and any other person or persons with whom each Proposing Person has any agreement, arrangement or understanding in connection with such proposal; and (E) such other information relating to any proposed item of business as the Corporation may reasonably require to determine whether such proposed item of business is a proper matter for stockholder action;
(4) a representation that the stockholder giving the notice is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination;
(5) a representation as to whether any Proposing Person intends or is part of a group that intends to (A) deliver a proxy statement and/or form-of proxy to holders of at least the percentage of the Corporations outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (B) otherwise solicit proxies from stockholders in support of such proposal or nomination; and
(6) any other information relating to such stockholder, Proposing Person, beneficial owner, if any, Nominee or proposed business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies in support of such nominee or proposal pursuant to Section 14 of the Exchange Act.
(ii) If requested by the Corporation, the information required under Section 2.8(c)(i)(1) shall be supplemented by such stockholder not later than ten (10) days after the record date for the meeting to disclose such information as of the record date. In addition, a stockholder seeking to nominate a director candidate or bring other business before the annual meeting shall promptly provide any other information reasonably requested by the Corporation.
(d) General .
(i) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.8 shall be eligible to be elected at an annual or
7
special meeting of directors to serve as directors and only such business shall be conducted at a meeting of the stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.8 . Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.8 and, if any proposed nomination or business was not made or proposed in compliance with this Section 2.8 , to disregard such non-compliant proposal or nomination.
(ii) Notwithstanding anything to the contrary in this Section 2.8 , unless otherwise required by law, if the nominating or proposing stockholder (or a qualified representative of such stockholder) does not appear at the annual or special meeting of the stockholders of the Corporation to present the nomination or proposed 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 2.8 , to be considered a qualified representative of such stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of the stockholders and such representative must produce such writing or electronic transmission, or a reliable reproduction of such writing or electronic transmission, at the meeting of the stockholders.
(iii) To be eligible to be a Nominee for election as a director, the proposed Nominee must provide to the secretary of the Corporation in accordance with the applicable time periods prescribed for delivery of notice under Section 2.8(a)(ii ), Section 2.8(a)(iii) or Section 2.8(b)(ii ): (1) a completed D&O questionnaire (in the form provided by the secretary of the Corporation at the request of the nominating stockholder) containing information regarding the Nominees background and qualifications and such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed Nominee to serve as a director of the Corporation or to serve as an independent director of the Corporation, (2) a written representation that, unless previously disclosed to the Corporation, the Nominee is not and will not become a party to any voting agreement, arrangement or understanding with any person or entity as to how such Nominee, if elected as a director, will vote on any issue or that could interfere with such persons ability to comply, if elected as a director, with his or her fiduciary duties under applicable law, (3) a written representation and agreement that, unless previously disclosed to the Corporation pursuant to Section 2.8(c)(i)(2)(C) , the Nominee is not and will not become a party to any Third-Party Compensation Arrangement and (4) a written representation that, if elected as a director, such Nominee would be in compliance and will continue to comply with the Corporations corporate governance guidelines as disclosed on the Corporations website, as amended from time to time. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the Corporation the information that is required to be set forth in a stockholders notice of nomination that pertains to such Nominee. The Corporation may require any proposed Nominee to furnish such other
8
information as it may reasonably require to determine (A) the eligibility of such proposed Nominee to serve as a director of the Corporation, and (B) whether such Nominee qualifies as an independent director or audit committee financial expert under applicable law, any Exchange rule or regulation, or any corporate governance guideline or committee charter of the Corporation.
(iv) Without limiting the foregoing provisions of this Section 2.8 , a stockholder shall also comply with all applicable requirements of the Exchange Act with respect to the matters set forth in this Section 2.8 . For the avoidance of doubt, any references in these Bylaws to the Exchange Act are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 2.8 , and compliance with Section 2.8(a ), Section 2.8(b ) and this Section 2.8(c) shall be the exclusive means for a stockholder to make nominations or submit other business (other than as provided in Section 2.8(d )( v )). Subject to Rule 14a-8 under the Exchange Act, nothing in these Bylaws shall be construed to permit any stockholder, or give any stockholder the right, to include or have disseminated or described in the Corporations proxy statement any nomination of a director or directors or any other business proposal.
(v) Notwithstanding anything to the contrary contained in these Bylaws (except for the first sentence of Section 2.8(d)(iv) ), the notice requirements set forth herein with respect to the proposal of any business pursuant to this Section 2.8 shall be deemed satisfied by a stockholder if such stockholder has submitted a proposal to the Corporation in compliance with Rule 14a-8 under the Exchange Act, and such stockholders proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for the meeting of the stockholders. Notwithstanding anything to the contrary contained in these Bylaws (except for the first sentence of Section 2.8(d )( iv) ), nothing in this Section 2.8 shall be deemed to affect any rights of the holders of any outstanding class or series of Preferred Stock, voting as a class or series separately from the holders of Common Stock, to elect directors pursuant to any Certificate of Designation relating to a series of Preferred Stock or the Certificate of Incorporation.
Section 2.9 Required Vote.
(a) At all meetings of stockholders, each stockholder shall be entitled to such number of votes, if any, for each share of stock entitled to vote and held of record by such stockholder as set forth in the Certificate of Incorporation, subject to any powers, restrictions or qualifications set forth in the Certificate of Incorporation. Any share of capital stock of the Corporation held by the Corporation or any of its majority-owned subsidiaries in treasury shall not be shares entitled to vote at, or to be counted in determining the presence of a quorum for, any meeting of the stockholders.
(b) Except as otherwise required by any express provision of applicable law, the rules or regulations of the Exchange, the Certificate of Incorporation or these Bylaws, which express provision shall govern, when a quorum is present, in all matters other than the election of directors, the affirmative vote of the holders of shares of capital
9
stock representing a majority of the votes cast at the meeting and entitled to vote on the matter shall be the act of the stockholders. If a separate vote by a class or series or classes or series of stock is required with respect to any matter brought before a meeting, in all matters other than the election of directors, such matter shall be decided by the affirmative vote of the holders of shares of such class or series or classes or series representing a majority of the votes cast at such meeting and entitled to vote on such matter, unless such matter is one upon which a different vote is required by any express provision of applicable law, the rules or regulations of the Exchange, the Certificate of Incorporation or these Bylaws, in which case such express provision shall govern. Abstentions and broker non-votes shall not be counted as votes cast. Subject to the rights of the holders of any class or series of Preferred Stock then outstanding to elect additional directors under specific circumstances, as may be set forth in the Certificate of Designation for such class or series of Preferred Stock, each director shall be elected by a plurality of the votes of the shares of capital stock of the Corporation present in person or represented by proxy at the meeting and entitled to vote on the election of such director. All such votes may be cast in person or by proxy as provided in Section 2.6 .
(c) The Board of Directors, in its discretion, or the chairperson of the meeting, in such persons discretion, may require that any votes cast at such meeting shall be cast by written ballot.
(d) No stockholder shall be entitled to exercise any right of cumulative voting.
Section 2.10 Inspectors of Elections; Opening and Closing the Polls . The Corporation may appoint, and if required by law shall appoint, one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the chairperson of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of the inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the DGCL and other applicable law. The chairperson of the meeting shall fix and announce at the meeting 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.
Section 2.11 Stock List . The Corporation shall prepare, at least ten (10) days prior to each meeting of the stockholders, a complete list of stockholders entitled to vote at such meeting of the stockholders, arranged in alphabetical order and showing the address of each such stockholder and the number of shares registered in the name of each such stockholder. Such list shall be open to the examination of any stockholder included therein, for any purpose germane to such meeting, for a period of at least ten (10) days prior to such meeting as required by the DGCL (i) on a reasonably accessible electronic network, provided , however , that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that
10
the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation included in such list of stockholders. If the meeting of the stockholders is to be held at a place, then a list of stockholders entitled to vote at such meeting shall be produced and kept at the place of such meeting during the full duration thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then such list shall also be open to examination by any stockholder included therein during the full duration of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The stock ledger of the Corporation shall be the only evidence as to the stockholders entitled to examine the stock list required by this Section 2.11 or to vote in person or by proxy at any meeting of the stockholders.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers . Except as otherwise provided in the Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
Section 3.2 Number and Term . The Board of Directors shall consist of seven (7) directors, or such other number as determined from time to time by one or more resolutions adopted by the affirmative vote of a majority of the Board of Directors. The term of each director shall be determined in the manner specified in the Certificate of Incorporation. Directors need not be stockholders of the Corporation to be qualified for election or service as a director.
Section 3.3 Chairperson . The Chairperson shall have such powers and duties as may from time to time be specified by the Board of Directors or these Bylaws. The Board of Directors shall elect a Chairperson from among its members by a vote of a majority of directors then in office.
Section 3.4 Regular Meetings . Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall be established by the Board of Directors (or by the Chairperson in the absence of a determination by the Board of Directors) from time to time and publicized among all directors. After the place(s), date(s) and time(s) of such regular meetings of the Board of Directors shall have been once given to each director, notice of each regular meeting shall not be required. For so long as the Corporation is an overseas subsidiary of the Huatai Entities within the meaning of the rules and regulations of the China Securities Regulatory Commission, the Board of Directors shall, at least annually, discuss the following with respect to the Corporation, as applicable: (i) acquisitions and divestitures, loans, guarantees and related party transactions involving more than 5% but less than 10% of the assets of the Corporation that exceed ¥5 million in value, (ii) the creation of internal management departments, (iii) appointments or dismissals of individuals in charge of internal management departments, including compliance, risk management, financial affairs and human resources, and the performance assessment and remuneration of such individuals and (iv) significant regulatory compliance, internal controls and risk management matters.
11
Section 3.5 Special Meetings . Special meetings of the Board of Directors shall be called by (i) the Chairperson, (ii) the Chief Executive Officer or (iii) directors representing a majority of the directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place, date and time of such special meetings. Notice of such special meetings shall be given to each director (i) at least four (4) days prior to the day on which such meeting is to be held, if notice is given by mail, addressed to such director at such directors residence or usual place of business, or (ii) at least twenty-four (24) hours before the meeting, if notice is given to each director personally or by telephone, facsimile, electronic mail or other electronic transmission. Such notice need not specify the purposes of such special meeting. Notice of a special meeting may be waived by a director in accordance with Section 6.5 .
Section 3.6 Action by Consent of Board of Directors . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, 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 all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee.
Section 3.7 Conference Telephone Meetings . Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or any committee thereof by means of conference telephone or other communication equipment by means of which all persons participating in the meeting can hear and communicate with each other, and such participation in a meeting shall constitute presence in person at such meeting.
Section 3.8 Organization . The Chairperson shall, if present, preside at all meetings of the Board of Directors. In the absence of the Chairperson, or if a Chairperson has not been elected, the Chief Executive Officer shall preside at all meetings of the Board of Directors. The Chief Executive Officer may also preside at any such meeting attended by the Chairperson if he or she is so designated by the Chairperson. If the Chairperson and the Chief Executive Officer are both not present at a meeting of the Board of Directors, directors representing a majority of the directors present at such meeting shall elect one (1) of their members to preside at such meeting. The secretary of the Corporation shall act as secretary at each meeting of the Board of Directors. In case the Secretary shall be absent from any meeting of the Board of Directors, the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 3.9 Quorum; Voting; Adjournment . Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the Board of Directors shall constitute a quorum for the transaction of business and, except as otherwise expressly required by law, the Certificate of Incorporation or these Bylaws, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. The Board of Directors may adjourn a meeting from time to time (whether or not a quorum is present) without notice if the time and place of the adjourned meeting are announced at the meeting at which adjournment is taken. If at any meeting of the Board of Directors there shall be less than a quorum present, the directors present thereat shall adjourn the meeting, which may be without notice other than announcement at the meeting, until a quorum is
12
present. At the meeting duly held following the adjournment, the Board of Directors may transact any business which might have been transacted at the original meeting. Each director shall be entitled to cast a number of votes as determined pursuant to the Certificate of Incorporation or, if silent, according to law.
Section 3.10 Committees of the Board of Directors .
(a) The Board of Directors may from time to time designate one or more committees of the Board of Directors, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board of Directors and shall elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Unless otherwise provided in the resolution establishing a committee of the Board of Directors, in the event that a member and that members alternate, if alternates are designated by the Board of Directors, of such committee is or are absent or disqualified, the member or members of such committee present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Each director appointed to a committee of the Board of Directors shall be entitled to cast such number of votes that such director has in meetings of the full Board of Directors.
(b) Any director serving on a committee of the Board of Directors may be removed from such committee at any time by the Board of Directors. Any director of the Corporation may resign from any committee of the Board of Directors at any time, by giving notice in writing or by electronic transmission to the Chairperson, the Chief Executive Officer or the secretary of the Corporation and to the chairperson of such committee, if any. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective.
(c) Each committee of the Board of Directors may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as may otherwise be provided by a resolution of the Board of Directors designating such committee. Unless otherwise required by applicable law or provided herein or in the resolution establishing a committee of the Board of Directors, the presence of directors representing a majority of the members of the committee shall constitute a quorum of such committee. Adequate provision shall be made for notice to committee members of all meetings. If a quorum shall not be present at any meeting of any committee of the Board of Directors, the directors present thereat may adjourn the meeting without further notice. Unless otherwise required by applicable law or provided herein or in the resolution establishing a committee of the Board of Directors, the act of a majority of the directors present at a meeting of a committee at which a quorum is present shall be the act of such committee. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
13
(d) Any such committee, to the extent provided for in the resolution of the Board of Directors designating the committee and subject to applicable law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. Notwithstanding the foregoing, no committee shall have such power or authority in reference to any of the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by DGCL to be submitted to stockholders for approval or (ii) altering, amending or repealing any Bylaw, or adopting any new Bylaw, or the Corporation.
Section 3.11 Removal . Directors of the Corporation may be removed in the manner provided in the Certificate of Incorporation.
Section 3.12 Resignation . Any director may resign from the Board of Directors at any time by giving notice of such resignation in writing or by electronic transmission to the Board of Directors, the Chief Executive Officer or the secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time of such resignation is not so specified, upon receipt thereof, and, unless otherwise specified therein, the acceptance of any resignation shall not be necessary to make it effective.
Section 3.13 Newly-Created Directorships; Vacancies . Except as otherwise provided by applicable law, vacancies occurring in any directorship (whether by death, resignation, removal or otherwise) and newly created directorships resulting from any increase in the number of directors shall be filled, and the terms of such directorships shall be determined, in accordance with the Certificate of Incorporation.
Section 3.14 Records . The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board of Directors, and of any committee thereof, and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation.
Section 3.15 Compensation . The Board of Directors shall have authority to determine from time to time the amount of any compensation, including fees and reimbursement of expenses, that shall be paid to its members for their services as directors and as members of standing or special committees of the Board of Directors. Members of special or standing committees may be allowed additional compensation for service as committee members. The Board of Directors shall also have the power, in its discretion, to provide for and to pay to directors rendering services to the Corporation not ordinarily rendered by directors as such special compensation appropriate to the value of such services as determined by the Board of Directors from time to time. Nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.
Section 3.16 Preferred Stock Directors . Notwithstanding anything else contained herein, whenever the holders of one or more class or series of Preferred Stock shall
14
have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the resolutions applicable thereto adopted by the Board of Directors and any Certificate of Designation pursuant to the Certificate of Incorporation, and such directors so elected shall not be subject to the provisions of Section 3.2 , Section 3.11 or Section 3.13 unless otherwise provided therein.
ARTICLE IV
OFFICERS
Section 4.1 Principal Officers . The principal officers of the Corporation shall be a Chief Executive Officer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. The Corporation may also have such other principal officers, including a President, a Chief Financial Officer, General Counsel, one or more Controllers and one or more Vice Presidents, as the Board of Directors may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of President and Secretary. For so long as the Corporation is an overseas subsidiary of the Huatai Entities within the meaning of the rules and regulations of the China Securities Regulatory Commission, each senior executive officer of the Corporation shall (i) be familiar with the relevant laws, rules and regulations applicable to the Corporation, and have no record of violating any such law or regulation in the last three years and (ii) have five or more years of work experience in securities, funds or other financial fields and the business management capability required for performing his or her responsibilities.
Section 4.2 Appointment; Term of Office . The principal officers of the Corporation shall be appointed by the Board of Directors in the manner determined by the Board of Directors. Each such principal officer shall hold office until his or her successor is appointed, or until his or her earlier death, resignation or removal. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine.
Section 4.3 Subordinate Officer s . In addition to the principal officers referred to in Section 4.1 herein, the Corporation may have such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees.
Section 4.4 Powers and Duties . The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors.
Section 4.5 Remuneration . The remuneration of all officers of the Corporation shall be fixed by the Board of Directors.
15
Section 4.6 Removal . Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors.
Section 4.7 Resignations . Any officer may resign at any time by giving notice of such resignation in writing or by electronic transmission to the Board of Directors or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and remove such officer. Any such resignation shall take effect at the time specified therein or, if not specified therein, upon receipt thereof, and unless otherwise specified therein, the acceptance of any resignation shall not be necessary to make it effective.
ARTICLE V
STOCK
Section 5.1 Stock Certificates and Transfers . The shares of the Corporation shall be uncertificated, provided that the Board of Directors may provide by resolution that some or all of the shares of any or all classes or series of the Corporations stock shall be represented by certificates. Except as otherwise required by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of shares represented by certificates of the same class and series shall be identical. Every holder of shares represented by certificates shall be entitled to a certificate or certificates signed by, or in the name of, any two authorized officers of the Corporation, representing the number of shares registered in certificate form. Any or all of such signatures may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate has been issued, such certificate may nevertheless be issued and delivered by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
Section 5.2 Record Date .
(a) To enable the Corporation to determine the stockholders entitled to notice of any meeting of the stockholders or any adjournment thereof, 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 is adopted by the Board of Directors and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting of the stockholders. If the Board of Directors so fixes a date, such 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 record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of the 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. A determination of stockholders of record entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided , however , that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the meeting to be held following the adjournment, and in
16
such case shall also fix as the record date for stockholders entitled to notice of such meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions of this Section 5.2 at the meeting to be held following the adjournment.
(b) Unless the ability of stockholders to act by written consent is otherwise restricted by the Certificate of Incorporation or these Bylaws, to enable the Corporation to determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office, its principal place of business, or an officer or agent of the Corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporations registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to 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 adopts the resolution taking such prior action.
(c) To enable the Corporation to determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 5.3 Record Owners . 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 other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
Section 5.4 Lost, Stolen or Destroyed Certificates . The Corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it which is alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owners legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against the Corporation on account of the certificate alleged to have been lost, stolen or destroyed or on account of the issuance of such new certificate or uncertificated shares.
17
Section 5.5 Transfer and Registry Agents . If represented by certificates, shares of the stock of the Corporation shall be transferable only upon the books of the Corporation upon the surrender of the certificate or certificates properly assigned and endorsed for transfer. If uncertificated, shares of capital stock of the Corporation shall be transferable only upon delivery of a duly executed instrument of transfer. If the Corporation has a transfer agent or agents or transfer clerk and registrar of transfers acting on its behalf, the signature of any officer or representative thereof may be in facsimile. The Board of Directors may appoint a transfer agent and one or more co-transfer agents and a registrar and one or more co-registrars of transfer and may make or authorize the transfer agents to make all such rules and regulations deemed expedient concerning the issue, transfer and registration of shares of stock.
Section 5.6 Authority for Additional Rules Regarding Transfer . The Board of Directors shall, to the fullest extent permitted by law, have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of the stock of the Corporation.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Fiscal Year . The fiscal year of the Corporation shall commence on January 1 and end on December 31 of each year, unless otherwise determined by the Board of Directors.
Section 6.2 Dividends . The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by the DGCL and the Certificate of Incorporation.
Section 6.3 Corporate Seal . The corporate seal shall be in such form as may be approved from time to time by the Board of Directors, the Chief Executive Officer or any other authorized officer of the Corporation, and shall have inscribed thereon the name of the Corporation, the year of its organization and the words Corporate Seal, Delaware. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 6.4 Voting of Stock Owned by the Corporation . The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of the stockholders of any corporation (except this Corporation) in which the Corporation may hold stock.
Section 6.5 Waiver of Notice . Whenever any notice is required to be given to any stockholder or director of the Corporation under the provisions of the DGCL, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission from the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the
18
stockholders or the Board of Directors or any committee thereof need be specified in any waiver of notice of such meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
Section 6.6 Amendments . These Bylaws or any of them may be altered, amended or repealed, or new Bylaws may be made, in the manner set forth in the Certificate of Incorporation.
ARTICLE VII
CERTAIN DEFINITIONS
The following capitalized terms and other terms shall have the meanings assigned thereto in this Article VII :
Affiliate of any person means any entity that controls, is controlled by, or is under common control with such person. Affiliated shall have a correlative meaning.
beneficial owner and beneficial ownership (including the term beneficially own ) shall have the meanings given to such terms in the Certificate of Incorporation.
Certificate of Designation means a certificate filed pursuant to the DGCL setting forth the terms of a series of Preferred Stock.
Common Stock has the meaning given to such term in the Certificate of Incorporation.
DGCL means the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended.
Exchange means any securities exchange, over-the-counter market or other trading market on which the securities of the Corporation are listed or quoted for trading, if any.
Exchange Act means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
Huatai means Huatai International Investment Holdings Limited, a company organized under the laws of the Cayman Islands, any of its successors by way of merger, consolidation or share exchange, any acquiror of all or substantially all of its assets and any person of which Huatai International Investment Holdings Limited becomes a Subsidiary.
Huatai Entities means Huatai and each of its Affiliates (other than the Corporation or any of its Subsidiaries).
person means an individual, a partnership (including a limited partnership), a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or other entity, including governmental authorities; each reference to a record holder or record owner of shares, if a natural person, shall be deemed to include in his or her representative capacity a guardian, committee, executor, administrator or other legal representative of such natural person or record holder.
19
Preferred Stock has the meaning given to such term in the Certificate of Incorporation.
Proposing Person shall mean (1) the stockholder giving the notice required by Section 2.8(a) or Section 2.8(b ), (2) the beneficial owner or beneficial owners, if different, on whose behalf such notice is given and (3) any affiliates or associates (each within the meaning of Rule 12b-2 under the Exchange Act for purposes of these Bylaws) of such stockholder or beneficial owner.
Subsidiary means, as to any person, a corporation, partnership, limited liability company, joint venture, association or other legal entity (1) in which such person beneficially owns voting interests representing 50% or more in voting power of the outstanding voting interests or (2) if no governing body exists at such legal entity, in which such person beneficially owns capital stock, partnership interests, limited liability company interests or other ownership interests representing 50% or more in voting power of such ownership interests, with such person being deemed to have beneficial ownership of 50% or more in voting power of such voting interests or ownership interests of a partnership or limited liability company if such person or a Subsidiary of such person (or a combination thereof) shall be, or shall control (directly or indirectly), the sole general partner or the managing general partner of such partnership or the managing member of such limited liability company.
Total Voting Power shall have the meaning given to such term in the Certificate of Incorporation.
20
Exhibit 4.1
ZQ|CERT#|COY|CLS|RGSTRY|ACCT#|TRANSTYPE|RUN#|TRANS# COMMON Shares COMMON Shares PAR VALUE $0.001 Certificate Shares Number * * 000000 ****************** * * * 000000 ***************** ZQ00000000 **** 000000 **************** ASSETMARK FINANCIAL HOLDINGS, INC. ***** 000000 *************** ****** 000000 ************** INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE ** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample SEE REVERSE FOR CERTAIN DEFINITIONS **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David THIS CERTIFIES THAT Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David SampleMR.**** Mr. AlexanderSAMPLEDavid Sample **** Mr. Alexander&DavidMRS.Sample **** Mr AlexanderSAMPLEDavid Sample **** Mr. Alexander& David Sample **** CUSIP 04546L 10 6 Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. AlexanderMR.David Sample SAMPLE**** Mr. Alexander David Sample ****&Mr. AlexanderMRS.David SampleSAMPLE**** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample is the owner of **000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares *** *000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares **** 000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****0 THIS CERTIFICATE IS TRANSFERABLE IN 00000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****00***ZERO HUNDRED THOUSAND 0000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000 CITIES DESIGNATED BY THE TRANSFER 000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****0000 AGENT, AVAILABLE ONLINE AT 00** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****00000 0** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000ZERO HUNDRED AND ZERO*** www.computershare.com ** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000* * Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000** Shares ****000000**S FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON SHARES OF AssetMark Financial Holdings, Inc. (hereinafter called the Company), transferable on the books of the Company in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby, are issued and shall be held subject to all of the provisions of the Certificate of Incorporation, as amended, and the By-Laws, as amended, of the Company (copies of which are on file with the Company and with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers. DATED DD-MMM-YYYY FACSIMILE SIGNATURE TO COME INANCIAL H COUNTERSIGNED AND REGISTERED: F ORPORA T OL COMPUTERSHARE TRUST COMPANY, N.A. K C E D President A R I N D IN TRANSFERAGENT ANDREGISTRAR, M G T S E , S N I S March 25, 2013 C A . FACSIMILE SIGNATURE TO COME D EL AWAR E By Secretary AUTHORIZED SIGNATURE CUSIP/IDENTIFIER XXXXXX XX X Holder ID XXXXXXXXXX Insurance Value 1,000,000.00 Number of Shares 123456 DTC 12345678 123456789012345 PO BOX 43004, Providence, RI 02940-3004 Certificate Numbers Num/No. Denom. Total MR A SAMPLE 1234567890/1234567890 1 1 1 DESIGNATION (IF ANY) 1234567890/1234567890 2 2 2 ADD 1 ADD 2 1234567890/1234567890 3 3 3 1234567890/1234567890 4 4 4 ADD 3 ADD 4 1234567890/1234567890 5 5 5 1234567890/1234567890 6 6 6 Total Transaction 7
ASSETMARK FINANCIAL HOLDINGS, INC. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE CERTIFICATE OF INCORPORATION OF THE COMPANY, AS AMENDED, AND THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE TRANSFER AGENT. THE BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL REPRESENTATIVES, TO GIVE THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT MAY BE MADE AGAINST THEM ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COMas tenants in common UNIF GIFT MIN ACTCustodian (Cust) (Minor) TEN ENTas tenants by the entireties under Uniform Gifts to Minors Act (State) JT TENas joint tenants with right of survivorship UNIF TRF MIN ACTCustodian (until age ) and not as tenants in common (Cust) under Uniform Transfers to Minors Act (Minor) (State) Additional abbreviations may also be used though not in the above list. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE For value received, hereby sell, assign and transfer unto (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within-named Company with full power of substitution in the premises. Dated: 20 Signature(s) Guaranteed: Medallion Guarantee Stamp THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15. Signature: Signature: Notice: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever. The IRS requires that the named transfer agent (we) report the cost basis of certain shares or units acquired after January 1, 2011. If your shares or units are covered by the legislation, and you requested to sell or transfer the shares or units using a specific cost basis calculation method, then we have processed as you requested. If you did not specify a cost basis calculation method, then we have defaulted to the first in, first out (FIFO) method. Please consult your tax advisor if you need additional information about cost basis. If you do not keep in contact with the issuer or do not have any activity in your account for the time period specified by state law, your property may become subject to state unclaimed property laws and transferred to the appropriate state.
Exhibit 5.1
New York
Northern California Washington DC São Paulo London |
Paris
Madrid Tokyo Beijing Hong Kong |
|||||||||
|
||||||||||
Davis Polk & Wardwell LLP
1600 El Camino Real
|
650 752 2000 tel 650 752 2111 fax |
July 8, 2019
AssetMark Financial Holdings, Inc.
1655 Grant Street, 10th Floor
Concord, CA 94520
Ladies and Gentlemen:
AssetMark Financial Holdings, Inc., a Delaware corporation (the Company ), has filed with the Securities and Exchange Commission a Registration Statement on Form S-1 (the Registration Statement ) and the related prospectus (the Prospectus ) for the purpose of registering under the Securities Act of 1933, as amended (the Securities Act ), 14,375,000 shares of its common stock, par value $0.001 per share (the Securities ), including 1,875,000 shares subject to the underwriters over-allotment option, as described in the Registration Statement.
We, as your counsel, have examined originals or copies of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion.
In rendering the opinion expressed herein, we have, without independent inquiry or investigation, assumed that (i) all documents submitted to us as originals are authentic and complete, (ii) all documents submitted to us as copies conform to authentic, complete originals, (iii) all signatures on all documents that we reviewed are genuine, (iv) all natural persons executing documents had and have the legal capacity to do so, (v) all statements in certificates of public officials and officers of the Company that we reviewed were and are accurate and (vi) all representations made by the Company as to matters of fact in the documents that we reviewed were and are accurate.
Based upon the foregoing, and subject to the additional assumptions and qualifications set forth below, we advise you that, in our opinion, when the price at which the Securities to be sold has been approved by or on behalf of the Board of Directors of the Company and when the Securities have been issued and delivered against payment therefor in accordance with the terms of the Underwriting Agreement referred to in the prospectus which is a part of the Registration Statement, the Securities will be validly issued, fully paid and non-assessable.
In connection with the opinion expressed above, we have assumed that, prior to the closing of the offering contemplated by the Prospectus, the transactions described under the caption Prospectus summaryRestructuring in the Prospectus have been completed.
We are members of the Bars of the States of New York and California and the foregoing opinion is limited to the laws of the State of New York and the General Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and further consent to the reference to our name under the caption Legal Matters in the Prospectus. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act.
Very truly yours, |
/s/ Davis Polk & Wardwell LLP |
Exhibit 10.2
CREDIT AGREEMENT
dated as of
November 14, 2018,
As amended by that certain First Amendment
Dated as of June 28, 2019
among
ASSETMARK FINANCIAL HOLDINGS, INC.,
as Borrower,
ASSETMARK HOLDINGS LLC,
as Holdings,
THE LENDERS PARTY HERETO
and
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,
as Administrative Agent and Collateral Agent
CREDIT SUISSE LOAN FUNDING LLC,
as Sole Lead Arranger and Bookrunner
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | ||||||
DEFINITIONS | ||||||
Section 1.01 |
Defined Terms | 1 | ||||
Section 1.02 |
Terms Generally | 49 | ||||
Section 1.03 |
Pro Forma and Other Calculations | 49 | ||||
Section 1.04 |
Classification of Loans and Borrowings | 52 | ||||
Section 1.05 |
Divisions | 52 | ||||
ARTICLE II | ||||||
THE CREDITS | ||||||
Section 2.01 |
Commitments | 52 | ||||
Section 2.02 |
Loans | 53 | ||||
Section 2.03 |
Borrowing Procedure | 55 | ||||
Section 2.04 |
Evidence of Debt; Repayment of Loans | 55 | ||||
Section 2.05 |
Fees | 56 | ||||
Section 2.06 |
Interest on Loans | 57 | ||||
Section 2.07 |
Default Interest | 57 | ||||
Section 2.08 |
Alternate Rate of Interest | 57 | ||||
Section 2.09 |
Termination and Reduction of Commitments | 58 | ||||
Section 2.10 |
Conversion and Continuation of Borrowings | 59 | ||||
Section 2.11 |
Repayment of Term Borrowings | 60 | ||||
Section 2.12 |
Optional Prepayment | 61 | ||||
Section 2.13 |
Mandatory Prepayments | 64 | ||||
Section 2.14 |
Reserve Requirements; Change in Circumstances | 67 | ||||
Section 2.15 |
Change in Legality | 68 | ||||
Section 2.16 |
Breakage | 69 | ||||
Section 2.17 |
Pro Rata Treatment | 69 | ||||
Section 2.18 |
Sharing of Setoffs | 70 | ||||
Section 2.19 |
Payments | 70 | ||||
Section 2.20 |
Taxes | 71 | ||||
Section 2.21 |
Assignment of Commitments Under Certain Circumstances; Duty to Mitigate | 75 | ||||
Section 2.22 |
Letters of Credit | 76 | ||||
Section 2.23 |
Incremental Term Loans and Incremental Revolving Credit Commitments | 82 | ||||
Section 2.24 |
[Intentionally Omitted] | 87 | ||||
Section 2.25 |
Loan Modification Offers | 87 | ||||
Section 2.26 |
Defaulting Lenders | 88 |
ii
ARTICLE III | ||||||
REPRESENTATIONS AND WARRANTIES | ||||||
Section 3.01 |
Organization; Powers | 89 | ||||
Section 3.02 |
Authorization | 89 | ||||
Section 3.03 |
Enforceability | 90 | ||||
Section 3.04 |
Financial Statements | 90 | ||||
Section 3.05 |
No Material Adverse Change | 90 | ||||
Section 3.06 |
Title to Properties; Possession Under Leases | 90 | ||||
Section 3.07 |
Subsidiaries | 91 | ||||
Section 3.08 |
Litigation; Compliance with Laws | 91 | ||||
Section 3.09 |
Agreements | 91 | ||||
Section 3.10 |
Federal Reserve Regulations | 92 | ||||
Section 3.11 |
Investment Company Act | 92 | ||||
Section 3.12 |
Tax Returns | 92 | ||||
Section 3.13 |
No Material Misstatements; Beneficial Ownership Certification | 92 | ||||
Section 3.14 |
Employee Benefit Plans | 93 | ||||
Section 3.15 |
Environmental Matters | 93 | ||||
Section 3.16 |
Security Documents | 93 | ||||
Section 3.17 |
Intellectual Property; Licenses, etc | 94 | ||||
Section 3.18 |
Labor Matters | 94 | ||||
Section 3.19 |
Solvency | 95 | ||||
Section 3.20 |
Sanctioned Persons; PATRIOT Act; FCPA | 95 | ||||
Section 3.21 |
Insurance | 96 | ||||
Section 3.22 |
Use of Proceeds | 96 | ||||
ARTICLE IV | ||||||
CONDITIONS OF LENDING | ||||||
Section 4.01 |
All Credit Events | 96 | ||||
Section 4.02 |
First Credit Event | 97 | ||||
ARTICLE V | ||||||
AFFIRMATIVE COVENANTS | ||||||
Section 5.01 |
Existence; Compliance with Laws; Businesses and Properties | 100 | ||||
Section 5.02 |
Insurance | 100 | ||||
Section 5.03 |
Obligations and Taxes | 101 | ||||
Section 5.04 |
Financial Statements, Reports, etc | 102 | ||||
Section 5.05 |
Notices | 104 | ||||
Section 5.06 |
Information Regarding Collateral | 104 | ||||
Section 5.07 |
Maintaining Records; Access to Properties and Inspections; Maintenance of Ratings | 105 | ||||
Section 5.08 |
Use of Proceeds | 105 |
iii
Section 5.09 |
Compliance with Environmental Laws | 105 | ||||
Section 5.10 |
Further Assurances | 106 | ||||
Section 5.11 |
Post-Closing Obligations | 107 | ||||
Section 5.12 |
Quarterly Lender Calls | 107 | ||||
Section 5.13 |
Designation of Subsidiaries | 107 | ||||
ARTICLE VI | ||||||
NEGATIVE COVENANTS | ||||||
Section 6.01 |
Indebtedness | 108 | ||||
Section 6.02 |
Liens | 111 | ||||
Section 6.03 |
Sale and Lease-Back Transactions | 114 | ||||
Section 6.04 |
Investments | 114 | ||||
Section 6.05 |
Mergers, Consolidations and Sales of Assets | 117 | ||||
Section 6.06 |
Restricted Payments; Restrictive Agreements | 119 | ||||
Section 6.07 |
Transactions with Affiliates | 121 | ||||
Section 6.08 |
Business of Holdings, the Borrower and the Other Subsidiaries | 121 | ||||
Section 6.09 |
Other Indebtedness and Agreements | 122 | ||||
Section 6.10 |
Maximum Total Leverage Ratio | 123 | ||||
Section 6.11 |
Fiscal Year | 123 | ||||
ARTICLE VII | ||||||
EVENTS OF DEFAULT | ||||||
Section 7.01 |
Event of Default | 124 | ||||
Section 7.02 |
Equity Cure | 127 | ||||
ARTICLE VIII | ||||||
AGENCY | ||||||
Section 8.01 |
Appointment and Authority | 128 | ||||
Section 8.02 |
Rights as a Lender | 129 | ||||
Section 8.03 |
Exculpatory Provisions | 129 | ||||
Section 8.04 |
Reliance by Agents | 130 | ||||
Section 8.05 |
Delegation of Duties | 130 | ||||
Section 8.06 |
Resignation of Agents | 130 | ||||
Section 8.07 |
Non-Reliance on Administrative Agent and Other Lenders | 131 | ||||
Section 8.08 |
No Other Duties, etc | 132 | ||||
Section 8.09 |
Administrative Agent May File Proofs of Claim | 132 | ||||
Section 8.10 |
Collateral and Guaranty Matters | 132 | ||||
Section 8.11 |
Certain ERISA Matters | 133 | ||||
Section 8.12 |
Intercreditor Agreements | 134 |
iv
ARTICLE IX | ||||||
MISCELLANEOUS | ||||||
Section 9.01 |
Notices; Electronic Communications | 134 | ||||
Section 9.02 |
Survival of Agreement | 138 | ||||
Section 9.03 |
Binding Effect | 138 | ||||
Section 9.04 |
Successors and Assigns | 138 | ||||
Section 9.05 |
Expenses; Indemnity; Damage Waivers | 144 | ||||
Section 9.06 |
Right of Setoff | 146 | ||||
Section 9.07 |
Applicable Law | 146 | ||||
Section 9.08 |
Waivers; Amendments | 146 | ||||
Section 9.09 |
Interest Rate Limitation | 151 | ||||
Section 9.10 |
Entire Agreement | 152 | ||||
Section 9.11 |
WAIVER OF JURY TRIAL | 152 | ||||
Section 9.12 |
Severability | 152 | ||||
Section 9.13 |
Counterparts; Electronic Execution | 153 | ||||
Section 9.14 |
Headings | 153 | ||||
Section 9.15 |
Jurisdiction; Consent to Service of Process | 153 | ||||
Section 9.16 |
Confidentiality | 154 | ||||
Section 9.17 |
Lender Action | 154 | ||||
Section 9.18 |
USA PATRIOT Act Notice | 155 | ||||
Section 9.19 |
Release of Collateral and Guarantees | 155 | ||||
Section 9.20 |
Acknowledgement and Consent to Bail-In of EEA Financial Institutions | 156 | ||||
Section 9.21 |
Holdings Release | 156 |
v
SCHEDULES
Schedule 1.01(a) | - | Mortgaged Property | ||
Schedule 2.01 | - | Lenders and Commitments | ||
Schedule 3.07 | - | Subsidiaries | ||
Schedule 3.08 | - | Litigation | ||
Schedule 3.16(a) | - | UCC Filing Offices | ||
Schedule 3.16(c) | - | Mortgage Filing Offices | ||
Schedule 5.11 | - | Post-Closing Obligations | ||
Schedule 6.01 | - | Existing Indebtedness | ||
Schedule 6.02 | - | Existing Liens | ||
Schedule 6.04 | - | Existing Investments | ||
Schedule 6.07 | - | Existing Contracts with Affiliates |
EXHIBITS
Exhibit A | - | Form of Administrative Questionnaire | ||
Exhibit B-1 | - | Form of Assignment and Acceptance | ||
Exhibit B-2 | - | Form of Affiliated Lender Assignment and Assumption | ||
Exhibit C | - | Form of Borrowing Request | ||
Exhibit D | - | Form of Mortgage | ||
Exhibit E-1 | - | Form of Term Promissory Note | ||
Exhibit E-2 | - | Form of Revolving Promissory Note | ||
Exhibit F-1 | - | Form of U.S. Tax Compliance Certificate | ||
Exhibit F-2 | - | Form of U.S. Tax Compliance Certificate | ||
Exhibit F-3 | - | Form of U.S. Tax Compliance Certificate | ||
Exhibit F-4 | - | Form of U.S. Tax Compliance Certificate | ||
Exhibit G | - | Form of Solvency Certificate | ||
Exhibit H | - | Form of Compliance Certificate |
vi
CREDIT AGREEMENT dated as of November 14, 2018 (as amended by that certain First Amendment dated as of June 28, 2019, and as further amended, supplemented and/or modified, this Agreement ), among ASSETMARK FINANCIAL HOLDINGS, INC., a Delaware corporation (the Borrower ), ASSETMARK HOLDINGS LLC, a Delaware limited liability company ( Holdings ), the Lenders (such term and each other capitalized term used but not defined in this introductory statement having the meaning given it in Article I) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent (in such capacity, including any successor thereto, the Administrative Agent ) and as collateral agent (in such capacity, including any successor thereto, the Collateral Agent ) for the Lenders.
The Borrower has requested that the Lenders extend credit in the form of (a) Term Loans on the Closing Date in an aggregate principal amount of $250,000,000 (the Term Facility ) and (b) Revolving Loans from time to time after the Closing Date and prior to the Revolving Credit Maturity Date in an aggregate principal amount at any time outstanding not in excess of $20,000,000 (the Revolving Facility ).
The Lenders 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 , when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
Acceptable Intercreditor Agreement means an intercreditor agreement the terms of which are (i) market terms governing security arrangements for the sharing of liens or arrangements relating to the distribution of payments, as applicable, at the time the intercreditor agreement is established in light of the type of indebtedness subject thereto or (ii) reasonably satisfactory to the Administrative Agent and the Borrower.
Accepting Lenders shall have the meaning assigned to such term in Section 2.25(a).
Acquired Entity shall have the meaning assigned to such term in Section 6.04(g).
Adjusted LIBO Rate shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. Notwithstanding the foregoing, the Adjusted LIBO Rate shall not be less than 0.00%.
Adjustment Date means the date of delivery of financial statements required to be delivered pursuant to Section 5.04(a) or Section 5.04(b), as applicable.
1
Administrative Agent shall have the meaning assigned to such term in the introductory statement hereto.
Administrative Agent Fees shall have the meaning assigned to such term in Section 2.05(b).
Administrative Questionnaire shall mean an Administrative Questionnaire in the form of Exhibit A, or such other form as may be supplied from time to time by the Administrative Agent.
Affected Class shall have the meaning assigned to such term in Section 2.25(a).
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.
Affiliated Lender shall mean Holdings, the Borrower or any Subsidiary of the Borrower.
Affiliated Lender Assignment and Assumption means an assignment and assumption entered into by a Lender and an Affiliated Lender (pursuant to the terms and conditions of Section 2.12 and Section 9.04, as applicable) and accepted by the Administrative Agent in the form of Exhibit B-2 or any other form approved by the Administrative Agent and the Borrower.
Agent Parties shall have the meaning assigned to such term in Section 9.01(g).
Agents shall have the meaning assigned to such term in Section 8.01.
Aggregate Revolving Credit Exposure shall mean the sum of the Revolving Credit Exposures of all the Revolving Credit Lenders.
Agreement shall have the meaning assigned to such term in the introductory statement.
Agreement Value shall mean, for each Hedging Agreement, on any date of determination, the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or any other Restricted Subsidiary would be required to pay if such Hedging Agreement were terminated on such date.
AHYDO Payment means any mandatory prepayment or redemption pursuant to the terms of any Indebtedness that is intended or designed to cause such Indebtedness not to be treated as an applicable high yield discount obligation within the meaning of Section 163(i) of the Code.
Alternate Base Rate shall mean, for any day (or, if such day is not a Business Day, the immediately preceding Business Day), a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1 ⁄ 2 of 1% per annum, (c) the Adjusted LIBO Rate in effect on such day (or if such day is not a Business Day, the immediately preceding Business Day) for a one-month Interest Period
2
commencing on the second Business Day after such date, plus 1.00% and (d) 1.00% per annum. If the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective on 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.
Anticipated Cure Deadline shall have the meaning assigned to such term in Section 7.02(a).
Applicable Discount shall have the meaning assigned to such term in Section 2.12(c).
Applicable Margin shall mean (a) initially, 3.50% with respect to any Eurodollar Loans and 2.50% with respect to any ABR Loans, and (b) following each Adjustment Date, commencing with the Adjustment Date with respect to the fiscal quarter ending March 31, 2019, the applicable percentage specified below based on the First Lien Leverage Ratio as of the last day of the most recent Test Period:
Category |
First Lien Leverage Ratio | Loans | ||
I |
Greater than 2.20 to 1.00 | ABR Loan: 2.50% | ||
Eurodollar Loan: 3.50% | ||||
II |
Less than or equal to 2.20 to 1.00 | ABR Loan: 2.25% | ||
Eurodollar Loan: 3.25% |
The Applicable Margin with respect to Loans shall be adjusted quarterly on a prospective basis on each Adjustment Date based upon the First Lien Leverage Ratio in accordance with the table above; provided , that if financial statements are not delivered when required pursuant to Section 5.04(a) or Section 5.04(b), as applicable, the Applicable Margin with respect to the Loans shall be the percentage set forth above in Category I until the date on which such financial statements are delivered.
Notwithstanding the foregoing, upon completion of a Qualified Public Offering and thereafter, the Applicable Margin with respect to Term Loans shall be the applicable percentage as determined based on the foregoing, minus 0.25%.
Approved Fund shall mean, with respect to any Lender, any person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities and is administered, advised or managed by (i) such Lender, (ii) an Affiliate of such Lender or (iii) an entity or an Affiliate of an entity that administers, advises or manages such Lender.
3
Arranger shall mean Credit Suisse Loan Funding LLC.
Asset Sale shall mean the sale, transfer or other disposition (by way of merger, casualty, condemnation or otherwise) by the Borrower or any other Restricted Subsidiary to any person other than a Loan Party of (a) any Equity Interests of any of the Subsidiaries (other than directors qualifying shares) or (b) any other assets of the Borrower or any other Restricted Subsidiary, other than, in the case of either (a) or (b), as applicable:
(i) |
inventory, cash and Cash Equivalents disposed of in the ordinary course of business, |
(ii) |
damaged, obsolete, surplus or worn out assets and assets that are no longer useful in the business of the Borrower or its Subsidiaries, |
(iii) |
dispositions between or among Restricted Subsidiaries that are not Loan Parties, |
(iv) |
assets disposed of in transactions constituting Investments permitted under Section 6.04, Restricted Payments permitted under Section 6.06 and/or Liens permitted by Section 6.02, |
(v) |
dispositions made to comply with any order of any Governmental Authority or any applicable law, |
(vi) |
dispositions of Investments in joint ventures to the extent required by, or made pursuant to, buy/sell arrangements between joint venture or similar parties as set forth in the relevant joint venture arrangements or similar binding arrangements, |
(vii) |
dispositions of assets that do not constitute Collateral, in each case, having an aggregate fair market value as determined in good faith by the Borrower of up to $3,000,000, |
(viii) |
dispositions of non-core assets acquired before (but not more than 90 days prior to) or after the Closing Date in connection with any Investment permitted hereunder and that, within 90 days of the date of such Investment (or within 90 days of the Closing Date, in the case of an Investment consummated prior to the Closing Date), are designated in writing to the Administrative Agent as being held for sale and not for the continued operation of the Borrower or any of the other Restricted Subsidiaries or any of their respective businesses, |
(ix) |
dispositions of accounts receivable in the ordinary course of business (including to insurers that have provided insurance as to the collection thereof and any discount or forgiveness thereof) or in connection with the collection or compromise thereof, |
4
(x) |
sale, transfer or other disposition of the Equity Interests of an Unrestricted Subsidiary, |
(xi) |
any Qualified Public Offering, |
(xii) |
any undertaking or consummation of any IPO Reorganization Transactions, |
(xiii) |
licenses or sublicenses, in each case in the ordinary course of business and that do not materially interfere with the business of the Borrower and the Restricted Subsidiaries, taken as a whole, |
(xiv) |
the unwinding of any Hedging Agreement pursuant to its terms, and |
(xv) |
any sale, transfer or other disposition or series of related sales, transfers or other dispositions, in each case, having a fair market value (as determined by the Borrower in good faith) not in excess of the greater of (x) $3,000,000 and (y) 3.0% of Consolidated EBITDA as of the last day of the most recently ended Test Period. |
Assignment and Acceptance shall mean an assignment and acceptance entered into by a Lender and an Eligible Assignee, in substantially the form of Exhibit B-1 or such other form as shall be approved by the Administrative Agent.
Auction shall have the meaning assigned to such term in Section 2.12(c).
Auction Amount shall have the meaning assigned to such term in Section 2.12(c).
Auction Notice shall have the meaning assigned to such term in Section 2.12(c).
Available Amount shall mean, at any date, the excess, if any, of
(a)
(i) the Cumulative Retained Excess Cash Flow Amount at such date, plus
(ii) the fair market value (as determined by the Borrower in good faith) of any cash, securities or other property received by Holdings as capital contributions or in respect of issuances of Qualified Capital Stock of Holdings (in each case other than any Specified Equity Contribution), and in each case contributed by Holdings, as common equity to the Borrower, during the period from and including the Business Day immediately following the Closing Date through and including such date, plus
(iii) in the event that the Available Amount has previously been reduced as a result of an Investment made pursuant to Section 6.04(i) in connection with the designation of a Restricted Subsidiary as an Unrestricted Subsidiary, the acquisition of Equity Interests of an Unrestricted Subsidiary or the making of any other Investment, an amount equal to the aggregate amount received by the Borrower or any other Restricted Subsidiary in cash (in each case, except to the
5
extent included in Consolidated EBITDA and, together with any related amounts under clause (iv) below, not in excess of the original investment made using the Available Amount) from (x) the sale (other than to the Borrower or any other Restricted Subsidiary) of any such Equity Interests of any such Unrestricted Subsidiary or any such other Investment, or (y) any dividend or other distribution by any such Unrestricted Subsidiary or received in respect of any such other Investment, or (z) interest, returns of principal, repayments and similar payments by any such Unrestricted Subsidiary or received in respect of any such other Investment, plus
(iv) without duplication of any amounts included in clause (iii) above, in the event that the Available Amount has previously been reduced as a result of an Investment made pursuant to Section 6.04(i) in connection with the designation of a Restricted Subsidiary as an Unrestricted Subsidiary, in the event any such Unrestricted Subsidiary has been re-designated as a Restricted Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, the Borrower or any other Restricted Subsidiary, an amount equal to (but not, together with any related amounts under clause (iii) above, in excess of the original investment made using the Available Amount) the fair market value of the investments of the Borrower and the other Restricted Subsidiaries in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable), plus
(v) the aggregate principal amount of any Indebtedness or Disqualified Stock, in each case, of the Borrower or any other Restricted Subsidiary issued after the Closing Date (other than Indebtedness or such Disqualified Stock issued to the Borrower or any other Restricted Subsidiary), which has been converted into or exchanged for Qualified Capital Stock of the Borrower, Holdings or any parent company of Holdings, together with the fair market value of any Cash Equivalents and the fair market value (as determined by the Borrower in good faith) of any property or assets received by the Borrower or such other Restricted Subsidiary upon such exchange or conversion, in each case, during the period from and including the day immediately following the Closing Date through and including such time, plus
(vi) the amount of any Declined Proceeds, plus
(vii) the greater of (x) $20,000,000 and (y) 22% of Consolidated EBITDA as of the last day of the most recently ended Test Period,
over
(b) the aggregate amounts expended by Holdings, the Borrower and the other Restricted Subsidiaries on or prior to such date to make Investments pursuant to Section 6.04(i), to make Restricted Payments pursuant to Section 6.06(a)(v) or to prepay, redeem, repurchase, retire or otherwise acquire Indebtedness pursuant to Section 6.09(b)(B), in each case during the period from and including the Business Day immediately following the Closing Date through the date of such determination (without taking account of the intended usage of the Available Amount on such date).
6
Bail-In Action means 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 means, 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.
Bankruptcy Code shall mean the provisions of Title 11 of the United States Code, 11 U.S.C. § 101 et seq .
Beneficial Ownership Certification shall mean a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.
Beneficial Ownership Regulation means 31 C.F.R. § 1010.230.
Benefit Plan means any of (a) an employee benefit plan (as defined in ERISA) that is subject to Title I of ERISA, (b) a plan as defined in Section 4975 of the Code or (c) any person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such employee benefit plan or plan.
Board shall mean the Board of Governors of the Federal Reserve System of the United States of America.
Borrower shall have the meaning assigned to such term in the introductory statement
hereto.
Borrower Materials shall have the meaning assigned to such term in Section 9.01(g).
Borrowing shall mean Loans of the same Class and Type made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.
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 C, or such other form as shall be approved by the Administrative Agent.
Breakage Event shall have the meaning assigned to such term in Section 2.16.
Business Day shall mean any day other than a Saturday, Sunday or any other day on which banks in New York City are authorized or required by law to close; provided, however , that when used in connection with a Eurodollar Loan, the term Business Day shall also exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market.
7
Capital Lease Obligations of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP; provided , that all obligations of any person that are or would be characterized as an operating lease as determined in accordance with GAAP as in effect on the Closing Date (whether or not such operating lease was in effect on such date) shall continue to be considered an operating lease (and not a capital lease or Capital Lease Obligation) for purposes of this Agreement regardless of any change in GAAP following the Closing Date that would otherwise require such obligation to be recharacterized as a capital lease or Capital Lease Obligation. For purposes of Section 6.02, a Capital Lease Obligation shall be deemed to be secured by a Lien on the property being leased and such property shall be deemed to be owned by the lessee.
Cash Collateralize shall mean to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Issuing Bank and the Lenders, as collateral for L/C Exposure, cash or, if the Administrative Agent and the 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 the Issuing Bank. Cash Collateral and Cash Collateralized shall have meanings correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
Cash Equivalents shall mean:
(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of issuance thereof;
(b) currencies held from time to time in the ordinary course of business;
(c) investments in commercial paper maturing within 270 days from the date of issuance thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moodys;
(d) investments in certificates of deposit, bankers acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, the Administrative Agent or any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000 and that issues (or the parent of which issues) commercial paper rated at least Prime-2 (or the then equivalent grade) by Moodys or A-2 (or the then equivalent grade) by S&P;
8
(e) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria of clause (d) above;
(f) investments in money market funds within the meaning of Rule 2a-7 of the Investment Company Act of 1940, as amended, substantially all of whose assets are invested in investments of the type described in clauses (a) through (e) above;
(g) securities with average maturities of 24 months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, by any political subdivision or taxing authority of any such state, commonwealth or territory having an investment grade rating from either S&P or Moodys (or the equivalent thereof);
(h) investments with average maturities of 12 months or less from the date of acquisition in mutual funds rated AAA- (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moodys; and
(i) investment funds investing substantially all of their assets in securities of the types (including as to credit quality and maturity) described in clauses (a) through (h) above.
CFC shall mean any controlled foreign corporation within the meaning of Section 957, but only if a U.S. Person that is a Loan Party or an Affiliate of a Loan Party is, with respect to such person, a United States shareholder (within the meaning of Section 951(b)) described in Section 951(a)(1). For purposes of this definition, all Section references are to the Code.
Change in Control shall mean the occurrence of any of the following:
(a) prior to a Qualified Public Offering, the Permitted Investors shall fail to beneficially own, directly or indirectly, shares representing at least a majority of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower,
(b) pursuant to or after a Qualified Public Offering, any person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than the Permitted Investors (and excluding any employee benefit plan and/or Person acting as the trustee, agent or other fiduciary or administrator thereof), shall beneficially own, directly or indirectly, shares representing more than the greater of (i) 35% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower and (ii) the percentage of the then-existing aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower beneficially owned, directly or indirectly, by the Permitted Investors, unless the Permitted Investors have, at such time, the right or the ability by voting power, contract or otherwise to elect or designate for election at least a majority of the board of directors of the Borrower,
9
(c) any change in control (or similar event, however denominated) with respect to Holdings, the Borrower or any other Restricted Subsidiary shall occur under and as defined in any indenture or agreement in respect of Material Indebtedness to which Holdings, the Borrower or any other Restricted Subsidiary is a party, or
(d) prior to a Qualified Public Offering, Holdings shall, other than as a result of transactions permitted under Section 9.21, cease to directly own 100% of the issued and outstanding Equity Interests of the Borrower.
Change in Law shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law, regardless of the date enacted, adopted or issued.
Charges shall have the meaning assigned to such term in Section 9.09.
Class , when used with respect to (a) any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Initial Term Loans, Incremental Term Loans of any series established as a separate Class pursuant to Section 2.23, Term Loans of any series established as a separate Class pursuant to Section 2.25 or Section 9.08(d)(i), Initial Revolving Loans, Incremental Revolving Loans of any series established as a separate Class pursuant to Section 2.23 or Revolving Loans of any series established as a separate Class pursuant to Section 2.25 or Section 9.08(d)(ii), (b) any Commitment, refers to whether such Commitment is an Initial Term Loan Commitment, an Initial Revolving Credit Commitment, an Incremental Revolving Credit Commitment of any series established as a separate Class pursuant to Section 2.23, a Revolving Credit Commitment of any series established as a separate Class pursuant to Section 2.25 or Section 9.08(d)(ii), (c) any Lender, refers to whether such Lender has a Loan or Commitment of a particular Class and (d) any Revolving Credit Exposure, refers to whether such Revolving Credit Exposure is attributable to a Revolving Credit Commitment of a particular Class.
Closing Date shall mean November 14, 2018.
Code shall mean the Internal Revenue Code of 1986, as amended.
Collateral shall mean all the Collateral as defined in each Security Document and shall also include the Mortgaged Properties.
Collateral Agent shall have the meaning assigned to such term in the introductory statement hereto.
10
Commitment shall mean, with respect to any Lender, such Lenders Revolving Credit Commitment, Term Loan Commitment, Incremental Revolving Credit Commitment and Incremental Term Loan Commitment.
Commitment Fee shall have the meaning assigned to such term in Section 2.05(a).
Commitment Percentage Fee shall mean (a) initially, for any day, 0.50% and (b) following each Adjustment Date, commencing with the Adjustment Date with respect to the fiscal quarter of the Borrower ending March 31, 2019, the applicable percentage specified below based on the First Lien Leverage Ratio.
Category |
First Lien Leverage Ratio |
Commitment Fee Percentage | ||||
I |
Greater than 2.20 to 1.00 | 0.50 | % | |||
II |
Less than or equal to 2.20 to 1.00 | 0.375 | % |
The Commitment Percentage Fee shall be adjusted quarterly on a prospective basis on each Adjustment Date based on the First Lien Leverage Ratio in accordance with the table above; provided that, if financial statements are not delivered when required pursuant to Section 5.04(a) or Section 5.04(b), as applicable, the Commitment Percentage Fee shall be the percentage set forth above in Category I until the date on which such financial statements are delivered.
Communications shall have the meaning assigned to such term in Section 9.01(g)(ii).
Company Competitor shall mean any operating company that is a competitor of the Borrower and/or any of its Subsidiaries.
Competitor Debt Fund Affiliate shall mean, with respect to any Company Competitor or any Affiliate thereof, any debt fund, investment vehicle, regulated bank entity or unregulated lending entity that is (i) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business and (ii) managed, sponsored or advised by any person that is controlling, controlled by or under common control with the relevant Company Competitor or Affiliate thereof, but only to the extent that no personnel involved with the investment in the relevant Company Competitor makes (or has the right to make or participate with others in making) investment decisions on behalf of, or otherwise cause the direction of the investment policies of, such debt fund, investment vehicle, regulated bank entity or unregulated entity with respect to decisions involving any investment in debt of the Borrower or any of its Subsidiaries.
Compliance Certificate shall mean a compliance certificate of a Financial Officer of the Borrower or Holdings in the form of Exhibit H or another form reasonably acceptable to the Administrative Agent.
11
Connection Income Taxes shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Consolidated EBITDA shall mean, for any period, Consolidated Net Income for such period plus
(a) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of:
(i) Consolidated Interest Expense for such period,
(ii) provision for taxes based on income, profits or capital and sales taxes, including federal, foreign, state, franchise, business license, value added, excise and similar taxes paid or accrued during such period (including in respect of repatriated funds),
(iii) all amounts attributable to depreciation and amortization for such period,
(iv) any aggregate net loss during such period arising from the sale, exchange or other disposition of assets outside of the ordinary course of business,
(v) any Public Company Costs,
(vi) any fees and expenses (including any transaction or retention bonus) incurred during such period, or any amortization thereof during such period, in connection with any acquisition or Investment, asset disposition, issuance or repayment of debt, issuance of equity securities, refinancing transaction or amendment or other modification of or waiver or consent relating to any debt instrument (in each case, including Transaction Costs and any such transaction undertaken but not completed),
(vii) up to $6,000,000 in an aggregate amount for any Test Period of unusual or non-recurring charges (including any unusual or non-recurring expenses directly attributable to the implementation of cost savings initiatives), severance, relocation costs, integration and facilities opening costs, retention or completion bonuses, transition costs and costs related to closure/consolidation of facilities and curtailments or modifications to pension and other post-retirement employee benefit plans (including any settlement of pension liabilities) (in each case, other than those referred to in clause (viii) below) in any period incurred during such period; provided that the aggregate cumulative amount for all items added pursuant to this clause (vii) or clause (viii) below shall not exceed, when aggregated with the aggregate amount added to or included in Consolidated EBITDA pursuant to any pro forma adjustments during such period pursuant to clause (ii) of Section 1.03(d), 25.0% of Consolidated EBITDA (giving effect to such adjustments) for such Test Period,
(viii) up to $8,000,000 in an aggregate amount for any Test Period of restructuring charges and expenses for such period; provided that aggregate cumulative amount for all items added pursuant to this clause (viii) and clause (vii) above shall not exceed, when aggregated with the aggregate amount added to or included in Consolidated EBITDA pursuant to any pro forma adjustments during such period pursuant to clause (ii) of Section 1.03(d), 25.0% of Consolidated EBITDA (giving effect to such adjustments) for such Test Period,
12
(ix) any non-cash charges or losses that have been deducted in determining Consolidated Net Income for such period in accordance with GAAP, to the extent of such deduction (other than any such non-cash charge or loss in respect of an item that increased Consolidated EBITDA in a prior period that began after the Closing Date and any such non-cash charge or loss that results from the write-down or write-off of current assets),
(x) the amount of any net losses from discontinued operations,
(xi) the amount of any minority interest income consisting of subsidiary income attributable to minority equity interests of third parties in any Subsidiary that is not a Wholly Owned Subsidiary deducted from (and not added back in such period to) Consolidated Net Income,
(xii) any extraordinary losses for such period,
(xiii) stock-based compensation award expenses,
(xiv) any loss attributable to deferred compensation plans or trusts,
(xv) to the extent covered by insurance and actually reimbursed, or if there is reasonable evidence that such amount will in fact be reimbursed by a third party insurer (and only to the extent that such amount is in fact reimbursed) within 180 days of the date of such determination (with a deduction in the applicable future period for any amount so excluded to the extent not so reimbursed within such 180 days), expenses, charges or losses with respect to business interruption (and if such expenses, charges or losses are added to Consolidated Net Income in determining Consolidated EBITDA, such insurance proceeds shall be excluded from Consolidated EBITDA),
(xvi) all costs, fees and expenses of the board of directors of the Borrower and Holdings that are actually reimbursed by the Borrower,
(xvii) charges attributable to, and payments of, legal settlements, fines, judgments or orders, and
(xviii) any net pension or other post-employment benefit costs representing amortization of unrecognized prior service costs, actuarial losses, including amortization of such amounts arising in prior periods, amortization of the unrecognized net obligation (and loss or cost) existing at the date of initial application of FASB Accounting Standards Codification 715, and any other items of a similar nature; and
minus (b) without duplication, and to the extent included in determining such Consolidated Net Income, the sum of:
13
(i) all cash payments made during such period on account of reserves, restructuring charges and other non-cash charges added to Consolidated Net Income pursuant to clause (a)(viii) or (a)(ix) above in a previous period,
(ii) any extraordinary gains and all non-cash items of income for such period,
(iii) any aggregate net gain during such period arising from the sale, exchange or other disposition of assets outside of the ordinary course of business,
(iv) the amount of any net gains from discontinued operations,
(v) the amount of any minority interest losses consisting of subsidiary losses attributable to minority equity interests of third parties in any Subsidiary that is not a Wholly Owned Subsidiary added back to (and not deducted in such period from) Consolidated Net Income and
(vi) any gain attributable to deferred compensation plans or trusts, all determined on a consolidated basis in accordance with GAAP;
provided that, for purposes of calculating the First Lien Leverage Ratio and the Total Leverage Ratio, (A) the Consolidated EBITDA of any Acquired Entity acquired by the Borrower or any other Restricted Subsidiary pursuant to a Permitted Acquisition or similar Investment during such period shall, to the extent reasonably determinable on a going concern basis, be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred as of the first day of such period and including the pro forma adjustments described in Section 1.03) and (B) the Consolidated EBITDA attributable to any Asset Sale by the Borrower or any other Restricted Subsidiary during such period shall be excluded for such period (assuming the consummation of such Asset Sale and the repayment of any Indebtedness in connection therewith and including the pro forma adjustments described in Section 1.03 with respect to such period).
Consolidated Interest Expense shall mean, for any period, the sum of (a) the interest expense (including imputed interest expense in respect of Capital Lease Obligations and Synthetic Lease Obligations) of the Borrower and the other Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, plus (b) any interest accrued during such period in respect of Indebtedness of the Borrower or any other Restricted Subsidiary that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP. For purposes of the foregoing, interest expense shall be determined after giving effect to any net payments made or received by the Borrower or any other Restricted Subsidiary with respect to interest rate Hedging Agreements.
Consolidated Net Income shall mean, for any period, the net income or loss of the Borrower and the other Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded:
(a) the income of any Restricted Subsidiary (other than the Borrower) to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to such Restricted Subsidiary,
14
(b) the income or loss of any person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Borrower or any other Restricted Subsidiary or the date that such persons assets are acquired by the Borrower or any other Restricted Subsidiary,
(c) the income of any person in which any other person (other than the Borrower or any other Restricted Subsidiary that is a Wholly Owned Subsidiary of the Borrower or any director holding qualifying shares in accordance with applicable law) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any other Restricted Subsidiary that is a Wholly Owned Subsidiary of the Borrower by such person during such period,
(d) the cumulative effect of a change in accounting principles during such period to the extent included in net income or loss as determined in accordance with GAAP,
(e) any income (loss) for such period attributable to the early extinguishment of Indebtedness, hedging agreements or other derivative instruments and
(f) the effects of acquisition method accounting, including applying acquisition method accounting to inventory, property and equipment, leases, software and other intangible assets and deferred revenue (including deferred costs related thereto and deferred rent) required or permitted by GAAP and related authoritative pronouncements (including the effects of such adjustments pushed down to the Borrower or any other Restricted Subsidiary), as a result of any Permitted Acquisition (or other Investment permitted hereunder) or the amortization or write-off of any amounts thereof.
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 the terms Controlling and Controlled shall have meanings correlative thereto.
Credit Agreement Refinancing Indebtedness shall mean any refinancings and/or replacements of Indebtedness incurred under Section 6.01(b) (including other Credit Agreement Refinancing Indebtedness); provided that:
(a) the aggregate principal amount of any Credit Agreement Refinancing Indebtedness shall not exceed the aggregate principal amount of the Indebtedness being refinanced or replaced ( plus the amount of accrued interest and premium thereon, underwriting discounts, fees (including upfront fees and original issue discount), commissions and expenses associated therewith);
(b) (x) no Credit Agreement Refinancing Indebtedness may have a final maturity date (or have scheduled commitment reductions) prior to the final maturity date of the relevant Indebtedness being refinanced or replaced at the time of such refinancing or replacement and (y) any Credit Agreement Refinancing Indebtedness that refinances or replaces Term Loans shall not
15
have a shorter weighted average life to maturity than the Term Loans being refinanced or replaced at the time of the such refinancing or replacement; provided that the requirements set forth in the foregoing clauses (b)(x) and (b)(y) shall not apply to Credit Agreement Refinancing Indebtedness in the form of one-year bridge loans that are convertible or exchangeable without conditions into other instruments meeting the requirements set forth in the foregoing clauses (b)(x) and (b)(y) (but for the avoidance of doubt, such requirement shall apply to any loans, securities or other debt into which such bridge loans are exchanged or that otherwise replace such bridge loans);
(c) any Credit Agreement Refinancing Indebtedness may be pari passu with or junior to any then-existing Obligations in right of payment and pari passu with or junior to any then-existing Obligations with respect to the Collateral (in which case it shall be subject to an Acceptable Intercreditor Agreement), or be unsecured, and shall be incurred under and pursuant to documentation other than this Agreement; and any such Indebtedness consisting of term loans that are pari passu with the Term Loans in right of payment and secured by the Collateral on a pari passu basis with the Term Loans may participate on a pro rata basis or a less than pro rata basis (but not on a greater than pro rata basis) in any mandatory prepayment in respect of the Initial Term Loans (and any other Term Loans then subject to ratable repayment requirements), in each case as the Borrower and the relevant lender or holder may agree; provided , further , that any Credit Agreement Refinancing Indebtedness that is junior to the Term Loans shall not be entitled to participate ratably in any such mandatory prepayment;
(d) any Credit Agreement Refinancing Indebtedness that is secured may not be secured by any assets other than all or any portion of the Collateral;
(e) any Credit Agreement Refinancing Indebtedness that is guaranteed may not be guaranteed by any person other than one or more Loan Parties;
(f) any Credit Agreement Refinancing Indebtedness may have pricing (including interest, fees and premiums) and, subject to the preceding clause (c), optional prepayment and redemption terms as the Borrower and the lenders or holders providing such Credit Agreement Refinancing Indebtedness may agree;
(g) the other terms and conditions of any Credit Agreement Refinancing Indebtedness (excluding pricing, interest, fees, rate floors, premiums, optional prepayment or redemption terms, security and maturity, subject to preceding paragraphs (a) through (f)) are either (i) no more favorable (taken as a whole) (as reasonably determined by the Borrower) to the lenders or holders providing such Credit Agreement Refinancing Indebtedness than, those applicable to the Indebtedness being refinanced (other than covenants or other provisions applicable only to periods after the later of the Latest Term Maturity Date and the Latest Revolving Maturity Date (in each case, as of the date of incurrence of the relevant Credit Agreement Refinancing Indebtedness)) or (ii) then-current market terms (as reasonably determined by the Borrower) for the applicable type of Indebtedness; and
(h) the commitments in respect of the relevant Indebtedness being refinanced or replaced shall be terminated, and all loans outstanding thereunder and all fees then due and payable in connection therewith shall be paid in full, in each case on the date any Credit Agreement Refinancing Indebtedness is implemented.
16
Credit Event shall have the meaning assigned to such term in Section 4.01.
Credit Facilities shall mean the revolving credit, letter of credit and term loan facilities provided for by this Agreement.
Cumulative Retained Excess Cash Flow Amount shall mean, as of any date of determination, for each fiscal year of the Borrower (commencing with the fiscal year ending December 31, 2019) with respect to which a Compliance Certificate has been delivered in connection with the delivery of annual financial statements pursuant to Section 5.04(a), an amount (in no event less than zero) equal to the sum of the Retained Percentage of Excess Cash Flow for all such fiscal years covered by such Compliance Certificates.
Cure Right shall have the meaning assigned to such term in Section 7.02(a).
Current Assets shall mean, at any time, the consolidated current assets (other than cash and Cash Equivalents) of the Borrower and the other Restricted Subsidiaries at such time, but excluding the current portion of deferred tax assets.
Current Liabilities shall mean, at any time, the consolidated current liabilities of the Borrower and the other Restricted Subsidiaries at such time, but excluding, without duplication, (a) the current portion of any long-term Indebtedness, (b) outstanding Revolving Loans and Letters of Credit, (c) the current portion of interest and (d) the current portion of current and deferred income taxes.
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 or other applicable jurisdictions from time to time in effect.
Declined Proceeds shall have the meaning in Section 2.13(h).
Declining Lender shall have the meaning in Section 2.13(h).
Default shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default.
Defaulting Lender shall mean any Revolving Credit Lender that (a) has failed, within two Business Days of the date required to be funded or paid unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lenders determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, (i) to fund any portion of its Loans or participations in Letters of Credit or (ii) to pay to any Loan Party any other amount required to be paid by it hereunder, (b) has notified Holdings, the Borrower, the Administrative Agent, any Issuing Bank or any Lender in writing that it does not intend to comply with any of its funding obligations under this
17
Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after request by the Administrative Agent, to confirm in writing that it will comply with the terms of this Agreement relating to its obligations to fund prospective Loans or participations in then outstanding Letters of Credit; 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, (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law or (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 (e) has, or has a direct or indirect parent company that has, 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 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 clauses (a) through (e) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender upon delivery of written notice of such determination to the Borrower and each Lender.
Designated Non-Cash Consideration shall mean the fair market value of non-cash consideration received by the Borrower or any other Restricted Subsidiary in connection with an Asset Sale pursuant to Section 6.05(b) that is designated as Designated Non-Cash Consideration pursuant to a certificate of a Financial Officer of the Borrower, setting forth the basis of such valuation less the amount equal to the cash or Cash Equivalents received in connection with a subsequent sale or other disposition of the Designated Non-Cash Consideration.
Discount Range shall have the meaning assigned to such term in Section 2.12(c).
Disqualified Institutions shall mean (a) those certain banks, financial institutions and other institutional lenders, in each case, as have been previously identified in writing to the Arranger on or prior to the initial syndication of the Credit Facilities prior to the Closing Date, (b) any Company Competitor that is identified in writing (i) to the Arranger on or prior to the Closing Date or (ii) to the Administrative Agent on or after the Closing Date and (c) any Affiliate of any Person described in clause (a) or (b) above (other than, with respect to clause (b) above, any Competitor Debt Fund Affiliate) that is (i) either identified in writing to the Administrative Agent or (ii) readily identifiable on the basis of such Affiliates name; provided that any Person that is a Lender or Participant and subsequently becomes a Disqualified Institution (but was not a Disqualified Institution at the time it became a Lender or a Participant, as applicable) shall be deemed to not be a Disqualified Institution hereunder (in the case of any such Participant that is not a Lender, solely with respect to the participations held by such Participant).
18
Disqualified Stock shall mean any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, or requires the payment of any cash dividend or any other scheduled payment constituting a return of capital, in each case (x) at any time on or prior to the 91st day following the Latest Maturity Date in effect at the time such Equity Interest is issued and (y) in the case of any such redeemable Equity Interests, redeemable other than for Equity Interests not constituting Disqualified Stock and cash for fractional shares, or (b) is convertible into or exchangeable (other than at the sole option of the issuer thereof) for (i) debt securities or (ii) any Equity Interest referred to in clause (a) above, in each case at any time prior to the 91st day following the Latest Maturity Date in effect at the time such Equity Interest is issued; provided , however , that (i) an Equity Interest in any Person that would not constitute Disqualified Stock but for terms thereof giving holders thereof the right to require such Person to redeem or purchase such Equity Interest upon the occurrence of an asset sale or a change of control shall not constitute a Disqualified Stock if any such requirement becomes operative only after repayment in full of all the Loans and all other Loan Document Obligations that are accrued and payable, the cancellation or expiration of all Letters of Credit and the termination of the Commitments and (ii) if an Equity Interest in any Person is issued pursuant to any plan for the benefit of current or former officers, directors, employees or consultants of Holdings (or any direct or indirect parent thereof) or any of its Subsidiaries or by any such plan to such officers, directors, employees or consultants, such Equity Interest shall not constitute Disqualified Stock solely because it may be required to be repurchased by Holdings (or any direct or indirect parent company thereof) or any of its Subsidiaries in order to satisfy applicable statutory or regulatory obligations of such Person.
Disregarded Domestic Person shall mean any Domestic Subsidiary that holds no material assets other than equity (including any debt instrument treated as equity for U.S. federal income tax purposes) of one or more CFCs.
Dollars or $ shall mean lawful money of the United States of America.
Domestic Subsidiaries shall mean all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia (each individually a Domestic Subsidiary ).
ECF Payment Amount shall have the meaning assigned to such term in Section 2.13(c).
ECF Percentage shall mean 50% (or, if the First Lien Leverage Ratio as of the last day of the applicable fiscal year of the Borrower shall have been (x) equal to or less than 2.20 to 1.00 but greater than 1.70 to 1.00, 25% or (y) equal to or less than 1.70 to 1.00, 0%).
EEA Financial Institution means (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;
19
EEA Member Country means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
EEA Resolution Authority means 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.
Electronic Signature means an electronic sound, symbol or process attached to, or associated with, a contract or other record and adopted by a person with the intent to sign, authenticate or accept such contract or record.
Eligible Assignee shall mean (a) a Lender, an Affiliate of any Lender or any Approved Fund, (b) an Affiliated Lender solely to the extent contemplated by Section 9.04(l) and (c) any commercial bank, insurance company, investment or mutual fund or other entity that is an accredited investor (as defined in Regulation D under the Securities Act) that extends credit or invests in bank loans as one of its businesses; provided that in any event, Eligible Assignee shall not include: (i) any Disqualified Institution (unless the Borrower otherwise agrees in its sole discretion and provided that upon inquiry by any Lender to the Administrative Agent as to whether a specified potential assignee or participant is on the list of Disqualified Institutions, the Administrative Agent shall be permitted to disclose to such Lender whether such specific potential assignee or participant is on the list of Disqualified Institutions) or (ii) any natural person or any entity owned and operated for the primary benefit of a natural person.
Environmental Laws shall mean all federal, state, local and foreign laws (including statutory and common law), treaties, regulations, rules, ordinances, codes, decrees, injunctions, judgments, governmental restrictions or requirements, directives, orders (including consent orders), permits and agreements in each case, relating to the environment, the preservation or reclamation of natural resources, endangered or threatened species, protection of the climate, human health and safety or the presence or Release of, exposure to, or the generation, distribution, use, treatment, storage, transport, recycling, disposal or handling of, or the arrangement for such activities with respect to, Hazardous Materials.
Environmental Liability shall mean all liabilities, obligations, damages, losses, claims, actions, suits, judgments, orders, fines, penalties, fees, indemnities, expenses and costs (including administrative oversight costs, natural resource damages, costs of medical monitoring, remediation costs and reasonable fees and expenses of attorneys and consultants), whether contingent or otherwise, arising out of or relating to (a) compliance or non-compliance with any Environmental Law, (b) the generation, use, handling, distribution, recycling, transportation, storage, treatment or disposal (or the arrangement for such activities) of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
20
Environmental Permits shall mean any permit, license or other approval required under any Environmental Law.
Equity Interests shall mean shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity interests in any person, and any option, warrant or other right entitling the holder thereof to purchase or otherwise acquire any such equity interest.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate shall mean any trade or business (whether or not incorporated) that, together with Holdings or any Restricted 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. For the avoidance of doubt, when any provision of this Agreement relates to a past event or period of time, the term ERISA Affiliate includes any person who was, as to the time of such past event or period of time, an ERISA Affiliate within the meaning of the preceding sentence.
ERISA Event shall mean (a) any reportable event, as defined in Section 4043 of ERISA, with respect to a Plan (other than an event for which the 30-day notice period is waived by regulation), (b) the failure of any Plan to satisfy the minimum funding standard applicable to such Plan within the meaning of Section 412 of the Code or Section 302 of ERISA), whether or not waived, (c) 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, (d) 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), (e) the incurrence by Holdings, the Borrower, any other Restricted Subsidiary, or any of their ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of Holdings, the Borrower, any other Restricted Subsidiary, or any of their ERISA Affiliates from any Plan or Multiemployer Plan, (f) the receipt by Holdings or any of its ERISA Affiliates from the PBGC or the administrator of any Plan or Multiemployer Plan of any notice relating to the intention to terminate any Plan or Multiemployer Plan or to appoint a trustee to administer any Plan, (g) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 436(f) of the Code or Section 206 of ERISA, (h) the receipt by Holdings, the Borrower, any other Restricted Subsidiary, or any of their ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from Holdings, the Borrower, any other Restricted Subsidiary, or any of their ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in endangered or critical status within the meaning of Title IV of ERISA, (i) the occurrence of a non-exempt prohibited transaction with respect to which Holdings, the Borrower, any other Restricted Subsidiary, or any of their ERISA Affiliates is a disqualified person (within the meaning of Section 4975 of the Code) or with respect to which Holdings, the Borrower, any other Restricted Subsidiary, or any of their ERISA Affiliates could otherwise be liable, or (j) any other event or condition with respect to a Plan or Multiemployer Plan that could result in liability of Holdings, the Borrower, any other Restricted Subsidiary, or any of their ERISA Affiliates.
21
EU Bail-In Legislation Schedule means the EU Bail- In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
Eurodollar , when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
Event of Default shall have the meaning assigned to such term in Article VII.
Excess Cash Flow shall mean, for any fiscal year of the Borrower, the excess of:
(a) the sum, without duplication, of:
(i) Consolidated EBITDA for such fiscal year, and
(ii) reductions to noncash working capital of the Borrower and the other Restricted Subsidiaries for such fiscal year ( i.e. , the absolute value of the decrease, if any, in Current Assets minus Current Liabilities from the beginning to the end of such fiscal year; provided that, for purposes of calculating Excess Cash Flow, increases or decreases in working capital shall exclude (A) any changes in Current Assets or Current Liabilities solely as a result of acquisitions or dispositions by the Borrower and the other Restricted Subsidiaries during the applicable period and (B) any reclassification in accordance with GAAP of assets or liabilities, as applicable, between current and noncurrent)
over
(b) the sum, without duplication, of:
(i) the amount of any Taxes payable in cash by the Borrower and the other Restricted Subsidiaries with respect to such fiscal year,
(ii) Consolidated Interest Expense for such fiscal year paid in cash,
(iii) capital expenditures made in cash during such fiscal year to the extent financed with internally generated cash flow,
(iv) permanent repayments of Indebtedness (other than mandatory prepayments of Loans under Section 2.13 and prepayments and repurchases of Loans referred to in clause (B) of Section 2.13(c)) made in cash by the Borrower or any other Restricted Subsidiary during such fiscal year, but only to the extent that the Indebtedness so prepaid by its terms cannot be reborrowed or redrawn and such prepayments do not occur in connection with a refinancing of all or any portion of such Indebtedness,
(v) all amounts added back to Consolidated Net Income in calculating Consolidated EBITDA pursuant to clause (a)(vi), (a)(xvi), or to the extent paid in cash during such fiscal year, (a)(vii) or (a)(viii) of the definition of Consolidated EBITDA,
22
(vi) additions to noncash working capital for such fiscal year ( i.e. , the increase, if any, in Current Assets minus Current Liabilities from the beginning to the end of such fiscal year),
(vii) (A) cash consideration paid during such fiscal year (or, at the option of the Borrower, committed to be paid prior to the date the Borrower is required to make a payment of Excess Cash Flow in respect of such fiscal year) by the Borrower or any other Restricted Subsidiary to make Permitted Acquisitions or other similar Investments (other than (1) in Holdings or a Restricted Subsidiary and (2) in Cash Equivalents) permitted under Section 6.04 and (B) Restricted Payments made in cash during such fiscal year (or, at the option of the Borrower, committed to be paid prior to the date the Borrower is required to make a payment of Excess Cash Flow in respect of such fiscal year) by the Borrower or any Restricted Subsidiary (other than to Holdings or any Restricted Subsidiary) permitted under Section 6.06(a) (other than Section 6.06(a)(v)) (except, in each case to the extent funded with the proceeds of long-term Indebtedness (other than revolving Indebtedness)); provided that amounts described in this clause (vii) will not reduce Excess Cash Flow in subsequent periods and, to the extent not so paid, will increase Excess Cash Flow in the subsequent period, and
(viii) payments made in cash by the Borrower or any other Restricted Subsidiary during such fiscal year (except to the extent deducted in calculating Consolidated Net Income or Consolidated EBITDA) in satisfaction of noncurrent liabilities (excluding any payments of Indebtedness for borrowed money) to the extent financed with internally generated cash flow.
Exchange Act means the United States Securities Exchange Act of 1934.
Excluded Subsidiary shall mean each of the following:
(a) any Domestic Subsidiary that is a direct or indirect subsidiary of a CFC,
(b) any Foreign Subsidiary,
(c) any Disregarded Domestic Person,
(d) any Subsidiary (i) constituting a mutual fund, unregistered investment fund or other investment company (including any statutory trust constituted for such purpose) or (ii) that is a CFTC-registered introducing broker or a FINRA-member broker-dealer,
(e) any Unrestricted Subsidiary,
(f) any Subsidiary to the extent that the provision by such Subsidiary of a Guarantee in respect of the Obligations (i) is prohibited or restricted by (A) applicable law, rule or regulation or (B) any contractual obligation existing on the Closing Date (or, with respect to any Subsidiary acquired after the Closing Date, on the date such Subsidiary is so acquired, so long as such Contractual Obligation was not incurred in contemplation of such Investment) or (ii) would require governmental (including regulatory) consent, approval, license or authorization unless such consent, approval, license or authorization has been received,
23
(g) any Subsidiary that is not a Wholly Owned Subsidiary of Holdings,
(h) any Immaterial Subsidiary,
(i) upon the request of the Borrower, any Subsidiary for which the burden or cost to such Subsidiary of providing a Guarantee of the Obligations is excessive in relation to the value afforded to the Lenders thereby, as reasonably determined by the Borrower and Administrative Agent,
(j) any Subsidiary with respect to which providing a Guarantee would result in material adverse tax consequences as reasonably determined by the Borrower,
(k) not-for-profit subsidiaries, captive insurance subsidiaries and special purposes entities used for permitted securitization facilities,
(l) solely in the case of any obligation under any Secured Hedging Agreement that constitutes a swap within the meaning of Section 1(a)(47) of the Commodity Exchange Act (after giving effect to a customary keepwell provision applicable under the Guaranty), any subsidiary of Holdings that is not an Eligible Contract Participant as defined under the Commodity Exchange Act, and
(m) without limiting clauses (f) and (j) above, any subsidiary acquired by the Borrower or any Restricted Subsidiary that, at the time of the relevant acquisition, is an obligor in respect of assumed indebtedness that is permitted by this Agreement to the extent (and for so long as) the documentation governing the applicable assumed Indebtedness prohibits such subsidiary from providing the Guarantee and the relevant prohibition was not incurred in contemplation of such acquisition;
provided , that , notwithstanding the foregoing clauses (a) through (o), the Borrower may, at its option and with the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed), cause any domestic Restricted Subsidiary that would otherwise be an Excluded Subsidiary pursuant to the foregoing definition to be deemed not to be an Excluded Subsidiary for purposes of the Loan Documents.
Excluded Taxes shall mean any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.21(a)) or (ii) such Lender changes its lending office, except in each
24
case to the extent that, pursuant to Section 2.20, amounts with respect to such Taxes were payable either to such Lenders assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipients failure to comply with Section 2.20(f) and (d) any withholding Taxes imposed under FATCA.
Failed Auction shall have the meaning assigned to such term in Section 2.12(c)(i)(C).
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), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
FCPA shall mean the United States Foreign Corrupt Practices Act of 1977, as amended.
Federal Funds Effective Rate shall mean, for any day, the rate calculated by the Federal Reserve Bank of New York based on such days federal funds transactions by depository institutions (as determined in such manner as the Federal Reserve Bank of New York shall set forth on its public website from time to time) and published on the next succeeding Business Day by the Federal Reserve Bank of New York as the federal funds effective rate, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three depository institutions of recognized standing selected by it; provided that if such rate shall be less than zero, such rate shall be deemed to be zero for all purposes of this Agreement.
Fees shall mean the Commitment Fees, the Administrative Agent Fees, the L/C Participation Fees and the Issuing Bank Fees.
Financial Covenant Facility shall mean the Revolving Facility and each Incremental Revolving Facility or Replacement Revolving Facility (other than any Incremental Revolving Facility or Replacement Revolving Facility for which the applicable Lenders have agreed in the applicable Incremental Assumption Agreement or Refinancing Amendment that such Incremental Revolving Facility or Replacement Revolving Facility shall not have the direct benefit of Section 6.10).
Financial Covenant Acceleration shall have the meaning assigned to such term in Section 7.01(d).
Financial Covenant Event of Default shall have the meaning assigned to such term in Section 7.01(d).
Financial Officer of any person shall mean the chief financial officer, principal accounting officer, treasurer or controller of such person.
25
First Lien Leverage Ratio shall mean the ratio of (i) Total First Lien Debt on such date to (ii) Consolidated EBITDA for the most recently ended Test Period.
Fixed Amounts shall have the meaning assigned to such term in Section 1.03(f).
Flood Hazard Property means any Mortgaged Property that includes a Building (as defined in 12 CFR Chapter III, Section 339.2) that on the relevant date of determination is located in an area identified by the Federal Emergency Management Agency (or any successor agency) as a special flood hazard area.
Flood Insurance Documents means, with respect to any Mortgaged Property that is a Flood Hazard Property, (a) the applicable Loan Partys written acknowledgment of receipt of written notification from the Administrative Agent as to the fact that such Mortgaged Property is a Flood Hazard Property and as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program and (b) provided the Flood Hazard Property is located in a participating in the National Flood Insurance Program, copies of the applicable Loan Partys application for a flood insurance policy, together with proof of premium payment, (i) a declaration page confirming that flood insurance has been issued or (ii) such other evidence of flood insurance in compliance with Flood Insurance Laws as shall be reasonably satisfactory to the Administrative Agent and the Collateral Agent.
Flood Insurance Laws means, collectively, (a) National Flood Insurance Reform Act of 1994 (which comprehensively revised the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973), as now or hereafter in effect or any successor statute thereto,
(b) the Flood Insurance Reform Act of 2004, as now or hereafter in effect or any successor statute thereto, (c) the Biggert-Waters Flood Insurance Reform Act of 2012, as now or hereafter in effect or any successor statute thereto, and (d) Regulation H of the Board of Governors.
Foreign Lender shall mean a Lender that is not a U.S. Person.
Foreign Subsidiary shall mean any Subsidiary that is not a Domestic Subsidiary.
Fronting Exposure shall mean, at any time there is a Defaulting Lender, with respect to the Issuing Bank, such Defaulting Lenders Pro Rata Percentage of the outstanding L/C Exposure with respect to Letters of Credit issued by the Issuing Bank other than L/C Exposure as to which such Defaulting Lenders participation obligation has been reallocated to other Lenders or Cash Collateralized in an amount not less than the Minimum Collateral Amount.
GAAP shall mean United States generally accepted accounting principles applied on a basis consistent with the financial statements referenced in Section 3.04.
Governmental Authority shall mean the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, self-regulatory organization, including but not limited to the Financial Industry Regulatory Authority, Inc. ( FINRA ), court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supranational bodies such as the European Union or the European Central Bank).
26
Granting Lender shall have the meaning assigned to such term in Section 9.04(j).
Guarantee of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other person (the primary obligor ) in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness or other obligation, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment of such Indebtedness or other obligation or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.
Guarantee and Collateral Agreement shall mean the Guarantee and Collateral Agreement, dated as of the date hereof, among the Loan Parties and the Collateral Agent for the benefit of the Secured Parties, together with all supplements thereto.
Guarantors shall mean Holdings and the Subsidiary Guarantors (each, individually a Guarantor ).
Hazardous Materials shall mean (a) any petroleum products or byproducts and all other hydrocarbons, coal ash, radon gas, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, chlorofluorocarbons and all other ozone-depleting substances and (b) any chemical, material, substance or waste that is prohibited, limited or regulated by or pursuant to any Environmental Law.
Hedging Agreement shall mean any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.
Holdings shall have the meaning assigned to such term in the introductory statement hereto; provided that in the event that AssetMark Holdings LLC (or a successor holding company) ceases to exist as a result of any transaction permitted under Section 9.21, references to Holdings shall be deemed to refer to the Borrower, as appropriate.
HTSC shall mean Huatai Securities and any of its Affiliates.
Immaterial Owned Real Property shall have the meaning set forth in Section 5.10.
Immaterial Subsidiary shall mean, at any date, unless otherwise designated by Holdings in a written notice to the Administrative Agent or unless such Subsidiary is a Loan Party on the Closing Date, any Subsidiary that, together with such Subsidiarys consolidated Subsidiaries, (a) does not, as of the end of the most recently ended Test Period, have assets with a fair market value in excess of 2.5% of Total Assets and (b) did not, for the most recently ended Test Period, have revenues exceeding 2.5% of the total revenues of Holdings and the Subsidiaries on a consolidated basis; provided that the aggregate assets or revenues of all Immaterial Subsidiaries, determined in accordance with GAAP, as of the end of or for any Test
27
Period, may not exceed 5.0% of Total Assets or consolidated revenues, respectively, of Holdings and its Subsidiaries on a consolidated basis (and Holdings will designate in writing to the Administrative Agent from time to time as necessary the Subsidiaries that will cease to be Immaterial Subsidiaries in order to comply with the foregoing limitation).
Incremental Assumption Agreement shall mean an Incremental Assumption Agreement among, and in form and substance reasonably satisfactory to, the Borrower, the Administrative Agent and one or more lenders providing the relevant Incremental Term Facilities or Incremental Revolving Credit Commitments, as the case may be.
Incremental Equivalent Debt means Indebtedness in the form of secured or unsecured notes or loans or commitments in respect of any of the foregoing issued, incurred or implemented in lieu of loans that would otherwise be permitted to be incurred pursuant to Section 2.23 in an amount not to exceed the Incremental Facility Amount; provided that:
(a) subject to clause (h) below, on the date that such notes or loans or commitments are issued, incurred or implemented, the representations and warranties of the Loan Parties set forth in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of such date with the same effect as though such representations and warranties had been made on and as of such date; provided that, to the extent that any representation and warranty specifically refers to an earlier date, it shall be true and correct in all material respects as of such earlier date; provided , further , that representations and warranties that are qualified by material, material adverse effect or a similar term shall be true and correct in all respects;
(b) subject to clause (h) below, no Event of Default under Sections 7.01(b), 7.01(c), 7.01(g) or 7.01(h) exists or would exist immediately after giving effect to such notes or loans;
(c) the weighted average life to maturity applicable to any such Indebtedness in the form of notes or term loans is no shorter than the remaining weighted average life to maturity of the then-existing Term Loans (without giving effect to any prepayments thereof); provided that this requirement shall not apply to Incremental Equivalent Debt in the form of one-year bridge loans that are convertible or exchangeable without conditions into other instruments meeting the requirements set forth in this definition (but for the avoidance of doubt, this requirement shall apply to any loans, securities or other debt into which such bridge loans are exchanged or that otherwise replace such bridge loans);
(d) the final maturity date with respect to such notes or loans is no earlier than the Latest Term Loan Maturity Date on the date of the issuance or incurrence, as applicable, thereof; provided that this requirement shall not apply to Incremental Equivalent Debt in the form of one-year bridge loans that are convertible or exchangeable without conditions into other instruments meeting the requirements set forth in this definition (but for the avoidance of doubt, this requirement shall apply to any loans, securities or other debt into which such bridge loans are exchanged or that otherwise replace such bridge loans);
28
(e) in the case of any such Indebtedness in the form of term loans that are pari passu with the Initial Term Loans with respect to security, the Yield applicable thereto (as determined on the date of initial incurrence thereof) will not be more than 0.50% per annum higher than the Yield in respect of the Initial Term Loans (as determined on such date) unless the Yield with respect to the Initial Term Loans is adjusted to be equal to such Yield applicable to such Indebtedness, minus 0.50% per annum; provided that any increase in Yield with respect to the Initial Term Loans due to the application of an Adjusted LIBO Rate floor or Alternate Base Rate floor on any Incremental Equivalent Debt shall be effected solely through an increase in (or implementation of, as applicable) the Adjusted LIBO Rate floor or Alternate Base Rate floor applicable to such Initial Term Loans;
(f) (i) any such notes or loans rank pari passu with or junior to the Initial Term Loans in right of payment and rank pari passu with or junior to the Initial Term Loans (or any other existing Class of Term Loans) with respect to security or are unsecured, (ii) to the extent such notes or loans rank pari passu with the Initial Term Loans (or any other existing Class of Term Loans) with respect to security, they shall be subject to an Acceptable Intercreditor Agreement and, (iii) to the extent such notes or loans are subordinated to the Initial Term Loans (or any other existing Class of Term Loans) in right of payment or security, they shall be subject to an Acceptable Intercreditor Agreement; and (iv) any such notes or loans that are pari passu with the Term Loans in right of payment and secured by the Collateral on a pari passu basis with the Term Loans may participate on a pro rata basis or a less than pro rata basis (but not on a greater than pro rata basis) in any mandatory prepayment in respect of the Initial Term Loans (and any other Term Loans then subject to ratable repayment requirements), in each case as the Borrower and the relevant lender may agree; provided , further , that any such notes or loans that are junior to the Term Loans shall not be entitled to participate ratably in any such mandatory prepayment;
(g) no such Indebtedness may be (x) guaranteed by any Person that is not a Loan Party or (y) secured by any assets other than all or a portion of the Collateral; and
(h) notwithstanding anything to the contrary in this definition or in any other provision of any Loan Document, if the proceeds of any Incremental Equivalent Debt are intended to be applied to finance an acquisition or other Investment that is permitted under this Agreement, the conditions to entering into and availability of such Incremental Equivalent Debt (including applicability of customary SunGard or other certain funds conditionality but without in any way limiting the other applicable conditions to Incremental Equivalent Debt specified in this definition), and the timing of satisfaction or waiver of any such conditions (as between being satisfied or waived upon execution of an agreement evidencing such Incremental Equivalent Debt or upon the making of any notes or loans thereunder), shall be as agreed among the Borrower and the lenders in respect of such Incremental Equivalent Debt; provided that there shall be conditions requiring (x) the accuracy of Specified Representations and (y) that no Event of Default under Sections 7.01(b), 7.01(c), 7.01(g) or 7.01(h) exists or would exist immediately after giving effect to such Incremental Equivalent Debt.
29
Incremental Facility Amount shall mean, at any time, the sum of:
(a) the sum of:
(1) the greater of (i) $80,000,000 and (ii) 100% of Consolidated EBITDA for the most recently ended Test Period, plus
(2) (x) the amount of any voluntary prepayment of the Term Loans (including any Incremental Term Loans) and/or any permanent reduction of the Revolving Credit Commitments (including any Incremental Revolving Credit Commitments) and (y) the cash amount paid in respect of any reduction in the outstanding principal amount of the Term Loans (including any Incremental Term Loans) resulting from assignments to (and purchases by) the Borrower or any Restricted Subsidiary (in the case of each of clauses (x) and (y), other than any Incremental Indebtedness incurred pursuant to clause (b) below); provided , that the relevant prepayment or assignment and purchase (I) is not funded with long-term Indebtedness (other than revolving Indebtedness) and (II) is not funded with the proceeds of any Incremental Indebtedness incurred in reliance on clause (a)(1) above, minus
(3) the aggregate amount of all Incremental Term Facilities, Incremental Revolving Credit Commitments and Incremental Equivalent Debt (collectively, Incremental Indebtedness ) established prior to such time in reliance on this clause (a), plus
(b) such other amount, so long as, for the purposes of this clause (b), after giving pro forma effect to the incurrence or issuance of any Incremental Indebtedness entered into in reliance on this clause (b) and any Permitted Acquisition consummated simultaneously therewith and the pro forma adjustments described in Section 1.03, (i) in the case of any Incremental Indebtedness that is secured by a Lien on the Collateral on a pari passu basis with the Obligations, the First Lien Leverage Ratio, after giving effect to the incurrence of such Incremental Indebtedness (which shall assume that the full amount of any Incremental Revolving Credit Commitment (or the equivalent thereof in the form of Incremental Equivalent Debt) being established at such time is fully drawn) and the use of proceeds thereof, on a pro forma basis (but without giving effect to any simultaneous incurrence of any Incremental Indebtedness pursuant to the foregoing clause (a)), does not exceed 2.75 to 1.00 and (ii) in the case of any Incremental Indebtedness that is secured by a Lien on the Collateral on a junior basis to the Obligations or that is unsecured, the Total Leverage Ratio, after giving effect to the incurrence of such Incremental Indebtedness (which shall assume that the full amount of any Incremental Revolving Credit Commitment (or the equivalent thereof in the form of Incremental Equivalent Debt) being established at such time is fully drawn) and the use of proceeds thereof, on a pro forma basis (but without giving effect to any simultaneous incurrence of any Incremental Indebtedness pursuant to the foregoing clause (a)), does not exceed 4.00 to 1.00. For purposes of determining the Incremental Facility Amount, (1) any Incremental Indebtedness shall be deemed to have been incurred first, in reliance on clause (b) above to the extent available and second, in reliance on clause (a) above to
30
the extent thereof and (2) any Incremental Indebtedness incurred in reliance on clause (a) above shall be reclassified, as the Borrower may elect from time to time, as incurred under clause (b) above if the Borrower satisfies the applicable leverage ratio under clause (b) above at such time on a pro forma basis, and if the applicable leverage ratio under clause (b) above would be satisfied on a pro forma basis as of the end of any fiscal quarter after the initial incurrence of such Incremental Indebtedness, such reclassification shall automatically occur if not previously elected by the Borrower.
Incremental Indebtedness shall have the meaning assigned to such term in the definition of Incremental Facility Amount.
Incremental Revolving Credit Commitment shall have the meaning assigned to such term in Section 2.23(a).
Incremental Revolving Facility shall mean any Class of Incremental Revolving Credit Commitments or Incremental Revolving Loans other than the Revolving Facility.
Incremental Revolving Loan Maturity Date shall mean the final maturity date of any Incremental Revolving Loan, as set forth in the applicable Incremental Assumption Agreement.
Incremental Revolving Loans shall mean Revolving Loans made pursuant to Section 2.01 by one or more Lenders to the Borrower pursuant to their Incremental Revolving Credit Commitments.
Incremental Term Borrowing shall mean a Borrowing comprised of Incremental Term Loans.
Incremental Term Facility shall have the meaning assigned to such term in Section 2.23(a).
Incremental Term Loan Commitment shall mean the commitment of any Lender, established pursuant to Section 2.23, to make Incremental Term Loans to the Borrower.
Incremental Term Loan Maturity Date shall mean the final maturity date of any Incremental Term Loan, as set forth in the applicable Incremental Assumption Agreement.
Incremental Term Loan Repayment Dates shall mean the dates scheduled for the repayment of principal of any Incremental Term Loan, as set forth in the applicable Incremental Assumption Agreement.
Incremental Term Loans shall mean Term Loans made by one or more Lenders to the Borrower pursuant to Section 2.01(b), either in the form of (i) additional Initial Term Loans or (ii) to the extent permitted by Section 2.23 and provided for in the relevant Incremental Assumption Agreement, other Term Loans.
Incurrence-Based Amounts shall have the meaning assigned to such term in Section 1.03(f).
31
Indebtedness of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding (i) trade accounts payable and accrued obligations incurred in the ordinary course of business, (ii) any earn-out obligation, purchase price adjustment or similar obligation until such obligation (x) becomes a liability on the balance sheet of such person in accordance with GAAP and (y) is not paid within 30 days after becoming due and payable and (iii) liabilities associated with customer prepayments and deposits), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all Synthetic Lease Obligations of such person, (j) net obligations of such person under any Hedging Agreement, valued at the Agreement Value thereof, (k) all obligations of such person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Disqualified Stock of such person or any other person or any warrants, rights or options to acquire such Disqualified Stock, valued, in the case of redeemable preferred interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (l) all obligations of such person as an account party in respect of letters of credit and (m) all obligations of such person in respect of bankers acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner; provided that Indebtedness shall not include (i) deferred or prepaid revenue arising in the ordinary course of business or (ii) purchase price holdbacks in respect of a portion of the purchase price of an asset to satisfy warranty, indemnity or other unperformed obligations of the seller of such asset, but only to the extent such holdback is funded at the time of the closing of the applicable purchase transaction and such funds are held with a third party escrow agent. The amount or principal amount of any Indebtedness at any time of determination represented by any Guarantee referred to in clause (g) shall be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum monetary exposure in respect thereof as of such date as determined reasonably and in good faith by a Financial Officer of the Borrower.
Indemnified Taxes shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
Indemnitee shall have the meaning assigned to such term in Section 9.05(b).
Information shall have the meaning assigned to such term in Section 9.16.
Initial Revolving Credit Commitments shall mean the Revolving Credit Commitments made available to the Borrower pursuant to Section 2.01(a)(ii) on the Closing Date, as the same may be (a) reduced from time to time pursuant to Section 2.09, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 or (c) increased from time to time pursuant to Section 2.23. The aggregate amount of the Initial Revolving Credit Commitments as of the Closing Date is $20,000,000.
32
Initial Term Loans shall mean the Term Loans made to the Borrower pursuant to Section 2.01(a)(i) on the Closing Date as the same may be increased from time to time pursuant to Section 2.23.
Interest Payment Date shall mean (a) with respect to any ABR Loan, the last Business Day of each March, June, September and December, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three 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.
Interest Period shall mean, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing 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 (or 12 months or periods of less than 1 month, if at the time of the relevant Borrowing or conversion or continuation thereof, all applicable Lenders agree to make interest periods of such duration available) thereafter, as the Borrower may elect; provided , however , that (a) 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, (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period and (c) no Interest Period for any Loan shall extend beyond the maturity date of such Loan. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
Interpolated Rate shall mean, with respect to the LIBO Rate for any Loan, the rate which results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period for which the LIBO Screen Rate is available which is less than the Interest Period and (b) the LIBO Screen Rate for the shortest period for which the LIBO Screen Rate is available which exceeds the Interest Period, in each case as of approximately 11:00 A.M. (London time) on the date that is two Business Days prior to the commencement of such Interest Period.
Investment shall mean, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests or Indebtedness or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of Indebtedness of, or purchase or other acquisition of any other Indebtedness or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person (excluding, in the case of the Borrower and the Restricted Subsidiaries, intercompany loans, advances or Indebtedness having a term not
33
exceeding 364 days (inclusive of any rollover or extensions of terms) and made in the ordinary course of business) or (c) the purchase or other acquisition (in one transaction or a series of transactions) of all or substantially all of the property and assets or business of another Person or assets constituting a business unit, line of business or division of such Person.
The amount, as of any date of determination, of:
(i) any Investment in the form of a loan or an advance shall be the principal amount thereof outstanding on such date, without any adjustment for writedowns or write-offs (including as a result of forgiveness of any portion thereof) with respect to such loan or advance after the date thereof,
(ii) any Investment in the form of a Guarantee shall be equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof, as determined in good faith by a Financial Officer,
(iii) any Investment in the form of a transfer of Equity Interests or other non-cash property by the investor to the investee, including any such transfer in the form of a capital contribution, shall be the fair market value of such Equity Interests or other property as of the time of the transfer, minus any payments actually received by such investor representing a return of capital of, or dividends or other distributions in respect of, such Investment (to the extent such payments do not exceed, in the aggregate, the original amount of such Investment and without duplication of amounts increasing the Available Amount), but without any other adjustment for increases or decreases in value of, or write-ups, write-downs or write-offs with respect to, such Investment after the date of such Investment, and
(iv) any Investment (other than any Investment referred to in clause (i) , (ii) or (iii) above) by the specified Person in the form of a purchase or other acquisition for value of any Equity Interests, evidences of Indebtedness or other securities of any other Person shall be the original cost of such Investment (including any Indebtedness assumed in connection therewith), plus (A) the cost of all additions thereto and minus (B) the amount of any portion of such Investment that has been repaid to the investor in cash as a repayment of principal or a return of capital, and of any cash payments actually received by such investor representing interest, dividends or other distributions in respect of such Investment (to the extent the amounts referred to in clause (B) do not, in the aggregate, exceed the original cost of such Investment plus the costs of additions thereto and without duplication of amounts increasing the Available Amount), but without any other adjustment for increases or decreases in value of, or write-ups, write-downs or write-offs with respect to, such Investment after the date of such Investment.
For purposes of Section 6.04 , if an Investment involves the acquisition of more than one Person, the amount of such Investment shall be allocated among the acquired Persons in accordance with GAAP; provided that pending the final determination of the amounts to be so allocated in accordance with GAAP, such allocation shall be as reasonably determined by a Financial Officer.
34
IPO Reorganization Transactions shall mean, collectively, the internal restructuring transactions taken in connection with and reasonably related to consummating a Qualified Public Offering and not for the purpose of (i) circumventing any covenant set forth in this Agreement or (ii) permitting the release of any Collateral or the guarantee of any Guarantor, and so long as such transactions, when taken as a whole, do not have a material and adverse impact on the Liens on the Collateral granted by the Loan Parties in favor of the Secured Parties. For the avoidance of doubt, IPO Reorganization Transactions shall include the distribution or dividend by the Borrower of its Equity Interests to Holdings and the dissolution of Holdings, in each case, in connection with a Qualified Public Offering.
IP Rights shall have the meaning assigned to such term in Section 3.17.
IP Security Agreements shall have the meaning assigned to such term in the Guarantee and Collateral Agreement.
IRS shall mean the United States Internal Revenue Service.
Issuing Bank shall mean, as the context may require, (a) Credit Suisse AG, Cayman Islands Branch, acting through any of its Affiliates or branches, in its capacity as an issuer of Letters of Credit hereunder and (b) any other Lender that may become an Issuing Bank pursuant to Section 2.22(i) or 2.22(k), with respect to Letters of Credit issued by such Lender. Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates or branches of the Issuing Bank, in which case the term Issuing Bank shall include any such Affiliate or branch with respect to Letters of Credit issued by such Affiliate or branch.
Issuing Bank Fees shall have the meaning assigned to such term in Section 2.05(c).
Junior Financing shall have the meaning assigned to such term in Section 6.09(a).
L/C Commitment shall mean the commitment of the Issuing Banks to issue Letters of Credit as set forth on Schedule 2.01 pursuant to Section 2.22.
L/C Commitment Maturity Date shall mean the date that is 30 days prior to the Revolving Credit Maturity Date.
L/C Disbursement shall mean a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit.
L/C Exposure shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time and (b) the aggregate amount of all L/C Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The L/C Exposure of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage of the aggregate L/C Exposure 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 (ISP98), 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, except for purposes of Section 2.05(c)(ii), 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.
35
L/C Maturity Date shall mean the date that is five (5) Business Days prior to the Revolving Credit Maturity Date.
L/C Participation Fee shall have the meaning assigned to such term in Section 2.05(c).
L/C Sublimit shall mean an amount equal to the lesser of (a) $5,000,000 and (b) the aggregate amount of the Revolving Credit Commitments. The L/C Sublimit is part of, and not in addition to, the Revolving Facility.
Latest Maturity Date shall mean, at any date of determination, the then-latest final maturity date applicable to any Loan or Commitment outstanding at such time.
Latest Revolving Maturity Date shall mean, at any date of determination, the then-latest final maturity date applicable to any Revolving Loan outstanding at such time.
Latest Term Maturity Date shall mean, at any date of determination, the then-latest final maturity date applicable to any Term Loan outstanding at such time.
Lenders shall mean (a) the persons listed on Schedule 2.01 (other than any such person that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any person that has become a party hereto as a Lender pursuant to an Assignment and Acceptance or an Incremental Assumption Agreement.
Letter of Credit shall mean any standby letter of credit issued pursuant to Section 2.22.
LIBO Rate shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the LIBO Screen Rate at approximately 11:00 a.m. (London time) on the date that is two Business Days prior to the commencement of such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the LIBO Rate shall be the Interpolated Rate, for a period equal in length to the Interest Period of the Loan.
LIBO Screen Rate shall mean, for any day and time, with respect to any Eurodollar Borrowing for any Interest Period, the rate per annum determined by the Administrative Agent by reference to the London interbank offered rate as administered by ICE Benchmark Administration (or any other person that takes over the administration of such rate) for deposits in Dollars (as set forth on Reuters Screen LIBOR01 (or any successor thereto) or, in the event such rate does not appear on a page of the Reuters screen, as set forth on the appropriate page of such other information service selected by the Administrative Agent in its reasonable discretion from time to time that has been nominated by the ICE Benchmark Administration (or such successor person) as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period.
36
Lien shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien (statutory or other), pledge, encumbrance, hypothecation, assignment, deposit arrangement, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
Loan Document Obligations shall mean all obligations defined as Loan Document Obligations in the Guarantee and Collateral Agreement and the other Security Documents.
Loan Documents shall mean this Agreement, the Letters of Credit, the Security Documents, each Incremental Assumption Agreement, each Refinancing Amendment, any Loan Modification Agreement and, except for the purposes of Section 9.08 , the promissory notes, if any, executed and delivered pursuant to Section 2.04(e).
Loan Modification Agreement shall mean a Loan Modification Agreement in form and substance reasonably satisfactory to the Administrative Agent, the Borrower and the Accepting Lenders party thereto.
Loan Modification Offer shall have the meaning assigned to such term in Section 2.25(a).
Loan Parties shall mean Holdings, the Borrower and the Subsidiary Guarantors (each individually a Loan Party ).
Loans shall mean the Revolving Loans and the Term Loans.
Majority in Interest , when used in reference to Lenders of any Class, shall mean, at any time, (a) in the case of Revolving Credit Lenders of any Class, Lenders having Revolving Credit Exposure and unused Revolving Credit Commitments representing more than 50% of the sum of all the Revolving Credit Exposure and unused Revolving Credit Commitments of such Class outstanding at such time and (b) in the case of the Term Lenders of any Class, Lenders holding outstanding Term Loans of such Class representing more than 50% of all Term Loans of such Class outstanding at such time; provided that the Revolving Credit Exposure and unused Revolving Credit Commitments of any Defaulting Lender shall be disregarded in the determination of Majority in Interest for purposes of clause (a) at any time.
Margin Stock shall have the meaning assigned to such term in Regulation U.
Material Adverse Effect shall mean a material adverse effect on (i) the business, assets, financial condition or results of operations, in each case, of the Borrower and its Restricted Subsidiaries, taken as a whole, (ii) the rights and remedies (taken as a whole) of the Administrative Agent or the Lenders under the Loan Documents or (iii) the ability of the Loan Parties (taken as a whole) to perform their payment obligations under the Loan Documents.
Material Indebtedness shall mean any Indebtedness (other than the Loans and Letters of Credit) or obligations in respect of one or more Hedging Agreements, of Holdings, the Borrower or any other Restricted Subsidiary in an aggregate principal amount exceeding $20,000,000. For purposes of determining Material Indebtedness, the principal amount of the obligations of Holdings, the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the Agreement Value of such Hedging Agreement at such time.
37
Material Subsidiary shall mean any Restricted Subsidiary, other than any Immaterial Subsidiary, but including, at all times, the Borrower.
Maturity Date shall mean the Revolving Credit Maturity Date, the Term Loan Maturity Date, the Incremental Revolving Loan Maturity or the Incremental Term Loan Maturity Date, as the context may require.
Maximum Rate shall have the meaning assigned to such term in Section 9.09.
MFN Conditions shall have the meaning assigned to such term in Section 2.23(c).
Minimum Collateral Amount shall mean, at any time, (i) with respect to Cash Collateral consisting of cash or deposit account balances, an amount equal to 103% of the Fronting Exposure of the Issuing Bank with respect to Letters of Credit issued and outstanding at such time and (ii) otherwise, an amount determined by the Administrative Agent and the Issuing Bank in their sole discretion.
Moodys shall mean Moodys Investors Service, Inc., or any successor thereto.
Mortgaged Properties shall mean, initially, the owned real properties of the Loan Parties specified on Schedule 1.01(a), and shall include each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 5.10 or 5.11.
Mortgages shall mean the mortgages, deeds of trust, assignments of leases and rents, modifications and other security documents delivered pursuant to clause (i) of Section 4.02(k) or pursuant to Section 5.10 or 5.11, each substantially in the form of Exhibit D with such changes thereto as shall be reasonably acceptable to the Collateral Agent, including all such changes as may be required to account for local law matters.
Multiemployer Plan shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA, to which Holdings, the Borrower, any other Restricted Subsidiary, or any of their ERISA Affiliates contributes to, or has within any of the preceding six years contributed.
Net Cash Proceeds shall mean (a) with respect to any Asset Sale, the cash proceeds (including (i) casualty insurance settlements and condemnation awards and (ii) cash proceeds subsequently received (as and when received) in respect of noncash consideration initially received) from such Asset Sale, net of (i) selling expenses (including reasonable brokers fees or commissions, legal fees, transfer and all other Taxes, including, without duplication, the Borrowers good faith estimate of income Taxes paid or payable in connection with such sale), (ii) amounts provided as a reserve by the Borrower and the other Restricted Subsidiaries, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Asset Sale ( provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds) and (iii) the principal amount, premium or penalty, if any, interest and other amounts on any
38
Indebtedness which is secured by the asset sold in such Asset Sale and which is required to be repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such asset); provided , however , that, if (x) the Borrower shall deliver a certificate of a Financial Officer to the Administrative Agent promptly following the receipt thereof setting forth the Borrowers intent to reinvest such proceeds in productive assets of a kind then used or usable in the business of the Borrower and the other Restricted Subsidiaries within 12 months of receipt of such proceeds and (y) no Event of Default shall have occurred and shall be continuing at the time of such certificate or at the proposed time of the application of such proceeds, such proceeds shall not constitute Net Cash Proceeds except to the extent (A) not so used (or committed to be used) at the end of such twelve-month period or (B) if committed to be used within such 12-month period, not so used within 180 days after the end of such 12-month period, at which time such proceeds shall be deemed to be Net Cash Proceeds and (b) with respect to any issuance or incurrence of Indebtedness, the cash proceeds thereof, net of all Taxes and customary fees, commissions, costs and other expenses incurred in connection therewith.
Non-Consenting Lender shall mean any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all Lenders or all affected Lenders (or of any other Class or group of Lenders other than the Required Lenders) in accordance with the terms of Section 9.08 and (b) has been approved by, as applicable, the Required Lenders (or the Lenders holding Loans or Commitments of such Class or group representing more than 50% of the sum of the total Loans and unused Commitments of such Class or group at such time).
Non-Defaulting Lender shall mean, at any time, each Lender that is not a Defaulting Lender at such time.
Obligations shall mean all obligations defined as Obligations in the Guarantee and Collateral Agreement and the other Security Documents.
OFAC shall have the meaning assigned to such term in Section 3.20.
Other Connection Taxes shall mean, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Taxes (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
Other Taxes shall mean all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.21).
Parent Company means (a) Holdings and (b) any other Person of which the Borrower is a direct or indirect Wholly Owned Subsidiary.
Participant shall have the meaning assigned to such term in clause (f) of Section 9.04.
39
Participant Register shall have the meaning assigned to such term in clause (g) of Section 9.04.
PBGC shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
Perfection Certificate shall mean the Perfection Certificate substantially in the form of Exhibit B to the Guarantee and Collateral Agreement.
Permitted Acquisition shall have the meaning assigned to such term in Section 6.04(g).
Permitted Amendments shall have the meaning assigned to such term in Section 2.25(c).
Permitted Investors shall mean HTSC.
Permitted Liens shall mean any Liens expressly permitted by Section 6.02.
Permitted Refinancing Indebtedness shall have the meaning assigned to such term in Section 6.01(m).
Person or person shall mean any natural person, corporation, business trust, joint venture, association, company, limited liability company, partnership, Governmental Authority or other entity.
Plan shall mean any employee pension benefit plan (other than a Multiemployer Plan, but including any multiple employer pension plan within the meaning of Sections 4063 and 4064 of ERISA) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which Holdings, the Borrower, any other Restricted Subsidiary or any of their ERISA Affiliates is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an employer (as defined in Section 3(5) of ERISA) or contributing sponsor (as defined in Section 4001(a)(13) of ERISA).
Platform shall have the meaning assigned to such term in Section 9.01(g).
Pledged Collateral shall have the meaning assigned to such term in the Guarantee and Collateral Agreement.
Prime Rate shall mean the rate of interest per annum determined from time to time by the Credit Suisse AG, as its prime rate in effect at its principal office in New York City and notified to the Borrower. The prime rate is a rate set by Credit Suisse AG based upon various factors including Credit Suisse AGs costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such rate.
Pro Rata Percentage of any Revolving Credit Lender at any time shall mean the percentage of the Total Revolving Credit Commitment represented by such Revolving Credit Lenders Revolving Credit Commitment. In the event the Revolving Credit Commitments shall have expired or been terminated, the Pro Rata Percentages shall be determined on the basis of the Revolving Credit Commitments most recently in effect, giving effect to any subsequent assignments.
40
PTE means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time
Public Company Costs means any charge, expense or cost associated with, or in anticipation of, or preparation for, compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith or relating to compliance with the provisions of the Securities Act and the Exchange Act (or, in each case, similar requirements of law under other jurisdictions), or the rules of national securities exchange companies with listed equity or debt securities, in each case as applicable to companies with equity or debt securities held by the public, including such requirements of law and rules relating to directors or managers compensation, fees and expense reimbursement, and including any charge, expense or cost relating to investor relations, shareholder meetings and reports to shareholders or debtholders, directors and officers insurance and other executive costs, related legal and other professional fees and listing fees.
Public Lender shall have the meaning assigned to such term in Section 9.01(g).
Qualified Capital Stock of any person shall mean any Equity Interest of such person that is not Disqualified Stock.
Qualified Public Offering shall mean (a) the initial underwritten public offering of common Equity Interests of the Borrower or any direct or indirect parent of the Borrower pursuant to an effective registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act that results in at least $50,000,000 of net cash proceeds to the Borrower or (b) the acquisition, purchase, merger or combination of the Borrower or any direct or indirect parent of the Borrower, by, or with, a publicly traded special acquisition company that (x) is an entity organized or existing under the laws of the United States, any state thereof or the District of Columbia, (y) prior to the Qualified Public Offering, shall have engaged in no business or activities in any material respect other than activities related to becoming and acting as a publicly traded special acquisition company and entry into the Qualified Public Offering and (z) immediately prior to the Qualified Public Offering, shall have no material assets other than cash and Cash Equivalents.
Qualifying Bids shall have the meaning assigned to such term in Section 2.12(c).
Qualifying Lender shall have the meaning assigned to such term in Section 2.12(c).
Recipient shall mean (a) the Administrative Agent, (b) any Lender and (c) any Issuing Bank, as applicable.
Refinanced Indebtedness shall have the meaning assigned to such term in Section 6.01(m).
41
Refinancing Amendment shall mean an amendment to this Agreement that is reasonably satisfactory to the Administrative Agent and the Borrower executed by (a) Holdings, the Borrower and the Subsidiary Guarantors, (b) the Administrative Agent and (c) each Lender that agrees to provide all or any portion of the Replacement Term Loans or the Replacement Revolving Facility, as applicable, being incurred pursuant thereto and in accordance with Section 9.08(d).
Register shall have the meaning assigned to such term in Section 9.04(d).
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 Parties shall mean, with respect to any specified person, such persons Affiliates and the respective directors, trustees, officers, employees, agents and advisors of such person and their respective Affiliates.
Release shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the environment or within or upon any building, structure, facility or fixture.
Removal Effective Date shall have the meaning assigned to such term in Section 8.06(b).
Repayment Date shall have the meaning assigned to such term in Section 2.11(a).
Replaced Revolving Facility shall have the meaning assigned to such term in Section 9.08(d)(ii).
Replaced Term Loans shall have the meaning set forth in section 9.08(d)(i).
Replacement Revolving Facility shall have the meaning assigned to such term in Section 9.08(d)(ii).
Replacement Term Loans shall have the meaning assigned to such term in Section 9.08(d)(i).
Reply Amount shall have the meaning assigned to such term in Section 2.12(c).
Reply Discount Price shall have the meaning assigned to such term in Section 2.12(c).
Repricing Event shall have the meaning assigned to such term in Section 2.12(e).
42
Required Lenders shall mean, at any time, Lenders having Term Loans, Revolving Credit Exposure and unused Commitments representing more than 50% of the sum of the Aggregate Revolving Credit Exposure, outstanding Term Loans and unused Commitments at such time; provided that the Revolving Credit Exposure and unused Revolving Credit Commitments of any Defaulting Lender shall be disregarded in the determination of the Required Lenders at any time.
Required Financial Covenant Lenders shall mean, at any time, Revolving Credit Lenders having Revolving Credit Exposure and unused Revolving Credit Commitments representing more than 50% of the sum of the Aggregate Revolving Credit Exposure and unused Revolving Credit Commitments at such time; provided that (i) the Revolving Credit Exposure and unused Revolving Credit Commitments of any Defaulting Lender shall be disregarded in the determination of the Required Lenders at any time and (ii) if the applicable Incremental Assumption Agreement or Refinancing Amendment provides that the Lenders providing an Incremental Revolving Facility or Replacement Revolving Facility shall not have the direct benefit of the financial maintenance covenant contained in Section 6.10, then such Incremental Revolving Facility or Replacement Revolving Facility, as applicable, shall be disregarded in the determination of the Required Lenders.
Required Revolving Lenders shall mean, at any time, Revolving Credit Lenders having Revolving Credit Exposure and unused Revolving Credit Commitments representing more than 50% of the sum of the Aggregate Revolving Credit Exposure and unused Revolving Credit Commitments at such time; provided that the Revolving Credit Exposure and unused Revolving Credit Commitments of any Defaulting Lender shall be disregarded in the determination of the Required Lenders at any time.
Resignation Effective Date shall have the meaning assigned to such term in Section 8.06(a).
Responsible Officer of any person shall mean any executive officer or Financial Officer of such person and any other officer or similar official thereof responsible for the administration of the obligations of such person in respect of this Agreement.
Restricted Amount shall have the meaning set forth in Section 2.13(g).
Restricted Debt Payment shall have the meaning set forth in Section 6.09(b).
Restricted Payment shall mean any dividend or other distribution (whether in cash, securities or other property (other than Qualified Capital Stock)) with respect to any Equity Interests in Holdings, the Borrower or any other Restricted Subsidiary, or any payment (whether in cash, securities or other property (other than Qualified Capital Stock)), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Equity Interests in Holdings, the Borrower or any other Restricted Subsidiary.
Restricted Subsidiary shall mean, collectively, (i) any existing or future direct or indirect subsidiary of the Borrower, other than any Unrestricted Subsidiary and (ii) at all times, the Borrower.
43
Retained Percentage shall mean, with respect to any fiscal year of the Borrower, (a) 100% minus (b) the ECF Percentage with respect to such fiscal year.
Return Bid shall have the meaning assigned to such term in Section 2.12(c).
Revolving Credit Commitment shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder (and to acquire participations in Letters of Credit as provided for herein) as set forth on Schedule 2.01, or in the Refinancing Amendment, Incremental Assumption Agreement or Assignment and Acceptance pursuant to which such Lender assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09, (b) increased from time to time pursuant to Section 2.23 and (c) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. Unless the context shall otherwise require, the term Revolving Credit Commitment shall include any Incremental Revolving Credit Commitments.
Revolving Credit Exposure shall mean, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender, plus the aggregate amount at such time of such Lenders L/C Exposure.
Revolving Credit Lender shall mean a Lender with a Revolving Credit Commitment or an outstanding Revolving Loan.
Revolving Credit Maturity Date shall mean November 14, 2023.
Revolving Facility shall have the meaning assigned to such term in the introductory statement hereto.
Revolving Loan shall mean the revolving loans made by the Lenders to the Borrower pursuant to Section 2.01. Unless the context shall otherwise require, the term Revolving Loans shall include any Incremental Revolving Loans.
S&P shall mean S&P Global Ratings, a division of S&P Global Inc., or any successor thereto.
Secured Parties shall have the meaning assigned to such term in the Guarantee and Collateral Agreement.
Securities Act means the United States Securities Act of 1933.
Security Documents shall mean the Mortgages, the Guarantee and Collateral Agreement, the IP Security Agreements and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.10 or 5.11.
Similar Business shall mean any business and any services, activities or businesses (including technologies) incidental, or reasonably related or similar to, complementary or corollary to any line of business engaged in by the Borrower and its Restricted Subsidiaries on the Closing Date or any business activity that is a reasonable extension, development or expansion thereof or ancillary thereto.
44
Special Dividend shall mean the special cash dividend to be paid by the Borrower to the holders of capital stock of the Borrower in the aggregate amount of up to $200,000,000 within 90 days following the Closing Date.
Specified Equity Contribution shall have the meaning assigned to such term in Section 7.02(a).
Specified Representations shall mean the representations and warranties set forth in Sections 3.01 (other than 3.01(c)), 3.02(a), 3.02(b)(i)(B) (with respect to the organizational documents of any Loan Party), 3.03, 3.10, 3.11, 3.16, 3.19 and 3.20 (with respect to the use of proceeds hereunder).
Specified Transaction shall mean any acquisition or other Investment, disposition or other specified transaction (including, for the avoidance of doubt, acquisitions occurring prior to the Closing Date), restructurings, cost savings initiatives and other similar initiatives.
SPV shall have the meaning assigned to such term in Section 9.04(j).
Statutory Reserves shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) 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 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.
subsidiary shall mean, with respect to any person (herein referred to as the parent ), any corporation, partnership, limited liability company, 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, 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 any subsidiary of Holdings, including, at all times, the Borrower.
Subsidiary Guarantor shall mean each Restricted Subsidiary, other than the Borrower and any Excluded Subsidiary.
Successor Borrower shall have the meaning assigned to such term in Section 6.05(a).
45
Synthetic Lease shall mean, as to any person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) (a) that is accounted for as an operating lease under GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for U.S. federal income Tax purposes, other than any such lease under which such person is the lessor.
Synthetic Lease Obligations shall mean, as to any person, an amount equal to the capitalized amount of the remaining lease payments under any Synthetic Lease that would appear on a balance sheet of such person in accordance with GAAP if such obligations were accounted for as Capital Lease Obligations.
Taxes shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term Borrowing shall mean a Borrowing comprised of Term Loans.
Term Facility shall have the meaning assigned to such term in the introductory statement hereto.
Term Lender shall mean a Lender with a Term Loan Commitment or an outstanding Term Loan.
Term Loan Commitment shall mean, with respect to each Lender, the commitment of such Lender to make Term Loans hereunder as set forth on Schedule 2.01, or in the Incremental Assumption Agreement, Refinancing Amendment or Assignment and Acceptance pursuant to which such Lender assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. Unless the context shall otherwise require, the term Term Loan Commitments shall include the Incremental Term Commitments and commitments to make Replacement Term Loans.
Term Loan Maturity Date shall mean November 14, 2025.
Term Loan Repayment Dates shall mean the Repayment Dates and the Incremental Term Loan Repayment Dates.
Term Loans shall mean the term loans made by the Lenders to the Borrower pursuant to clause (a) of Section 2.01. Unless the context shall otherwise require, the term Term Loans shall include any Incremental Term Loans.
Test Period shall mean, at any time, the most recent period of four consecutive fiscal quarters of the Borrower ended on or prior to such time (taken as one accounting period) in respect of which financial statements for each quarter or fiscal year in such period have been (or were required to be) delivered pursuant to Section 5.04(a) or 5.04(b), as applicable.
46
Total Assets shall mean, at any date, the amount that would, in conformity with GAAP, be set forth opposite the caption total assets (or any like caption) on a consolidated balance sheet of the Borrower and the other Restricted Subsidiaries on such date.
Total Debt shall mean, at any time, the total Indebtedness of Holdings, the Borrower and the other Restricted Subsidiaries at such time consisting only of Indebtedness for borrowed money, notes, bonds, debentures, drawn but unreimbursed obligations under letters of credit, letters of guaranty and bankers acceptances, obligations in respect of Capital Lease Obligations and purchase money indebtedness (other than trade accounts payable in the ordinary course of business).
Total First Lien Debt shall mean, at any time, the aggregate amount of the Total Debt that is secured by a first priority Lien on any asset or property of Holdings, the Borrower or any other Restricted Subsidiary.
Total Leverage Ratio shall mean, on any date, the ratio of (a) Total Debt on such date to (b) Consolidated EBITDA for the most recently ended Test Period.
Total Revolving Credit Commitment shall mean, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time. The initial Total Revolving Credit Commitment is $20,000,000.
Transactions shall mean, collectively, (a) the execution, delivery and performance by the Loan Parties of the Loan Documents to which they are a party and the making of the Borrowings hereunder, (b) the payment of the Special Dividend and (c) the payment of all fees, costs and expenses incurred or payable by Holdings, the Borrower or any other Subsidiary in connection with the foregoing (the Transaction Costs ).
Transaction Costs shall have the meaning set forth in the definition of Transactions .
Transformative Acquisition shall have the meaning set forth in section 2.12(e).
Type , when used in respect of any Loan or Borrowing, shall refer to 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 mean the Adjusted LIBO Rate and the Alternate Base Rate.
U.S. Person shall mean any person that is a United States person as defined in Section 7701(a)(30) of the Code.
U.S. Tax Compliance Certificate shall have the meaning given such term in paragraph (f) of Section 2.20.
Uniform Commercial Code shall have the meaning assigned to such term in the Guarantee and Collateral Agreement.
Uniform Customs shall have the meaning assigned to such term in Section 9.07.
47
Unrestricted Subsidiary shall mean (a) any Subsidiary designated by the Borrower as an Unrestricted Subsidiary pursuant to Section 5.13 subsequent to the Closing Date and (b) any subsidiary of an Unrestricted Subsidiary; provided that in no event shall the Borrower be an Unrestricted Subsidiary.
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)).
Wholly Owned Subsidiary of any person shall mean a subsidiary of such person of which securities (except for directors qualifying shares) or other ownership interests representing 100% of the Equity Interests are, at the time any determination is being made, owned, Controlled or held by such person or one or more wholly owned Subsidiaries of such person or by such person and one or more wholly owned Subsidiaries of such person.
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.
Withholding Agent shall mean each Loan Party and the Administrative Agent.
Write-Down and Conversion Powers means, 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.
Yield means, as to any Indebtedness, the effective yield applicable thereto calculated by the Administrative Agent in consultation with the Borrower in a manner consistent with generally accepted financial practices, taking into account (a) interest rate margins, (b) interest rate floors (subject to the proviso set forth below), (c) any amendment to the relevant interest rate margins and interest rate floors prior to the applicable date of determination and (d) original issue discount and upfront or similar fees (based on an assumed four- year average life to maturity or lesser remaining average life to maturity), but excluding (i) any bona fide customary arrangement, commitment, structuring, underwriting, ticking or similar fees paid or payable to one or more arrangers (or their affiliates) in their capacities as such (regardless of whether any such fees are paid to or shared in whole or in part with any or all lenders) and (ii) customary consent fees paid generally to consenting lenders; provided , however , that (A) to the extent that the LIBO Rate (with an Interest Period of three months) or Alternate Base Rate (without giving effect to any floor specified in the definition thereof) is less than any floor applicable to loans in respect of which the Yield is being calculated on the date on which the Yield is determined, the amount of the resulting difference will be deemed added to the interest rate margin applicable to the relevant Indebtedness for purposes of calculating the Yield and (B) to the extent that the LIBO Rate (for a period of three months) or Alternate Base Rate (without giving effect to any floor specified in the definition thereof) is greater than any applicable floor on the date on which the Yield is determined, the floor will be disregarded in calculating the Yield.
48
SECTION 1.02 Terms Generally . The definitions 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. The word will shall be construed to have the same meaning and effect as the word shall. The words asset and property shall be construed as having the same meaning and effect and to refer to any and all types of tangible and intangible assets and properties, including cash, securities, accounts and contract rights. The words herein, hereto, hereof and hereunder and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof. The word law shall be construed as referring to all statutes, rules, regulations, codes and other laws (including official rulings and interpretations thereunder having the force of law or with which affected persons customarily comply), and all judgments, orders, writs and decrees, of all Governmental Authorities. 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, (a) any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time, in each case, in accordance with the express terms of this Agreement, (b) any definition of or reference to any statute, rule or regulation shall be construed as referring thereto as from time to time amended, supplemented or otherwise modified (including by succession of comparable successor laws) and (c) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided , however , that if Holdings notifies the Administrative Agent that Holdings wishes to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP occurring after the date of this Agreement on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI or any related definition for such purpose), then Holdings compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to Holdings and the Required Lenders.
SECTION 1.03 Pro Forma and Other Calculations . (a) Notwithstanding anything to the contrary herein, the Total Leverage Ratio, First Lien Leverage Ratio and Consolidated EBITDA shall be calculated in the manner prescribed by this Section; provided that, when calculating any such ratio or amount (i) for purposes of the definition of ECF Percentage and (ii) for the purposes of actual compliance with the financial maintenance covenant contained in Section 6.10 (as opposed to a pro forma calculation for purposes of another provision), the events described in Sections 1.03(b), 1.03(c) and 1.03(d) below that occurred subsequent to the end of the Test Period shall not be given pro forma effect.
(b) For purposes of calculating the First Lien Leverage Ratio, the Total Leverage Ratio and Consolidated EBITDA, Specified Transactions (including, for the avoidance of doubt, the Transactions) that have been completed by Holdings or any of its Restricted Subsidiaries during the applicable Test Period or subsequent to the end of such Test Period, and prior to or simultaneously with the event with respect to which the calculation of any such ratio is being made, shall be calculated on a pro forma basis assuming that all such Specified Transactions had occurred on the first day of the applicable Test Period. If since the beginning of any such Test
49
Period any person that subsequently became a Restricted Subsidiary or was merged, amalgamated or consolidated with or into the Borrower or any other Restricted Subsidiary since the beginning of such Test Period shall have completed any Specified Transaction that would have required adjustment pursuant to this Section, then the First Lien Leverage Ratio and the Total Leverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Specified Transaction occurred at the beginning of the applicable Test Period. Notwithstanding the foregoing, at the election of the Borrower, such pro forma adjustment shall not be required to be determined for any acquired entity or business to the extent the aggregate consideration paid in connection with such acquisition is less than $5,000,000.
(c) In the event that Holdings or any Restricted Subsidiary incurs, assumes, guarantees, redeems, repays, retires or extinguishes any Indebtedness included in the definition of Total Debt (other than Indebtedness incurred or repaid under any revolving credit facility unless all such Indebtedness has been permanently repaid and no such amount has been replaced), subsequent to the end of the Test Period with respect to which the First Lien Leverage Ratio or the Total Leverage Ratio, as the case may be, is being calculated, and prior to or simultaneously with the event with respect to which the calculation of any such ratio is being made, the First Lien Leverage Ratio or the Total Leverage Ratio, as the case may be, shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, redemption, repayment, retirement or extinguishment of Indebtedness and the resulting proceeds therefrom, as if the same had occurred on the last day of the applicable Test Period.
(d) All pro forma calculations permitted or required to be made pursuant to this Agreement (i) may include those adjustments permitted by and calculated in accordance with Article 11 of Regulation S-X under the Securities Act and (ii) may include pro forma run rate cost savings, operating expense reductions and synergies (net of actual amounts realized) related to any Specified Transaction that are projected by such Person in good faith to result from actions that have been taken or with respect to which substantial steps have been taken or are expected to be taken (in the good faith determination of such Person) and realized within 24 months after such Specified Transaction; provided that all such adjustments shall be set forth in a reasonably detailed certificate of a Financial Officer of the Borrower certifying that such adjustments have been prepared in good faith based upon assumptions believed to be reasonable, using, for purposes of making such calculations, the historical consolidated financial statements of the Borrower (which shall be reformulated as if such Specified Transaction, and any other Specified Transaction that has been consummated during the period, had been consummated on the first day of the applicable period); provided further that the aggregate amount added to or included in Consolidated EBITDA pursuant to clause (ii) above or clauses (a)(vii) or (a)(viii) of the definition of Consolidated EBITDA for any Test Period, shall not exceed 25.0% of Consolidated EBITDA (giving effect to such adjustments) for such Test Period.
(e) For purposes of determining pro forma compliance with the financial maintenance covenant set forth in Section 6.10, with respect to any Test Period ending prior to March 31, 2019, the ratio applicable to the Test Period ending March 31, 2019 shall be applicable.
50
(f) Notwithstanding anything to the contrary herein, with respect to any amounts incurred or transactions entered into (or consummated) in reliance on a provision of this Agreement that does not require compliance with a financial ratio (any such amounts, the Fixed Amounts ) substantially concurrently with any amounts incurred or transactions entered into (or consummated) in reliance on a provision of this Agreement that requires compliance with a financial ratio (including Section 6.10 hereof, any First Lien Leverage Ratio test or any Total Leverage Ratio test) (any such amounts, the Incurrence-Based Amounts ), it is understood and agreed that the Fixed Amounts shall be disregarded in the calculation of the financial ratio or test applicable to any substantially concurrent utilization of the Incurrence-Based Amounts.
(g) For purposes of determining the permissibility of any action, change, transaction or event that requires a calculation of any financial ratio or test (including any leverage ratio or the amount of Consolidated EBITDA), such financial ratio or test shall be calculated at the time such action is taken, such change is made, such transaction is consummated or such event occurs (or at such other time elected by the Borrower in accordance with Section 1.03(h) below), as the case may be, and no default or event of default shall be deemed to have occurred solely as a result of a change in such financial ratio or test occurring after the time such action is taken, such change is made, such transaction is consummated or such event occurs (or at such time elected by the Borrower in accordance with Section 1.03(h) below), as the case may be.
(h) Notwithstanding anything in this Agreement or any other Loan Document to the contrary, to the extent that this Agreement or any other Loan Document requires (i) compliance with any financial ratio or test (including the financial maintenance covenant set forth in Section 6.10 hereof), (ii) accuracy of representations and warranties (other than Specified Representations), (iii) the absence of a Default or Event of Default (or any type of Default or Event of Default) or (iv) testing availability under baskets set forth herein (including compliance with the Incremental Facility Amount or any cap expressed as a percentage of Consolidated EBITDA), in each case, as a condition to (x) the consummation of any transaction in connection with any acquisition or similar Investment, (y) the making of any Restricted Payment and/or (z) the making of any Restricted Debt Payment, the determination of whether the relevant condition is satisfied may be made, at the election of the Borrower: (A) in the case of any acquisition or similar Investment, at the time of the execution of the definitive agreement with respect to the relevant acquisition or Investment, after giving effect to the acquisition or Investment and any related Indebtedness and Liens on a pro forma basis, (B) in the case of any Restricted Payment, at the time of the declaration of such Restricted Payment, after giving effect to the relevant Restricted Payment on a pro forma basis or (C) in the case of any Restricted Debt Payment, at the time of delivery of irrevocable (which may be conditional) notice with respect to such Restricted Debt Payment, after giving effect to the relevant Restricted Debt Payment on a pro forma basis. If the Borrower makes any such election to determine whether the relevant condition is satisfied at the times set forth in the foregoing clauses (A), (B) or (C), for purposes of calculating the availability under any basket hereunder in connection with any action or transaction following such time and prior to the earlier of the date on which such acquisition or other Investment, Restricted Payment or Restricted Debt Payment, as applicable, is consummated or the date that the definitive agreement or date for Restricted Debt Payment or Restricted Payment specified in the notice or declaration therefor is terminated, expires or passes, as applicable, without consummation thereof, any such basket shall be determined or tested giving pro forma effect to such acquisition or other Investment, Restricted Payment or Restricted Debt Payment, as applicable, and any actions or transactions related thereto (including the incurrence of any Indebtedness in connection therewith).
51
SECTION 1.04 Classification of Loans and Borrowings . For purposes of this Agreement, Loans may be classified and referred to by Class ( e.g. , a Revolving Loan ) or by Type ( e.g. , a Eurodollar Loan ) or by Class and Type ( e.g ., a Eurodollar Revolving Loan ). Borrowings also may be classified and referred to by Class ( e.g ., a Revolving Borrowing ) or by Type ( e.g., a Eurodollar Borrowing ) or by Class and Type ( e.g. , a Eurodollar Revolving Borrowing ).
SECTION 1.05 Divisions . For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdictions laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its Equity Interests at such time.
ARTICLE II
The Credits
SECTION 2.01 Commitments . (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, (i) to make a Term Loan to the Borrower on the Closing Date in a principal amount not to exceed its Term Loan Commitment, and (ii) to make Revolving Loans to the Borrower, at any time and from time to time after the date hereof, and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lenders Revolving Credit Exposure exceeding such Lenders Revolving Credit Commitment. Subject to the terms, conditions and limitations set forth herein, the Borrower may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of Term Loans may not be reborrowed.
(b) Each Lender having an Incremental Term Loan Commitment, severally and not jointly, hereby agrees, subject to the terms and conditions and relying upon the representations and warranties set forth herein and 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. Amounts paid or prepaid in respect of Incremental Term Loans may not be reborrowed.
(c) Each Lender having an Incremental Revolving Credit Commitment, severally and not jointly, hereby agrees, subject to the terms and conditions and relying upon the representations and warranties set forth herein and in the applicable Incremental Assumption Agreement, to make Incremental Revolving Loans to the Borrower, in an aggregate principal amount not to exceed its Incremental Revolving Credit Commitment. The Borrower may borrow, pay or prepay and reborrow Revolving Loans.
52
SECTION 2.02 Loans . (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their applicable Commitments; provided, however , that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that except as otherwise expressly provided herein, no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Except for Loans deemed made pursuant to Section 2.02(f), the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1,000,000 and not less than $5,000,000 (except, with respect to any Incremental Term Borrowing, to the extent otherwise provided in the related Incremental Assumption Agreement) or (ii) equal to the remaining available balance of the applicable Commitments.
(b) Subject to Sections 2.02(f), 2.08 and 2.15, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. 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 eight Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings.
(c) Except with respect to Loans made pursuant to Section 2.02(f), each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City, as the Administrative Agent may designate, not later than 1:00 p.m., New York City time, and the Administrative Agent shall promptly credit the amounts so received to an account designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders.
(d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lenders portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (c) above and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available, then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower to but excluding the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lenders Loan as part of such Borrowing for purposes of this Agreement.
53
(e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Borrowing of Revolving Loans if the Interest Period requested with respect thereto would end after the Revolving Credit Maturity Date.
(f) If the Issuing Bank shall not have received from the Borrower the payment required to be made by Section 2.22(e) within the time specified in such Section, the Issuing Bank will promptly notify the Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Lender shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Lenders Pro Rata Percentage of such L/C Disbursement (it being understood that (i) if the conditions precedent to borrowing set forth in Sections 4.01(b) and (c) have been satisfied, such amount shall be deemed to constitute an ABR Revolving Loan of such Lender and, to the extent of such payment, the obligations of the Borrower in respect of such L/C Disbursement shall be discharged and replaced with the resulting ABR Borrowing of Revolving Loans, and (ii) if such conditions precedent to borrowing have not been satisfied, then any such amount paid by any Revolving Credit Lender shall not constitute a Loan and shall not relieve the Borrower from its obligation to reimburse such L/C Disbursement), and the Administrative Agent will promptly pay to the Issuing Bank amounts so received by it from the Revolving Credit Lenders. The Administrative Agent will promptly pay to the Issuing Bank any amounts received by it from the Borrower pursuant to Section 2.22(e) prior to the time that any Revolving Credit Lender makes any payment pursuant to this paragraph (f); any such amounts received by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to the Revolving Credit Lenders that shall have made such payments and to the Issuing Bank, as their interests may appear. If any Revolving Credit Lender shall not have made its Pro Rata Percentage of such L/C Disbursement available to the Administrative Agent as provided above, the Borrower and such Lender (severally with respect to the Borrower) agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Administrative Agent for the account of the Issuing Bank at (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such Lender, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Alternate Base Rate.
SECTION 2.03 Borrowing Procedure . In order to request a Borrowing (other than a deemed Borrowing pursuant to Section 2.02(f), as to which this Section 2.03 shall not apply), the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 12:00 (noon), New York City time, three Business Days before a proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than 12:00 (noon), New York City time, on the Business Day of a proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable, and shall be confirmed promptly by hand delivery or fax to the Administrative Agent of a written Borrowing Request and shall specify the following information: (i) whether the Borrowing then being requested is to be a Term Borrowing, an Incremental Term Borrowing or a Revolving Borrowing, and whether such
54
Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which shall be a Business Day); (iii) the number and location of the account to which funds are to be disbursed; (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto; provided , however , that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.02. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one months duration. The Administrative Agent shall promptly advise the applicable Lenders of any notice given pursuant to this Section 2.03 (and the contents thereof), and of each Lenders portion of the requested Borrowing.
SECTION 2.04 Evidence of Debt; Repayment of Loans . (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each applicable Lender (i) the then unpaid principal amount of the applicable Class of Term Loans of such Lender as provided in Section 2.11 and (ii) the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Credit Maturity Date.
(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 from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Class and Type thereof and, if applicable, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower or any Guarantor and each Lenders share thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded absent manifest error; provided , however , 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 obligations of the Borrower to repay the Loans in accordance with their terms.
(e) Any Lender may request that Loans made by it hereunder be evidenced by a promissory note. In such event, the Borrower shall execute and deliver to such Lender a promissory note payable to such Lender and its registered assigns and in the form of Exhibit E-1 or E-2, as applicable. Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive such a promissory note, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.04) be represented by one or more promissory notes payable to the payee named therein or its registered assigns.
55
SECTION 2.05 Fees . (a) The Borrower agrees to pay to each Revolving Credit Lender (which is not a Defaulting Lender), through the Administrative Agent, on the last Business Day of March, June, September and December in each year and on each date on which any Revolving Credit Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (the Commitment Fee ) equal to the Commitment Percentage Fee, per annum, on the average daily unused amount of the Revolving Credit Commitment of such Lender during the preceding quarter (or other period commencing with the date hereof or ending with the Revolving Credit Maturity Date or the date on which the Revolving Credit Commitments of such Lender shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days.
(b) The Borrower agrees to pay to the Administrative Agent, for its own account, the administrative fees at the times and in the amounts separately agreed upon between the Borrower and the Administrative Agent (the Administrative Agent Fees ).
(c) The Borrower agrees to pay (i) to each Revolving Credit Lender (which is not a 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 Credit Commitment of such Lender shall be terminated as provided herein, a fee (an L/C Participation Fee ) calculated on such Lenders Pro Rata Percentage of the daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the date hereof or ending with the Revolving Credit Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Lenders shall have been terminated) at a rate per annum equal to the Applicable Margin from time to time used to determine the interest rate on Revolving Credit Borrowings comprised of Eurodollar Loans pursuant to Section 2.06, (ii) to the applicable Issuing Bank with respect to each Letter of Credit issued by such Issuing Bank, a fronting fee in the amount agreed with such Issuing Bank (but in no event more than 0.125% per annum) of the L/C Exposure (the Issuing Bank Fees ) and (iii) customary issuance and administration fees. All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days.
(d) [Intentionally Omitted].
(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 the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances.
SECTION 2.06 Interest on Loans . (a) Subject to the provisions of Section 2.07, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days (or, in the case of ABR Loans the interest payable on which is then based on the Prime Rate, over a year of 365 or 366 days, as applicable) and calculated from and including the date of such Borrowing to but excluding the date of repayment thereof) at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin.
56
(b) Subject to the provisions of Section 2.07, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(c) Interest on each Loan shall be payable in arrears on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Alternate Base Rate or Adjusted LIBO Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.07 Default Interest . Notwithstanding the foregoing, if upon the occurrence and during the continuance of any Event of Default under paragraph (b), (c), (g) or (h) of Section 7.01, any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, then, until such overdue amount shall have been paid in full, to the extent permitted by law, all overdue amounts outstanding under this Agreement and the other Loan Documents shall bear interest (after as well as before judgment), payable on demand, (a) in the case of principal or interest, at the rate otherwise applicable to such Loan (or in the case of interest, the Loan to which such interest relates) pursuant to Section 2.06 plus 2.00% per annum and (b) in all other cases, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the rate that would be applicable to an ABR Revolving Loan plus 2.00% per annum.
SECTION 2.08 Alternate Rate of Interest . (a) In the event, and on each occasion, that on the day that is two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing, (i) the Administrative Agent shall have determined that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, (ii) the Administrative Agent is advised by a Majority in Interest of the Lenders of the Class making or maintaining such Eurodollar Loans that the Adjusted LIBO Rate will not adequately and fairly reflect the cost to such Lenders of making or maintaining such Eurodollar Loans during such Interest Period or (iii) the Administrative Agent shall have determined that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate (including because the LIBO Screen Rate is not available or published on a current basis) for such Interest Period, the Administrative Agent shall, as soon as practicable thereafter, give written or fax notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be deemed to be a request for an ABR Borrowing. Each determination by the Administrative Agent under this Section 2.08(a) shall be conclusive absent manifest error.
(b) If at any time the Administrative Agent determines (which determination shall be conclusive absent manifest error) that (i) the circumstances set forth in clause (a)(iii) of this Section have arisen and such circumstances are unlikely to be temporary or (ii) the circumstances set forth in paragraph (a)(iii) of this Section have not arisen but either (w) the supervisor for the administrator of the LIBO Screen Rate has made a public statement that the administrator of the
57
LIBO Screen Rate is insolvent (and there is no successor administrator that will continue publication of the LIBO Screen Rate), (x) the administrator of the LIBO Screen Rate has made a public statement identifying a specific date after which the LIBO Screen Rate will permanently or indefinitely cease to be published by it (and there is no successor administrator that will continue publication of the LIBO Screen Rate), (y) the supervisor for the administrator of the LIBO Screen Rate has made a public statement identifying a specific date after which the LIBO Screen Rate will permanently or indefinitely cease to be published or (z) the supervisor for the administrator of the LIBO Screen Rate or a Governmental Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which the LIBO Screen Rate may no longer be used for determining interest rates for loans, then the Administrative Agent and the Borrower shall endeavor to establish an alternate rate of interest to the LIBO Rate that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States denominated in Dollars at such time, and the Administrative Agent, Holdings and the Borrower shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable (but, for the avoidance of doubt, such related changes shall not include a reduction of the Applicable Rate); provided that, if such alternate rate of interest as so determined would be less than zero, such rate shall be deemed to be zero for all purposes of this Agreement. Notwithstanding anything to the contrary in Section 9.08, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five Business Days of the date a copy of such amendment is provided to the Lenders, a written notice from the Required Lenders stating that the Required Lenders object to such amendment. Until an alternate rate of interest shall be determined in accordance with this clause (b) (but, in the case of the circumstances described in clause (ii) of the first sentence of this Section 2.08(b), only to the extent the LIBO Screen Rate for such Interest Period is not available or published at such time on a current basis), any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be deemed to be a request for an ABR Borrowing.
SECTION 2.09 Termination and Reduction of Commitments . (a) The Term Loan Commitments (other than any Incremental Term Loan Commitments, which shall terminate as provided in the related Incremental Assumption Agreement) shall automatically terminate upon the making of the Term Loans on the Closing Date. The Revolving Credit Commitments (other than any Incremental Revolving Credit Commitments of a different Class than the Revolving Facility, which shall terminate as provided in the related Incremental Assumption Agreement) shall automatically terminate on the Revolving Credit Maturity Date. The L/C Commitment shall automatically terminate on the earlier to occur of (i) the termination of all Initial Revolving Credit Commitments and (ii) the L/C Commitment Maturity Date.
(b) Upon at least three Business Days prior irrevocable written or fax notice to the Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Term Loan Commitments or the Revolving Credit Commitments; provided , however , that (i) each partial reduction of the Term Loan Commitments or the Revolving Credit Commitments shall be in an integral multiple of $1,000,000 and in a minimum amount of $5,000,000 and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount that is less than the Aggregate Revolving Credit Exposure at the time. A notice of termination or reduction 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.
58
(c) Each reduction in the Term Loan Commitments or the Revolving Credit Commitments hereunder shall be made ratably among the Lenders in accordance with their respective applicable Commitments. The Borrower shall pay to the Administrative Agent for the account of the applicable Lenders, on the date of each termination or reduction, the Commitment Fees on the amount of the Revolving Credit Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction.
SECTION 2.10 Conversion and Continuation of Borrowings . The Borrower shall have the right at any time upon prior irrevocable notice to the Administrative Agent (a) not later than 12:00 (noon), New York City time, on the Business Day of conversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 12:00 (noon), New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period, and (c) not later than 12:00 (noon), New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period, subject in each case to the following:
(i) [intentionally omitted];
(ii) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing;
(iii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b) regarding the principal amount and maximum number of Borrowings of the relevant Type;
(iv) each conversion shall be effected by each Lender and the Administrative Agent by recording for the account of such Lender the new Loan of such Lender resulting from such conversion and reducing the Loan (or portion thereof) of such Lender being converted by an equivalent principal amount; accrued interest on any Eurodollar Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion;
(v) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.16;
(vi) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing;
(vii) any portion of a Eurodollar Borrowing that cannot be converted into or continued as a Eurodollar Borrowing by reason of the immediately preceding clause shall be automatically converted at the end of the Interest Period in effect for such Borrowing into an ABR Borrowing;
59
(viii) no Interest Period may be selected for any Eurodollar Term Loan Borrowing that would end later than a Term Loan Repayment Date, as the case may be, occurring on or after the first day of such Interest Period if, after giving effect to such selection, the aggregate outstanding amount of (a) the Eurodollar Term Borrowings of the applicable Class with Interest Periods ending on or prior to such Term Loan Repayment Date, and (b) the ABR Term Loan Borrowings of the applicable Class would not be at least equal to the principal amount of Term Borrowings to be paid on such Term Loan Repayment Date; and
(ix) upon notice to the Borrower from the Administrative Agent given at the request of the Required Lenders, after the occurrence and during the continuance of an Event of Default, no outstanding Loan may be converted into, or continued as, a Eurodollar Loan.
Each notice pursuant to this Section 2.10, which shall be in writing, shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Borrowing that the Borrower request be converted or continued, (ii) whether such Borrowing is to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (iv) if such Borrowing is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Borrower shall be deemed to have selected an Interest Period of one months duration. The Administrative Agent shall advise the Lenders of any notice given pursuant to this Section 2.10 and of each Lenders portion of any converted or continued Borrowing. If the Borrower shall not have given notice in accordance with this Section 2.10 to continue any Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be converted into an ABR Borrowing.
SECTION 2.11 Repayment of Term Borrowings . (a) The Borrower shall repay to the Administrative Agent, for the account of the Term Lenders, on the last Business Day of each March, June, September and December, beginning with the last Business Day of March 2019 and ending with the first such day to occur prior to the Term Loan Maturity Date (each such date being called a Repayment Date ), a principal amount of Term Loans (other than any Term Loans that by their terms do not share ratably in such payments as specified herein) for each such date equal to 0.25% of the aggregate principal amount of the Term Loans outstanding on the Closing Date, as adjusted from time to time pursuant to Sections 2.11(b), 2.12, 2.13(f) and 2.23(c), together in each case with accrued and unpaid interest on the principal amount to be paid to, but excluding, the date of such payment.
(b) In the event and on each occasion that the Term Loan Commitments shall be reduced or shall expire or terminate other than as a result of the making of a Term Loan, the installments payable on each Term Loan Repayment Date, as applicable, shall be reduced pro rata (or otherwise in accordance with this Agreement) by an aggregate amount equal to the amount of such reduction, expiration or termination.
60
(c) To the extent not previously paid, all Term Loans shall be due and payable on the Term Loan Maturity Date or the Incremental Term Loan Maturity Date, as applicable, together with accrued and unpaid interest on the principal amount to be paid to, but excluding, the date of payment.
(d) All repayments pursuant to this Section 2.11 shall be subject to Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.12 Optional Prepayment . (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, without premium or penalty, except in the case of a Repricing Event (as defined below), upon at least three Business Days prior written or fax notice (or telephone notice promptly confirmed by written or fax notice) in the case of Eurodollar Loans, or written or fax notice (or telephone notice promptly confirmed by written or fax notice) on the same Business Day of prepayment in the case of ABR Loans, to the Administrative Agent before 12:00 (noon), New York City time; provided , however , that each partial prepayment shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000.
(b) Optional prepayments of Term Loans pursuant to Section 2.12(a) shall be allocated among the Classes of outstanding Term Loans as specified by the Borrower and applied against the remaining scheduled installments of principal due in respect of such Term Loans under Section 2.11 as directed by the Borrower (or, in the absence of such direction, in direct order of maturity).
(c) Notwithstanding anything to the contrary contained in this Section 2.12 or any other provision of this Agreement and without otherwise limiting the rights in respect of prepayments of the Term Loans, Holdings, the Borrower or any Restricted Subsidiary may repurchase outstanding Term Loans through Dutch auctions open to all Lenders holding Term Loans and/or open market purchases pursuant to this Section 2.12(c) on the following basis:
(i) Holdings, the Borrower or any Restricted Subsidiary may conduct one or more Dutch auctions in compliance with the terms and conditions set forth in this Section 2.12(c)(i) (each such Dutch auction, an Auction ) to repurchase all or any portion of the Term Loans:
(A) To commence any Auction, Holdings, the Borrower or the relevant Restricted Subsidiary shall provide written notice to the Administrative Agent (for distribution to the Lenders) of the Term Loans that will be the subject of the Auction (an Auction Notice ). Each Auction Notice shall be in a form reasonably acceptable to the Administrative Agent and shall contain (x) the total cash value of the bid, in a minimum amount of $10,000,000 with minimum increments of $1,000,000 (the Auction Amount ) and (y) the discount to par, which shall be a range (the Discount Range ) of percentages of the par principal amount of the Term Loans at issue that represents the range of purchase prices that could be paid in the Auction;
61
(B) In connection with any Auction, each Term Lender may, in its sole discretion, participate in such Auction and may provide the Administrative Agent with a notice of participation (the Return Bid ), which shall be in a form reasonably acceptable to the Administrative Agent and shall specify (x) a price reflecting a discount to par that must be expressed as a price (the Reply Discount Price ), which must be within the Discount Range, and (y) a principal amount of Term Loans which must be in increments of $1,000,000 or in an amount equal to the Term Lenders entire remaining amount of such Loans (the Reply Amount ). Term Lenders may only submit one Return Bid per Auction. In addition to the Return Bid, the participating Term Lender must execute and deliver, to be held in escrow by the Administrative Agent, an Affiliated Lender Assignment and Assumption;
(C) Based on the Reply Discount Prices and Reply Amounts received by the Administrative Agent, the Administrative Agent, in consultation with Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, will determine the applicable discount (the Applicable Discount ) for the Auction, which will be the lowest Reply Discount Price for which Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, can complete the Auction at the Auction Amount; provided that, in the event that the Reply Amounts are insufficient to allow Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, to complete a purchase of the entire Auction Amount (any such Auction, a Failed Auction ), the Borrower shall either, at its election, (x) withdraw the Auction or (y) complete the Auction at an Applicable Discount equal to the highest Reply Discount Price. Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, shall purchase Term Loans (or the respective portions thereof) from each Term Lender with a Reply Discount Price reflecting a discount from par that is equal to or greater than that of the Applicable Discount ( Qualifying Bids ) at the Applicable Discount; provided that if the aggregate proceeds required to purchase all Term Loans subject to Qualifying Bids would exceed the Auction Amount for such Auction, Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, shall purchase such Term Loans at the Applicable Discount ratably based on the principal amounts of such Qualifying Bids (subject to rounding requirements specified by the Administrative Agent). Each participating Term Lender will receive notice of a Qualifying Bid as soon as reasonably practicable but in no case later than five Business Days from the date the Return Bid was due;
(D) Once initiated by an Auction Notice, Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, may not withdraw an Auction other than a Failed Auction. Furthermore, in connection with any Auction, upon submission by a Term Lender of a Qualifying Bid, such Lender (each, a Qualifying Lender ) will be obligated to sell the entirety or its allocable portion of the Reply Amount, as the case may be, at the Applicable Discount. Each
62
purchase of Term Loans in an Auction shall be consummated pursuant to procedures (including as to response deadlines, rounding amounts, type and Interest Period of accepted Term Loans, and calculation of the Applicable Discount referred to above) established by the Administrative Agent and agreed to by Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable; and
(E) The repurchases by Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, of Term Loans in an Auction pursuant to this Section 2.12(c) (i) shall be subject to the following conditions: (1) the Auction is open to all Term Lenders on a pro rata basis, (2) no Event of Default has occurred or is continuing or would result therefrom, (3) Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, shall execute an Affiliated Lender Assignment and Assumption with each Lender selling any Term Loans in the relevant Auction, (4) [intentionally omitted], (5) any Term Loans repurchased pursuant to this Section 2.12(c) shall be automatically and permanently canceled upon acquisition thereof by Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, and (6) none of Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, shall use the proceeds of Revolving Loans to make any such repurchase; and
(ii) Holdings, the Borrower or any Restricted Subsidiary may conduct one or more open market purchases of all or any portion of the Term Loans without the consent of the Administrative Agent to such purchase subject to the following conditions: (1) as of the date of entry into a binding agreement with respect to the relevant open market purchase, no Default or Event of Default has occurred or is continuing or would result therefrom, (2) Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, shall execute an Affiliated Lender Assignment and Assumption with each Lender selling any Term Loans in the relevant open market purchase, (3) [intentionally omitted], (4) any Term Loans repurchased pursuant to this Section 2.12(c) shall be automatically and permanently canceled upon acquisition thereof by Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, and (5) none of Holdings, the Borrower or the relevant Restricted Subsidiary, as applicable, shall use the proceeds of Revolving Loans to make any such repurchase.
(d) Each notice of prepayment shall specify (i) the prepayment date, (ii) the principal amount of each Borrowing (or portion thereof) to be prepaid and (iii) the Class of Loans to be prepaid and the scheduled installment or installments of principal to which such prepayment is to be applied. Each such notice shall be irrevocable and shall commit the Borrower to prepay such Borrowing by the amount stated therein on the date stated therein; provided , however , that such 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; provided further , however , that the provisions of Section 2.16 shall apply with respect to any such revocation or extension. All prepayments under this Section 2.12 shall be subject to Section 2.16 and other than prepayments of ABR Revolving Loans that are not made in connection with the termination or permanent reduction of the Revolving Credit Commitments, shall be accompanied by accrued and unpaid interest on the principal amount to be prepaid to but excluding the date of payment.
63
(e) In the event that on or prior to the date that is six months after the Closing Date, (i) all or a portion of the Term Loans funded on the Closing Date are prepaid in a Repricing Event (including, for the avoidance of doubt, any prepayment made pursuant to Section 2.13(d) that constitutes a Repricing Event) or (ii) a Term Lender is deemed a Non-Consenting Lender and must assign its Term Loans funded on the Closing Date pursuant to Section 2.21 in connection with any waiver, amendment or modification that constitutes a Repricing Event, then, in each case, the aggregate principal amount so prepaid or assigned will be subject to a fee payable by the Borrower equal to 1.00% of the principal amount of such Term Loans repaid or assigned in connection with such Repricing Event, on the date of such Repricing Event. Such fee shall be paid by the Borrower to the Administrative Agent, for the account of the applicable Lenders of the applicable Class, on the date of such Repricing Event. For the purpose of this Section 2.12(e), (A) Repricing Event shall mean each of (1) the refinancing of all or a portion of the Term Loans funded on the Closing Date with the proceeds of any syndicated term loans secured on a pari passu basis with the Term Loans funded on the Closing Date (including any Replacement Term Loans) incurred by any Loan Party having a Yield (as determined on the date of initial incurrence thereof) that is less than the Yield (as determined on such date) applicable to the Term Loans so refinanced and (2) any amendment, waiver or other modification of or to this Agreement that has the effect of reducing the Yield applicable to the Term Loans funded on the Closing Date; provided that, in each case of clauses (1) and (2), (x) the primary purpose of such refinancing or amendment, waiver or other modification is to reduce the Yield applicable to the Term Loans funded on the Closing Date and (y) in no event shall any such refinancing or amendment, waiver or other modification consummated in connection with a Change in Control, Qualified Public Offering or Transformative Acquisition constitute a Repricing Event and (B) Transformative Acquisition shall mean any acquisition by Holdings, the Borrower or any Restricted Subsidiary, whether by purchase, merger or otherwise, of all or substantially all of the assets of, or any business line, unit or division of, any Person or of a majority of the outstanding Equity Interests of any Person that (1) is not permitted by the terms of the Loan Documents immediately prior to the consummation of such acquisition or (2) if permitted by the terms of the Loan Documents immediately prior to the consummation of such acquisition, the terms of the Loan Documents would not provide Holdings, the Borrower and its Restricted Subsidiaries with adequate flexibility for the continuation or expansion of their combined operations following such consummation, as determined by the Borrower acting in good faith.
SECTION 2.13 Mandatory Prepayments . (a) In the event of any termination of all the Revolving Credit Commitments, the Borrower shall, on the date of such termination, repay or prepay all its outstanding Revolving Credit Borrowings and replace or cause to be canceled (or make other arrangements satisfactory to the Administrative Agent and the Issuing Bank with respect to) all outstanding Letters of Credit. If, after giving effect to any partial reduction of the Revolving Credit Commitments or at any other time, the Aggregate Revolving Credit Exposure would exceed the Total Revolving Credit Commitment, then the Borrower shall, on the date of such reduction or at such other time, respectively, repay or prepay Revolving Loans and, after the Revolving Loans shall have been repaid or prepaid in full, replace or cause to be canceled (or make other arrangements satisfactory to the Administrative Agent and the Issuing Bank with respect to) Letters of Credit in an amount sufficient to eliminate such excess; provided, however, that Letters of Credit shall be cash collateralized or otherwise backstopped in an amount equal to 103% of the undrawn face amount thereof. The Borrower shall repay or prepay each Revolving Loan no later than the date that is 364 days following the date on which such Revolving Loan was made.
64
(b) Not later than the third Business Day following the receipt of Net Cash Proceeds in respect of any Asset Sale made pursuant to Section 6.05(b) by the Borrower and its Restricted Subsidiaries, the Borrower shall apply 100% of the Net Cash Proceeds received with respect thereto to prepay outstanding Term Loans in accordance with Section 2.13(f); provided , however , that prepayments by the Borrower under this clause (b) shall only be required if the aggregate amount of mandatory prepayments that would otherwise be required under this clause (b) for such fiscal year exceeds $2,500,000 (with only the amount in excess of such amount required to be used to prepay the Term Loans).
(c) No later than five Business Days after the date on which the financial statements with respect to each fiscal year are required to be delivered pursuant to Section 5.04(a), commencing with the fiscal year ending December 31, 2019, the Borrower shall prepay outstanding Term Loans in accordance with Section 2.13(f) in an aggregate principal amount (the ECF Payment Amount ) equal to the excess, if any, of (A) the ECF Percentage of Excess Cash Flow for such fiscal year then ended minus , without duplication of amounts reducing Excess Cash Flow, (B) at the option of the Borrower, the aggregate principal amount of (x) any optional prepayments or repurchases of Term Loans, Revolving Loans or Incremental Equivalent Debt that is secured on a pari passu basis with the Credit Facilities prior to the date of prepayment pursuant to this Section 2.13(c), and (y) the amount of any reduction in the outstanding amount of any Term Loans resulting from any assignment made to Holdings, the Borrower or any of its Restricted Subsidiaries in accordance with Section 2.12(c) (including in connection with any Auction) prior to the date of prepayment pursuant to this Section 2.13(c), in the case of this clause (y), based upon the actual amount of cash paid in connection with the relevant assignment, in each case, only to the extent that (I) such prepayments were not financed with the proceeds of long-term Indebtedness (other than Revolving Loans) of the Borrower and its Restricted Subsidiaries, (II) if such prepayment is a prepayment of Revolving Loans or of Incremental Equivalent Debt in the form of a revolving facility, such prepayment is accompanied by a corresponding termination or reduction of the Revolving Credit Commitment or relevant commitment, respectively, and (III) such prepayment was not previously applied to reduce the amount of any prepayment required by this clause (c); provided , however , that any such prepayment by the Borrower under this clause (c) in respect of any fiscal year shall only be required to the extent (if any) by which the ECF Payment Amount for such fiscal year exceeds $2,000,000.
(d) In the event that Holdings, the Borrower or any other Restricted Subsidiary shall receive Net Cash Proceeds from the issuance or incurrence of Indebtedness for borrowed money of Holdings, the Borrower or any other Restricted Subsidiary (other than any cash proceeds from the issuance of Indebtedness for borrowed money otherwise permitted pursuant to Section 6.01), the Borrower shall, substantially simultaneously with (and in any event not later than the third Business Day next following) the receipt of such Net Cash Proceeds by Holdings, such Borrower or such Restricted Subsidiary, apply an amount equal to 100% of such Net Cash Proceeds to prepay outstanding Term Loans in accordance with Section 2.13(f).
65
(e) [Intentionally Omitted].
(f) Mandatory prepayments of the Term Loans shall be applied to the installments thereof as directed by the Borrower (or, in the absence of direction from the Borrower, in the direct order of maturity); provided that in the case of any mandatory prepayment in respect of any Asset Sale, the Borrower may apply the Net Cash Proceeds thereof ratably to the payment of the Term Loans and any other indebtedness that is secured on a pari passu basis with the Term Loans; provided further that any amount that is offered to prepay any such other indebtedness and not accepted by the holders thereof shall be applied to prepay the Term Loans (subject to the right of Lenders to decline such prepayment as described below ).
(g) if the Borrower determines in good faith that any prepayment described under clause (b) or clause (c) above (i) in the case of any prepayment attributable to any Foreign Subsidiary, would violate any local law ( e.g ., financial assistance, corporate benefit, thin capitalization, capital maintenance and similar legal principles, restrictions on upstreaming of cash intra-group or the fiduciary or statutory duties of the directors of the relevant subsidiaries), (ii) would require the Borrower or any Restricted Subsidiary to incur a material and adverse Tax liability (including any material and adverse withholding Tax) or (iii) in the case of any prepayment attributable to any joint venture, would violate any organizational document of such joint venture (or any relevant shareholders or similar agreement), in each case if the amount subject to the relevant prepayment were upstreamed or transferred as a distribution or dividend (any amount limited as set forth in clauses (i) through (iii) of this paragraph, a Restricted Amount ), the amount of the relevant prepayment shall be reduced by the Restricted Amount; provided that (i) if the circumstance giving rise to any Restricted Amount ceases to exist within 365 days following the end of the relevant fiscal year or the event giving rise to the relevant prepayment, as applicable, the relevant Restricted Subsidiary shall promptly repatriate or distribute the amount that no longer constitutes a Restricted Amount to the Borrower for application to the Term Loans as required above promptly following the date on which the relevant circumstance ceases to exist and (ii) in no event shall any Restricted Amount increase the Available Amount.
(h) Any Lender (each, a Declining Lender ) may elect not to accept any mandatory prepayment, except in the case of clause (d) above. Any prepayment amount declined by a Declining Lender (any such declined payment, the Declined Proceeds ) will be an addition to the Available Basket.
(i) Holdings shall deliver to the Administrative Agent, at the time of each prepayment required under this Section 2.13, (i) a certificate signed by a Financial Officer of the Borrower setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least three days prior irrevocable written notice of such prepayment. Each notice of prepayment shall specify the prepayment date, the Class and Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All prepayments of Borrowings under this Section 2.13 shall be subject to Section 2.16 and, in the case of Section 2.13(d), Section 2.12(e), but shall otherwise be without premium or penalty, and shall be accompanied by accrued and unpaid interest on the principal amount to be prepaid to, but excluding ,the date of payment.
66
SECTION 2.14 Reserve Requirements; Change in Circumstances . (a) Notwithstanding any other provision of this Agreement, 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 to or participated in by any Lender or the Issuing Bank (except any such reserve requirement that is reflected in the Adjusted LIBO Rate);
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on such Lender or the Issuing Bank or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein (other than with respect to Taxes);
and the result of any of the foregoing shall be to increase the cost to such Lender, the Issuing Bank or such other Recipient of making, converting to, continuing or maintaining any Eurodollar Loan, or maintaining its obligation to make such a loan, or increase the cost to any Lender, the Issuing Bank or such other Recipient of issuing or maintaining any Letter of Credit or purchasing or maintaining a participation therein or to reduce the amount of any sum received or receivable by such Lender, the Issuing Bank or such other Recipient hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender, the Issuing Bank or such other Recipient, as the case may be, upon demand, such additional amount or amounts as will compensate such Lender, the Issuing Bank or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered; provided that the Borrower shall not be liable for such compensation as a result of circumstances referred to above (A) if such circumstances are resulting from a market disruption and are not generally affecting the banking market or (B) in the case of any request for payment in respect of a market disruption, such request is not made by the Required Lenders.
(b) If any Lender or the Issuing Bank shall have determined that any Change in Law affecting such Lender or Issuing Bank or any lending office of such Lender or Issuing Bank or such Lenders or Issuing Banks holding company, if any, regarding capital adequacy or liquidity requirements has or would have the effect of reducing the rate of return on such Lenders or the Issuing Banks capital or on the capital of such Lenders or the Issuing Banks holding company, if any, as a consequence of this Agreement or the Loans made or participations in Letters of Credit purchased by such Lender pursuant hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a level below that which such Lender or the Issuing Bank or such Lenders or the Issuing Banks holding company could have achieved but for such Change in Law (taking into consideration such Lenders or the Issuing Banks policies and the policies of such Lenders or the Issuing Banks holding company with respect to capital adequacy or liquidity), then from time to time the Borrower shall pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lenders or the Issuing Banks holding company for any such reduction suffered.
67
(c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as applicable, as specified in paragraph (a) or (b) above shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same.
(d) Failure or delay on the part of any Lender, the Issuing Bank or such other Recipient to demand compensation pursuant to this Section 2.14 shall not constitute a waiver of such Lenders, the Issuing Banks, or such other Recipients right to demand such compensation; provided that the Borrower shall not be under any obligation to compensate any Lender, the Issuing Bank or such other Recipient under paragraph (a) or (b) above with respect to any increased costs or expenses incurred or reductions suffered more than 270 days prior to the date that such Lender, the Issuing Bank or such other Recipient, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or expenses or reductions and of such Lenders, Issuing Banks or such other Recipients intention to claim compensation therefor; provided further that if the Change in Law giving rise to such increased costs or expenses or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.
Notwithstanding the above, a Lender will not be entitled to demand compensation for any increased cost or reduction with respect thereto if it is not the general policy or practice of such Lender to demand it of borrowers in similar circumstances under comparable provisions of credit agreements for borrowers of a similar nature.
SECTION 2.15 Change in Legality . (a) Notwithstanding any other provision of this Agreement, if any Change in Law shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods) and ABR Loans will not thereafter (for such duration) be converted into Eurodollar Loans, whereupon any request for a Eurodollar Borrowing (or to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing for an additional Interest Period) shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such or to convert a Eurodollar Loan into an ABR Loan, as the case may be), unless such declaration shall be subsequently withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below.
68
In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period then applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower.
SECTION 2.16 Breakage . The Borrower shall indemnify each Lender against any loss or expense that such Lender may sustain or incur as a consequence of (a) any event, other than a default by such Lender in the performance of its obligations hereunder, that results in (i) such Lender receiving or being deemed to receive any amount on account of the principal of any Eurodollar Loan prior to the end of the Interest Period in effect therefor, (ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of the Interest Period with respect to any Eurodollar Loan, in each case other than on the last day of the Interest Period in effect therefor, or (iii) any Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be made pursuant to a conversion or continuation under Section 2.10) not being made after notice of such Loan shall have been given by the Borrower hereunder (any of the events referred to in this clause (a) being called a Breakage Event ) or (b) any default in the making of any payment or prepayment required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds (but not loss of profits) for the Eurodollar Loan that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds released or not utilized by reason of such Breakage Event for such period. 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.
SECTION 2.17 Pro Rata Treatment . Except with respect to repurchases of Term Loans made in accordance with Section 2.12(c) and as required under Section 2.15 or 2.25 and subject to the express provisions of this Agreement that require or permit differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders, each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees, each reduction of the Term Loan Commitments or the Revolving Credit Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans of the applicable Class). Each Lender agrees that in computing such Lenders portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lenders percentage of such Borrowing to the next higher or lower whole dollar amount.
69
SECTION 2.18 Sharing of Setoffs . Each Lender agrees that if it shall, through the exercise of a right of bankers lien, setoff or counterclaim against the Borrower or any other Loan Party, or pursuant to a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loan or Loans or L/C Disbursement as a result of which the unpaid principal portion of its Loans and participations in L/C Disbursements shall be proportionately less than the unpaid principal portion of the Loans and participations in L/C Disbursements of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Loans and L/C Exposure of such other Lender, so that the aggregate unpaid principal amount of the Loans and L/C Exposure and participations in Loans and L/C Exposure held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Loans and L/C Exposure then outstanding as the principal amount of its Loans and L/C Exposure prior to such exercise of bankers lien, setoff or counterclaim or other event was to the principal amount of all Loans and L/C Exposure outstanding prior to such exercise of bankers lien, setoff or counterclaim or other event; provided , however , that (a) if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest and (b) the provisions of this Section 2.18 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 (including to the Borrower in connection with an Auction pursuant to Section 2.12(c)). The Borrower and Holdings expressly consent to the foregoing arrangements and agree that any Lender holding a participation in a Loan or L/C Disbursement deemed to have been so purchased may exercise any and all rights of bankers lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower and Holdings to such Lender by reason thereof as fully as if such Lender was a direct creditor of the Borrower in the amount of such participation.
SECTION 2.19 Payments . (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any L/C Disbursement or any Fees or other amounts) hereunder and under any other Loan Document not later than 12:00 (noon), New York City time, on the date when due in immediately available Dollars, without setoff, defense or counterclaim. Each such payment (other than Issuing Bank Fees and customary issuance and administration fees of an Issuing Bank, which shall be paid directly to the applicable Issuing Bank) shall be made to the Administrative Agent at its offices at Eleven Madison Avenue, New York, NY 10010. All payments received by the Administrative Agent after 12:00 (noon), New York City time, shall be deemed received on the next succeeding Business Day (in the Administrative Agents sole discretion). The Administrative Agent shall promptly distribute to each Lender any payments received by the Administrative Agent on behalf of such Lender.
(b) Except as otherwise expressly provided herein, whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable.
70
(c) 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 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 Issuing Bank, as the case may be, the amount due. In such event, if the Borrower does not in fact make such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, and to pay interest thereon, for each day from and including the date such amount is distributed to it but excluding the date of payment to the Administrative Agent, at a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error).
SECTION 2.20 Taxes . (a) Payments Free of Taxes . Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by any Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.20) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(b) Payment of Other Taxes by the Loan Parties . Each of Holdings and the Borrower shall, and shall cause each other Loan Party to, timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(c) Indemnification by the Borrower . Each of Holdings and the Borrower shall jointly and severally indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 2.20) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses directly arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate reflecting the amount and a description of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
71
(d) Indemnification by the Lenders . Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that none of Holdings or the Borrower has already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of each of Holdings and the Borrower to do so), (ii) any Taxes attributable to such Lenders failure to comply with the provisions of Section 9.04(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (d).
(e) Evidence of Payments . As soon as practicable after any payment of Taxes by any Loan Party to a Governmental Authority pursuant to this Section 2.20, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(f) Status of Lenders . (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the 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. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Sections 2.20(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lenders reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing:
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding Tax;
72
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN or IRS Form W-8BEN-E (or any successor thereto) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the interest article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E (or any successor thereto) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the business profits or other income article of such tax treaty;
(2) executed originals of IRS Form W-8ECI;
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit F-1 to the effect that such Foreign Lender is not a bank within the meaning of Section 881(c)(3)(A) of the Code, a 10 percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a controlled foreign corporation described in Section 881(c)(3)(C) of the Code (a U.S. Tax Compliance Certificate ) and (y) executed originals of IRS Form W-8BEN or IRS Form W-8BEN-E (or any successor thereto); or
(4) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E (or any successor thereto), a U.S. Tax Compliance Certificate substantially in the form of Exhibit F-2 or Exhibit F-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit F-4 on behalf of each such direct or indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time
73
thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the 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 and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), FATCA shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(g) Treatment of Certain Refunds . If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.20 (including by the payment of additional amounts pursuant to this Section 2.20), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.20 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) ( plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
74
(h) Survival . Each partys obligations under this Section 2.20 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
(i) Issuing Bank . For purposes of this Section 2.20, the term Lender includes any Issuing Bank and the term applicable law includes FATCA.
SECTION 2.21 Assignment of Commitments Under Certain Circumstances; Duty to Mitigate . (a) In the event (i) any Lender or any Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15, (iii) the Borrower is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank pursuant to Section 2.20, (iv) any Lender has become a Defaulting Lender or (v) any Lender has become a Non-Consenting Lender, upon notice to such Lender or the Issuing Bank, as the case may be, and the Administrative Agent, the Borrower may require such Lender or the Issuing Bank to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all of its interests, rights and obligations under this Agreement (or, in the case of clause (v) above, all of its interests, rights and obligations with respect to the Class of Loans or Commitments that is the subject of the related consent, amendment, waiver or other modification) to an Eligible Assignee that shall assume such assigned obligations and, with respect to clause (v) above, shall consent to such requested amendment, waiver or other modification of any Loan Document (which Eligible Assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Revolving Credit Commitment is being assigned, of each Issuing Bank), which consents shall not unreasonably be withheld or delayed, and (z) the Borrower or such Eligible Assignee shall have paid to the affected Lender or Issuing Bank in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans or L/C Disbursements of such Lender or Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Lender or Issuing Bank hereunder with respect thereto (including any amounts under 2.12(e), 2.14 or 2.16); provided, further, that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lenders or the Issuing Banks claim for compensation under Section 2.14, notice under Section 2.15 or the amounts paid pursuant to Section 2.20, as the case may be, cease to cause such Lender or Issuing Bank to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 2.15, or cease to result in amounts being payable under Section 2.20, as the case may be (including as a result of any action taken by such Lender or Issuing Bank pursuant to paragraph (b) below), or if such Lender or Issuing Bank shall waive its right to claim further compensation under Section 2.14 in respect of such circumstances or event or shall withdraw its notice under Section 2.15 or shall waive its right to further payments under Section 2.20 in respect of such circumstances or event or shall consent to the proposed
75
amendment, waiver, consent or other modification, as the case may be, then such Lender or Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder. Each Lender hereby grants to the Administrative Agent an irrevocable power of attorney (which power is coupled with an interest) to execute and deliver, on behalf of such Lender as assignor, any Assignment and Acceptance necessary to effectuate any assignment of such Lenders interests hereunder in the circumstances contemplated by this Section 2.21(a).
(b) If (i) any Lender or Issuing Bank shall request compensation under Section 2.14, (ii) any Lender or Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrower is required to pay any additional amount to any Lender or Issuing Bank or any Governmental Authority on account of any Lender or Issuing Bank, pursuant to Section 2.20, then such Lender or Issuing Bank shall use reasonable efforts (which shall not require such Lender or Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any action inconsistent with its internal policies or legal or regulatory restrictions or suffer any disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Borrower or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.14 or enable it to withdraw its notice pursuant to Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the case may be, in the future. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or Issuing Bank in connection with any such filing or assignment, delegation and transfer.
SECTION 2.22 Letters of Credit . (a) General . The Borrower may request the issuance of a Letter of Credit denominated in Dollars for its own account or for the account of any of the other Wholly Owned Subsidiaries of Holdings that is a Restricted Subsidiary (in which case the Borrower and such Restricted Subsidiary shall be co-applicants with respect to such Letter of Credit), in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time after the Closing Date and from time to time until the L/C Commitment Maturity Date. This Section 2.22 shall not be construed to impose an obligation upon any Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. Notwithstanding anything to the contrary contained in this Section 2.22 or elsewhere in this Agreement, in the event that a Revolving Credit Lender is a Defaulting Lender, each Issuing Bank shall not be required to issue any Letter of Credit unless such Issuing Bank has entered into arrangements satisfactory to it and the Borrower to eliminate such Issuing Banks risk with respect to the participation in Letters of Credit by all such Defaulting Lenders, including by reallocating all or any part of such Defaulting Lenders participation in Letters of Credit among the Non-Defaulting Lenders and/or Cash Collateralizing each Defaulting Lenders Pro Rata Percentage of each L/C Disbursement in an amount not less than the Minimum Collateral Amount.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions . In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the Borrower shall hand deliver or fax to an Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal
76
or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (i) the L/C Exposure shall not exceed the L/C Sublimit, (ii) the portion of the L/C Exposure attributable to Letters of Credit issued by any Issuing Bank does not exceed the L/C Commitment of such Issuing Bank (unless otherwise agreed by such Issuing Bank) and (iii) the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving Credit Commitment. For the avoidance of doubt, Credit Suisse AG, acting through any of its Affiliates or branches, in its capacity as an Issuing Bank hereunder, shall not be required to issue any trade or commercial letters of credit.
(c) Expiration Date . Each Letter of Credit shall expire at the close of business on the earlier of (x) the date that is one year after the date of the issuance of such Letter of Credit or such longer period of time as may be agreed by the Issuing Bank and (y) the L/C Maturity Date, unless such Letter of Credit expires by its terms on an earlier date; provided , however , that any standby Letter of Credit with a one-year tenor may, upon the request of the Borrower, include a provision providing for evergreen renewal thereof whereby such Letter of Credit shall be renewed automatically for additional periods (which shall in no event extend beyond the L/C Maturity Date unless cash collateralized or backstopped pursuant to arrangements reasonably satisfactory to the Issuing Bank thereof) unless the Issuing Bank notifies the beneficiary thereof at least 30 days (or such longer period as may be specified in such Letter of Credit) prior to the then-applicable expiration date that such Letter of Credit will not be renewed.
(d) Participations . By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Credit Lender, and each such Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lenders Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lenders Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrower (or, if applicable, another party pursuant to its obligations under any other Loan Document) forthwith on the date due as provided in Section 2.02(e). Each Revolving Credit 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 the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement . If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower agrees to pay to the Administrative Agent an amount equal to such L/C Disbursement no later than the next Business Day after the Borrower shall have received notice from the Issuing Bank that payment of such draft will be made.
77
(f) Obligations Absolute . The Borrowers obligation to reimburse L/C Disbursements as provided in paragraph (e) above 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 any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document;
(iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any other Subsidiary or other Affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, the Administrative Agent or any Lender or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the Issuing Bank, the Lenders, the Administrative Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.22, constitute a legal or equitable discharge of the Borrowers obligations hereunder.
Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrower hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or willful misconduct of the Issuing Bank. However, the foregoing shall not be construed to excuse the 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 caused by the Issuing Banks gross negligence or willful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. It is further understood and agreed that the 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 and, in making any payment under any Letter of Credit (i) the Issuing Banks exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document
78
presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute gross negligence or willful misconduct of the Issuing Bank.
(g) Disbursement Procedures . The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall as promptly as possible give telephonic notification, confirmed by fax, to the Administrative Agent and the Borrower of such demand for payment and whether the 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 the Issuing Bank and the Revolving Credit Lenders with respect to any such L/C Disbursement.
(h) Interim Interest . If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrower shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of the Issuing Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrower or the date on which interest shall commence to accrue thereon as provided in Section 2.02(f), at the rate per annum that would apply to such amount if such amount were an ABR Revolving Loan.
(i) Resignation or Removal of the Issuing Bank . Each Issuing Bank may resign at any time by giving 30 days prior written notice to the Administrative Agent, the Lenders and the Borrower and may be removed at any time by the Borrower by notice to the Issuing Banks, the Administrative Agent and the Lenders. Upon the acceptance of any appointment as an Issuing Bank hereunder by a Revolving Credit Lender that shall agree to serve as successor Issuing Bank, such successor (to the extent reasonably acceptable to the Borrower and the Administrative Agent) shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank. At the time such removal or resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 2.05(c)(ii) and 2.05(c)(iii). The acceptance of any appointment as an Issuing Bank hereunder by a successor Revolving Credit Lender shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrower and the Administrative Agent, and, from and after the effective date of such agreement, (i) such successor Revolving Credit Lender shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents 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 resignation or removal of an Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit.
79
(j) Cash Collateralization . If any Event of Default shall occur and be continuing, the Borrower shall, on the Business Day they receive notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof, Cash Collateralize the L/C Exposure in an amount not less than the Minimum Collateral Amount as of such date. Such Cash Collateral shall be held by the Collateral Agent as collateral for the payment and performance of the Obligations; provided that the obligation to Cash Collateralize will become effective immediately and such deposit will become immediately payable in immediately available funds, without demand or notice of any kind, upon the occurrence of a Default or an Event of Default described in Section 7.01(g) or (h) or upon the exercise of any of the remedies provided in the last paragraph of Section 7.01. 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 in Cash Equivalents, which investments shall be made at the option and sole discretion of the Collateral Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit), be applied to satisfy the Obligations. If the Borrower is required to provide an amount of Cash Collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.
(k) Additional Issuing Banks . The Borrower may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld, conditioned or delayed) and such Revolving Credit Lender, designate one or more additional Revolving Credit Lenders to act as an issuing bank under the terms of this Agreement. Any Lender designated as an Issuing Bank pursuant to this paragraph (k) shall be deemed to be an Issuing Bank (in addition to being a Lender) in respect of Letters of Credit issued or to be issued by such Lender.
(l) Defaulting Lenders . At any time that there shall exist a Defaulting Lender, promptly (and in any event within two Business Days) following the written request of the Borrower to the Administrative Agent (with a copy to each Issuing Bank), all or any part of such Defaulting Lenders L/C Exposure shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Pro Rata Percentages (calculated without regard to such Defaulting Lenders Commitment) but only to the extent that such reallocation does not cause the Revolving Credit Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lenders Revolving Credit Commitment or the L/C Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lenders L/C 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 Lenders increased exposure following
80
such reallocation. If the reallocation pursuant to the first sentence of this Section 2.22(l) fails, or otherwise upon the request of the Administrative Agent or any Issuing Bank (with a copy to the Administrative Agent), the Borrower shall Cash Collateralize the Issuing Banks Fronting Exposure with respect to such Defaulting Lender in an amount not less than the Minimum Collateral Amount:
(i) The Borrower, and to the extent provided by any Defaulting Lender, such Defaulting Lender, hereby grant to the Administrative Agent, for the benefit of the Issuing Banks, and agree to maintain, a security interest in all such Cash Collateral as security for the Defaulting Lenders obligation to fund participations in respect of L/C Exposure, to be applied pursuant to clause (ii) below. If at any time the Administrative Agent determines that Cash Collateral is subject to any right or claim of any person other than the Administrative Agent and the Issuing Banks as herein provided, or that the total amount of such Cash Collateral is less than the Minimum Collateral Amount, the Borrower will, promptly upon demand by the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency (after giving effect to any Cash Collateral provided by the Defaulting Lender).
(ii) Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under this Section 2.22(l) in respect of Letters of Credit shall be applied to the satisfaction of the Defaulting Lenders obligation to fund participations in respect of L/C Exposure (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) for which the Cash Collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.
(iii) Cash Collateral (or the appropriate portion thereof) provided to reduce the Issuing Banks Fronting Exposure shall no longer be required to be held as Cash Collateral pursuant to this Section 2.22(l) following (i) the elimination of the applicable Fronting Exposure (including by the termination of Defaulting Lender status of the applicable Lender), or (ii) the determination by the Administrative Agent and the Issuing Banks that there exists excess Cash Collateral and, in either case, any such Cash Collateral provided by the Borrower shall be refunded to the Borrower; provided that the person providing Cash Collateral and the Issuing Banks may agree that Cash Collateral shall be held to support future anticipated Fronting Exposure or other obligations; and provided, further, that to the extent that such Cash Collateral was provided by any Loan Party, such Cash Collateral shall remain subject to the security interest granted pursuant to the Loan Documents.
(iv) So long as any Lender is a Defaulting Lender, no Issuing Bank shall 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.
SECTION 2.23 Incremental Term Loans and Incremental Revolving Credit Commitments . (a) The Borrower may, by written notice to the Administrative Agent from time to time, request (i) the addition of one or more new tranches of term facilities or an increase in the principal amount of the Term Loans of any existing Class (any such new tranche or increase,
81
an Incremental Term Facility ; the Loans thereunder, Incremental Term Loans ) or (ii) the addition of one or more new tranches of incremental revolving commitments or an increase in the aggregate amount of the Revolving Credit Commitments of any Class (any such new tranche or increase, an Incremental Revolving Credit Commitment ; the Loans thereunder, Incremental Revolving Loans ), as applicable, in a total aggregate amount not to exceed the Incremental Facility Amount. Such notice shall set forth (i) the amount of the Incremental Term Facility and/or Incremental Revolving Credit Commitments being requested (which shall be in minimum increments of $1,000,000 and a minimum amount of $5,000,000 or such lesser amount equal to the remaining Incremental Facility Amount), (ii) the date on which such Incremental Term Facility and/or Incremental Revolving Credit Commitments are requested to become effective (which shall not be less than five Business Days nor more than 60 days after the date of such notice, unless otherwise agreed to by the Administrative Agent), (iii) in the case of any Incremental Term Facility, whether such Incremental Term Facility constitutes a new tranche of term facilities or an increase in the principal amount of the Term Loans of any existing Class and (iv) in the case of any Incremental Revolving Credit Commitment, whether such Incremental Revolving Credit Commitment constitutes a new tranche of incremental revolving commitments or an increase in the aggregate amount of the Revolving Credit Commitments of any existing Class.
(b) The Borrower may (but shall not be required to) seek Incremental Term Facilities and/or Incremental Revolving Credit Commitments from existing Lenders (each of which shall be entitled to agree or decline to participate in its sole discretion) and additional banks, financial institutions and other institutional lenders in connection therewith; provided that each of the Administrative Agent and (solely in the case of Incremental Revolving Credit Commitments) the Issuing Bank shall have consent rights with respect to any such lenders providing the relevant Incremental Term Facility or Incremental Revolving Credit Commitments (not to be unreasonably withheld, conditioned or delayed) if such consent would be required pursuant to Section 9.04 for an assignment of Term Loans to the lenders providing the relevant Incremental Term Facility or for an assignment of Revolving Credit Commitments to the lenders providing the Incremental Revolving Credit Commitments. The Borrower and each lender providing the relevant Incremental Term Facilities or Incremental Revolving Credit Commitments, as applicable, 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 commitment of such person to provide a portion of the relevant Incremental Term Facility and/or Incremental Revolving Credit Commitments.
(c) The terms and provisions of any Incremental Term Facility shall be identical to those of the Initial Term Loans except as otherwise set forth herein or in the relevant Incremental Assumption Agreement, it being understood that the lenders providing the relevant Incremental Term Facility (other than any Incremental Term Facility constituting an increase in the principal amount of the Term Loans of an existing Class, which shall be on the same terms as those applicable to the then-existing Term Loans of the applicable Class) may in the relevant Incremental Assumption Agreement:
(i) agree to yield protection terms that are less favorable (but not more favorable) than the terms applicable to the Initial Term Loans,
82
(ii) agree to participate on a less than (but not greater than) pro rata basis with the existing Term Loans in respect of any prepayments or repayments of Term Loans under this Agreement,
(iii) agree that the final maturity date with respect to such Incremental Term Loans may be the same as or later than the Latest Term Maturity Date,
(iv) provide for amortization such that the weighted average life to maturity of such Incremental Term Facility may be equal to or longer than the remaining weighted average life to maturity of the Term Loans then outstanding (without giving effect to any prepayments thereof),
(v) agree that such Incremental Term Facility shall have the same Guarantees as (or fewer, but in no event more, Guarantees than) the Initial Term Loans,
(vi) agree that such Incremental Term Facility may be secured by all or a portion of the Collateral, but in no event secured by any assets not constituting Collateral,
(vii) agree to interest rate, interest rate margins, fees, original issue discount and interest rate floor as may be determined by the Borrower and the lenders providing such Incremental Term Facility; provided , that the Yield applicable to any Incremental Term Facility (as determined on the date of initial incurrence thereof) will not be more than 0.50% per annum higher than the Yield in respect of the Initial Term Loans (as determined on such date) unless the Yield with respect to the Initial Term Loans is adjusted to be equal to such Yield applicable to such Incremental Term Facility minus 0.50% per annum; provided, further , that any increase in Yield with respect to the Initial Term Loans due to the application of an Adjusted LIBO Rate floor or Alternate Base Rate floor on any Incremental Term Facility shall be effected solely through an increase in (or implementation of, as applicable) the Adjusted LIBO Rate floor or Alternate Base Rate floor applicable to such Initial Term Loans,
(viii) agree that, notwithstanding anything to the contrary in this Section 2.23 or in any other provision of any Loan Document, if the proceeds of any Incremental Term Facility are intended to be applied to finance an acquisition or other Investment that is permitted under this Agreement, the conditions to entering into and availability of such Incremental Term Facility (including applicability of customary SunGard or other certain funds conditionality), and the timing of satisfaction or waiver of any such conditions (as between being satisfied or waived upon execution of an amendment evidencing such Incremental Term Facility or upon the making of any Incremental Term Loans thereunder), shall be as agreed to among the Borrower and the Lenders in respect of such Incremental Term Facility but without in any way limiting the other applicable conditions to Incremental Term Facilities specified in this Section 2.23; provided that, in any event, no Event of Default under Section 7.01(b), 7.01(c), 7.01(g) or 7.01(h) exists or would exist immediately after giving effect to the borrowing of such Incremental Term Facility,
83
(ix) agree that, notwithstanding anything to the contrary in this Section 2.23 or in any other provision of any Loan Document, if the proceeds of any Incremental Term Facility are intended to be applied to finance an acquisition or other Investment that is permitted under this Agreement, the Loan Parties shall not be required to make any representations or warranties in connection with such Incremental Term Facility (other than the Specified Representations, which shall be required to be true and correct as of the applicable date of funding of such Incremental Term Facility before and after giving effect to such Incremental Term Facility), unless, and solely to the extent otherwise required by, the lender or lenders providing such Incremental Term Facility,
(x) agree that the proceeds of such Incremental Term Facility may be used for any purpose specified in such Incremental Assumption Agreement, to the extent that such use is otherwise permitted under this Agreement and
(xi) require (but need not require) that the Borrower deliver legal opinions, board resolutions and other closing certificates to the Administrative Agent (as the Administrative Agent shall reasonably request) in connection with such Incremental Term Facility.
To the extent that, except as otherwise provided for in this Section 2.23(c), the terms of any Incremental Term Facility (other than any terms which are applicable only after the Latest Term Maturity Date) are not substantially consistent with the terms of the Initial Term Loans, such terms shall be reasonably satisfactory to the Administrative Agent.
(d) The terms and provisions of any Incremental Revolving Credit Commitment shall be identical to those of the Initial Revolving Credit Commitments except as otherwise set forth herein or in the relevant Incremental Assumption Agreement, it being understood that the Incremental Revolving Credit Lenders may, with respect to any Incremental Revolving Credit Commitment (other than any Incremental Revolving Credit Commitment constituting an increase in the principal amount of the Revolving Credit Commitments of an existing Class, which shall be on the same terms as those applicable to the then-existing Revolving Credit Commitments of the applicable Class) in the relevant Incremental Assumption Agreement:
(i) agree to participate on a less than (but not greater than) pro rata basis with the Initial Revolving Credit Commitments in respect of any prepayments or repayments of Revolving Loans or reductions in Revolving Credit Commitments under this Agreement,
(ii) agree that the final termination date with respect to such Incremental Revolving Credit Commitment may be the same as or later than the Latest Revolving Credit Maturity Date,
(iii) agree that such Incremental Revolving Credit Commitment shall have the same Guarantees as (or fewer, but in no event more, Guarantees than) the Initial Revolving Credit Commitment,
84
(iv) agree that such Incremental Revolving Credit Commitment may be secured by all or a portion of the Collateral, but in no event secured by any assets not constituting Collateral,
(v) agree to interest rate, interest rate margins, fees, original issue discount and interest rate floor as may be determined by the Borrower and the lenders providing such Incremental Revolving Credit Commitments,
(vi) agree that, notwithstanding anything to the contrary in this Section 2.23 or in any other provision of any Loan Document, if the proceeds of any Incremental Revolving Credit Commitment are to be applied to finance an acquisition or other Investment that is permitted under this Agreement, the conditions to entering into and availability of such Incremental Revolving Credit Commitment (including applicability of customary SunGard or other certain funds conditionality), and the timing of satisfaction or waiver of any such conditions (as between being satisfied or waived upon execution of an amendment evidencing such Incremental Revolving Credit Commitment or upon the making of any Incremental Revolving Loans thereunder), shall be as agreed to among the Borrower and the lenders in respect of such Incremental Revolving Credit Commitment but without in any way limiting the other applicable conditions to Incremental Revolving Credit Commitments specified in this Section 2.23; provided that, in any event, no Event of Default under Section 7.01(b), 7.01(c), 7.01(g) or 7.01(h) exists or would exist immediately after giving effect to the borrowing of such Incremental Revolving Credit Commitment,
(vii) agree that, notwithstanding anything to the contrary in this Section 2.23 or in any other provision of any Loan Document, if the proceeds of any Incremental Revolving Credit Commitment are intended to be applied to finance an acquisition or other Investment that is permitted under this Agreement, the Loan Parties shall not be required to make any representations or warranties in connection with the initial funding of such Incremental Revolving Credit Commitment (other than the Specified Representations, which shall be required to be true and correct as of the applicable date of initial funding of such Incremental Revolving Credit Commitment before and after giving effect to such Incremental Revolving Credit Commitment), unless and solely to the extent otherwise required by, the lender or lenders providing such Incremental Revolving Credit Commitment and initial funding,
(viii) agree that the proceeds of such Incremental Revolving Credit Commitment may be used for any purpose specified in such Incremental Assumption Agreement, to the extent that such use is otherwise permitted under this Agreement and
(ix) require (but need not require) that the Borrower deliver legal opinions, board resolutions and other closing certificates to the Administrative Agent (as the Administrative Agent shall reasonably request) in connection with such Incremental Revolving Credit Commitment.
85
To the extent that, except as otherwise provided for in this Section 2.23(d), the terms of any Incremental Revolving Credit Commitment (other than any terms which are applicable only after the Latest Revolving Credit Maturity Date) are not substantially consistent with the terms of the Initial Revolving Credit Commitment, such terms shall be reasonably satisfactory to the Administrative Agent.
(e) No Incremental Term Facility or Incremental Revolving Credit Commitment shall become effective under this Section 2.23 unless (i) on the date of such effectiveness (except as expressly set forth in paragraphs (c) and (d) of this Section 2.23), the conditions set forth in paragraphs (b) of Section 4.01 shall be satisfied, (ii) on the date of such effectiveness, no Event of Default under Section 7.01(b), 7.01(c), 7.01(g) or 7.01(h) exists or would exist immediately after giving effect to the applicable Incremental Indebtedness and (iii) the other conditions precedent set forth in the applicable Incremental Assumption Agreement have been satisfied (or waived as provided in such Incremental Assumption Agreement).
(f) The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Incremental Assumption Agreement. Each of the parties hereto hereby agrees that, upon the effectiveness of any Incremental Assumption Agreement, this Agreement shall be deemed amended to the extent necessary or appropriate in the reasonable opinion of the Administrative Agent and the Borrower to reflect the existence and terms of the Incremental Term Facility and/or Incremental Revolving Credit Commitment and the Incremental Term Loans and/or Incremental Revolving Loans evidenced thereby and the Administrative Agent and the Borrower may revise this Agreement to evidence such amendments.
(g) Each of the parties hereto hereby agrees that the Administrative Agent may, in consultation with the Borrower, take any and all action as may be reasonably necessary to ensure that (i) all Incremental Term Loans constituting an increase in the principal amount of the Term Loans of any existing Class, when originally made, are included in each Borrowing of outstanding Term Loans of such Class on a pro rata basis and (ii) all Incremental Revolving Loans in respect of an increase in the aggregate amount of the Revolving Credit Commitment of any existing Class, when originally made, are included in each Borrowing of outstanding Revolving Loans of such Class on a pro rata basis. This may be accomplished at the discretion of the Administrative Agent by (x) with respect to Incremental Term Loans constituting an increase in the principal amount of an existing Class, requiring each outstanding Eurodollar Term Borrowing of the relevant Class to be converted into an ABR Term Borrowing on the date of such Incremental Term Loan, or by allocating a portion of such Incremental Term Loan to each outstanding Eurodollar Term Borrowing of the relevant Class on a pro rata basis and (y) with respect to Incremental Revolving Loans in respect of an increase in the aggregate amount of the Revolving Credit Commitment of any existing Class, (A) requiring the outstanding Revolving Loans of the relevant Class to be prepaid with the proceeds of a new Revolving Credit Borrowing of such Class, (B) causing the existing Revolving Credit Lenders to assign portions of their outstanding Revolving Loans of such Class to the relevant Incremental Revolving Credit Lenders or (C) any combination of the foregoing. Any conversion of Eurodollar Loans to ABR Loans required by the preceding sentence shall be subject to Section 2.16. In addition, to the extent any Incremental Term Loans constitute an increase in the principal amount of the Initial Term Loans, the scheduled amortization payments under Section 2.11(a)(i) required to be made after the making of such Incremental Term Loans shall be ratably increased by the aggregate principal amount of such Incremental Term Loans.
86
SECTION 2.24 [Intentionally Omitted].
SECTION 2.25 Loan Modification Offers . (a) The Borrower may, by written notice to the Administrative Agent from time to time, make one or more offers (each, a Loan Modification Offer ) to all the Lenders of one or more Classes of Loans and/or Commitments (each Class subject to such a Loan Modification Offer, an Affected Class ) to make one or more Permitted Amendments pursuant to procedures reasonably specified by the Administrative Agent and reasonably acceptable to the Borrower. Such notice shall set forth (i) the terms and conditions of the requested Permitted Amendment and (ii) the date on which such Permitted Amendment is requested to become effective (which shall not be less than 10 Business Days nor more than 30 Business Days after the date of such notice, unless otherwise agreed to by the Administrative Agent). Permitted Amendments shall become effective only with respect to the Loans and/or Commitments of the Lenders of the Affected Class that accept the applicable Loan Modification Offer (such Lenders, the Accepting Lenders ) and, in the case of any Accepting Lender, only with respect to such Lenders Loans and/or Commitments of such Affected Class as to which such Lenders acceptance has been made; provided that no Permitted Amendment shall become effective unless the aggregate principal amount of the Loans and/or Commitments of the Accepting Lenders subject to the Permitted Amendment is greater than (x) with respect to any Term Loans, $10,000,000 and (y) with respect to any Revolving Credit Commitments, $5,000,000.
(b) The Borrower and each Accepting Lender shall execute and deliver to the Administrative Agent a Loan Modification Agreement and such other documentation as the Administrative Agent shall reasonably specify to evidence the acceptance of the Permitted Amendments and the terms and conditions thereof; provided that no Permitted Amendment shall become effective unless the Administrative Agent receives all legal opinions, board resolutions and other closing certificates required pursuant to such Loan Modification Agreement. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Loan Modification Agreement. Each of the parties hereto hereby agrees that, upon the effectiveness of any Loan Modification Agreement, this Agreement shall be deemed amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Permitted Amendment evidenced thereby and only with respect to the applicable Loans and/or Commitments of the Accepting Lenders of the Affected Class, including any amendments necessary to treat the applicable Loans and/or Commitments of the Accepting Lenders of the Affected Class as a new Class of loans and/or commitments hereunder; provided that, in the case of any Loan Modification Offer relating to Revolving Credit Commitments or Revolving Loans, (i) all Borrowings and all prepayments of Revolving Loans shall continue to be made on a ratable basis among all Revolving Credit Lenders, based on the relative amounts of their Revolving Credit Commitments, until the repayment of the Revolving Loans attributable to the non-extended Revolving Credit Commitments on the relevant Maturity Date, (ii) the allocation of the participation exposure with respect to any then-existing or subsequently issued or made Letter of Credit as between the Revolving Credit Commitments of such new Class and the remaining Revolving Credit Commitments shall be made on a ratable basis in accordance with the relative amounts thereof until the Maturity Date relating to such non-extended Revolving Credit Commitments has occurred and (iii) the L/C Maturity Date may not be extended without the prior written consent of each Issuing Bank. If the Aggregate Revolving Credit Exposure exceeds the Total Revolving Credit Commitment as a result of the occurrence of the Maturity Date with respect to any Class of Revolving Credit Commitments while an extended Class of Revolving Credit Commitments remains outstanding, the Borrower shall make such payments and arrangements as may be required by Section 2.13(a) to eliminate such excess on such Maturity Date.
87
(c) Permitted Amendments shall mean any or all of the following: (i) an extension of the final maturity date and/or amortization applicable to the applicable Loans and/or Commitments of the Accepting Lenders, (ii) a change in the Applicable Margin (and any Adjusted LIBO Rate floor) with respect to the applicable Loans and/or Commitments of the Accepting Lenders, (iii) a change in any fees payable to (or the inclusion of additional fees to be payable to) the Accepting Lenders and (iv) such amendments to this Agreement and the other Loan Documents as shall be appropriate, in the reasonable judgment of the Administrative Agent and the Borrower, to provide the rights and benefits of this Agreement and other Loan Documents to each new Class of loans and/or commitments resulting therefrom.
SECTION 2.26 Defaulting Lenders . 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:
(a) Such Defaulting Lenders right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders.
(b) 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, pursuant to Article VII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 2.18 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 hereunder; third, to Cash Collateralize the Issuing Banks Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.22(l); fourth, as the Borrower may request (so long as no Default or Event of Default shall have occurred and be continuing), 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 Lenders 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 2.22(l); sixth, to the payment of any amounts owing to the Lenders or the Issuing Bank as a result of any judgment of a court of competent jurisdiction obtained by any Lender or the Issuing Bank against such Defaulting Lender as a result of such Defaulting Lenders 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 Lenders breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as
88
otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or L/C Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.01 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Disbursements owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Disbursements owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in L/C Obligations are held by the Lenders pro rata in accordance with the Commitments under the applicable Facility without giving effect to Section 2.22(l). 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 2.26(b) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
ARTICLE III
Representations and Warranties
Each of Holdings and the Borrower represents and warrants to the Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders that:
SECTION 3.01 Organization; Powers . Each of Holdings, the Borrower and the other Restricted Subsidiaries (a) is duly organized, validly existing and (to the extent the concept is applicable in such jurisdiction) in good standing 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 and as proposed to be conducted, (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required 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, except, in the case of clauses (b) and (c) above, where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.02 Authorization . (a) This Agreement and the other Loan Documents have been duly authorized by all requisite corporate, limited liability company, partnership and, if required, stockholder, partner or member action, in each case, to the extent applicable, by each of Holdings, the Borrower and the other Loan Parties party thereto and (b) this Agreement and the other Loan Documents do not (i) violate (A) any applicable material provision of law, statute, rule or regulation, (B) any applicable provision of the certificate, articles of incorporation, partnership agreement or other constitutive documents or by-laws of Holdings, the Borrower or any other Restricted Subsidiary, (C) any applicable order of any Governmental Authority or (D) any applicable provision of any material indenture, agreement or other instrument to which Holdings, the Borrower or any other Restricted Subsidiary is a party or by which any of them or any of their property is or may be bound, (ii) conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under any such material indenture, agreement or other instrument or (iii) result in the creation or imposition
89
of any Lien upon or with respect to any property or assets now owned or hereafter acquired by Holdings, the Borrower or any other Restricted Subsidiary (other than any Lien created hereunder or under the Security Documents), except, in the case of clauses (ii) and (iii) above, where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
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 a party thereto will constitute, a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
SECTION 3.04 Financial Statements . The Borrower has heretofore furnished to the Administrative Agent (i) the audited consolidated balance sheets and related statements of comprehensive income, changes in stockholders equity and cash flows of the Borrower and its consolidated Subsidiaries for the fiscal years ended on December 31, 2015, 2016 and 2017 available as of the date of this Agreement and (ii) the unaudited balance sheet and related statements of comprehensive income and cash flows of the Borrower and its consolidated Subsidiaries for the fiscal quarters ending on March 31, 2018, June 30, 2018 and September 30, 2018. Such financial information (i) presents fairly, in all material respects, the financial condition and results of operations and cash flows of the Borrower and its consolidated Subsidiaries, as of such dates and for such periods and (ii) was prepared in accordance with GAAP applied on a consistent basis, subject, in the case of unaudited financial statements, to year-end audit adjustments and the absence of footnotes.
SECTION 3.05 No Material Adverse Change . Since December 31, 2017, no event, change or condition has occurred that has had, or would reasonably be expected to have, a Material Adverse Effect.
SECTION 3.06 Title to Properties; Possession Under Leases . (a) Each of Holdings, the Borrower and the other Restricted Subsidiaries has good and valid title to, or valid leasehold interests in, all its material properties and assets (including all Mortgaged Property), except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes, and except where the failure to have such title could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. All such material properties and assets are free and clear of Liens, other than Permitted Liens.
(b) Each of Holdings, the Borrower and the other Restricted Subsidiaries has complied with all material obligations under all material leases to which it is a party and all such material leases are in full force and effect. Each of Holdings, the Borrower and the other Restricted Subsidiaries enjoys peaceful and undisturbed possession under all such material leases.
90
(c) As of the Closing Date, none of Holdings, the Borrower and the other Restricted Subsidiaries has received any written notice of, nor do Holdings and the Borrower and the other Restricted Subsidiaries have any knowledge of, any pending or contemplated condemnation proceeding affecting the Mortgaged Properties or any sale or disposition thereof in lieu of condemnation.
(d) As of the Closing Date, none of Holdings, the Borrower and the other Restricted 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.
SECTION 3.07 Subsidiaries . Schedule 3.07 sets forth as of the Closing Date a list of all Subsidiaries and the percentage ownership interest of Holdings, directly or indirectly, therein. The shares of capital stock or other ownership interests so indicated on Schedule 3.07 are fully paid and nonassessable.
SECTION 3.08 Litigation; Compliance with Laws . (a) Except as set forth on Schedule 3.08, there are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of Holdings or the Borrower, threatened in writing against or affecting Holdings, the Borrower or any other Restricted Subsidiary or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) which would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
(b) Since the date of this Agreement, there has been no change in the status of the matters disclosed on Schedule 3.08 that, individually or in the aggregate, has resulted in a Material Adverse Effect.
(c) No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required in connection with the Transactions, except for (a) the filing of Uniform Commercial Code financing statements and filings with the United States Patent and Trademark Office and the United States Copyright Office, (b) recordation of the Mortgages and (c) such as have been made or obtained and are in full force and effect.
(d) None of Holdings, the Borrower or any of the other Restricted Subsidiaries or any of their respective material 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 or any restrictions of record or agreements affecting the Mortgaged Property, or is in default with respect to any judgment, writ, injunction, decree or order of any Governmental Authority, where such violation or default would reasonably be expected to result in a Material Adverse Effect.
SECTION 3.09 Agreements . (a) None of Holdings, the Borrower or the other Restricted Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted or would reasonably be expected to result in a Material Adverse Effect.
(b) None of Holdings, the Borrower or the other Restricted Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default has resulted or would reasonably be expected to result in a Material Adverse Effect.
91
SECTION 3.10 Federal Reserve Regulations . (a) None of Holdings, the Borrower or the other Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation T, U or X.
SECTION 3.11 Investment Company Act . None of the Loan Parties is an investment company as defined in, or is required to be registered as an investment company under, the Investment Company Act of 1940, as amended.
SECTION 3.12 Tax Returns . Each of Holdings, the Borrower and the other Restricted Subsidiaries has filed or caused to be filed all federal and all material state, local and foreign Tax returns or materials required to have been filed by it and has paid or caused to be paid all material Taxes due and payable by it and all material assessments received by it, except Taxes that are being contested in good faith by appropriate proceedings and for which Holdings, the Borrower or such Restricted Subsidiary, as applicable, shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP.
SECTION 3.13 No Material Misstatements; Beneficial Ownership Certification . (a) As of the Closing Date, no information (other than projections, other forward-looking and/or projected information and information of a general economic or industry-specific nature) that has been made available to the Lenders by Holdings, the Borrower, or any of their respective representatives in connection with the Transactions or the negotiation of the Loan Documents, when taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements were made (after giving effect to all supplements and updates thereto from time to time); provided that such projections have been or will be prepared in good faith based upon accounting principles consistent with the historical audited financial statements of Holdings and the Borrower and upon assumptions that were reasonable and believed at the time furnished (it being recognized by the Lenders that such projections are not to be viewed as facts and are subject to significant uncertainties and contingencies many of which are beyond the control of the Loan Parties, that no assurance can be given that any particular financial projections will be realized, that actual results may differ from projected results and that such differences may be material).
(b) As of the Closing Date, the information included in the Beneficial Ownership Certification is true and correct in all respects.
92
SECTION 3.14 Employee Benefit Plans . Each of Holdings, the Borrower and the other Restricted Subsidiaries and their ERISA Affiliates are in compliance with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder, except as would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. No ERISA Event has occurred or is reasonably expected to occur that would reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect. The present value of all benefit liabilities under each Plan (based on the assumptions used for purposes of Accounting Standards Codification No. 718) did not, as of the last annual valuation date applicable thereto, exceed the fair market value of the assets of such Plan by an amount that, if required to be paid by Holdings, the Borrower or any other Restricted Subsidiary, would reasonably be expected to have a Material Adverse Effect, and the present value of all benefit liabilities of all underfunded Plans (based on the assumptions used for purposes of Accounting Standards Codification No. 718) did not, as of the last annual valuation dates applicable thereto, exceed the fair market value of the assets of all such underfunded Plans by an amount that, if required to be paid by Holdings, the Borrower or any other Restricted Subsidiary, would reasonably be expected to have a Material Adverse Effect.
SECTION 3.15 Environmental Matters . Except with respect to any matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, none of Holdings, the Borrower or the other Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any Environmental Permit, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.
SECTION 3.16 Security Documents . (a) The Guarantee and Collateral Agreement, upon execution and delivery thereof by the parties thereto, will create in favor of the Collateral Agent, for the benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Guarantee and Collateral Agreement) and the proceeds thereof and (i) when the Pledged Collateral (as defined in the Guarantee and Collateral Agreement) is delivered to the Collateral Agent, the Liens created under Guarantee and Collateral Agreement shall constitute fully perfected first priority Liens on, and security interests in, all right, title and interest of the Loan Parties in such Pledged Collateral, in each case prior and superior in right to any other person, and (ii) when financing statements in appropriate form are filed in the offices specified on Schedule 3.16(a), the Lien created under the Guarantee and Collateral Agreement will constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral (other than Registered Intellectual Property, as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other person, other than with respect to Permitted Liens.
(b) Upon the recordation of the IP Security Agreement with the United States Patent and Trademark Office and the United States Copyright Office, together with the Uniform Commercial Code financing statements in appropriate form filed in the offices specified on Schedule 3.16(a), any Lien created under the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Registered Intellectual Property (as defined in the Guarantee and Collateral Agreement) to the extent in which a security interest may be perfected by making such filings, in each case prior and superior in right to any other person, other than with respect to 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 date hereof).
93
(c) The Mortgages are effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable Lien and security interest on all of the Loan Parties right, title and interest in and to the Mortgaged Property thereunder and the proceeds thereof, and when the Mortgages are recorded in the offices specified on Schedule 3.16(c), the Mortgages shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Mortgaged Property and the proceeds thereof, in each case prior and superior in right to any other person, other than with respect to the rights of persons pursuant to Permitted Liens.
(d) Each Security Document, other than any Security Document referred to in the preceding paragraphs of this Section, upon execution and delivery thereof by the parties thereto and the making of the filings and taking of the other actions provided for therein, will be effective under applicable law to create in favor of the Collateral Agent, for the benefit of the Secured Parties, a valid and enforceable security interest in the Collateral subject thereto, and will constitute a fully perfected security interest in all right, title and interest of the Loan Parties in the Collateral subject thereto, prior and superior to the rights of any other Person, except for rights secured by Permitted Liens.
SECTION 3.17 Intellectual Property; Licenses, etc. Each of Holdings, the Borrower and the other Restricted Subsidiaries owns, licenses or possesses the right to use, all of the trademarks, service marks, trade names, copyrights, patents, and other intellectual property rights (collectively, IP Rights ) that are used in and necessary for the operation of its respective business, as currently conducted, and, to the knowledge of Holdings and the Borrower, such IP Rights do not violate the rights of any other Person, except to the extent such failure to own, license or possess or such violations, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. To the knowledge of Holdings and the Borrower, the conduct of the business of each of Holdings, the Borrower and the other Restricted Subsidiaries as currently conducted does not infringe upon or violate any rights held by any other Person, except for such infringements and violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of Holdings and the Borrower, threatened, which, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
SECTION 3.18 Labor Matters . As of the Closing Date, there are no strikes, lockouts or slowdowns against Holdings, the Borrower or any other Restricted Subsidiary pending or, to the knowledge of Holdings and the Borrower, threatened, except as would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. Except as would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, (a) the hours worked by and payments made to employees of each of Holdings, the Borrower and the other Restricted Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable federal, state, local or foreign law dealing with such matters; (b) all payments due from each of Holdings, the Borrower and the other Restricted Subsidiaries, or for which any claim may be made against Holdings, the Borrower or any other
94
Restricted Subsidiary, 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, such Borrower or such Restricted Subsidiary; and (c) the consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which Holdings, the Borrower or any other Restricted Subsidiary is bound.
SECTION 3.19 Solvency . Immediately after the consummation of the Transactions on the Closing Date (after giving effect to the making of each Loan made on the Closing Date and after giving effect to the application of the proceeds thereof, including the payment of the Special Dividend), (a) the fair value of the assets of Holdings and the Subsidiaries, taken as a whole, exceeds the sum of all debts (including subordinated debt or contingent liabilities) of Holdings and the Subsidiaries, taken as a whole; (b) the present fair saleable value of the assets of Holdings and the Subsidiaries, taken as a whole, is greater than the amount that will be required to pay the probable liability on existing debts (including subordinated debt or contingent liabilities) of Holdings and the Subsidiaries, taken as a whole, as such debts become absolute and matured, (c) the capital of Holdings and the Subsidiaries, taken as a whole, is not unreasonably small in relation to the business of Holdings and the Subsidiaries, taken as a whole, and (d) Holdings and the Subsidiaries, taken as a whole, do not intend to incur, or believe that they will incur, debts and liabilities (including current obligations and contingent liabilities) beyond their ability to pay such debt as they mature in the ordinary course of business.
SECTION 3.20 Sanctioned Persons; PATRIOT Act; FCPA . (a) None of Holdings, the Borrower or the other Subsidiaries nor, to its knowledge, any director, officer, agent, employee or Affiliate of any of the foregoing is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department ( OFAC ) or sanctions under other similar applicable laws of other jurisdictions in which it conducts business with the result that any Lender would be in violation of applicable law; and none of Holdings, the Borrower and the other Subsidiaries intends to 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 or sanctions under other similar applicable laws of other jurisdictions in which it conducts business with the result that any Lender or the Issuing Bank would be in violation of applicable law.
(b) Each of Holdings, the Borrower and the other Subsidiaries is in compliance, in all material respects, with the USA PATRIOT Act and all other laws, rules, and regulations of any jurisdiction applicable to Holdings or any of its Affiliates from time to time concerning or relating to money laundering.
(c) No proceeds of any Loan will be authorized for use, directly, or to its knowledge indirectly, for any payments to any officer or employee of a government, or government-controlled entity, 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 the United States Foreign Corrupt Practices Act of 1977, as amended, or any other applicable anti-bribery or anti-corruption law.
95
SECTION 3.21 Insurance . Holdings, the Borrower and the other Restricted Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice when taken as a whole. As of the Closing Date, such insurance is in full force and effect and all premiums have been duly paid.
SECTION 3.22 Use of Proceeds . The Borrower will (a) use the proceeds of the Term Loans and Revolving Loans and will request the issuance of Letters of Credit only for the purposes specified in Section 5.08 and (b) use the proceeds of Incremental Term Loans and Incremental Revolving Loans only for the purposes specified in the applicable Incremental Assumption Agreement.
ARTICLE IV
Conditions of Lending
The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder are subject to the satisfaction (or waiver) of the following conditions:
SECTION 4.01 All Credit Events . On the date of each Borrowing (other than a conversion or a continuation of a Borrowing), including on the date of each issuance, amendment, extension or renewal of a Letter of Credit (other than any amendment, extension or renewal of a Letter of Credit that does not increase the face amount of such Letter of Credit) (each such event being called a Credit Event ):
(a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.02) or, in the case of the issuance, amendment, extension or renewal of a Letter of Credit, the Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance, amendment, extension or renewal of such Letter of Credit as required by Section 2.22(b).
(b) Subject to Section 2.23, the representations and warranties set forth in Article III and in each other Loan Document shall be true and correct (i) in the case of the representations and warranties qualified as to materiality, in all respects, and (ii) otherwise, in all material respects, in each case on and as of the date of such Credit Event 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 as of such earlier date.
(c) At the time of and immediately after such Credit Event (subject to Section 2.23), no Default or Event of Default shall have occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and warranty by the Borrower and Holdings on the date of such Credit Event as to the matters specified in paragraphs (b) and (c) of this Section 4.01.
96
SECTION 4.02 First Credit Event . On the Closing Date:
(a) The Administrative Agent (or its counsel) shall have received (i) from each Loan Party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence reasonably satisfactory to the Administrative Agent (which may include facsimile or PDF transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement, (ii) duly executed copies (or facsimile or PDF copies) of the Security Documents by each Loan Party party thereto, (iii) duly executed copies (or facsimile or PDF copies) of any promissory notes requested by a Lender pursuant to Section 2.04(e) at least one Business Day prior to the Closing Date, payable to each such requesting Lender and (iv) written opinions of (A) Willkie Farr & Gallagher LLP, counsel for the Borrower and (B) local counsel in each jurisdiction in which a Loan Party is organized or a Mortgaged Property is located and the laws of which are not covered by the opinion letter referred to in the immediately foregoing clause (A), in each case, dated as of the Closing Date, addressed to the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders and in form and substance reasonably satisfactory to the Administrative Agent and covering such other matters relating to the Loan Documents and the Transactions as the Administrative Agent shall reasonably request, and Holdings and the Borrower hereby request such counsel to deliver such opinions.
(b) The Administrative Agent shall have received the financial statements referenced in Section 3.04.
(c) The Administrative Agent shall have received a solvency certificate from a Financial Officer of the Borrower in the form attached hereto as Exhibit G.
(d) The Administrative Agent shall have received (a) at least three Business Days prior to the Closing Date, all documentation and other information with respect to the Loan Parties as has been requested in writing at least 10 calendar days prior to the Closing Date by the Administrative Agent or the Arranger required by regulatory authorities under applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act and (b) at least three Business Days prior to the Closing Date, a Beneficial Ownership Certification.
(e) The Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, certification of formation or other constitutive document, as applicable, including all amendments thereto, of each Loan Party, certified as of a recent date by the Secretary of State of the state of its organization and a certificate as to the good standing of each Loan Party as of a recent date, from such Secretary of State (or, in each case, a comparable governmental official), if available; (ii) a certificate of the Secretary, Assistant Secretary or other Responsible Officer of each Loan Party dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws, or operating, management or partnership agreement, as applicable, 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 (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors, board of managers or members of other governing body, as applicable, of such Loan Party authorizing the execution, delivery and performance of the Loan Documents 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, (C) that the certificate or articles of incorporation or formation or other constitutive documents, as applicable, of such
97
Loan Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) 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 (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary, Assistant Secretary or other Responsible Officer executing the certificate pursuant to clause (ii) above.
(f) The Administrative Agent shall have received a certificate, dated the Closing Date and signed by a Financial Officer of the Borrower, confirming compliance with the condition precedent set forth in paragraphs (b) and (c) of Section 4.01.
(g) The Administrative Agent shall have received all Fees and other fees and amounts due and payable on or prior to the Closing Date, including, to the extent invoices have been presented no later than three Business Days before the Closing Date, reimbursement or payment of all out-of-pocket expenses (including fees, charges and disbursements of counsel), required to be reimbursed or paid by any Loan Party hereunder, under any other Loan Document or under any other agreement entered into by any of the Arranger, the Administrative Agent and the Lenders, on the one hand, and any of the Loan Parties, on the other hand.
(h) The Guarantee and Collateral Agreement shall have been duly executed by each Loan Party that is to be a party thereto and shall be in full force and effect on the Closing Date. The Collateral Agent, on behalf of the Secured Parties, shall have a security interest in the Collateral of the type and priority described in the Guarantee and Collateral Agreement.
(i) Each document (including any Uniform Commercial Code financing statements but excluding any Mortgages) required by the Security Documents or under law or reasonably requested by the Collateral Agent to be filed, registered or recorded in order to create in favor of the Collateral Agent, for the benefit of the Lenders and the other Secured Parties, a perfected Lien on the Collateral described therein, prior and superior in right to any other person (subject to Permitted Liens), shall have been filed, registered or recorded or delivered to the Administrative Agent in proper form for filing, registration or recordation. The Collateral Agent shall have received all Pledged Collateral (as defined in the Guarantee and Collateral Agreement) required to be delivered to the Collateral Agent pursuant to the Guarantee and Collateral Agreement, together with undated proper instruments of assignment duly executed by the applicable Loan Party in blank and such other instruments or documents as the Collateral Agent may reasonably request.
(j) The Collateral Agent shall have received a Perfection Certificate with respect to the Loan Parties dated the Closing Date and duly executed by a Responsible Officer of Holdings, and shall have received the results of a recent lien search made with respect to the Loan Parties in the states (or other jurisdictions) of formation of such persons, in which the chief executive office of each such person is located and in the other jurisdictions in which such persons maintain property, as applicable, in each case as indicated on such Perfection Certificate, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence reasonably satisfactory to the Collateral Agent that the Liens indicated in any such financing statement (or similar document) would be Permitted Liens or have been or will be contemporaneously released or terminated.
98
(k) Other than as set forth in Section 5.11, (i) each of the Security Documents, in form and substance reasonably satisfactory to the Lenders, relating to each of the Mortgaged Properties shall have been duly executed by the parties thereto and delivered to the Collateral Agent and shall be in full force and effect, (ii) each of such Mortgaged Properties shall not be subject to any Lien other than Permitted Liens, (iii) each of such Security Documents shall have been filed and recorded in the recording office as specified on Schedule 3.16(c) (or a fully paid pro forma lenders title insurance policy, in form and substance reasonably acceptable to the Collateral Agent, insuring such Security Document as a first lien on such Mortgaged Property (subject to any Permitted Liens) shall have been received by the Collateral Agent) and, in connection therewith, the Collateral Agent shall have received evidence reasonably satisfactory to it of each such filing and recordation and (iv) the Collateral Agent shall have received (A) a policy or policies of title insurance issued by a nationally recognized title insurance company, together with such endorsements, coinsurance and reinsurance as may be reasonably requested by the Collateral Agent and the Lenders, insuring the Mortgages as valid first liens on the Mortgaged Properties, free of Liens other than Permitted Liens, together with surveys and legal opinions required to be furnished pursuant to the terms of the Mortgages or as reasonably requested by the Collateral Agent and (B) if any such Mortgaged Property is a Flood Hazard Property, the Flood Insurance Documents related thereto.
(l) The Administrative Agent shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.02 and the applicable provisions of the Security Documents, in form and substance reasonably satisfactory to the Administrative Agent.
Notwithstanding the foregoing, if, after the use by the Loan Parties of commercially reasonable efforts to cause the conditions relating to the collateral and guarantee matters set forth in clauses (i), (k) and (l) hereof to be satisfied as of the Closing Date (other than any Collateral the security interest in which may be perfected by the filing of a UCC financing statement, filings in the United States Patent and Trademark Office and the United States Copyright Office or the delivery of stock certificates and the security agreement giving rise to the security interest therein), such conditions shall not be a condition precedent to the effectiveness of this Agreement on the Closing Date, but shall be accomplished as promptly as practicable after the Closing Date and in any event within the period specified on Schedule 5.11 or such later date as the Administrative Agent may agree to in its sole discretion.
ARTICLE V
Affirmative Covenants
Each of Holdings and the Borrower covenants and agrees with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts (other than contingent amounts not yet due) payable under any Loan Document shall have been paid in full and all Letters of Credit have been Cash Collateralized or canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, each of Holdings and the Borrower will, and will cause each of the other Restricted Subsidiaries to:
99
SECTION 5.01 Existence; Compliance with Laws; Businesses 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 as otherwise expressly permitted under Section 6.05.
(b) Except as would not reasonably be expected to have a Material Adverse Effect, do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights and trademarks and trade names required for the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply with all applicable laws, rules, regulations and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted (including ERISA, FCPA, regulations under OFAC, anti-terrorism laws and anti-money laundering laws and laws related to sanctioned persons); and at all times maintain and preserve all property required for the conduct of such business and keep such property in good repair, working order and condition and 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 may be properly conducted at all times.
SECTION 5.02 Insurance . (a) Maintain insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law.
(b) Cause all such policies of casualty or liability insurance to be endorsed or otherwise amended to, in the case of any casualty insurance policy, include a customary lenders loss payable endorsement and, in the case of any liability insurance policy (other than workers compensation, director and officer liability or other policies in which such endorsements are not customary), name the Collateral Agent, on behalf of the Secured Parties, as additional insured, in each case in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent, which endorsement, in the case of casualty insurance policies, shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Administrative Agent or the Collateral Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to any Loan Party under such policies directly to the Collateral Agent; cause all such policies to provide that none of the Loan Parties, the Administrative Agent, the Collateral Agent nor any other party shall be a coinsurer thereunder and to contain a replacement cost endorsement, without any deduction for depreciation, and such other provisions as the Administrative Agent or the Collateral Agent may reasonably require from time to time to protect their interests; deliver original or certified copies of all such casualty and liability policies to the Collateral Agent; use commercially reasonable efforts to cause each such policy to provide that it shall not be canceled, modified or not renewed (i) by reason of nonpayment of premium upon not less than 10 days prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent (giving the Administrative Agent and the Collateral Agent the right to cure defaults in the payment of premiums) or (ii) for any other reason upon not less than 30 days prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent, deliver to the Administrative Agent and the
100
Collateral Agent, prior to the cancellation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Administrative Agent and the Collateral Agent) together with evidence satisfactory to the Administrative Agent and the Collateral Agent of payment of the premium therefor.
(c) With respect to any Mortgaged Property that is at any time (i) a Flood Hazard Property, obtain flood insurance in such total amount as the Administrative Agent, the Collateral Agent or the Required Lenders may from time to time reasonably require, and otherwise comply with the Flood Insurance Laws, or (ii) a Zone 1 area, obtain earthquake insurance in such total amount as the Administrative Agent, the Collateral Agent or the Required Lenders may from time to time reasonably require.
(d) With respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the broad form CGL endorsement and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than that which is customary for companies in the same or similar businesses operating in the same or similar locations, naming the Collateral Agent as an additional insured, on forms reasonably satisfactory to the Collateral Agent.
(e) Notify the Administrative Agent and the Collateral Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under Section 5.02(b) is taken out by any Loan Party; and promptly deliver to the Administrative Agent and the Collateral Agent a duplicate original copy of such policy or policies.
SECTION 5.03 Obligations and Taxes . Except as would not reasonably be expected to have a Material Adverse Effect, pay its Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all Taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided , however , that such payment and discharge shall not be required with respect to any such Tax, assessment, charge, levy or claim so long as (a) the validity or amount thereof shall be contested in good faith by appropriate proceedings and such contest operates to suspend collection of the contested obligation, Tax, assessment or charge and enforcement of a Lien, (b) in the case of a Mortgaged Property, there is no risk of forfeiture of such property and (c) Holdings, the Borrower or the Restricted Subsidiary, as applicable, has set aside on its books adequate reserves with respect thereto in accordance with GAAP.
101
SECTION 5.04 Financial Statements, Reports, etc . Furnish to the Administrative Agent for distribution to each Lender:
(a) within 120 days after the end of each fiscal year, the consolidated balance sheet and related statements of comprehensive income, changes in stockholders equity and cash flows showing the financial condition and results of operations of the Borrower and its consolidated Subsidiaries as of the close of and during such fiscal year on a consolidated basis, audited by independent certified public accountants of recognized national standing and accompanied by an opinion of such accountants (which shall not be subject to (i) a going concern or like qualification, exception or emphasis (other than with respect to, or resulting from, (A) an upcoming maturity date of any Indebtedness of the Borrower and its Subsidiaries occurring within one year from the time such opinion is delivered, (B) solely with respect to the Term Facility, any actual breach of the financial maintenance covenant set forth in Section 6.10 or, with respect to any Indebtedness, any potential inability to satisfy a financial maintenance covenant on a future date or in a future period or (C) the activities of Unrestricted Subsidiaries) or (ii) a qualification, exception or emphasis as to the scope of the relevant audit) to the effect that such consolidated financial statements have been prepared in accordance with GAAP and present fairly in all material respects the consolidated financial position and consolidated results of operations, stockholders equity and cash flows of the Borrower and its consolidated Subsidiaries in accordance with GAAP consistently applied, together with comparative figures for the immediately preceding fiscal year, together with a management discussion and analysis of financial condition and result of operations in reasonably customary form and substance (it being understood that all of the foregoing information may be furnished in the form of a Form 10-K and only the information required by such Form 10-K shall be required by this Section 5.04(a));
(b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, the consolidated balance sheet and related statements of comprehensive income and change in cash flows showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of operations of the Borrower and its consolidated Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, and comparative figures for the same periods in the immediately preceding fiscal year, all certified by one of its Financial Officers as fairly presenting in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments (it being understood that all of the foregoing information may be furnished in the form of a Form 10-Q and only the information required by such Form 10-Q shall be required by this Section 5.04(b));
(c) concurrently with any delivery of financial statements under paragraph (a) or (b) above at a time when there are one or more Unrestricted Subsidiaries, consolidating financial statements reflecting the adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries from such consolidated financial statements;
(d) concurrently with any delivery of financial statements under paragraph (a) or (b) above, a Compliance Certificate (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) setting forth computations in detail reasonably satisfactory to the Administrative Agent demonstrating compliance with the financial maintenance covenant contained in Section 6.10 only to the extent then in effect and, in the case of a certificate delivered with the financial statements required by paragraph (a) above with respect to a fiscal year ending on or after December 31, 2019, setting forth the Borrowers calculation of Excess Cash Flow;
102
(e) prior to the consummation of a Qualified Public Offering, within 90 days after the end of each fiscal year of the Borrower (beginning with the fiscal year ending December 31, 2018), a detailed consolidated budget for the then-current fiscal year (including a projected consolidated balance sheet and related statements of projected operations and cash flows as of the end of and for such then-current fiscal year and setting forth the assumptions used for purposes of preparing such budget) and, promptly when available, any significant revisions of such budget;
(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Holdings, the Borrower or any other Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of the Securities and Exchange Commission, or with any national securities exchange, or distributed to its shareholders, as the case may be;
(g) promptly after the receipt thereof by Holdings, the Borrower or any other Subsidiary, a copy of any management letter received by any such person from its certified public accountants and the managements response thereto;
(h) promptly after the request by any Lender, all documentation and other information that such Lender reasonably requests in order to comply with its ongoing obligations under applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act;
(i) promptly after the reasonable request by the Administrative Agent or any Lender, copies of (i) any documents described in Section 101(k)(1) of ERISA that Holdings, the Borrower, the other Restricted Subsidiaries or any of their ERISA Affiliates may request with respect to any Multiemployer Plan and (ii) any notices described in Section 101(l)(1) of ERISA that Holdings, the Borrower, the other Restricted Subsidiaries or any of their ERISA Affiliates may request with respect to any Multiemployer Plan; provided that if Holdings, the Borrower, the other Restricted Subsidiaries or any of their ERISA Affiliates has not requested such documents or notices from the administrator or sponsor of the applicable Multiemployer Plan, Holdings, the Borrower, the other Restricted Subsidiaries or the applicable ERISA Affiliate shall promptly make a request for such documents or notices from such administrator or sponsor and shall provide copies of such documents and notices promptly after receipt thereof; and
(j) promptly, from time to time, (i) such other information regarding the operations, business affairs and financial condition of Holdings, the Borrower or any other Restricted Subsidiary, or compliance with the terms of any Loan Document, and (ii) information and documentation necessary for purposes of compliance with the Beneficial Ownership Regulation, in each case, as the Administrative Agent or any Lender, acting through the Administrative Agent, may reasonably request.
Information required to be delivered pursuant to this Section 5.04 shall be deemed to have been delivered if such information, or one or more annual or quarterly reports containing such information, shall have been posted by the Administrative Agent on SyndTrak, IntraLinks or a similar site to which the Lenders have been granted access; provided that upon written request by the Administrative Agent, Holdings shall deliver paper copies of such documents to the
103
Administrative Agent for further distribution to each Lender until a written request to cease delivering paper copies is given by the Administrative Agent. Information required to be delivered pursuant to this Section 5.04 may also be delivered by electronic communications pursuant to procedures approved by the Administrative Agent. Each Lender shall be solely responsible for timely accessing posted documents and maintaining its copies of such documents.
SECTION 5.05 Notices . Promptly after any Responsible Officer of the Borrower obtains knowledge thereof, the Borrower will furnish to the Administrative Agent (for the distribution to each Issuing Bank and each Lender) written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto;
(b) to the extent permitted by law, 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, against Holdings or any of its Affiliates that would reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, would reasonably be expected to result in a Material Adverse Effect;
(d) any development that has resulted in, or would reasonably be expected to result in, a Material Adverse Effect; and
(e) any change in the Borrowers public corporate rating by S&P, in the Borrowers public corporate family rating by Moodys or in the public ratings of the Credit Facilities by S&P or Moodys, or any notice from either such agency indicating its intent to effect such a change or to place Holdings or the Credit Facilities on a CreditWatch or WatchList or any similar list, in each case with negative implications, or its cessation of, or its intent to cease, rating the Borrower or the Credit Facilities.
SECTION 5.06 Information Regarding Collateral . (a) Furnish to the Administrative Agent prompt written notice (and in any event within 30 calendar days or such longer period as the Administrative Agent shall agree in its sole discretion) of any change (i) in any Loan Partys corporate name, (ii) in any Loan Partys identity or corporate structure or (iii) in any Loan Partys federal Taxpayer Identification Number or organizational identification number. Holdings and the Borrower agree to provide the Administrative Agent with prior written notice (or such later notice as the Administrative Agent shall agree in its sole discretion) of any change in the jurisdiction of organization or formation of any Loan Party. Holdings and the Borrower agree not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise 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. Holdings and the Borrower also agree promptly to notify the Administrative Agent if any material portion of the Collateral is damaged or destroyed.
104
(b) Each year, at the time of delivery of the annual financial statements with respect to the preceding fiscal year pursuant to Section 5.04(a), deliver to the Administrative Agent a Compliance Certificate setting forth the information required pursuant to the Perfection Certificate or confirming that there has been no change in such information since the date of the Perfection Certificate delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section 5.06.
SECTION 5.07 Maintaining Records; Access to Properties and Inspections; Maintenance of Ratings . (a) Keep proper books of record and account in which full, true and correct entries in conformity with GAAP (or applicable local standards) in all material respects and all requirements of law in all material respects are made of all material dealings and transactions in relation to its business and activities. Each Loan Party will, and will cause each of its subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender to visit and inspect, at the cost of the Borrower, the financial records and the properties of such person at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Administrative Agent or any Lender to discuss the affairs, finances and condition of such person with the officers thereof and independent accountants therefor; provided that no more than one annual visit per calendar year shall be at the cost of the Borrower if no Event of Default shall have occurred and be continuing at the time of such visit.
(b) Use commercially reasonable efforts to cause the Credit Facilities to be continuously and publicly rated (but not any specific rating) by S&P and Moodys and use commercially reasonable efforts to maintain a public corporate rating (but not any specific rating) from S&P and a public corporate family rating (but not any specific rating) from Moodys, in each case in respect of the Borrower.
SECTION 5.08 Use of Proceeds . (a) Use the proceeds of the Term Loans (i) to finance the payment of the Special Dividend and the payment of Transactions Costs and (ii) with respect to any amounts not used pursuant to the foregoing clause (i), for general corporate purposes of the Borrower and its Restricted Subsidiaries (including for capital expenditures, the payment of transaction fees and expenses, Permitted Acquisitions, Restricted Payments, refinancing of Indebtedness and any other transactions not prohibited by this Agreement), (b) use the proceeds of the Revolving Loans (including Letters of Credit) for working capital needs and for other general corporate purposes of the Borrower and its Restricted Subsidiaries (including for capital expenditures, the payment of transaction fees and expenses, Permitted Acquisitions, Restricted Payments, refinancing of Indebtedness and any other transactions not prohibited by this Agreement) and (c) use the proceeds of Incremental Term Loans and Incremental Revolving Loans only for the purposes specified in the applicable Incremental Assumption Agreement.
SECTION 5.09 Compliance with Environmental Laws . Except as would not reasonably be expected to result in a Material Adverse Effect, comply, and cause all lessees and other persons occupying or operating any properties of Holdings, the Borrower and the other Subsidiaries to comply, in all material respects with all Environmental Laws applicable to its operations and properties; obtain and renew all material Environmental Permits necessary for its operations and properties; and conduct any response or remedial action required under and in accordance with Environmental Laws; provided , however , that none of Holdings, the Borrower
105
or the other Subsidiaries shall be required to undertake any response or remedial action required under Environmental Laws to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP, except to the extent that such response or remedial action is necessary to prevent or abate an imminent and substantial danger to human health and/or the environment.
SECTION 5.10 Further Assurances . Execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, mortgages and deeds of trust) that may be required under applicable law, or that the Required Lenders, the Administrative Agent or the Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Security Documents. Holdings and the Borrower will cause any subsequently acquired or organized Restricted Subsidiary that is not an Excluded Subsidiary (and any Subsidiary that ceases to be an Excluded Subsidiary) promptly to become a Guarantor and a Loan Party by executing and delivering a supplement to the Guarantee and Collateral Agreement and each applicable Security Document in favor of the Collateral Agent. In addition, from time to time, Holdings will, at its cost and expense, promptly secure or cause the Borrower and the other Restricted Subsidiaries that are not Excluded Subsidiaries to secure the Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its or their assets and properties as the Administrative Agent or the Required Lenders shall designate, subject to the limitations set forth in this Section 5.10 and in the applicable Security Documents (it being understood that it is the intent of the parties that, subject to the limitations set forth in this Section 5.10 and in the applicable Security Documents, the Obligations shall be secured by substantially all the assets of Holdings, the Borrower and the other Restricted Subsidiaries that are not Excluded Subsidiaries (including real and other properties acquired subsequent to the Closing Date)). Such security interests and Liens will be created under the Security Documents in form and substance reasonably satisfactory to the Collateral Agent, and Holdings and the Borrower shall deliver or cause to be delivered to the Collateral Agent within 90 days or such longer period as the Collateral Agent may agree in its sole discretion, all such instruments and documents (including legal opinions, surveys, abstracts, appraisals, title insurance policies and lien searches) as the Collateral Agent shall reasonably request to evidence compliance with this Section 5.10. Holdings and the Borrower agree to provide such evidence as the Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. In furtherance of the foregoing, each of Holdings and the Borrower will each give notice to the Administrative Agent within 30 days of the acquisition by it or any other Restricted Subsidiary that is not an Excluded Subsidiary of any real property (or any interest in real property) having a fair market value of at least $3,000,000; provided however , that notwithstanding anything to the contrary set forth in this Agreement or any other Loan Document, (x) no Mortgages shall be required with respect to any owned real property of any Loan Party acquired after the Closing Date and having a fair market value of less than $3,000,000 ( Immaterial Owned Real Property ), (y) no Mortgages shall be required with respect to any leasehold interest in real property, and (z) no landlord lien waivers, bailee waivers, estoppel letters, collateral access agreements or similar agreements will be required in connection with any Mortgages or Mortgaged Property.
106
SECTION 5.11 Post-Closing Obligations . The parties hereto acknowledge and agree that within the time periods set forth in Schedule 5.11, or within such longer period or periods that the Administrative Agent in its sole discretion may permit, Holdings and the other Subsidiaries shall deliver to the Administrative Agent the documents, and perform the actions, set forth on Schedule 5.11 that would have been required to be delivered or taken on or prior to the Closing Date but for the last paragraph of Section 4.02.
SECTION 5.12 Quarterly Lender Calls . Beginning after the fiscal year of the Borrower ending December 31, 2018, no later than (i) 10 days after the delivery of any financial statements pursuant to Section 5.04(a) or (b) or (ii) such other time as agreed by the Borrower and the Administrative Agent (each party acting reasonably) the appropriate Financial Officers of the Borrower shall participate in one conference call with the Administrative Agent and the Lenders to discuss in reasonable detail (subject to confidentiality and privilege restrictions on the Borrower and its Subsidiaries) such financial statements and the financial condition and results of operations of the Borrower and its Subsidiaries, as well as to answer reasonable questions from the Administrative Agent or the Lenders about such financial statements; provided that if the Borrower holds a conference call open to the public or holders of any public securities to discuss the financial statements and the financial condition and results of operations of the Borrower and its Subsidiaries for the most recently ended fiscal year or fiscal quarter, as applicable, for which financial statements have been delivered pursuant to Section 5.04(a) or (b) above, such conference call will be deemed to satisfy the requirements of this Section 5.12 so long as the Administrative Agent and the Lenders are provided access to such conference call and the ability to ask questions thereon.
SECTION 5.13 Designation of Subsidiaries . The Borrower may at any time after the Closing Date designate any Subsidiary (other than the Borrower) as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Restricted Subsidiary; provided that (i) immediately before and after such designation, no Event of Default shall have occurred and be continuing and (ii) in the case of a designation of any Restricted Subsidiary as an Unrestricted Subsidiary, the Borrower could incur $1.00 of unsecured Ratio Debt both prior to and after giving pro forma effect to such designation and the pro forma adjustments described in Section 1.03. The designation of any Subsidiary as an Unrestricted Subsidiary after the Closing Date shall constitute an Investment by the Borrower therein at the date of designation in an amount equal to the fair market value of the Borrowers Investment therein. The designation of any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the incurrence at the time of designation of any Indebtedness or Liens of such Subsidiary existing at such time. Upon a redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the Borrower shall be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary equal to an amount (if positive) equal to (1) the Borrowers Investment in such Subsidiary at the time of such redesignation, less (2) the portion (proportionate to the Borrowers Equity Interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Borrower. Notwithstanding the foregoing, no Unrestricted Subsidiary that has been designated as a Restricted Subsidiary may again be designated as an Unrestricted Subsidiary.
107
ARTICLE VI
Negative Covenants
Each of Holdings and the Borrower covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts (other than contingent amounts not yet due) payable under any Loan Document have been paid in full and all Letters of Credit have been Cash Collateralized or canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, (A) with respect to Sections 6.06(b)(i) and 6.08(a), Holdings will not and (B) except with respect to Section 6.08(a), the Borrower will not, nor will Holdings or the Borrower cause or permit any of the other Restricted Subsidiaries to:
SECTION 6.01 Indebtedness . Incur, create, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness existing on the date hereof and set forth in Schedule 6.01;
(b) Indebtedness created hereunder and under the other Loan Documents and any Credit Agreement Refinancing Indebtedness in respect thereof (or in respect of other Credit Agreement Refinancing Indebtedness);
(c) Incremental Equivalent Debt;
(d) intercompany Indebtedness of the Borrower and the other Restricted Subsidiaries to the extent permitted by Section 6.04(c) or (s);
(e) Indebtedness of the Borrower or any other Restricted Subsidiary (including purchase money indebtedness) incurred to finance the acquisition, construction or improvement of any fixed or capital assets, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that (i) such Indebtedness is incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate outstanding principal amount of Indebtedness permitted by this Section 6.01(e), when combined with the aggregate outstanding principal amount of all Capital Lease Obligations and Synthetic Lease Obligations incurred pursuant to Section 6.01(f), together with any Permitted Refinancing Indebtedness in respect thereof, shall not exceed at the time of incurrence thereof, the greater of (x) $15,000,000 and (y) 16.5% of Consolidated EBITDA for the most recently ended Test Period;
(f) Capital Lease Obligations and Synthetic Lease Obligations in an aggregate outstanding principal amount, when combined with the aggregate outstanding principal amount of all Indebtedness incurred pursuant to Section 6.01(e), together with any Permitted Refinancing Indebtedness in respect thereof, shall not exceed at the time of incurrence thereof, the greater of (x) $15,000,000 and (y) 16.5% of Consolidated EBITDA for the most recently ended Test Period;
108
(g) Indebtedness under performance or surety bonds or with respect to workers compensation claims, in each case incurred in the ordinary course of business;
(h) (i) Indebtedness of any person that becomes a Restricted Subsidiary after the date hereof or Indebtedness acquired or assumed by the Borrower or any other Restricted Subsidiary in connection with any Permitted Acquisition or other similar Investment permitted under Section 6.04 and (ii) Indebtedness of the Borrower or any other Restricted Subsidiary incurred to finance a Permitted Acquisition or other similar Investment permitted under Section 6.04, so long as, in the case of each of the foregoing clauses (h)(i) and (h)(ii) of this Section 6.01, on a pro forma basis after giving effect thereto and the pro forma adjustments described in Section 1.03, no Event of Default shall have occurred and be continuing, and either (x) the Total Leverage Ratio shall not exceed 4.00 to 1.00 or (y) the Total Leverage Ratio shall be no greater than the Total Leverage Ratio immediately prior thereto; provided that no such Indebtedness incurred under the foregoing clause (h)(ii) of this Section 6.01 (I) may be incurred by a Subsidiary that is not a Subsidiary Guarantor or (II) shall have a final maturity or have scheduled amortization or payments of principal (other than customary AHYDO Payments, customary offers to repurchase and prepayment events upon a Change in Control, Asset Sale or event of loss and a customary acceleration right after an Event of Default) prior to Latest Term Maturity Date at the time such Indebtedness is incurred;
(i) Indebtedness of the Borrower or any Subsidiary Guarantor in an aggregate principal amount not exceeding at any time outstanding the greater of (x) $30,000,000 and (y) 33% of Consolidated EBITDA for the most recently ended Test Period;
(j) Guarantees (i) by the Borrower or any Subsidiary Guarantor of any Indebtedness of the Borrower or Subsidiary Guarantor permitted under this Section 6.01, (ii) by the Borrower or Subsidiary Guarantor of Indebtedness otherwise permitted under this Section 6.01 of any Restricted Subsidiary that is not the Borrower or Subsidiary Guarantor; provided that any such Guarantee shall be treated as an Investment in such Restricted Subsidiary that is not the Borrower or Subsidiary Guarantor for purposes of Section 6.04, (iii) by any Restricted Subsidiary that is not the Borrower or a Subsidiary Guarantor of Indebtedness of another Restricted Subsidiary that is not the Borrower or a Subsidiary Guarantor and (iv) by the Borrower or any other Restricted Subsidiary of Indebtedness of any person that is not a Restricted Subsidiary; provided that any such Guarantee shall be treated as an Investment in such person for purposes of Section 6.04;
(k) Indebtedness in respect of Hedging Agreements consistent with prudent business practice and which are not speculative in nature;
(l) Indebtedness of any Restricted Subsidiary that is not a Loan Party in an aggregate principal amount not exceeding at any time outstanding the greater of (x) $10,000,000 and (y) 11% of Consolidated EBITDA for the most recently ended Test Period;
(m) extensions, renewals, refinancings and replacements of Indebtedness incurred under Section 6.01(a), (c), (e), (f), (h), this clause (m), and (o) (the Indebtedness being extended, renewed, refinanced or replaced being referred to herein as the Refinanced Indebtedness ; and the Indebtedness incurred under this Section 6.01(m) being referred to herein as Permitted
109
Refinancing Indebtedness ); provided that (i) the principal amount of the Refinanced Indebtedness is not increased (except by an amount equal to any premium on such Refinanced Indebtedness and fees and expenses and any original issue discount incurred in connection with such extension, renewal, refinancing or replacement), (ii) the final maturity date of the Permitted Refinancing Indebtedness is on or after the earlier of (x) the final maturity date of the Refinanced Indebtedness and (y) 91 days after the Latest Maturity Date in effect on the date of incurrence of such Permitted Refinancing Indebtedness, (iii) the weighted average life to maturity of the Permitted Refinancing Indebtedness as of such incurrence date is greater than or equal to the lesser of (x) the then remaining weighted average life to maturity of the Refinanced Indebtedness and (y) 91 days after the weighted average life to maturity of the Class of Term Loans then outstanding with the greatest remaining weighted average life to maturity, (iv) if the Refinanced Indebtedness is subordinated to the Obligations, the Permitted Refinancing Indebtedness is subordinated to the Obligations on terms not less favorable to the Lenders, and (v) the obligors in respect of the Refinanced Indebtedness are the only obligors on the Permitted Refinancing Indebtedness (unless each such subsequent obligor would have been required to be an obligor of the Refinanced Indebtedness or is a Loan Party or, in the case of Refinanced Indebtedness of a non-Loan Party, such subsequent obligor is not a Loan Party);
(n) Capital Lease Obligations arising under any sale-leaseback transaction permitted
hereunder;
(o) Indebtedness comprising take-or-pay obligations in respect of supply contracts entered into the ordinary course of business;
(p) Indebtedness supported by a Letter of Credit, in a principal amount not to exceed the face amount of such Letter of Credit;
(q) (i) Indebtedness arising from an agreement providing for indemnification obligations or obligations in respect of purchase price (including earnouts) or other similar adjustments incurred pursuant to an Investment or Asset Sale, in each case permitted under this Agreement, and (ii) Indebtedness arising from guaranties, letters of credit, bank guaranties, surety bonds, performance bonds or similar instruments securing the performance pursuant to any such agreement described in clause (i);
(r) other Indebtedness of the Loan Parties constituting Total Debt; provided that (i) both before and after the incurrence thereof, no Event of Default shall have occurred and be continuing, (ii) (A) in the case of any such Indebtedness secured by Liens on the Collateral that rank pari passu with the Liens on the Collateral securing the Credit Facilities, the First Lien Leverage Ratio, on a pro forma basis after giving effect to such incurrence and the pro forma adjustments described in Section 1.03, shall not exceed 2.75 to 1.00 and (B) in the case of any such Indebtedness secured by Liens on the Collateral that rank junior to the Liens on the Collateral securing the Credit Facilities or in the case of unsecured Indebtedness, the Total Leverage Ratio, on a pro forma basis after giving effect to such incurrence and the pro forma adjustments described in Section 1.03, shall not exceed 4.00 to 1.00, (iii) any such Indebtedness shall not be incurred by or guaranteed by any person other the Loan Parties, (iv) any such Indebtedness, if secured, shall not be secured by any assets other than the Collateral and (v) any such Indebtedness shall not have a final maturity or have scheduled amortization or payments of
110
principal (other than customary AHYDO Payments, customary offers to repurchase and prepayment events upon a change of control, asset sale or event of loss and a customary acceleration right after an event of default) prior to the Latest Term Maturity Date at the time such Indebtedness is incurred (any Indebtedness incurred pursuant to this clause (p), Ratio Debt ); and
(s) all premiums (if any), interest (including post-petition interest), accretion or amortization of original issue discount, fees, expenses, charges and additional or contingent interest on obligations described in clauses (a) through (r) above.
For purposes of determining compliance with this Section 6.01, (i) in the event that an item of Indebtedness (or any portion thereof) meets the criteria of more than one of the categories of Indebtedness permitted under this Section 6.01, Holdings, in its sole discretion, at the time of incurrence will divide, classify or reclassify or at any later time divide, classify or reclassify such item of Indebtedness (or any portion thereof) and will only be required to include the amount and type of such Indebtedness in one of the above clauses or paragraphs and (ii) at the time of incurrence, Holdings will be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described in this Section 6.01.
SECTION 6.02 Liens . Create, incur, assume or permit to exist any Lien on any property or assets (including the Equity Interests or other securities of any Person) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Borrower and the other Restricted Subsidiaries existing on the date hereof and set forth in Schedule 6.02; provided that such Liens shall secure only those obligations which they secure on the date hereof and Permitted Refinancing Indebtedness in respect thereof;
(b) any Lien created under the Loan Documents;
(c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any other Restricted Subsidiary or existing on any property or assets of any person that becomes a Restricted Subsidiary after the date hereof pursuant to a Permitted Acquisition prior to the time such person becomes a Restricted Subsidiary, as the case may be; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such person becoming a Restricted Subsidiary, (ii) such Lien does not apply to any other property or assets of the Borrower or any other Restricted Subsidiary and (iii) such Lien secures only those obligations which it secures on the date of such acquisition or the date such person becomes a Restricted Subsidiary, as the case may be;
(d) Liens for Taxes not yet due and payable or which are being contested in compliance with Section 5.03;
(e) carriers, warehousemens, mechanics, materialmens, repairmens or other like Liens arising in the ordinary course of business and securing obligations that are not due and payable or which are being contested in compliance with Section 5.03;
111
(f) pledges and deposits made in the ordinary course of business in compliance with workmens compensation, unemployment insurance and other social security laws or regulations;
(g) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(h) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any other Restricted Subsidiary;
(i) purchase money security interests in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Borrower or any other Restricted Subsidiary; provided that (i) such security interests secure Indebtedness permitted by Section 6.01, (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within 180 days after such acquisition (or construction), (iii) the Indebtedness secured thereby does not exceed the lesser of the cost and the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction) and (iv) such security interests do not apply to any other property or assets of the Borrower or any other Restricted Subsidiary except for replacements, additions, accessions and improvements to such property and the proceeds and the products thereof, and any lease of such property (including accessions thereto) and the proceeds and products thereof; provided, further that individual financings of equipment provided by one lender may be cross collateralized to other financings of equipment provided by such lender;
(j) Liens arising out of judgments, decrees or attachments that do not constitute an Event of Default under Article VII;
(k) Liens securing Credit Agreement Refinancing Indebtedness subject to an Acceptable Intercreditor Agreement;
(l) other Liens that do not, individually or in the aggregate, secure obligations (or encumber property with a fair market value) in excess of the greater of (x) $15,000,000 and (y) 16.5% of Consolidated EBITDA for the most recently ended Test Period, at any one time;
(m) Liens (i) of a collection bank arising under Section 4-210 of the Uniform Commercial Code or any comparable or successor provision on items in the course of collection, (ii) attaching to pooling, commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business and (iii) in favor of banking or other financial institutions or electronic payment service providers arising as a matter of law encumbering deposits (including the right of setoff) and which are within the general parameters customary in the banking or finance industry;
112
(n) Liens that are contractual rights of setoff (i) relating to the establishment of depository relations with banks or other Persons not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of Holdings or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of Holdings and its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of Holdings or any of its Restricted Subsidiaries in the ordinary course of business;
(o) Liens solely on any cash earnest money deposits made by Holdings or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted under this Agreement;
(p) Liens on assets and Equity Interests of non-Loan Parties securing Indebtedness of non-Loan Parties that is permitted by Section 6.01 and that is otherwise non-recourse against the Loan Parties;
(q) to the extent constituting Liens, leases or subleases granted in the ordinary course of business to others not interfering in any material respect with the business of the Borrower or any other Restricted Subsidiary and any interest or title of a lessor under any lease not in violation of this Agreement;
(r) Liens arising from the rights of lessors under any lease (including financing statements regarding property subject to lease) not in violation of the requirements of this Agreement, provided that such Liens are only in respect of the real property subject to, and secure only, such lease (and any other lease with the same or affiliated lessor);
(s) Liens arising out of sale-leaseback transactions permitted hereunder;
(t) Liens granted by a Restricted Subsidiary that is not a Loan Party in favor of any Restricted Subsidiary and Liens granted by a Loan Party in favor of any other Loan Party;
(u) Liens on Equity Interests of any joint venture (a) securing obligations of such joint venture or (b) pursuant to the relevant joint venture agreement or arrangement;
(v) other Liens on Collateral securing Indebtedness subject to an Acceptable Intercreditor Agreement; provided that, in the case of any such Indebtedness that is (a) secured by a Lien on the Collateral on a junior basis to the Obligations, the Total Leverage Ratio, on a pro forma basis after giving effect to such Lien and any pro forma adjustments described in Section 1.03, shall not exceed 4.00 to 1.00 and (b) secured by a Lien on the Collateral on a pari passu basis with the Obligations, the First Lien Leverage Ratio, on a pro forma basis after giving effect to such Lien and any pro forma adjustments described in Section 1.03, shall not exceed 2.75 to 1.00; and
(w) Liens securing Incremental Equivalent Debt subject to an Acceptable Intercreditor Agreement.
113
For purposes of determining compliance with this Section 6.02, (x) a Lien need not be incurred solely by reference to one category described in this Section 6.02 but may be incurred under any combination of such categories (including in part under one such category and in part under any other such category) and (y) in the event that a Lien (or any portion thereof) meets the criteria of one or more of such categories of Liens permitted hereunder, Holdings shall, in its sole discretion, classify or reclassify such Lien (or any portion thereof) in any manner that complies with this definition.
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 rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred, unless the sale or transfer of such property is permitted by Section 6.05.
SECTION 6.04 Investments . Make or permit to exist any Investment except:
(a) (i) Investments by the Borrower and the Restricted Subsidiaries existing on the date hereof in Restricted Subsidiaries and (ii) additional Investments by the Borrower and the other Restricted Subsidiaries in the Borrower or the other Restricted Subsidiaries; provided that (A) any such Equity Interests held by a Loan Party shall be pledged pursuant to the Guarantee and Collateral Agreement, (B) the aggregate amount of Investments made after the Closing Date by Loan Parties in Restricted Subsidiaries that are not Loan Parties shall not exceed at any time outstanding the greater of (x) $10,000,000 and (y) 11% of Consolidated EBITDA for the most recently ended Test Period and (C) any such Investments in the form of loans or advances shall be subject to the limitations set forth in clause (c)(i) and (c)(iii) below;
(b) Investments in cash or Cash Equivalents;
(c) loans or advances made by the Borrower to any other Restricted Subsidiary and made by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary; provided that (i) any such loans or advances made by a Loan Party shall be evidenced by a promissory note or global intercompany note pledged to the Collateral Agent for the benefit of the Secured Parties pursuant to the Guarantee and Collateral Agreement, together with an appropriate allonge or note power, (ii) the amount of such loans and advances made by Loan Parties to Restricted Subsidiaries that are not Loan Parties shall be subject to the limitation set forth in clause (a) above and (iii) any such loans or advances owed by a Loan Party to a Restricted Subsidiary that is not a Loan Party shall be subordinated in right of payment to the Obligations pursuant to an affiliate subordination agreement reasonably satisfactory to the Collateral Agent;
(d) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;
(e) the Borrower and the other Restricted Subsidiaries may make loans and advances to their respective employees so long as the aggregate principal amount thereof at any time outstanding (determined without regard to any write-downs or write-offs of such loans and advances) shall not exceed in any fiscal year the greater of (x) $2,500,000 and (y) 2.75% of Consolidated EBITDA for the most recently ended Test Period;
114
(f) the Borrower and the other Restricted Subsidiaries may enter into Hedging Agreements expressly permitted by Section 6.01(k);
(g) the Borrower or any other Restricted Subsidiary may acquire all or substantially all the assets of a person or line of business of such person, or not less than a majority of the Equity Interests of a person (referred to herein as the Acquired Entity ); provided that (i) such acquisition was not preceded by an unsolicited tender offer for such Equity Interests by, or proxy contest initiated by, Holdings, the Borrower or any other Subsidiary; (ii) the Acquired Entity shall be in a Similar Business; and (iii) (A) both before and after giving effect thereto, no Event of Default shall have occurred and be continuing, in each case at and as of the date the agreement for such acquisition is signed and (B) at the time of the consummation of such transaction (or following such transaction within the time specified in this Agreement), the Borrower shall comply, and shall cause the Acquired Entity to comply, with the applicable provisions of Section 5.10 and the Security Documents; provided that the total consideration paid by or on behalf of the Borrower and the other Restricted Subsidiaries for any such acquisition of a person that does not become a Loan Party (including by way of merger) or of assets (other than Immaterial Owned Real Property) that do not become Collateral, when aggregated with the total consideration paid by or on behalf of the Borrower and the other Restricted Subsidiaries for all other acquisitions made by the Borrower and the other Restricted Subsidiaries of persons that do not become Loan Parties (including by way of merger) or of assets (other than Immaterial Owned Real Property) that do not become Collateral, shall not exceed the greater of (x) $25,000,000 and (y) 27.5% of Consolidated EBITDA as of the last day of the most recently ended Test Period (any acquisition of an Acquired Entity meeting all the criteria of this Section 6.04(g) being referred to herein as a Permitted Acquisition );
(h) Investments existing on the date hereof and set forth in Schedule 6.04;
(i) additional Investments up to an amount not to exceed the Available Amount; provided that, with respect to an Investment made using the Cumulative Retained Excess Cash Flow Amount, (1) no Event of Default shall have occurred and be continuing or would result therefrom and (2) the Borrower would be in compliance with the financial maintenance covenant set forth in Section 6.10 (calculated as of the most recently ended Test Period and as if the Total Leverage Ratio specified therein was required to be tested), after giving pro forma effect to such Investment and the pro forma adjustments described in Section 1.03;
(j) Investments consisting of deposits, prepayments and/or other credits to suppliers in the ordinary course of business;
(k) Investments consisting of extensions of trade credit in the ordinary course of business or consistent with past practice;
(l) promissory notes and other Investments received in connection with dispositions permitted by this Agreement;
(m) Investments in the ordinary course of business or consistent with past practice consisting of endorsements for collection or deposit and customary trade arrangements with customers consistent with past practices;
115
(n) to the extent that they constitute Investments, purchases and acquisitions of inventory, supplies, materials or equipment or purchases, acquisitions, licenses, sublicenses, subleases or leases of other assets, intellectual property, or other rights, in each case in the ordinary course of business;
(o) Investments in any Subsidiary or any joint venture in connection with any intercompany cash management arrangement or related activities arising in the ordinary course of business so long as any concentration account or similar aggregating arrangement is in the name of a Loan Party;
(p) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent that the same are permitted to remain unfunded under applicable requirements of Law;
(q) obligations with respect to Guarantees provided by the Borrower or any Restricted Subsidiary in respect of leases and/or subleases (other than Capital Lease Obligations) or of other obligations that do not constitute Indebtedness, in each case entered into in the ordinary course of business;
(r) the Borrower and its Subsidiaries may undertake or consummate any IPO Reorganization Transactions;
(s) Investments made by the Borrower or any Restricted Subsidiary in any other Restricted Subsidiary in order to satisfy regulatory capital requirements with respect to FDIC deposit insurance;
(t) Investments consisting of Indebtedness, Liens, Asset Sales and Restricted Payments permitted (other than by reference to this Section 6.04(t) ) under Sections 6.01 , 6.02 , 6.05(b) and 6.06 , respectively;
(u) other Investments; provided that (1) no Event of Default shall have occurred and be continuing or would result therefrom and (2) the Total Leverage Ratio, on a pro forma basis after giving effect to such Investment and any pro forma adjustments described in Section 1.03, shall not exceed 2.00 to 1.00; and
(v) in addition to Investments permitted by paragraphs (a) through (u) above, additional Investments by the Borrower and the other Restricted Subsidiaries so long as the aggregate amount of Investments made pursuant to this paragraph (v) (determined without regard to any write-downs or write-offs of such Investments) does not exceed in the aggregate at any time outstanding the greater of (x) $25,000,000 and (y) 27.5% of Consolidated EBITDA as of the last day of the most recently ended Test Period.
For purposes of determining compliance with this Section 6.04, (x) an Investment need not be incurred solely by reference to one category described in this Section 6.04 but may be incurred under any combination of such categories (including in part under one such category and in part under any other such category) and (y) in the event that an Investment (or any portion thereof) meets the criteria of one or more of such categories of Investment permitted hereunder, the Borrower shall, in its sole discretion, classify or reclassify such Investment (or any portion thereof) in any manner that complies with this definition.
116
SECTION 6.05 Mergers, Consolidations and Sales of Assets . (a) Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, liquidate or dissolve, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all the assets (whether now owned or hereafter acquired) of the Borrower and its Restricted Subsidiaries, taken as a whole, except that:
(i) if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (x) any Wholly Owned Subsidiary of Holdings that is a Restricted Subsidiary may merge into the Borrower in a transaction in which such Borrower is the surviving corporation and (y) any Wholly Owned Subsidiary of Holdings that is a Restricted Subsidiary (other than the Borrower) may merge into or consolidate with any other Wholly Owned Subsidiary of Holdings that is a Restricted Subsidiary in a transaction in which the surviving entity is a Restricted Subsidiary and no person other than a Wholly Owned Subsidiary of Holdings that is a Restricted Subsidiary receives any consideration ( provided that if any party to any such transaction is a Loan Party, the surviving entity of such transaction shall be a Loan Party and no person other than a Loan Party shall receive any consideration);
(ii) any Restricted Subsidiary (other than the Borrower) may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower; provided that (x) the assets of such Restricted Subsidiary are transferred upon such liquidation to the Borrower or another Restricted Subsidiary and (y) if such Restricted Subsidiary is a Subsidiary Guarantor, the assets of such Subsidiary Guarantor are transferred upon such liquidation to the Borrower or another Subsidiary Guarantor;
(iii) the Borrower may merge or consolidate with any other Person; provided that (A) the Borrower shall be the continuing or surviving Person or (B) if the Person formed by or surviving any such merger or consolidation is not the Borrower (any such Person, the Successor Borrower ), (1) the Successor Borrower shall be an entity organized or existing under the laws of the United States, any State thereof or the District of Columbia, (2) the Successor Borrower shall expressly assume all the obligations of the Borrower under this Agreement and the other Loan Documents to which the Borrower is a party pursuant to a supplement hereto or thereto in form and substance reasonably satisfactory to the Administrative Agent, (3) each Loan Party other than the Borrower, unless it is the other party to such merger or consolidation, shall have reaffirmed, pursuant to an agreement in form and substance reasonably satisfactory to the Administrative Agent, that its Guarantee of, and grant of any Liens as security for, the Obligations shall apply to the Successor Borrowers obligations under this Agreement and (4) the Borrower shall have delivered to the Administrative Agent a certificate of a Responsible Officer and an opinion of counsel, each stating that such merger or consolidation complies with this Agreement; provided further that (x) no Event of Default exists after giving effect to such merger or consolidation, (y) if the foregoing requirements are satisfied, the Successor Borrower will succeed to, and be substituted for,
117
the Borrower under this Agreement and the other Loan Documents and (z) the Borrower agrees to provide any documentation and other information about the Successor Borrower as shall have been reasonably requested in writing by any Lender through the Administrative Agent that such Lender shall have reasonably determined is required by regulatory authorities under applicable know your customer and anti-money laundering rules and regulations, including the USA Patriot Act;
(iv) the Borrower and its Subsidiaries may undertake or consummate any IPO Reorganization Transactions;
(v) any Person (other than Holdings or the Borrower) may merge into or consolidate with any Restricted Subsidiary (other than the Borrower) in a transaction in which the surviving entity is a Restricted Subsidiary and, if any party to such merger or consolidation is a Subsidiary Guarantor, is a Subsidiary Guarantor; and
(vi) any Restricted Subsidiary (other than the Borrower) may merge into or consolidate with any Person in order to (1) effect an Asset Sale permitted pursuant to Section 6.05(b) or (2) make an Investment permitted pursuant to Section 6.04 .
(b) Make any Asset Sale, except:
(i) transfers of condemned property as a result of the exercise of eminent domain or other similar powers to the respective Governmental Authority or agency that has condemned the same (whether by deed in lieu of condemnation or otherwise), and transfers of property arising from foreclosure or similar action or that have been subject to a casualty to the respective insurer of such real property as part of an insurance settlement; and
(ii) other Asset Sales, provided that, with respect to any Asset Sale pursuant to this clause (ii), (A) the fair market value of the consideration in respect of such Asset Sale is at least equal to the fair market value of the assets being sold, transferred, leased or disposed of, (B) in the case of an Asset Sale where the fair market value of the consideration in respect of such Asset Sale is in excess of the greater of (x) $5,000,000 and (y) 5.5% of Consolidated EBITDA for the most recently ended Test Period, such Asset Sale is for consideration at least 75% of which is cash or Cash Equivalents; provided that for purposes of this clause (B), any Designated Non-Cash Consideration received by the Borrower or any other Restricted Subsidiary in such Asset Sale having an aggregate fair market value, taken together with all other Designated Non-Cash Consideration received that is at that time outstanding, not to exceed the greater of (1) $5,000,000 and (2) 5.5% of Consolidated EBITDA for the most recently ended Test Period (with the fair market value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value) shall be deemed to be cash, (C) the Net Cash Proceeds of such Asset Sale are applied and/or reinvested in accordance with Section 2.13(b) and (D) no Event of Default has occurred and is continuing on the date on which the agreement governing such Asset Sale is executed.
118
SECTION 6.06 Restricted Payments; Restrictive Agreements . (a) Make, or agree to make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so; provided , however , that
(i) any Restricted Subsidiary (other than the Borrower) may pay dividends or make other distributions ratably to its equity holders,
(ii) so long as no Event of Default shall have occurred and be continuing or would result therefrom, the Borrower may make distributions to Holdings so that Holdings may repurchase its Equity Interests owned by employees of Holdings, the Borrower or the other Subsidiaries or make payments to employees of Holdings, the Borrower or the other Subsidiaries upon termination of employment in connection with the exercise of stock options, stock appreciation rights or similar equity incentives or equity based incentives pursuant to management incentive plans or in connection with the death or disability of such employees in an aggregate amount not to exceed $1,500,000 in any such fiscal year of the Borrower, such amounts not used in any fiscal year may be carried forward to the subsequent fiscal year,
(iii) the Borrower may make Restricted Payments to Holdings in the amount necessary to allow Holdings to make payments permitted by Sections 6.07(g), (h) and (i),
(iv) Restricted Payments constituting IPO Reorganization Transactions,
(v) the Borrower may make Restricted Payments to Holdings in an amount equal to the Available Amount; provided that, with respect to Restricted Payments made using the Cumulative Retained Excess Cash Flow Amount, (1) no Event of Default shall have occurred and be continuing or would result therefrom and (2) on a pro forma basis after giving effect to such Restricted Payment and any pro forma adjustments described in Section 1.03, the Total Leverage Ratio is equal to or less than 2.70 to 1.00,
(vi) the Borrower and its Restricted Subsidiaries may make dividends and other distributions in order to consummate the Transactions,
(vii) the Borrower and its Restricted Subsidiaries may make Restricted Payments to the extent necessary to permit Holdings or any Parent Company to pay (1) general administrative costs and expenses (including corporate overhead, legal or similar expenses and customary salary, bonus and other benefits payable to directors, officers, employees, members of management, managers or consultants of any Parent Company) and franchise fees and Taxes and similar fees, Taxes and expenses required to maintain the organizational existence of such Parent Company, in each case, which are reasonable and customary and incurred in the ordinary course of business, (2) any reasonable and customary indemnification claims made by directors, officers, members of management, managers, employees or consultants of any Parent Company, in each case, to the extent attributable to the ownership or operations of the Borrower, any Parent Company (but excluding, for the avoidance of doubt, the portion of any such amount, if any, that is attributable to the ownership or operations of any Subsidiary of Holdings or any Parent Company other than the Borrower or its Restricted Subsidiaries), or the other Restricted
119
Subsidiaries, (3) fees and expenses related to debt or equity offerings, investments or acquisitions (whether or not consummated) and (4) after the consummation of a Qualified Public Offering, Public Company Costs, in each case attributable to the investment in the Borrower and the other Restricted Subsidiaries (and Unrestricted Subsidiaries, to the extent of cash received from such Unrestricted Subsidiaries for payment thereof by the Borrower),
(viii) after the consummation of a Qualified Public Offering, the Borrower may make Restricted Payments, so that the Borrower (or its Parent Company) may pay dividends, in an aggregate amount per annum not to exceed the greater of (x) 6.0% of the net proceeds received by the Borrower in such Qualified Public Offering and (y) 5.0% of the Borrowers (or its Parent Companys) market capitalization, so long as no Event of Default has occurred and is continuing,
(ix) other such Restricted Payments, not to exceed in the aggregate the greater of (x) $15,000,000 and (y) 16.5% of Consolidated EBITDA for the most recently ended Test Period, provided that no Event of Default shall have occurred and be continuing or would result therefrom, and
(x) the Borrower and its Restricted Subsidiaries may make Restricted Payments so long as (1) no Event of Default shall have occurred and be continuing or would result therefrom and (2) on a pro forma basis after giving effect to such Restricted Payment and any pro forma adjustments described in Section 1.03, the Total Leverage Ratio is equal to or less than 1.75 to 1.00.
(b) Enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (i) the ability of Holdings, the Borrower or any other Restricted Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets to secure the Obligations, or (ii) the ability of the Borrower or other Restricted Subsidiary to pay dividends or other distributions with respect to any of its Equity Interests or to make or repay loans or advances to the Borrower or any other Restricted Subsidiary or to Guarantee Indebtedness of the Borrower or any other Restricted Subsidiary; provided that (A) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document, (B) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary pending such sale; provided further that such restrictions and conditions apply only to the Restricted Subsidiary that is to be sold and such sale is permitted hereunder, (C) clause (i) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (D) clause (i) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment or financing thereof, (E) the foregoing shall not apply to restrictions set forth in any agreement evidencing Indebtedness of a Restricted Subsidiary that is not a Loan Party permitted by Section 6.01, (F) the foregoing shall not apply to restrictions that are assumed in connection with any acquisition of property or the Equity Interests of any person, so long as the relevant encumbrance or restriction relates solely to the person and its subsidiaries (including the Equity Interests of the relevant person) or property so acquired and was not created in connection with or in anticipation of such acquisition, (G) the foregoing shall not apply to
120
restrictions that are imposed by customary provisions in partnership agreements, limited liability company organizational governance documents, joint venture agreements and other similar agreements, in each case, with respect to any Restricted Subsidiary that is not a Wholly-Owned Subsidiary, that prohibit or restrict the pledge or transfer of ownership interests in the relevant Restricted Subsidiary, (H) the foregoing shall not apply to restrictions arising pursuant to an agreement or instrument relating to any Indebtedness permitted to be incurred after the Closing Date if the relevant restrictions, taken as a whole, are not materially less favorable to the Lenders than the restrictions contained in this Agreement, taken as a whole (as determined in good faith by the Borrower), and (I) the foregoing shall not apply to restrictions set forth in documents which exist on the Closing Date and were not created in contemplation thereof (and any amendment, modification, restatement, renewal, supplement, refunding, replacement or refinancing of any such document so long as such amendment, modification, restatement, renewal, supplement, refunding, replacement or refinancing is, in the good faith judgment of the Borrower, no more restrictive, taken as a whole, than those in existence prior to such amendment, modification, restatement, renewal, supplement, refunding, replacement or refinancing).
SECTION 6.07 Transactions with Affiliates . Except for transactions between or among the Borrower and one or more Restricted Subsidiaries or between or among Restricted Subsidiaries, sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, with a fair market value in excess of $3,000,000, except that (a) the Borrower or any other Restricted Subsidiary may engage in any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to such Borrower or such Restricted Subsidiary than could be obtained on an arms-length basis from unrelated third parties, (b) [intentionally omitted], (c) the Borrower or any other Restricted Subsidiary may engage in transactions pursuant to agreements in existence on the Closing Date and set forth on Schedule 6.07 or any amendment, supplement or other modification thereto to the extent such amendment, supplement or modification is not adverse to the Lenders in any material respect, (d) the Borrower and the other Restricted Subsidiaries may consummate the Transactions including the payment of Transaction Costs, (e) the Borrower or any other Restricted Subsidiary may enter into any transactions with Affiliated Lenders contemplated hereunder and in accordance with the terms of, and in the manner provided by, this Agreement, (f) the Borrower or any other Restricted Subsidiary may make (x) Restricted Payments expressly permitted by Section 6.06 and (y) Investments expressly permitted by Section 6.04, (g) the Borrower or any other Restricted Subsidiary may pay to their respective employees and officers compensation in the ordinary course of business, (h) the Borrower or any other Restricted Subsidiary may pay fees to their respective directors in the ordinary course of business, (i) the Borrower and its Subsidiaries may undertake or consummate or otherwise be subject to any IPO Reorganization Transactions and (j) the Borrower or any other Restricted Subsidiary may make payments in connection with the indemnification of their respective employees, officers and directors.
SECTION 6.08 Business of Holdings, the Borrower and the Other Subsidiaries . (a) With respect to Holdings, engage in any business or operating activities or have any assets or liabilities other than (i) its ownership of the Equity Interests of the Borrower and, through the Borrower, the other Subsidiaries, together with the assets and liabilities incidental thereto, including liabilities pursuant to the Guarantee and Collateral Agreement or any other Loan
121
Documents; (ii) activities in order to consummate the Transactions; (iii) activities and contractual rights and obligations incidental to maintenance of its corporate existence (including the payment of accounting and other professional fees and expenses), and obligations of Holdings to applicable governmental authorities; (iv) activities related to the payment of Tax liabilities of the Loan Parties in the ordinary course of business; (v) indemnification of directors, managers and officers; (vi) the performance of its obligations under the Loan Documents; (vii) activities in order to consummate a Qualified Public Offering, including any IPO Reorganization Transaction; (viii) the incurrence of unsecured holding company Indebtedness that matures later than the Latest Term Maturity Date at the time of the incurrence thereof, provided that (A) no Guarantees thereof may be provided by the Borrower or any other Restricted Subsidiary and (B) both before and after the incurrence thereof, on a pro forma basis after giving effect thereto and the pro forma adjustments described in Section 1.03, the Total Leverage Ratio shall not exceed 4.00 to 1.00; (ix) guaranteeing the obligations of the Borrower and its Subsidiaries in each case solely to the extent such obligations of the Borrower and its Subsidiaries are not prohibited hereunder; (x) holding any cash or property received in connection with Restricted Payments made by the Borrower in accordance with this Agreement pending application thereof by Holdings; (xi) making contributions to the capital of its Subsidiaries; and (xii) other activities incidental to or in furtherance of any of the foregoing. Holdings shall not create, incur, assume or suffer to exist any Lien on the Equity Interests of the Borrower (other than Liens securing Indebtedness under any Loan Document or arising solely by operation of Law), and shall not incur any Indebtedness (other than in respect of (x) the Guarantees permitted by clause (i) above and (y) the Indebtedness permitted by clause (viii) above).
(b) With respect to the Borrower and the other Restricted Subsidiaries, engage at any time in any business activity, taken as a whole, other than the business activity currently conducted by it on the Closing Date and any Similar Business.
SECTION 6.09 Other Indebtedness and Agreements . (a) Permit (i) any waiver, supplement, modification, amendment, termination or release of the indenture, instrument or agreement pursuant to which any Material Indebtedness that is expressly subordinated in right of payment to the Obligations or any Material Indebtedness that is secured by junior-priority security interest in the Collateral (collectively, the Junior Financing ) of the Borrower or any other Loan Party is outstanding if the effect of such waiver, supplement, modification, amendment, termination or release, taken as a whole, would be adverse to the Lenders in any material respect, other than any such supplements, modifications or amendments expressly permitted by the terms of the applicable intercreditor or subordination agreement or other subordination instrument, or (ii) any waiver, supplement, modification or amendment of its certificate of incorporation, by-laws, operating, management or partnership agreement or other organizational documents, to the extent any such waiver, supplement, modification or amendment, taken as a whole, would be adverse to the Lenders in any material respect; provided that, for purposes of clarity, it is understood and agreed that Holdings, the Borrower or any Restricted Subsidiary may effect a change to its organizational form or consummate any other transaction that is permitted under Section 6.05.
122
(b) Make any distribution, whether in cash, property, securities or a combination thereof, other than payments of fees, expenses and indemnification obligations and regularly scheduled payments of principal and interest as and when due (to the extent not prohibited by applicable subordination provisions), in respect of, or pay, or commit to pay, or directly or indirectly redeem, repurchase, retire or otherwise acquire for consideration, or set apart any sum for the aforesaid purposes, any Junior Financing, (collectively, Restricted Debt Payments ), except:
(A) refinancings of any Junior Financing permitted by Section 6.01,
(B) any such distribution, payment, redemption, repurchase, retirement, acquisition or setting apart up to an amount not to exceed the Available Amount; provided that, with respect to such distribution, payment, redemption, repurchase, retirement, acquisition or setting apart made using the Cumulative Retained Excess Cash Flow Amount, (1) no Event of Default shall have occurred and be continuing or would result therefrom and (2) on a pro forma basis after giving effect to such distribution, payment, redemption, repurchase, retirement, acquisition or setting apart the pro forma adjustments described in Section 1.03, the Total Leverage Ratio is equal to or less than 2.70 to 1.00,
(C) other such distributions, payments, redemptions, repurchases, retirements, acquisitions or settings apart, provided that (x) no Event of Default shall have occurred and be continuing or would result therefrom and (y) the Total Leverage Ratio, on a pro forma basis after giving effect thereto and any pro forma adjustments described in Section 1.03, shall not exceed 2.00 to 1.00, and
(D) other such distributions, payments, redemptions, repurchases, retirements, acquisitions or settings apart in an amount, not to exceed the greater of (x) $15,000,000 and (y) 16.5% of Consolidated EBITDA for the most recently ended Test Period, provided that no Event of Default shall have occurred and be continuing or would result therefrom.
SECTION 6.10 Maximum Total Leverage Ratio . If, on the last day of any Test Period (commencing with the Test Period ending March 31, 2019), the aggregate principal amount of Revolving Loans and Letters of Credit (excluding Letters of Credit that have been Cash Collateralized) outstanding exceeds 30% of the aggregate principal amount of the Revolving Credit Commitments, permit the Total Leverage Ratio on the last day of any Test Period (i) ending on or after March 31, 2019 and on or prior to December 31, 2019, to be greater than 4.75 to 1.00 and (ii) ending on or after March 31, 2020, to be greater than 4.50 to 1.00.
The provisions of this Section 6.10 are for the direct benefit of the Lenders under the Financial Covenant Facilities only. Any Default or Event of Default under the provisions of this Section 6.10 will not by itself constitute a Default or Event of Default under any Credit Facility (other than the Financial Covenant Facilities) and will not trigger a cross-default thereunder until a Financial Covenant Acceleration has occurred.
SECTION 6.11 Fiscal Year . The Borrower shall not change its fiscal year-end to a date other than December 31; provided that the Borrower may, upon written notice to the Administrative Agent, change the fiscal year-end of the Borrower to another date, in which case the Borrower and the Administrative Agent will, and are hereby authorized to, make any adjustments to this Agreement that are necessary to reflect such change in fiscal year.
123
ARTICLE VII
Events of Default
SECTION 7.01 Event 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 in or in connection with any Loan Document or the borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading (i) in the case of representations and warranties qualified as to materiality, in any respect, or (ii) otherwise, in any material respect, in each case when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan or the reimbursement with respect to any L/C Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Loan or any Fee or L/C Disbursement or any other amount (other than an amount referred to in (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 Holdings, the Borrower or any other Restricted Subsidiary of any covenant, condition or agreement contained in Section 5.01(a) (with respect to the existence of Holdings or the Borrower), 5.05 or 5.08 or in Article VI; provided that the Borrowers failure to comply with the financial maintenance covenant set forth in Section 6.10 (a Financial Covenant Event of Default ) shall not constitute a Default or Event of Default with respect to any Term Loans or Term Loan Commitments (or any other Loans or Commitments not constituting a Financial Covenant Facility) unless and until the Required Financial Covenant Lenders have actually terminated all Revolving Credit Commitments with respect to the Financial Covenant Facilities and declared all Obligations with respect to the Financial Covenant Facilities to be immediately due and payable pursuant to the last paragraph of this Section 7.01 as a result of such Financial Covenant Event of Default (and such declaration has not been rescinded as of the applicable date) (the occurrence of such termination and declaration by the Required Financial Covenant Lenders, a Financial Covenant Acceleration ); or
(e) default shall be made in the due observance or performance by Holdings, the Borrower or any other Restricted Subsidiary of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days after the earlier of (i) notice thereof from the Administrative Agent (which shall be given at the reasonable request of any Lender) to the Borrower and (ii) knowledge thereof of any of Holdings and the Borrower;
124
(f) (i) Holdings, the Borrower or any other Restricted Subsidiary shall fail to pay any principal or interest or other amount due in respect of any Material Indebtedness, when and as the same shall become due and payable (after giving effect to any applicable grace period) or (ii) any other event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) 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 that results in the termination or permits any counterparty to terminate any Hedging Agreement the obligations under which constitute Material Indebtedness; provided that this clause (ii) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness;
(g) 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 Holdings, the Borrower or any other Material Subsidiary, or of a substantial part of the property or assets of Holdings, the Borrower or any other 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 Holdings, the Borrower or any other Material Subsidiary or for a substantial part of the property or assets of Holdings, the Borrower or any other Material Subsidiary or (iii) the winding-up or liquidation of Holdings, the Borrower or any other Material Subsidiary; 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;
(h) Holdings, the Borrower or any other 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 (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower or any other Material Subsidiary or for a substantial part of the property or assets of Holdings, the Borrower or any other 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, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing;
(i) one or more judgments shall be rendered against Holdings, the Borrower or any other Restricted Subsidiary and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively vacated, stayed or bonded pending an appeal, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of Holdings, the Borrower or any other Restricted Subsidiary to enforce any such judgments (to the extent not paid or covered by third-party insurance provided by a carrier
125
notified of such judgment not disputing coverage) and such judgments either (i) are for the payment of money in an aggregate amount in excess of $10,000,000, (ii) are for injunctive relief and would reasonably be expected to result in a Material Adverse Effect or (iii) are subject to indemnity by a third party pursuant to a binding obligation;
(j) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, would reasonably be expected to result in a Material Adverse Effect;
(k) this Agreement or any material Security Document, at any time after its execution and delivery and for any reason, shall cease to be in full force and effect, or any Loan Party shall contest in writing the validity or enforceability thereof;
(l) any material Guarantee under the Guarantee and Collateral Agreement for any reason shall cease to be in full force and effect (other than in accordance with its terms), or any Guarantor shall deny in writing that it has any further liability under the Guarantee and Collateral Agreement (other than as a result of the discharge of such Guarantor in accordance with the terms of the Loan Documents);
(m) any security interest purported to be created by any Security Document and to extend to assets that are not immaterial to Holdings and the Restricted Subsidiaries on a consolidated basis shall cease to be, or shall be asserted by any Loan Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in the securities, assets or properties covered thereby, except to the extent that (i) any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates representing securities pledged under the Guarantee and Collateral Agreement (unless such failure is due to a request by Holdings and its Subsidiaries), (ii) any such loss of perfection or priority results from the failure of the Collateral Agent to file Uniform Commercial Code continuation statements, (iii) such loss is covered by a lenders title insurance policy and the related insurer promptly after such loss shall have acknowledged in writing that such loss is covered by such title insurance policy or (iv) such loss arose through no fault of any Loan Party and such deficiency is corrected reasonably promptly with reasonable diligence upon obtaining actual knowledge thereof (but in any event, within 20 Business Days thereafter); or
(n) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to Holdings or the Borrower described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (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, to the fullest extent
126
permitted by applicable law, by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; provided that, notwithstanding anything to the contrary, if the only Events of Default then having occurred and continuing are pursuant to a Financial Covenant Event of Default, then, unless a Financial Covenant Acceleration has occurred and is continuing, the Administrative Agent shall only take the actions set forth in this paragraph at the request of the Required Financial Covenant Lenders (as opposed to the Required Lenders) and only with respect to the Revolving Credit Commitments, Revolving Loans and other Obligations, in each case, under the Financial Covenant Facilities; and in any event with respect to Holdings or the Borrower described in paragraph (g) or (h) 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, 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.
SECTION 7.02 Equity Cure . (a) Notwithstanding anything to the contrary contained in Section 7.01, in the event that the Borrower would not otherwise be in compliance with the financial maintenance covenant set forth in Section 6.10, then not later than 10 Business Days after the day on which financial statements are required to be delivered under Section 5.04(a) or Section 5.04(b), and no earlier than the day that is the last day of the relevant fiscal quarter (the Anticipated Cure Deadline ), Holdings (or another Parent Company) shall have the right to issue common Equity Interests (or any Qualified Capital Stock) for cash, or otherwise receive cash contributions in respect of its common Equity Interests (or any Qualified Capital Stock), and to contribute any such cash to the Borrower as cash common equity (or in the case of cash received by another Parent Company in respect of its Equity Interests, such Parent Company shall have the right to contribute such cash to Holdings as cash common equity and Holdings shall have the right to contribute such cash to the Borrower as cash common equity) (collectively, the Cure Right ), and upon receipt by the Borrower of such cash (the Specified Equity Contribution ) pursuant to the exercise by Holdings (and/or any other Parent Company) and the Borrower of such Cure Right, Consolidated EBITDA as used in the financial maintenance covenant set forth in Section 6.10 shall be increased (solely for the purposes of such financial covenant) giving effect to the Specified Equity Contribution.
(b) If, after giving effect to the recalculations set forth in paragraph (a) of this Section 7.02, the Borrower shall then be in compliance with the financial maintenance covenant set forth in Section 6.10, the Borrower shall be deemed to have satisfied the requirements of such covenant as of the relevant date of determination with the same effect as though there had been no failure to comply therewith at such date, and the applicable breach or default of such covenant that had occurred shall be deemed cured for purposes of this Agreement.
(c) Upon receipt by the Administrative Agent of written notice, on or prior to the Anticipated Cure Deadline, that the Borrower intends to exercise the Cure Right in respect of a fiscal quarter, the Lenders shall not be permitted to accelerate Loans held by them or to exercise remedies against the Collateral on the basis of a failure to comply with the requirements of the financial maintenance covenant set forth in Section 6.10, unless such failure is not cured pursuant to the exercise of the Cure Right on or prior to the Anticipated Cure Deadline.
127
Notwithstanding anything to the contrary herein, no Lender or Issuing Bank shall be required to make any Revolving Loan or issue or amend any Letter of Credit from the date on which financial statements are required to be delivered with respect to any fiscal quarter or year (or, if earlier, the date on which such financial statements are actually delivered) for which the Borrower has failed to comply with the financial maintenance covenant set forth in Section 6.10 for the Test Period ending on the last day of such fiscal quarter or year to the earlier of (i) any cure or waiver of any Default or Event of Default arising from such failure to comply with such financial covenant and (ii) such time as (x) the Administrative Agent has received written notice, on or prior to the Anticipated Cure Deadline, of the Borrowers intention to exercise the Cure Right in respect of such fiscal quarter and (y) the Specified Equity Contribution has been actually received by the Borrower on or prior to the Anticipated Cure Deadline.
(d) Notwithstanding anything herein to the contrary, (i) in each four fiscal quarter period there shall be at least two fiscal quarters in which the Cure Right is not exercised, (ii) no more than five Specified Equity Contributions may be made pursuant to this Section 7.02, (iii) the amount of any Specified Equity Contribution shall be no greater than the amount required to cause the Borrower to be in compliance with the financial maintenance covenant set forth in Section 6.10, (iv) all Specified Equity Contributions shall be disregarded for all purposes under this Agreement (including any ratio based conditions or any baskets with respect to the covenants set forth in Article VI) other than determining compliance with the financial maintenance covenant set forth in Section 6.10 and (v) there shall be no pro forma or other reduction of the amount of Indebtedness by the amount of any Specified Equity Contribution for purposes of determining compliance with Section 6.10 for the fiscal quarter in respect of which the Cure Right was exercised (other than, with respect to any future period, to the extent of any portion of such Specified Equity Contribution that is actually applied to repay Indebtedness).
ARTICLE VIII
Agency
SECTION 8.01 Appointment and Authority . Each of the Lenders and the Issuing Bank hereby irrevocably appoints Credit Suisse AG, Cayman Islands Branch, to act on its behalf as the Administrative Agent and the Collateral Agent (for purposes of this Article VIII, the Administrative Agent and the Collateral Agent are referred to collectively as the Agents ) hereunder and under the other Loan Documents and authorizes the Agents to take such actions on its behalf and to exercise such powers as are delegated to the Agents by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Agents, the Issuing Bank and the Lenders, and neither the Borrower nor any other Loan Party shall have rights as a third-party beneficiary of any such provisions. It is understood and agreed that the use of the term agent herein or in any other Loan Documents (or any other similar term) with reference to the Agents is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
128
SECTION 8.02 Rights as a Lender . Each person serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include the person serving as an Agent hereunder in its individual capacity. Such person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for, and generally engage in any kind of business with, Holdings, the Borrower or any other Subsidiary or other Affiliate thereof as if such person were not an Agent hereunder and without any duty to account therefor to the Lenders.
SECTION 8.03 Exculpatory Provisions . (a) Neither Agent shall have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, neither Agent:
(i) shall be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing;
(ii) shall have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that such Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that neither Agent shall be required to take any action that, in its opinion or the opinion of its counsel, may expose such Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(iii) except as expressly set forth herein and in the other Loan Documents, shall have any duty to disclose, nor shall it be liable for the failure to disclose, any information relating to Holdings, the Borrower, the other Subsidiaries or any of their Affiliates that is communicated to or obtained by a person serving as an Agent or any of its Affiliates in any capacity.
(b) An Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary) or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 9.08, or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and nonappealable judgment. The Agents shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent in writing by the Borrower or a Lender.
129
(c) The Agents 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 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, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or (v) 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 Agents.
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) 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 the making of a Loan or to any other Credit Event that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. Each Agent may consult with legal counsel (who may be counsel for 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.
SECTION 8.05 Delegation of Duties . Each Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by such Agent. Each Agent and any such sub- agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article VIII shall apply to any such sub-agent and to the Related Parties of each Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the Credit Facilities as well as activities as an Agent. Each Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that such Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
SECTION 8.06 Resignation of Agents . (a) Each Agent may at any time give notice (of no less than 10 days) of its resignation to the Lenders, the Issuing Bank and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right with the consent of the Borrower (such consent not to be unreasonably withheld, provided that the Borrowers consent shall not be required if an Event of Default pursuant to Section 7.01(b), (c), (g) or (h) has occurred and is continuing), to appoint a successor, which shall be a commercial bank or trust company with an office in New York, New York, or an Affiliate of any such bank, in each case with a combined capital and surplus of at least $1,000,000,000. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the Resignation Effective Date ), then the retiring Agent may (but shall not be obligated to), on behalf of the Lenders and the Issuing Bank, appoint a successor Agent meeting the qualifications set forth above. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
130
(b) If the person serving as Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable law, by notice in writing (of no less than 10 days) to the Borrower and such person remove such person as Agent and, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed, provided that the Borrowers consent shall not be required if an Event of Default pursuant to Section 7.01(b), (c), (g) or (h) has occurred and is continuing), appoint a successor, which successor shall meet the qualifications set forth in paragraph (a) above. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the Removal Effective Date ) then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date, as applicable, (1) the retiring or removed Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any Collateral held by the retiring or removed Agent on behalf of the Lenders under any of the Loan Documents, the retiring or removed Agent shall continue to hold such Collateral until such time as a successor Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or through the Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor Agent as provided for above. Upon the acceptance of a successors appointment as Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Agent, and the retiring or removed Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents. The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor Agent. After the retiring or removed Agents resignation or removal hereunder and under the other Loan Documents, the provisions of this Article VIII and Section 9.05 shall continue in effect for the benefit of such retiring or removed Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Agent was acting as Agent.
SECTION 8.07 Non-Reliance on Administrative Agent and Other Lenders . Each Lender and the Issuing Bank acknowledges that it has, independently and without reliance upon the Agents or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the Issuing Bank also acknowledges that it will, independently and without reliance upon the Agents or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
131
SECTION 8.08 No Other Duties, etc. Anything herein to the contrary notwithstanding, neither the Arranger nor any person listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as an Agent, Issuing Bank or a Lender hereunder.
SECTION 8.09 Administrative Agent May File Proofs of Claim . In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan 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 (but not obligated) 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 the Loans and all other 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 Bank and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuing Bank and the Administrative Agent and their respective agents and counsel and all other amounts due to the Lenders, the Issuing Bank and the Administrative Agent under Sections 2.05 and 9.05) 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 any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the Issuing Bank to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders or the Issuing Bank, as applicable, 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 Sections 2.05 and 9.05.
SECTION 8.10 Collateral and Guaranty Matters . No Secured Party shall have any right individually to realize upon any of the Collateral or to enforce any Guarantee of the Obligations, it being understood and agreed that all powers, rights and remedies under the Loan Documents may be exercised solely by the Agents on behalf of the Secured Parties in accordance with the terms thereof. 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 Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition, and the Administrative Agent or 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 sale, to use and apply any of the Obligations as a credit on account of the purchase price for any Collateral payable by such Agent on behalf of the Secured Parties at such sale or other disposition. Each Secured Party, whether or not a party hereto, will be deemed, by its acceptance of the benefits of the Collateral and the Security Documents and of the Guarantees of the Obligations provided under the Loan Documents, to have agreed to the foregoing provisions.
132
SECTION 8.11 Certain ERISA Matters . (a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i) such Lender is not using plan assets (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments,
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lenders entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement,
(iii) (A) such Lender is an investment fund managed by a Qualified Professional Asset Manager (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lenders entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b) The Administrative Agent and the Arranger hereby inform the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of Credit, the Commitments and this Agreement, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than the amount being paid for an
133
interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, bankers acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
SECTION 8.12 Intercreditor Agreements . Each of the Lenders and the other Secured Parties (a) authorizes and instructs the Agents to enter into any Acceptable Intercreditor Agreement (and any amendments, amendments and restatements, restatements or waivers of or supplements to or other modifications to, such agreements) as collateral agent and on behalf of such Person in connection with the incurrence by any Loan Party of any Indebtedness of such Loan Party that is permitted to be incurred and secured by the Collateral pursuant to Sections 6.01 and 6.02 of this Agreement, in order to permit such Indebtedness to be secured by a valid, perfected Lien (with such priority as may be designated by such Loan Party, to the extent such priority is permitted by the Loan Documents), and by its acceptance of the benefits of the Security Documents, hereby acknowledges that any such intercreditor agreement is or will be, as applicable, binding upon it and (b) agrees that it will be bound by and will take no actions contrary to the provisions of such intercreditor agreements (and any amendments, amendments and restatements, restatements or waivers of or supplements to or other modifications to, such agreements in connection with the incurrence by any Loan Party of any Indebtedness of such Loan Party that is permitted to be incurred and secured by the Collateral pursuant to Sections 6.01 and 6.02 of this Agreement, in order to permit such Indebtedness to be secured by a valid, perfected Lien (with such priority as may be designated by such Loan Party, to the extent such priority is permitted by the Loan Documents)), and to subject the Liens on the Collateral securing the Obligations to the provisions thereof.
ARTICLE IX
Miscellaneous
SECTION 9.01 Notices; Electronic Communications . 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 fax, as follows:
(a) if to the Borrower or Holdings, to 1655 Grant Street, 10 th Floor, Concord, CA 94520, Attn: Gary Zyla, e-mail: gary.zyla@assetmark.com;
(b) if to the Administrative Agent, to Credit Suisse AG, Cayman Islands Branch, Eleven Madison Avenue, New York, NY 10010, Attn: Agency Manager, fax no. 212-322-2991, e-mail: agency.loanops@credit-suisse.com;
(c) if to the Collateral Agent, to Credit Suisse AG, Cayman Islands Branch, Eleven Madison Avenue, New York, NY 10010, Attn: Loan Operations, e-mail: list.ops-collateral@credit-suisse.com; and
134
(d) if to a Lender, to it at its address (or fax number) set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto.
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 facsimile 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 paragraph (e) below, shall be effective as provided in said paragraph (e).
(e) Electronic Communications . Notices and other communications to the Lenders and the Issuing Bank 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 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 its or their discretion, agree to accept notices and other communications to it or them hereunder by electronic communications pursuant to procedures approved by it or them; provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.
(f) Change of Address, etc. Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.
(g) Platform .
(i) Each of Holdings and the Borrower hereby agrees that the Administrative Agent may, but shall not be obligated to, make the Communications (as defined below) available to the other Lenders and the Issuing Bank by posting the Communications on Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system (the Platform ).
135
(ii) The Platform is provided as is and as available. The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Agents or any of their Related Parties (collectively, the Agent Parties ) have any liability to the Borrower or the other Loan Parties, any Lender, the Issuing Bank or any other person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrowers, any Loan Partys or the Administrative Agents transmission of communications through the Platform, except as may result from the gross negligence or willful misconduct of an Agent Party as determined by a court of competent jurisdiction by final and nonappealable judgment. Communications means, collectively, any notice, demand, communication, information, document or other material that any Loan Party provides to the Administrative Agent pursuant to any Loan Document or the transactions contemplated therein which is distributed to the Administrative Agent or any Lender or Issuing Bank by means of electronic communications pursuant to this Section, including through the Platform.
Each of Holdings and the Borrower hereby agrees, unless directed otherwise by the Administrative Agent or unless the e-mail address referred to in this paragraph has not been provided by the Administrative Agent to the Borrower, that it will, or will cause the other Restricted Subsidiaries to, provide the Communications to the Administrative Agent in an electronic/soft medium that is properly identified in a format acceptable to the Administrative Agent to an e-mail address as directed by the Administrative Agent. In addition, each of Holdings and the Borrower agrees, and agrees to cause the other Restricted Subsidiaries, to continue to provide the Communications to the Administrative Agent or the Lenders or Issuing Bank, as the case may be, in the manner otherwise specified in the Loan Documents but only to the extent requested by the Administrative Agent.
Each of Holdings and the Borrower hereby acknowledges that (a) the Administrative Agent will make available to the Lenders materials and/or information provided by or on behalf of Holdings or the Borrower hereunder (collectively, the Borrower Materials ) by posting the Borrower Materials on 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, any other Subsidiary or their securities) (each, a Public Lender ). Each of Holdings and the Borrower hereby agrees that (i) all Borrower Materials that are to be made available to Public Lenders 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, each of Holdings and the Borrower shall be deemed to have authorized the Administrative Agent and the Lenders to treat such Borrower Materials as not containing any material information with respect to Holdings, the Borrower, any other Subsidiary or their securities for purposes of United States federal and state securities laws other than information that is of a type that would be publicly available if Holdings was a public reporting company ( provided , however , that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 9.16); (iii) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of the Platform
136
designated as Public Investor; and (iv) the Administrative Agent 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 marked as Public Investor. Notwithstanding the foregoing, the following Borrower Materials shall be deemed to be marked PUBLIC, unless the Borrower notifies the Administrative Agent promptly that any such document contains material information of a type that would not be publicly available if Holdings was a public reporting company: (A) the Loan Documents and (B) notification of changes in the terms of the Credit Facilities.
Each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the Private Side Information or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lenders compliance procedures and applicable law, including United States federal and state securities laws, to make reference to Communications that are not made available through the Public Side Information portion of the Platform and that may contain material non-public information with respect to Holdings, the Borrower, any other Subsidiary or their securities for purposes of United States federal or state securities laws.
THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. NEITHER THE ADMINISTRATIVE AGENT NOR ANY OF ITS RELATED PARTIES WARRANTS THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS OR THE ADEQUACY OF THE PLATFORM AND EACH EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON- INFRINGEMENT OF THIRD-PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS IS MADE BY THE ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PARTIES HAVE ANY LIABILITY TO ANY LOAN PARTY, ANY LENDER OR ANY OTHER PERSON FOR DAMAGES OF ANY KIND, WHETHER OR NOT BASED ON STRICT LIABILITY AND INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTYS OR THE ADMINISTRATIVE AGENTS TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF ANY SUCH PERSON IS FOUND IN A FINAL AND NONAPPEALABLE RULING BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED PRIMARILY FROM SUCH PERSONS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
The Administrative Agent agrees that the receipt of the Communications by the Administrative Agent at its e-mail address set forth above shall constitute effective delivery of the Communications to the Administrative Agent for purposes of the Loan Documents. Each Lender agrees that receipt of notice to it (as provided in the next sentence) specifying that the Communications have been posted to the Platform shall constitute effective delivery of the Communications to such persons for purposes of the Loan Documents. Each Lender agrees to notify the Administrative Agent in writing (including by electronic communication) from time to time of such persons e- mail address to which the foregoing notice may be sent by electronic transmission and that the foregoing notice may be sent to such e-mail address.
137
Nothing herein shall prejudice the right of the Administrative Agent or any Lender to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.
SECTION 9.02 Survival of Agreement . All covenants, agreements, representations and warranties made by the Borrower or Holdings herein 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 the Issuing Bank and shall survive the making by the Lenders of the Loans and the issuance of Letters of Credit by the Issuing Bank, regardless of any investigation made by the Lenders or the Issuing Bank or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 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 Loans, the expiration of the Commitments, the expiration of any Letter of Credit, 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, the Collateral Agent, any Lender or the Issuing Bank.
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 counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto.
SECTION 9.04 Successors and Assigns . (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower, Holdings, the Administrative Agent, the Collateral Agent, the Issuing Bank or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns.
(b) Subject to the conditions set forth in this paragraph (b), any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it), with the prior written consent of the Borrower, the Administrative Agent and (solely with respect to assignments of Revolving Credit Commitments) each Issuing Bank (in each case, such consent not to be unreasonably withheld, conditioned or delayed); provided , that (I) consent of the Borrower shall not be required during the primary syndication of the Term Loans (other than with respect to any proposed assignment to a Disqualified Institution), (II) (x) the Borrower shall be deemed to have consented to any assignment of Loans or Commitments unless it has objected thereto by written notice to the Administrative Agent within ten Business Days after receipt of a written request for consent and (y) the consent of the Borrower shall not be required for any
138
assignment of Term Loans or Term Commitments (1) by any Term Lender to any Term Lender or any Affiliate of any Term Lender or an Approved Fund or (2) at any time when an Event of Default under Section 7.01(b), (c), (g) or (h) exists and (III) (x) the Borrower shall be deemed to have consented to any assignment of Revolving Loans or Revolving Credit Commitments unless it has objected thereto by written notice to the Administrative Agent within ten Business Days after receipt of a written request for consent, and (y) the consent of the Borrower shall not be required for any assignment of Revolving Loans or Revolving Credit Commitments (1) by any Revolving Credit Lender to any Revolving Credit Lender or any Affiliate of any Revolving Credit Lender or an Approved Fund or (2) at any time when an Event of Default under Section 7.01(b), (c), (g) or (h) exists). The amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than (x) $1,000,000, in the case of Term Loans and Term Commitments and (y) $5,000,000 in the case of Revolving Loans and Revolving Credit Commitments, unless (i) the entire remaining amount of the assigning Lenders Commitment and the Loans at the time owing to it is being assigned, (ii) the applicable assignment is to a Lender, an Affiliate of a Lender or an Approved Fund or (iii) the Borrower and the Administrative Agent otherwise consent. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement with respect to the Loans or the Commitment assigned (it being understood that assignments under separate Credit Facilities shall not be required to be made on a pro rata basis). The parties to each assignment shall (A) execute and deliver to the Administrative Agent an Assignment and Acceptance via an electronic settlement system acceptable to the Administrative Agent or (B) if previously agreed with the Administrative Agent, manually execute and deliver to the Administrative Agent an Assignment and Acceptance and, in each case, shall pay to the Administrative Agent a processing and recordation fee of $3,500 (which fee may be waived or reduced in the sole discretion of the Administrative Agent), and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire (in which the assignee shall designate one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Loan Parties and their Related Parties or their respective securities) will be made available and who may receive information in accordance with the assignees compliance procedures and applicable laws, including federal and state securities laws) and all applicable Tax forms (including the Tax forms pursuant to Section 2.20(f) hereof). In the case of any assignment to an Eligible Assignee that is or would be, upon giving effect to such assignment, an Affiliated Lender, such assignment shall be subject to the provisions of Section 9.04(l). Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, (A) 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 (B) 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 or the remaining portion of an assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid).
139
(c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Term Loan Commitment and Revolving Credit Commitment, and the outstanding balances of its Term Loans and Revolving Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in clause (i) 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 this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of Holdings, the Borrower or any other Subsidiary or the performance or observance by any Loan Party of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is an Eligible Assignee and is legally authorized to enter into such Assignment and Acceptance (and the Administrative Agent may rely conclusively on such representation); (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.04 or delivered pursuant to Section 5.04, 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; (v) such assignee will independently and without reliance upon the Administrative Agent, the Collateral 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 this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to each of the Administrative Agent and the Collateral Agent, by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York 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 Commitment of, and principal amount of and interest on the Loans owing to, each Lender pursuant to the terms hereof from time to time (the Register ). The entries in the Register shall be conclusive and the Borrower, the Administrative Agent, the Issuing Banks, the Collateral Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Banks and the Collateral Agent, at any reasonable time and from time to time upon reasonable prior notice.
140
(e) Upon its receipt of, and consent to, a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above, if applicable, and the written consent of the Administrative Agent and, if required, the Borrower and the Issuing Bank to such assignment and any applicable Tax forms, the Administrative Agent shall (i) accept such Assignment and Acceptance and (ii) record the information contained therein in the Register. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e).
(f) Each Lender may without the consent of, or notice to, the Borrower, the Issuing Bank or the Administrative Agent sell participations to one or more Eligible Assignees (each, a Participant ) in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided , however , that (i) such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Participant shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.16 and 2.20 (to the extent that such Participant provides any necessary documentation under Section 2.20 as if it were a Lender hereunder) to the same extent as if they were Lenders (but, with respect to any particular Participant, to no greater extent than the Lender that sold the participation to such Participant, unless the sale of the participation to such Participant is made with the Borrowers prior written consent or to the extent that such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation) and (iv) the Borrower, the Administrative Agent, the Issuing Banks and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to the Loans or L/C Disbursements and to approve any amendment, modification or waiver of any provision of this Agreement (other than, if agreed to between such Participant and the applicable Lender, amendments, modifications or waivers described in Section 9.08(b)(i), (ii), (iii), (iv) or (v)). 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 agrees to be subject to Section 2.18 as though it were a Lender.
(g) Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participants interest in the Loans or other obligations under the Loan Documents (the Participant Register ); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participants interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
141
(h) Any Lender or Participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or Participant or proposed assignee or Participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee or Participant or proposed assignee or Participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.16.
(i) Any Lender may at any time pledge or assign all or any portion of its rights under this Agreement to secure extensions of credit to such Lender or in support of obligations owed by such Lender; provided that no such pledge or assignment shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto.
(j) Notwithstanding anything to the contrary contained herein, any Lender (a Granting Lender ) may grant to a special purpose funding vehicle (an SPV ), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPV to make any Loan and (ii) if an SPV elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPV hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPV shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPV, it will not institute against, or join any other person in instituting against, such SPV any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.04, any SPV may (i) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and Administrative Agent) providing liquidity or credit support to or for the account of such SPV to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPV.
(k) Neither Holdings nor the Borrower shall assign or delegate any of its rights or duties hereunder without the prior written consent of the Administrative Agent, each Issuing Bank and each Lender, and any attempted assignment without such consent shall be null and void.
142
(l) Notwithstanding anything to the contrary contained herein, any Lender may, at any time, assign all or a portion of its rights and obligations under this Agreement in respect of its Term Loans to any Affiliated Lender on a non-pro rata basis (x) through Auctions open to all Lenders holding the relevant Term Loans on a pro rata basis or (y) through open market purchases, in each case with respect to clauses (x) and (y), without the consent of the Administrative Agent, subject to the applicable conditions set forth in Section 2.12(c); provided that no Affiliated Lender shall be required to represent or warrant that it is not in possession of material non-public information with respect to Holdings, the Borrower or any Subsidiary thereof or their respective securities in connection with any assignment permitted by this Section 9.04(l).
(m) Notwithstanding any other provision of this Agreement, no Lender will assign its rights and obligations under this Agreement, or sell participations in its rights and/or obligations under this Agreement, to any person who is (i) listed on the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC pursuant to any authorizing statute, executive order or regulation or (ii) either (A) included within the term designated national as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515 or (B) designated under Sections 1(a), 1(b), 1(c) or 1(d) of Executive Order No. 13224, 66 Fed. Reg. 49079 (published September 25, 2001) or similarly designated under any related enabling legislation or any other similar executive orders.
(n) Notwithstanding anything to the contrary herein, the Administrative Agent shall not be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or enforce, compliance with the provisions hereof relating to Disqualified Institutions. Without limiting the generality of the foregoing, (A) the Administrative Agent shall not be obligated to ascertain, monitor or inquire as to whether any Lender or Participant or prospective Lender or Participant is a Disqualified Institution, (B) the Administrative Agent shall in no circumstances have any liability with respect to any assignment or participation to a Disqualified Institution to which the Borrower has consented (including deemed consent) or with respect to any other assignment or participation to a Disqualified Institution and (C) the Administrative Agent shall in no circumstances have any liability with respect to or arising out of any disclosure of confidential information to any Disqualified Institution, unless such assignment or disclosure resulted from the gross negligence, bad faith or willful misconduct of, or material breach of the Loan Documents by, the Administrative Agent.
(o) In the case of any assignment or participation by a Lender without the Borrowers consent to a Disqualified Institution (or any affiliate thereof) or, to the extent the Borrowers consent is required under the terms of the Loan Documents, to any other person, the Borrower shall be entitled to (a) terminate any Commitment of such person and repay any applicable outstanding Loans (in the case of Term Loans, at a price equal to the lesser of par and the amount such person paid to acquire such Loans), without premium, penalty, prepayment fee or breakage, and/or (b) require such person to assign its rights and obligations to one or more Eligible Assignees at the price indicated above (which assignment shall not be subject to the processing and recordation fee specified above); provided that upon inquiry by any Lender to the Administrative Agent as to whether a specified potential assignee or prospective Participant is on the list of Disqualified Institutions, the Administrative Agent shall be permitted to disclose to such Lender whether such specific potential assignee or prospective Participant is on the list of Disqualified Institutions.
143
SECTION 9.05 Expenses; Indemnity; Damage Waivers . (a) The Borrower and Holdings agree, jointly and severally, to pay within 30 days of a written demand therefor (together with reasonable backup documentation supporting such reimbursement request) (i) all reasonable and documented out-of-pocket expenses incurred by the Arranger, the Administrative Agent, the Collateral Agent, any documentation agent, any syndication agent and the Issuing Bank (but limited, in the case of legal fees and expenses, to the actual reasonable and documented out-of-pocket fees, disbursements and other charges of one firm of outside counsel to all such Persons taken as a whole and, if reasonably necessary, of one local counsel in any relevant local jurisdiction to all such Persons, taken as a whole), in connection with the syndication of the Credit Facilities and the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof and (ii) all reasonable out-of-pocket expenses (but limited, in the case of legal fees and expenses, to the reasonable and documented out-of-pocket fees, disbursements and other charges (x) of one firm of outside counsel to all such Persons taken as a whole and, solely in the case of an actual or reasonably perceived conflict of interest, one additional counsel to each similarly situated group of Persons, and (y) if reasonably necessary, of one local counsel in any relevant jurisdiction to all such Persons, taken as a whole and, solely in the case of an actual or reasonably perceived conflict of interest, one additional local counsel to each similarly situated group of Persons, in each such relevant material jurisdiction) incurred by the Arranger, the Administrative Agent, the Collateral Agent, the syndication agent, the documentation agent, the Issuing Bank and the Lenders in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made or Letters of Credit issued hereunder, including all such reasonable out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.
(b) The Borrower and Holdings agree, jointly and severally, to indemnify each Arranger, the Administrative Agent, the Collateral Agent, any syndication agent, any documentation agent, each Lender, the Issuing Bank and each Related Party of any of the foregoing persons (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 (but limited, in the case of legal fees and expenses, to the actual reasonable and documented out-of-pocket fees, disbursements and other charges of one counsel to all Indemnitees taken as a whole and, solely in the case of an actual or reasonably perceived conflict of interest, one additional counsel to each similarly situated group of affected Indemnitees, taken as a whole and, if reasonably necessary, one local counsel in any relevant material jurisdiction to all Indemnitees, taken as a whole, and solely in the case of any such actual or reasonably perceived conflict of interest, one additional local counsel to all affected Indemnitees, taken as a whole, in each relevant jurisdiction), 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 thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby (including the syndication of the Credit Facilities), (ii) the use of the proceeds of the Loans or issuance of Letters of Credit, (iii) any
144
actual or prospective 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 the Borrower, any other Loan Party or any of their respective Affiliates), or (iv) any actual or alleged presence or Release of Hazardous Materials on any property currently or formerly owned or operated by Holdings, the Borrower or any other Subsidiary, or any Environmental Liability related in any way to Holdings, the Borrower or any other Subsidiary; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have (x) resulted from the willful misconduct or gross negligence of such Indemnitee or any of its Affiliates or controlling persons thereof or (y) arisen out of or in connection with any claim, litigation or proceeding that is solely among Indemnitees (other than claims against any Indemnitee in its capacity or in fulfilling its role as an Arranger, the Administrative Agent, the Collateral Agent, the Issuing Bank or other similar role) that a court of competent jurisdiction has determined in a final and nonappealable judgment did not involve any act or omission of any of Holdings, the Borrower or their Subsidiaries. Notwithstanding the foregoing, each Indemnitee shall be obligated to refund and return any and all amounts paid by the Borrower or Holdings to such Indemnitee for fees, losses, claims, liabilities, expenses or damages under this Section 9.05 to the extent a court of competent jurisdiction has determined in a final and nonappealable judgment that such Indemnitee was not entitled to payment of such amounts in accordance with the terms of this Section 9.05
(c) To the extent that Holdings and the Borrower fail to pay any amount required to be paid by them to the Arranger, Administrative Agent, the Collateral Agent or the Issuing Bank or any Related Party thereof under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or such Related Party, as the case may be, such Lenders pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Arranger, the Administrative Agent, the Collateral Agent or the Issuing Bank in its capacity as such. For purposes hereof, a Lenders pro rata share shall be determined based upon its share of the sum of the Aggregate Revolving Credit Exposure, outstanding Term Loans and unused Commitments at the time.
(d) To the extent permitted by applicable law, none of Holdings, its Related Parties or any Indemnitee shall be liable 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 or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof; provided that nothing contained in this sentence shall limit the indemnification obligations to the extent set forth hereinabove to the extent such special, indirect, consequential or punitive damages are included in any third party claim in connection with which an Indemnitee is entitled to indemnification hereunder.
145
(e) 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 Loans, the expiration of the 145 Commitments, the expiration of any Letter of Credit, 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 Arranger, the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor.
SECTION 9.06 Right of Setoff . If an Event of Default shall have occurred and be continuing, each Lender and Issuing Bank and each Affiliate of any of the foregoing is hereby authorized at any time and from time to time, except to the extent prohibited by law, to setoff 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 Issuing Bank, or by such an Affiliate, to or for the credit or the account of the Borrower or Holdings against any of and all the obligations of the Borrower or Holdings now or hereafter existing under this Agreement and other Loan Documents held by such Lender or Issuing Bank, irrespective of whether or not such Lender or Issuing Bank shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured or owed to a branch, office or Affiliate of such Lender or Issuing Bank different from the branch, office or Affiliate holding such deposit or obligated on such Indebtedness; provided that in the event that any Defaulting Lender or Affiliate thereof shall exercise any such right of setoff, (x) all amounts so setoff shall be paid over immediately to the Administrative Agent and, pending such payment, shall be segregated by such Defaulting Lender or its Affiliate 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 or its Affiliate exercised such right of setoff. The rights of each Lender, each Issuing Bank and their respective Affiliates under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender, such Issuing Bank and any such Affiliate may have.
SECTION 9.07 Applicable Law . THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS MOST RECENTLY PUBLISHED AND IN EFFECT, ON THE DATE SUCH LETTER OF CREDIT WAS ISSUED, BY THE INTERNATIONAL CHAMBER OF COMMERCE (THE UNIFORM CUSTOMS ) AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAW OF THE STATE OF NEW YORK.
SECTION 9.08 Waivers; Amendments . (a) No failure or delay of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in exercising any power or right hereunder or under any other 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, the
146
Collateral Agent, the 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 the Borrower or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (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 Borrower or Holdings in any case shall entitle the Borrower or Holdings to any other or further notice or demand in similar or other circumstances.
(b) Except as otherwise provided herein in Sections 2.08, 2.23 and 2.25, neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower, Holdings and (other than with respect to clauses (i), (ii), (iii), (ix) and (x) below) the Required Lenders; provided , however , that no such agreement shall:
(i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan or any date for reimbursement of an L/C Disbursement, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan (other than a waiver of default interest) or L/C Disbursement (it being understood that any change in any definition applicable to any ratio used in the calculation of such rate of interest (or any component definition thereof) shall not constitute a reduction in any rate of interest), without the prior written consent of each Lender directly adversely affected thereby,
(ii) increase (other than with respect to any Incremental Term Facility or Incremental Revolving Credit Commitment to which the Lender providing such incremental facility has agreed) or extend the Commitment (it being understood that a waiver of any condition precedent or the waiver of any Default, Event of Default or mandatory prepayment shall not constitute an increase or extension of any Commitment of any Lender) or waive, decrease or extend the date for payment of any Fees or premium owed to any Lender (it being understood that any change in any definition applicable to any ratio used in the calculation of such Fees (or any component definition thereof) shall not constitute a reduction in any Fees), without the prior written consent of each Lender directly adversely affected thereby,
(iii) without the prior written consent of each Lender directly adversely affected thereby, amend, modify or waive the pro rata requirements of Section 2.17,
(iv) without the prior written consent of each Lender, (x) amend, modify or waive the provisions of Section 9.04(k) or (y) other than in accordance with the Loan Documents, release all or substantially all of the value of the Guarantees, or all or substantially all of the Collateral,
(v) amend, modify or waive the provisions of this Section 9.08 or the percentage contained in the definition of the term Required Lenders, Required Financial Covenant Lenders, Required Revolving Lenders or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any
147
Class) required to waive, amend or modify any rights thereunder or make the determination or grant any consent thereunder, without the consent of each Lender (or each Lender of such Class, as the case may be) (it being understood that with the consent of the Required Lenders, the provisions of this Section 9.08 and the definition of the term Required Lenders may be amended to include references to any new class of loans created under this Agreement (or to lenders extending such loans) on substantially the same basis as the corresponding references relating to the existing Classes of Loans or Lenders),
(vi) amend, modify or waive provisions of any Loan Document in a manner that by its terms adversely affects the rights of Lenders holding Loans of one Class differently from the rights of Lenders holding Loans of any other Class without the prior written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of each adversely affected Class, provided that in the case of any amendment, modification or waiver that adversely affects the rights of Lenders holding Revolving Loans differently from the rights of Lenders holding Loans of any other Class, the prior written consent of each Lender holding Revolving Loans shall be required,
(vii) amend, modify or waive the protections afforded to an SPV pursuant to the provisions of Section 9.04(j) without the written consent of such SPV,
(viii) impose additional restrictions on the ability of any Lender to assign any of its rights and obligations hereunder without the prior written consent of such Lender,
(ix) amend, modify or waive any condition precedent to an extension of credit (or deemed extension of credit) under the Revolving Facility (or any facility consisting of Incremental Revolving Credit Commitments) without the prior written consent of the Required Revolving Lenders (and, in the case of the issuance of a Letter of Credit, the relevant Issuing Bank), or
(x) amend, modify or waive Section 6.10 or the defined terms used in Section 6.10 (solely in respect of the use of such defined terms in Section 6.10) or waive any Default or Event of Default resulting from a breach of Section 6.10, without the prior written consent of solely the Required Financial Covenant Lenders;
provided , further , that, notwithstanding the foregoing, (I) only the consent of Issuing Banks and the Administrative Agent shall be required with respect to any amendment that changes the L/C Sublimit and (II) no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent or the Issuing Bank hereunder or under any other Loan Document without the prior written consent of the Administrative Agent, the Collateral Agent or the Issuing Bank.
(c) The Administrative Agent, Holdings and the Borrower may amend any Loan Document to correct (i) an obvious error or any error or omission of a technical nature or (ii) to effect administrative changes that are not adverse to any Lender. Notwithstanding anything to the contrary contained herein, such amendment shall become effective without any further consent of any other party to such Loan Document (in the case of clause (ii) of the foregoing sentence, if the same is not objected to in writing by the Required Lenders within five Business Days following receipt of notice thereof; provided that, if the Required Lenders make such objection in writing, such amendment shall not become effective without the consent of the Required Lenders).
148
(d) Subject to the rights of the Administrative Agent, the Collateral Agent and the Issuing Banks under the second proviso of Section 9.08(b) but notwithstanding any other provision of this Agreement, this Agreement may be amended:
(i) with the written consent of the Borrower and the Lenders providing the relevant Replacement Term Loans to permit the refinancing or replacement of all or any portion of the outstanding Term Loans under a specified Class (any such loans being refinanced or replaced, the Replaced Term Loans ) with one or more replacement term loans hereunder ( Replacement Term Loans ) pursuant to a Refinancing Amendment; provided that:
(A) the aggregate principal amount of any Replacement Term Loans shall not exceed the aggregate principal amount of the Replaced Term Loans ( plus the amount of accrued interest and premium thereon and underwriting discounts, fees (including upfront fees and original issue discount), commissions and expenses associated therewith),
(B) any Replacement Term Loans must have a final maturity date that is equal to or later than the final maturity date of, and have a weighted average life to maturity equal to or greater than the weighted average life to maturity of, the Replaced Term Loans at the time of the relevant refinancing,
(C) any Replacement Term Loans shall be pari passu with any then-existing Term Loans in right of payment and pari passu with such Term Loans with respect to the Collateral,
(D) any Replacement Term Loans that are secured may not be secured by any assets other than all or a portion of the Collateral,
(E) any Replacement Term Loans that are guaranteed may not be guaranteed by any Person other than one or more Loan Parties,
(F) any Replacement Term Loans 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 prepayment in respect of the Initial Term Loans (and any Term Loans (other than the Initial Term Loans) then subject to ratable repayment requirements), in each case as agreed by the Borrower and the Lenders providing the relevant Replacement Term Loans,
(G) any Replacement Term Loans may have pricing (including interest, fees and premiums) and optional prepayment terms as the Borrower and the Lenders providing such Replacement Term Loans may agree,
149
(H) the other terms and conditions of any Replacement Term Loans (excluding pricing, interest, fees, rate floors, premiums, optional prepayment terms, security and maturity, subject to preceding clauses (B) through (G)) are no more favorable (taken as a whole) (as reasonably determined by the Borrower) to the Lenders providing such Replacement Term Loans than, those applicable to the Replaced Term Loans (other than covenants or other provisions applicable only to periods after the Latest Term Loan Maturity Date (in each case, as of the date of incurrence of such Replacement Term Loans)), and
(I) the Borrower shall have prepaid the applicable Term Loans in accordance with Section 2.13(d), and
(ii) with the written consent of the Borrower and the Lenders providing the relevant Replacement Revolving Facility to permit the refinancing or replacement of all or any portion of any Revolving Credit Commitment under the applicable Class (any such Revolving Credit Commitment being refinanced or replaced, a Replaced Revolving Facility ) with a replacement revolving facility hereunder (a Replacement Revolving Facility ) pursuant to a Refinancing Amendment; provided that:
(A) the aggregate principal amount of any Replacement Revolving Facility shall not exceed the aggregate principal amount of the Replaced Revolving Facility ( plus the amount of accrued interest and premium thereon, underwriting discounts, fees (including upfront fees and original issue discount), commissions and expenses associated therewith),
(B) no Replacement Revolving Facility may have a final maturity date (or have scheduled commitment reductions) prior to the final maturity date of the relevant Replaced Revolving Facility at the time of such refinancing,
(C) any Replacement Revolving Facility shall be pari passu with any then-existing Revolving Credit Commitments in right of payment and pari passu with any then-existing Revolving Credit Commitments with respect to the Collateral,
(D) any Replacement Revolving Facility that is secured may not be secured by any assets other than all or any portion of the Collateral,
(E) any Replacement Revolving Facility that is guaranteed may not be guaranteed by any Person other than one or more Loan Parties,
(F) to the extent more than one Revolving Facility exists after giving effect to the incurrence of any Replacement Revolving Facility, (x) the borrowing and repayment (except for (1) payments of interest and fees at different rates on the Revolving Facilities (and related outstandings), (2) repayments required upon the final maturity date of any Revolving Facility and (3) repayments made in connection with a permanent repayment and termination of Revolving Credit Commitments under any Revolving Facility (subject to clause (z) below)) of Revolving Loans with respect to any Revolving Facility after the effective date of
150
such Replacement Revolving Facility shall be made on a pro rata basis with all other Revolving Facilities, (y) all Letters of Credit shall be participated on a pro rata basis by all Revolving Credit Lenders and (z) the permanent repayment of Revolving Loans with respect to, and reduction or termination of Revolving Credit Commitments under, any Revolving Facility after the effective date of such Replacement Revolving Facility shall be made on a pro rata basis with all other Revolving Facilities, except that the Borrower shall be permitted to permanently repay Revolving Loans and terminate Revolving Credit Commitments of any Revolving Facility on a greater than pro rata basis as compared to any other Revolving Facilities with a later final maturity date than such Revolving Facility,
(G) any Replacement Revolving Facility may have pricing (including interest, fees and premiums) and, subject to preceding clause (F), optional prepayment terms as the Borrower and the Lenders providing such Replacement Revolving Facility may agree,
(H) the other terms and conditions of any Replacement Revolving Facility (excluding pricing, interest, fees, rate floors, premiums, optional prepayment terms, security and maturity, subject to preceding clauses (B) through (G)) are no more favorable (taken as a whole) (as reasonably determined by the Borrower) to the Lenders providing such Replacement Revolving Facility than, those applicable to the Replaced Revolving Facility (other than covenants or other provisions applicable only to periods after the Latest Revolving Credit Maturity Date (in each case, as of the date of incurrence of the relevant Replacement Revolving Facility)), and
(I) the commitments in respect of the relevant Replaced Revolving Facility shall be terminated, and all loans outstanding thereunder and all fees then due and payable in connection therewith shall be paid in full, in each case on the date any Replacement Revolving Facility is implemented.
Each party hereto hereby agrees that this Agreement may be amended by the Borrower, the Administrative Agent and the lenders providing the relevant Replacement Term Loans or the Replacement Revolving Facility, as applicable, to the extent necessary or appropriate in the reasonable opinion of the Administrative Agent and the Borrower to reflect the existence and terms of such Replacement Term Loans or Replacement Revolving Facility, as applicable, incurred or implemented pursuant thereto (including any amendment necessary to treat the loans and commitments subject thereto as a separate tranche and Class of Loans or commitments hereunder). It is understood that any Lender approached to provide all or a portion of any Replacement Term Loans or any Replacement Revolving Facility may elect or decline, in its sole discretion, to provide such Replacement Term Loans or Replacement Revolving Facility.
SECTION 9.09 Interest Rate Limitation . Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or participation in any L/C Disbursement, together with all fees, charges and other amounts which are treated as interest on such Loan or participation in such L/C Disbursement under applicable law (collectively the Charges ), shall exceed the maximum lawful rate (the Maximum Rate ) which may be
151
contracted for, charged, taken, received or reserved by the Lender holding such Loan or participation in accordance with applicable law, the rate of interest payable in respect of such Loan or participation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or participation but were not payable as a result of the operation of this Section 9.09 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
SECTION 9.10 Entire Agreement . This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent or the syndication of the Loans and Commitments constitute the entire contract between the parties relative to the subject matter hereof. Any other previous agreement among the parties 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 person (other than the parties hereto and thereto, their respective successors and assigns permitted hereunder (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders) 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. 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 (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of 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.
152
SECTION 9.13 Counterparts; Electronic Execution . (a) This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.03. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of an original signed counterpart of this Agreement.
(b) The words execution, signed, signature, delivery and words of like import in or relating to any document to be signed in connection with this Agreement or any other Loan Document and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that nothing herein shall require the Administrative Agent to accept electronic signatures in any form or format without its prior written consent.
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 party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the jurisdiction of any New York State court or federal court of the United States of America 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 hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding brought by it or any of its Affiliates against any Agent, Issuing Bank or Lender shall be brought, and shall be heard and determined, only in such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Loan Party or their respective properties in the courts of any jurisdiction.
(b) Each of Holdings and the Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to 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 such 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.
153
(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 or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 9.16 Confidentiality . Each of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and its and its Affiliates officers, directors, employees and agents, including accountants, legal counsel and other advisors (it being understood that the persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, self-regulatory authority or quasi-regulatory authority (such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) in connection with the exercise of any remedies hereunder or under the other Loan Documents or any suit, action or proceeding relating to the enforcement of its rights hereunder or thereunder, (e) subject to an agreement containing provisions substantially the same as those of this Section 9.16, to (i) any actual or prospective assignee of or Participant in any of its rights or obligations under this Agreement and the other Loan Documents or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to Holdings, the Borrower or any other Subsidiary or any of their respective obligations, (f) with the consent of the Borrower, (g) to the extent such Information becomes publicly available other than as a result of a breach of this Section 9.16 and (h) on a confidential basis to (x) any rating agency in connection with rating Holdings, the Borrower or any other Subsidiary or the Credit Facilities or (y) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the Credit Facilities or market data collectors, similar services, providers to the lending industry and service providers to the Administrative Agent in connection with the administration and management of this Agreement and the Loan Documents. For the purposes of this Section 9.16, Information shall mean all information received from the Borrower or Holdings and related to the Borrower or Holdings or their business, other than any such information that was available to the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure by the Borrower or Holdings; provided that, in the case of Information received from the Borrower or Holdings after the date hereof, such information is clearly identified at the time of delivery as confidential. Any person required to maintain the confidentiality of Information as provided in this Section 9.16 shall be considered to have complied with its obligation to do so if such person has exercised the same degree of care to maintain the confidentiality of such Information as such person would accord its own confidential information.
SECTION 9.17 Lender Action . Each Lender agrees that it shall not take or institute any actions or proceedings, judicial or otherwise, for any right or remedy against any Loan Party or any other obligor under any of the Loan Documents (including the exercise of any right of setoff, rights on account of any bankers lien or similar claim or other rights of self-help), or institute any actions or proceedings, or otherwise commence any remedial procedures, with respect to any Collateral or any other property of any such Loan Party, unless expressly provided for herein or in any other Loan Document, without the prior written consent of the Administrative Agent. The provisions of this Section 9.17 are for the sole benefit of the Lenders and shall not afford any right to, or constitute a defense available to, any Loan Party.
154
SECTION 9.18 USA PATRIOT Act Notice . Each Lender and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies Holdings and the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies Holdings and the Borrower, which information includes the name and address of Holdings and the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify Holdings and the Borrower in accordance with the USA PATRIOT Act.
SECTION 9.19 Release of Collateral and Guarantees . (a) All security interests and Liens granted or created under the Security Documents shall automatically terminate when all the Loan Document Obligations (other than contingent amounts not yet due) have been paid in full, the Lenders have no further commitment to lend under this Agreement and the Letters of Credit shall have been canceled or have expired and all L/C Disbursements shall have been reimbursed.
(b) A Subsidiary Guarantor shall automatically be released from its obligations under the Security Documents and all security interests and Liens granted or created thereunder in the Collateral and guarantee obligations of such Subsidiary Guarantor shall be automatically released and/or terminated upon the consummation of any transaction permitted by this Agreement as a result of which such Subsidiary Guarantor ceases to be a Subsidiary or, upon the Borrowers written request, becomes an Unrestricted Subsidiary or another Excluded Subsidiary.
(c) Holdings shall automatically be released from its obligations under the Security Documents and all security interests and Liens granted or created thereunder in the Collateral, and guarantee obligations of Holdings, shall be automatically released and/or terminated upon, or prior to and in preparation of, the consummation of any Qualified Public Offering or IPO Reorganization Transaction the result of which is that Holdings ceases to exist (including by merger, dissolution, liquidation or otherwise) (it being understood that if such release occurs prior to and in preparation of a Qualified Public Offering and the Qualified Public Offering is not consummated within 60 days (or such later date as the Administrative Agent may agree to in its sole discretion) after such release or the Borrower determines to abandon the Qualified Public Offering, (x) Holdings obligations under the Security Documents and all security interests and Liens granted or created thereunder in the Collateral, and guarantee obligations of Holdings, shall be promptly reinstated or (y) a successor holding company, in accordance with Section 9.21, shall promptly assume Holdings obligations (prior to giving effect to such release) (or to the extent not practicable, substantially similar obligations) under the Security Documents and all security interests and Liens granted or created thereunder in the Collateral, and guarantee obligations of Holdings (prior to giving effect to such release) (in the case of security interests and Liens, with the same priority as prior to such release)).
(d) Upon any sale or other transfer by any Loan Party of any Collateral that is permitted under this Agreement to any person that is not another Loan Party, or, upon the effectiveness of any written consent to the release of the security interest or Lien granted under the Security Documents in any Collateral pursuant to Section 9.08 (or, if later, the date such release is permitted to occur pursuant to such consent), the security interests and Liens in such Collateral shall be automatically released.
(e) In connection with any termination or release pursuant to paragraph (a) or (b) above, the Collateral Agent shall promptly execute and deliver to any Loan Party, at such Loan Partys expense, all Uniform Commercial Code termination statements and other documents that such Loan Party shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section 9.19 shall be without recourse to or representation or warranty by the Collateral Agent or any Secured Party. Without limiting the provisions of Section 9.05(a), the Borrower shall reimburse the Collateral Agent upon demand for all reasonable and documented costs and out-of-pocket expenses, including the reasonable and documented fees, charges and expenses of counsel, incurred by it in connection with any action contemplated by this Section 9.19.
155
SECTION 9.20 Acknowledgement 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 entity, 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.
SECTION 9.21 Holdings Release . Holdings shall automatically be released from all of its obligations under this Agreement and the other Loan Documents upon, or prior to and in preparation of, the consummation of any Qualified Public Offering or IPO Reorganization Transaction the result of which is that Holdings ceases to exist (including by merger, dissolution, liquidation or otherwise) (it being understood that if such release occurs prior to and in preparation of a Qualified Public Offering and the Qualified Public Offering is not consummated within 60 days (or such later date as the Administrative Agent may agree to in its sole discretion) after such release or the Borrower determines to abandon the Qualified Public Offering, (x) Holdings obligations under this Agreement and the other Loan Documents shall be promptly reinstated or (y) a successor holding company, which shall provide all documentation requested in writing by the Administrative Agent required by regulatory authorities under applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act, shall promptly assume the obligations of Holdings under this Agreement and the other Loan Documents, to the extent applicable). As a result of such release, to the extent applicable (and in consultation with the Administrative Agent), the Borrower shall assume the responsibility of actions previously designated to Holdings. For the avoidance of doubt, the release of Holdings from its obligations under this Agreement and the other Loan Documents pursuant to this Section 9.21 shall not, directly or indirectly, cause any Default or Event of Default hereunder or thereunder. Notwithstanding anything to the contrary in this Agreement, in connection with this Section 9.21 and Section 9.19(c), without the consent of any other Loan Party or Lender, the Borrower and the Administrative Agent shall effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 9.21 and Section 9.19(c).
156
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
ASSETMARK FINANCIAL HOLDINGS, INC., as Borrower | ||
By: |
/s/ Gary G. Zyla |
|
Name: Gary G. Zyla | ||
Title: Executive Vice President and Chief Financial Officer |
ASSETMARK HOLDINGS LLC, as Holdings |
||
By: |
/s/ Gary G. Zyla |
|
Name: Gary G . Zyla | ||
Title: Executive Vice President, Chief
|
[Signature Page to AssetMark Credit Agreement]
157
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Administrative Agent, Collateral Agent, an Issuing Bank and a Revolving Credit Lender |
||
By: |
/s/ Doreen Barr |
|
Name: Doreen Barr | ||
Title: Authorized Signatory | ||
By: |
/s/ Michael Del Genio |
|
Name: Michael Del Genio | ||
Title: Authorized Signatory |
[Signature Page to AssetMark Credit Agreement]
158
Schedule 1.01(a)
Mortgaged Property
None.
Schedule 2.01
Lenders and Commitments
Term Lender |
Term Loan Commitment | |||
Credit Suisse AG, Cayman Islands Branch |
$ | 250,000,000 | ||
Total |
$ | 250,000,000 | ||
Revolving Credit Lender |
Revolving Credit Commitment | |||
Credit Suisse AG, Cayman Islands Branch |
$ | 20,000,000 | ||
Total |
$ | 20,000,000 | ||
Issuing Bank |
L/C Commitment | |||
Credit Suisse AG, Cayman Islands Branch |
$ | 5,000,000 | ||
Total |
$ | 5,000,000 |
160
Lender address details
Credit Suisse AG, Cayman Islands Branch
Credit Suisse AG
Eleven Madison Avenue
New York, NY 10010
Attention of: Agency Manager
Fax: (212) 322-2291
Email: agency.loanops@credit-suisse.com
Schedule 3.08
Litigation
None.
Schedule 3.16(a)
UCC Filing Offices
Grantor |
Jurisdiction |
UCC Filing Office/Local Filing Office |
||
AssetMark Holdings LLC | Delaware | Delaware Secretary of State | ||
AssetMark Financial Holdings, Inc. | Delaware | Delaware Secretary of State | ||
AssetMark Financial, Inc. | Arizona | Arizona Secretary of State | ||
AssetMark Retirement Services, Inc. | Pennsylvania | Pennsylvania Secretary of State | ||
AssetMark, Inc. | California | California Secretary of State |
Schedule 3.16(c)
Mortgage Filing Offices
None.
Schedule 5.11
Post-Closing Obligations
Within 60 days of the Closing Date (or within such longer period as the Administrative Agent in its sole discretion may permit), the Borrower shall deliver to the Administrative Agent the insurance certificates and endorsements required to be delivered pursuant to Section 5.02(b) of the Credit Agreement that have not been delivered on the Closing Date.
Within 60 days of the Closing Date (or within such longer period as the Administrative Agent in its sole discretion may permit), Holdings and the other Grantors shall comply with their obligations with respect to Deposit Accounts as set forth in Section 4.04(b) of the Guarantee and Collateral Agreement.
Schedule 6.01
Existing Indebtedness
1. AssetMark has an $8,000,000 earnout, listed on its balance sheet, in respect of an Asset Purchase Agreement with Clark Capital.
Schedule 6.02
Existing Liens
None.
Schedule 6.04
Existing Investments
1. |
Unit Purchase Agreement among AssetMark Financial, Inc., Global Financial Private Capital, LLC., GFPC Holdings, LLC., GF Founders, LLC. And GFPC Holdings, LLC. (as Sellers Representative), dated as of August 11, 2018. |
Schedule 6.07
Existing Contracts with Affiliates
None.
EXHIBIT A
FORM OF ADMINISTRATIVE QUESTIONNAIRE
AssetMark Financial Holdings, Inc.
Syndtrak Agency access:
Please note that it is IMPERATIVE that the following information is delivered to Credit Suisse in order to provide a lender access to the Syndtrak Agency site where documents that monitor the credit on an ongoing basis are posted. Many Firms submit their own form so please take the time to amend the form your Firm uses to reflect who should be granted access to the Syndtrak Agency site.
It is IMPERATIVE that you indicate EXACT details regarding who should receive access to the Syndtrak Agency site.
Sub-allocation of lender allocation:
It is very important that all of the requested information be completed accurately and that this questionnaire be returned promptly. If your institution is sub-allocating its allocation, please fill out an administrative questionnaire for each legal entity.
Syndtrak Agency site maintenance contact information
Laura Vargas
Tel: 212-325-2515
E-mail: laura.vargas@credit-suisse.com
Agent Wire Instructions
Bank of New York
Reference: AssetMark Financial Holdings, Inc.
ABA: [***]
Account Name: [***]
Account Number: [***]
A-1
Legal Name of Lender to appear in Documentation: |
|
Signature Block Information: | ||||
Lender Parent: |
Signing Credit Agreement |
☐ Yes ☐ No | |
Coming in via Assignment |
☐ Yes ☐ No |
Lender Domestic Address | Lender Eurodollar Address | |
|
|
|
|
|
|
|
|
Type of Lender: |
|
|||
(Bank, Asset Manager, Broker/Dealer, CLO/CDO, Finance Company, Hedge Fund, Insurance, Mutual Fund, Pension Fund, Other Regulated Investment Fund, Special Purpose Vehicle, Other please specify) |
Contacts/Notification Methods: Borrowings, Paydowns, Interest, Fees, etc.
Primary Credit Contact | Secondary Credit Contact | |||
Name: |
|
|
||
Company: |
|
|
||
Title: |
|
|
||
Address: |
|
|
||
|
|
|||
Telephone: |
|
|
||
Facsimile: |
|
|
||
E-Mail Address: |
|
|
A-2
Primary Operations Contact | Secondary Operations Contact | |||
Name: |
|
|
||
Company: |
|
|
||
Title: |
|
|
||
Address: |
|
|
||
|
|
|||
Telephone: |
|
|
||
Facsimile: |
|
|
||
E-Mail Address: |
|
|
Lenders Domestic Wire Instructions
Bank Name: |
|
|
ABA/Routing No: |
|
|
Account Name: |
|
|
Account No. |
|
|
FFC Account Name: |
|
|
FFC Account No.: |
|
|
Attention: |
|
|
Reference: |
|
A-3
Tax Documents
U.S. federal tax documents required in connection with the U.S. term loans, U.S. revolving loans, U.S. incremental term loans and U.S. letters of credit
NON-U.S. LENDER INSTITUTIONS:
I. Corporations:
If your institution is incorporated outside of the United States for U.S. federal income tax purposes, and is the beneficial owner of the interest and other income it receives, you must complete one of the following three tax forms, as applicable to your institution: (a) Form W-8BEN-E (Certificate of Foreign Status of Beneficial Owner), (b) Form W-8ECI (Income Effectively Connected to a U.S. Trade or Business), or (c) Form W-8EXP (Certificate of Foreign Government or Governmental Agency).
A U.S. taxpayer identification number is required for any institution submitting Form W-8ECI. It is also required on Form W-8BEN-E for certain institutions claiming the benefits of a tax treaty with the U.S. Please refer to the instructions when completing the form applicable to your institution. In addition, please be advised that U.S. tax regulations do not permit the acceptance of faxed forms. Original tax forms must be submitted.
II. Flow-Through Entities:
If your institution is organized outside the U.S., and is classified for U.S. federal income tax purposes as either a Partnership, Trust, Qualified or Non-Qualified Intermediary, or other non-U.S. flow-through entity, an original Form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding) must be completed by the intermediary together with a withholding statement. Flow-through entities other than Qualified Intermediaries are required to include tax forms for each of the underlying beneficial owners.
Please refer to the instructions when completing this form. In addition, please be advised that U.S. tax regulations do not permit the acceptance of faxed forms. Original tax form(s) must be submitted.
U.S. LENDER INSTITUTIONS:
If your institution is incorporated or organized within the United States, you must complete and return Form W-9 (Request for Taxpayer Identification Number and Certification). Please be advised that we request that you submit an original Form W-9.
Pursuant to the language contained in the tax section of the Credit Agreement, the applicable tax form for your institution must be completed and returned prior to the first payment of income. Failure to provide the proper tax form when requested may subject your institution to U.S. Federal tax withholding.
A-4
EXHIBIT B-1
F ORM OF
A SSIGNMENT AND A CCEPTANCE
This Assignment and Acceptance (the Assignment and Acceptance ) is dated as of the Effective Date set forth below and is entered into by and between [the][each] 1 Assignor identified in item 1 below ([the][each, an] Assignor ) and [the][each] 2 Assignee identified in item 2 below ([the][each, an] Assignee ). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees] 3 hereunder are several and not joint.] 4 Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ), receipt of a copy of which is hereby acknowledged by [the][each] Assignee. The Standard Terms and Conditions set forth in Annex I attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Acceptance as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignors][the respective Assignors] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below (including without limitation any letters of credit, and guarantees included in such facilities), and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] Assigned Interest). In
1 |
For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language. |
2 |
For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language. |
3 |
Select as appropriate. |
4 |
Include bracketed language if there are either multiple Assignors or multiple Assignees. |
B-1-1
the case where the Assigned Interest covers all of the Assignors rights and obligations under the Credit Agreement, the Assignor shall cease to be a party thereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.20 and 9.05 of the Credit Agreement with respect to facts and circumstances occurring on or prior to the Effective Date and subject to its obligations hereunder and under Section 9.16 of the Credit Agreement. Such sale and assignment is (i) subject to acceptance and recording thereof in the Register by the Administrative Agent pursuant to Section 9.04(d) and (e) of the Credit Agreement, (ii) without recourse to [the][any] Assignor and (iii) except as expressly provided in this Assignment and Acceptance, without representation or warranty by [the][any] Assignor.
1. | Assignor[s]: |
|
||||
|
||||||
Assignor [is] [is not] a Defaulting Lender | ||||||
2. | Assignee[s]: |
|
||||
|
||||||
[for each Assignee, indicate [Affiliate][Approved | ||||||
Fund] of [ identify Lender ]] | ||||||
3. | Borrower: |
|
||||
4. | Administrative Agent: |
Credit Suisse AG, Cayman Islands Branch, as the administrative agent under the Credit Agreement. |
||||
5. | Credit Agreement: | The Credit Agreement, dated as of November 14, 2018, among AssetMark Financial Holdings, Inc., a Delaware corporation, AssetMark Holdings LLC, a Delaware limited liability company, the Lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent, as amended, amended and restated, supplemented, modified or replaced from time to time. |
B-1-2
6. |
Assigned Interest[s]: |
Assignor[s] 5 |
Assignee[s]
6
|
Facility
Assigned 7 |
Aggregate Amount of
Commitment/Loans for all Lenders 8 |
Amount of
Commitment/Loans Assigned |
Percentage
Assigned of Commitment/ Loans 9 |
CUSIP
Number |
||||||||||||||||||
$ | $ | % | ||||||||||||||||||||||
$ | $ | % | ||||||||||||||||||||||
$ | $ | % |
[7. Trade Date: ] 10
Effective Date: , 20 [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
5 |
List each Assignor, as appropriate. |
6 |
List each Assignee, as appropriate. |
7 |
Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g., Revolving Credit Commitment, Term Loan Commitment, etc.) |
8 |
Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date. |
9 |
Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. |
10 |
To be completed if the Assignor(s) and the Assignee(s) intend that the minimum assignment amount is to be determined as of the Trade Date. |
B-1-3
The terms set forth in this Assignment and Acceptance are hereby agreed to:
ASSIGNOR[S] 11 | ||
[NAME OF ASSIGNOR] | ||
By: |
|
|
Title: | ||
[NAME OF ASSIGNOR] | ||
By: |
|
|
Title: | ||
ASSIGNEE[S] 12 | ||
[NAME OF ASSIGNEE] | ||
By: |
|
|
Title: | ||
[NAME OF ASSIGNEE] | ||
By: |
|
|
Title: |
Consented to and Accepted:
Credit Suisse AG, Cayman Islands Branch, as Administrative Agent | ||
By: |
|
|
Title: |
11 |
Add additional signature blocks as needed. Include both Fund/Pension Plan and manager making the trade (if applicable). |
12 |
Add additional signature blocks as needed. Include both Fund/Pension Plan and manager making the trade (if applicable). |
B-1-4
[Consented to:] 13 | ||
[ASSETMARK FINANCIAL HOLDINGS, INC. | ||
By: |
|
|
Title: ] | ||
[ISSUING BANK | ||
By: |
|
|
Title: ] |
13 |
To be added only if the consent of the Borrower and/or other parties (e.g., Issuing Banks) is required by the terms of the Credit Agreement. See Section 9.04(b). |
B-1-5
ANNEX I TO
EXHIBIT B-1
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ACCEPTANCE
1. Representations and Warranties .
1.1 Assignor[s] . [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Acceptance and to consummate the transactions contemplated hereby and (iv) it is [not] a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of their Subsidiaries or Affiliates or any other person obligated in respect of any Loan Document, or (iv) the performance or observance by Holdings, the Borrower, any of their Subsidiaries or Affiliates or any other person of any of their respective obligations under any Loan Document.
1.2. Assignee[s] . [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Acceptance and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an Eligible Assignee, as defined in the Credit Agreement (subject to such consents, if any, as may be required under Section 9.04(b) of the Credit Agreement), (iii) it has delivered a true and complete Administrative Questionnaire substantially in the form of Exhibit A to the Credit Agreement as well as all applicable tax forms required to be delivered in accordance with the Credit Agreement, (iv) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement and the other Loan Documents as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (v) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (vi) if it is a Foreign Lender, attached to the Assignment and Acceptance is any documentation required to be delivered by it pursuant to Section 2.20 of the Credit Agreement, duly completed and executed by the Assignee, (vii) it has received a copy of the Credit Agreement together with copies of the most recent financial statements referred to in Section 3.04 or delivered pursuant to Section 5.04(a) or (b) thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance and to purchase [the][such] Assigned Interest, (viii) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it deems appropriate, made its own credit analysis and decision to enter into this Assignment and Acceptance and to purchase [the][such] Assigned Interest, and (ix) attached to the Assignment and Acceptance is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender,
ANNEX I-1
and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (ii) it appoints and authorizes the Administrative Agent to take such action on its behalf and to exercise such powers and discretion under the Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent, by the terms thereof, together with such powers as are reasonably incidental thereto, and (iii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments . From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date. Notwithstanding the foregoing, the Administrative Agent shall make all payments of interest, fees or other amounts paid or payable in kind from and after the Effective Date to [the][the relevant] Assignee. The Administrative Agent shall receive a processing and recordation fee of $3,500 for each assignment.
3. General Provisions . This Assignment and Acceptance shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Acceptance may be executed in any number of counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Acceptance by telecopy shall be as effective as delivery of a manually executed counterpart of this Assignment and Acceptance. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York.
ANNEX I-2
EXHIBIT B-2
F ORM OF
A FFILIATED L ENDER
A SSIGNMENT AND A SSUMPTION
This Affiliated Lender Assignment and Assumption (the Affiliated Lender Assignment and Assumption) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the Assignor) and [Insert name of Affiliated Lender] (the Assignee). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex I attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Affiliated Lender Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below, (i) all of the Assignors rights and obligations in its capacity as a Term Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Term Lender) against any person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned by the Assignor to the Assignee pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the Assigned Interest). In the case where the Assigned Interest covers all of the Assignors rights and obligations under the Credit Agreement, the Assignor shall cease to be a party thereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.20 and 9.05 of the Credit Agreement with respect to facts and circumstances occurring on or prior to the Effective Date and subject to its obligations hereunder and under Section 9.16 of the Credit Agreement. Such sale and assignment is (i) subject to acceptance and recording thereof in the Register by the Administrative Agent pursuant to Section 9.04(d) and (e) of the Credit Agreement, (ii) without recourse to the Assignor and (iii) except as expressly provided in this Affiliated Lender Assignment and Assumption, without representation or warranty by the Assignor.
B-2-1
1. | Assignor: |
|
||||
|
||||||
Assignor [is] [is not] a Defaulting Lender | ||||||
2. | Assignee: |
|
||||
|
||||||
[for Assignee, indicate [Affiliate][Approved | ||||||
Fund] of [ identify Lender ]] | ||||||
3. | Borrower: |
|
||||
4. | Administrative Agent: | Credit Suisse AG, Cayman Islands Branch, as the administrative agent under the Credit Agreement. | ||||
5. | Credit Agreement: | The Credit Agreement, dated as of November 14, 2018, among AssetMark Financial Holdings, Inc., a Delaware corporation, AssetMark Holdings LLC, a Delaware limited liability company, the Lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent, as amended, amended and restated, supplemented, modified or replaced from time to time. |
6. |
Assigned Interest[s]: |
Assignor |
Assignee
|
Facility
Assigned 14 |
Aggregate Amount of
Commitment/Loans for all Lenders 15 |
Amount of
Commitment/Loans Assigned |
Percentage
Assigned of Commitment/ Loans 16 |
CUSIP
Number |
||||||||||||||||||
$ | $ | % | ||||||||||||||||||||||
$ | $ | % | ||||||||||||||||||||||
$ | $ | % |
[7. Trade Date: ] 17
Effective Date: , 20 [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
14 |
Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment |
15 |
Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date. |
16 |
Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. |
17 |
To be completed if the Assignor(s) and the Assignee(s) intend that the minimum assignment amount is to be determined as of the Trade Date. |
B-2-2
The terms set forth in this Assignment and Acceptance are hereby agreed to:
ASSIGNOR 18 | ||
[NAME OF ASSIGNOR] | ||
By: |
|
|
Title: | ||
ASSIGNEE 19 | ||
[NAME OF ASSIGNEE] | ||
By: |
|
|
Title: |
Accepted: | ||
Credit Suisse AG, Cayman Islands Branch, as Administrative Agent | ||
By: |
|
|
Title: | ||
[Consented to:] 20 | ||
[ASSETMARK FINANCIAL HOLDINGS, INC. | ||
By: |
|
|
Title: ] |
18 |
Add additional signature blocks as needed. Include both Fund/Pension Plan and manager making the trade (if applicable). |
19 |
Add additional signature blocks as needed. Include both Fund/Pension Plan and manager making the trade (if applicable). |
20 |
To be added only if the consent of the Borrower and/or other parties is required by the terms of the Credit Agreement. See Section 9.04(b). |
B-2-3
ANNEX I TO
EXHIBIT B-2
STANDARD TERMS AND CONDITIONS FOR
AFFILIATED LENDER ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties .
1.1 Assignor . The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) its Commitment in respect of Term Loans, and the outstanding balances of its Term Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth herein, and (iv) it has full power and authority, and has taken all action necessary, to execute and deliver this Affiliated Lender Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) makes no representation or warranty and assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of their Subsidiaries or Affiliates or any other person obligated in respect of any Loan Document or (iv) the performance or observance by Holdings, the Borrower, any of their Subsidiaries or Affiliates or any other person of any of their respective obligations under any Loan Document. In connection with any Auction, the Assignor acknowledges and agrees that in connection with this Affiliated Lender Assignment and Assumption, (1) the Assignor has independently, without reliance on the applicable Affiliated Lender, Holdings, the Borrower, any of their respective subsidiaries, the Administrative Agent, the Arranger, the Lenders or any of their respective Affiliates, made its own analysis and determination to participate in such assignment notwithstanding the Assignors lack of knowledge of the material non-public information with respect to Holdings, the Borrower and/or any of their respective subsidiaries and/or their respective securities ( MNPI ) and (2) none of the applicable Affiliated Lenders, Holdings, the Borrower, any of their respective subsidiaries, the Administrative Agent, the Arranger, the Lenders or any of their respective Affiliates shall have any liability to the Assignor, and the Assignor hereby waives and releases, to the extent permitted by applicable law, any claims it may have against the applicable Affiliated Lender, Holdings, the Borrower, each of their respective subsidiaries, the Administrative Agent, the Arranger, the Lenders and their respective Affiliates, under applicable law or otherwise, with respect to the nondisclosure of the MNPI.
1.2 Assignee . The Assignee (a) represents and warrants that (i) it is an Affiliated Lender and has full power and authority, and has taken all action necessary, to execute and deliver this Affiliated Lender Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement and the other Loan Documents as a Lender (including as an Affiliated Lender) thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender (including as an Affiliated Lender) thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements referred to in Section 3.04 of the Credit Agreement and/or delivered pursuant to Section 5.04(a) and (b) thereof,
ANNEX I-1
as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Affiliated Lender Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, (vi) if it is a Foreign Lender, attached to the Affiliated Lender Assignment and Assumption is any documentation required to be delivered by it pursuant to Section 2.20 of the Credit Agreement, duly completed and executed by the Assignee, (vii) [reserved] and (viii) in the case of Holdings, any Borrower or any of their Restricted Subsidiaries, (1) no Indebtedness incurred under the Revolving Facility has been utilized to fund the purchase of the Assigned Interest, (2) no Event of Default exists at the time of acceptance of bids for any Auction or the confirmation of any open market purchase, (3) the Term Loans in respect of such Assigned Interest shall, to the extent permitted by applicable law, be retired and cancelled immediately after the Effective Date and (4) the Auction will be open to all Term Lenders on a pro rata basis; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (ii) it appoints and authorizes the Administrative Agent to take such action on its behalf and to exercise such powers and discretion under the Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent, by the terms thereof, together with such powers as are reasonably incidental thereto, and (iii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. The Assignee further agrees that, solely in its capacity as an Affiliated Lender, it will not be entitled to (a) attend (including by telephone) or participate in any meeting or discussions (or portion thereof) among the Administrative Agent or any Lender or among Lenders to which the Loan Parties or their representatives are not invited or (b) receive any information or material prepared by the Administrative Agent or any Lender or any communication by or among the Administrative Agent and one or more Lenders, except to the extent such information or materials have been made available by the Administrative Agent or any Lender to any Loan Party or its representatives (and in any case, other than the right to receive notices of Borrowings, prepayments and other administrative notices in respect of its Term Loans required to be delivered to Lenders pursuant to Article 2 of the Credit Agreement).
2. Payments . From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date. Notwithstanding the foregoing, the Administrative Agent shall make all payments of interest, fees or other amounts paid or payable in kind from and after the Effective Date to the Assignee. The Administrative Agent shall receive a processing and recordation fee of $3,500 for each assignment.
3. General Provisions . This Affiliated Lender Assignment and Acceptance shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Affiliated Lender Assignment and Acceptance may be executed in any number of counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Affiliated Lender Assignment and Acceptance by telecopy shall be as effective as delivery of a manually executed counterpart of this Affiliated Lender Assignment and Acceptance. This Affiliated Lender Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York.
ANNEX I-2
EXHIBIT C
FORM OF BORROWING REQUEST
Date: , 1
To: Credit Suisse AG, Cayman Islands Branch, as Administrative Agent
Credit Suisse AG, Cayman Islands Branch
Eleven Madison Avenue
New York, NY 10010
Attn: Agency Manager
Fax: 212-322-2291
Email: agency.loanops@credit-suisse.com
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among AssetMark Financial Holdings, Inc., a Delaware corporation (the Borrower ), AssetMark Holdings LLC, a Delaware limited liability company, the Lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent. Capitalized terms used herein and not otherwise defined shall have the meaning assigned thereto in the Credit Agreement.
Pursuant to Section 2.03 of the Credit Agreement, the undersigned hereby requests a Borrowing under the Credit Agreement on the terms set forth below:
1. | Type of Borrowing: . 2 | |||
2. | Date of Borrowing: . 3 | |||
3. | Account Number and Location: | |||
. | ||||
4. | Amount: . 4 | |||
5.
|
Interest Period: . 5 |
1 |
(a) In the case of a Eurodollar Borrowing, not later than 12:00 (noon), New York City time, three Business Days before a proposed Borrowing, or (b) in the case of an ABR Borrowing, not later than 12:00 (noon), New York City time, on the Business Day of a proposed Borrowing. |
2 |
Specify a Term Borrowing, Incremental Term Borrowing, Revolving Borrowing or Incremental Revolving Borrowing and whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing, and, if applicable, whether such Borrowing is a conversion or continuation. |
3 |
Date must be a Business Day. |
4 |
Except for Loans deemed made pursuant to Section 2.02(f), the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1,000,000 and not less than $5,000,000 (except, with respect to any Incremental Term Borrowing, to the extent otherwise provided in the related Incremental Assumption Agreement) or (ii) equal to the remaining available balance of the applicable Commitments. |
C-1
Except in respect of any conversion or continuation of a Borrowing, the Borrower hereby certifies that on the date of the Borrowing pursuant to this Borrowing Request, the conditions specified in clauses (a), (b) and (c) of Section 4.01 of the Credit Agreement will be satisfied.
Borrower: |
|
|
By: |
|
|
Name: | ||
Title: |
5 |
To be included for Eurodollar Borrowings only. For a Eurodollar Borrowing, select an Interest Period of 1, 2, 3 or 6 months (or 12 months, or any period of less than one month, if at the date of Borrowing, all applicable Lenders agree to make interest periods of such duration available). |
C-2
THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT dated as of , 20[ ] (this Mortgage ), by [[], a [] []] having offices at [] (the Mortgagor ), and CREDIT SUISSE AG, Cayman Islands Branch, having an office at Eleven Madison Avenue, New York, New York 10010 as Collateral Agent for the Secured Parties (as such terms are defined below) (the Mortgagee ).
WITNESSETH THAT:
Reference is made to (a) the Credit Agreement dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among AssetMark Financial Holdings, Inc., a Delaware corporation (the Borrower ), AssetMark Holdings LLC, a Delaware limited liability company ( Holdings ), the lenders from time to time party thereto (the Lenders ) and Credit Suisse AG, Cayman Islands Branch, as administrative agent (the Administrative Agent ) and collateral agent (the Collateral Agent ) for the Lenders and (b) the Guarantee and Collateral Agreement dated as of November 14, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Guarantee and Collateral Agreement ), among Holdings, the Borrower, the Subsidiary Guarantors and Credit Suisse AG, Cayman Islands Branch, as Collateral Agent. Capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement and the Guarantee and Collateral Agreement, as applicable.
Pursuant to the Credit Agreement, (a) the Lenders have agreed to make Term Loans, including Incremental Term Loans, and Revolving Loans, including Incremental Revolving Loans, to the Borrower and (b) the Issuing Bank(s) has issued or agreed to issue from time to time Letters of Credit for the account of the Borrower or any Subsidiary, in each case pursuant to, upon the terms of and subject to the conditions specified in the Credit Agreement. Amounts paid in respect of Term Loans may not be reborrowed. Subject to the terms of the Credit Agreement, the Borrower may borrow, prepay and reborrow Revolving Loans.
Mortgagor is the Borrower and will derive substantial benefit from the making of the Loans by the Lenders and the issuance of the Letters of Credit by each Issuing Bank. In order to induce the Lenders to make Loans and each Issuing Bank to issue Letters of Credit, the Mortgagor has agreed to secure, among other things, the due and punctual payment and performance of all of the obligations of the Borrower under the Credit Agreement.
The obligations of the Lenders to make Loans are conditioned upon, among other things, the execution and delivery by the Mortgagor of this Mortgage in the form hereof to secure: (a) the due and punctual payment of (i) the 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, 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 the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest and fees thereon and obligations to provide cash collateral, and (iii) all other monetary obligations of the Borrower to any of the Secured Parties
D-2
under the Credit Agreement and each of the other Loan Documents, including fees, costs, expenses and indemnities, 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), (b) the due and punctual performance of all other obligations of the Borrower of every nature under or pursuant to the Credit Agreement and each of the other Loan Documents, (c) the due and punctual payment and performance of all the obligations of each other Loan Party under or pursuant to the Guarantee and Collateral Agreement and each of the other Loan Documents, (d) the due and punctual payment and performance of all obligations of each Loan Party under each Hedging Agreement that (i) is in effect on the Closing Date with a counterparty that is the Administrative Agent or a Lender or an Affiliate of the Administrative Agent or a Lender as of the Closing Date or (ii) is entered into after the Closing Date with any counterparty that is the Administrative Agent or a Lender or an Affiliate of the Administrative Agent or a Lender at the time such Hedging Agreement is entered into (the foregoing obligations in clauses (a) through (d) being collectively referred to as the Obligations ).
As used in this Mortgage, the term Secured Parties shall mean (a) the Lenders, (b) the Administrative Agent, (c) the Collateral Agent, (d) any Issuing Bank, (e) each provider of Cash Management Services the obligations under which constitute Secured Cash Management Obligations, (f) counterparty to any Hedging Agreement with a Loan Party that either (i) is in effect on the Closing Date if such counterparty is the Administrative Agent, a Lender or an Affiliate of the Administrative Agent or a Lender as of the Closing Date or (ii) is entered into after the Closing Date if such counterparty is the Administrative Agent, a Lender or an Affiliate of the Administrative Agent or a Lender at the time such Hedging Agreement is entered into, (g) the beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document and (h) the successors and assigns of each of the foregoing.
Pursuant to the requirements of the Credit Agreement, the Mortgagor is granting this Mortgage to create a lien on and a security interest in the Mortgaged Property (as hereinafter defined) to secure the performance and payment by the Mortgagor of the Obligations. The Credit Agreement also requires the granting by other Loan Parties of mortgages, deeds of trust and/or deeds to secure debt (the Other Mortgages ) that create liens on and security interests in certain real and personal property other than the Mortgaged Property to secure the performance of the Obligations.
Granting Clauses
NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the due and punctual payment and performance of the Obligations for the benefit of the Secured Parties, Mortgagor hereby grants, conveys, mortgages, assigns and pledges to the Mortgagee, a mortgage lien on and a security interest in, all the following described property (the Mortgaged Property ) whether now owned or held or hereafter acquired:
(1) the land more particularly described on Exhibit A hereto (the Land ), together with all rights appurtenant thereto, including the easements over certain other adjoining land granted by any easement agreements, covenant or restrictive agreements and all air rights, mineral rights, water rights, oil and gas rights and development rights, if
D-3
any, relating thereto, and also together with all of the other easements, rights, privileges, interests, hereditaments and appurtenances thereunto belonging or in any way appertaining and all of the estate, right, title, interest, claim or demand whatsoever of Mortgagor therein and in the streets and ways adjacent thereto, either in law or in equity, in possession or expectancy, now or hereafter acquired (the Premises );
(2) all buildings, improvements, structures, paving, parking areas, walkways and landscaping now or hereafter erected or located upon the Land, and all fixtures of every kind and type affixed to the Premises or attached to or forming part of any structures, buildings or improvements and replacements thereof now or hereafter erected or located upon the Land (the Improvements );
(3) subject to the limitations set forth in the Guarantee and Collateral Agreement, all apparatus, movable appliances, building materials, equipment, fittings, furnishings, furniture, machinery and other articles of tangible personal property of every kind and nature, and replacements thereof, now or at any time hereafter placed upon or used in any way in connection with the use, enjoyment, occupancy or operation of the Improvements or the Premises, including all of Mortgagors books and records relating thereto and including all pumps, tanks, goods, machinery, tools, equipment, lifts (including fire sprinklers and alarm systems, fire prevention or control systems, cleaning rigs, air conditioning, heating, boilers, refrigerating, electronic monitoring, water, loading, unloading, lighting, power, sanitation, waste removal, entertainment, communications, computers, recreational, window or structural, maintenance, truck or car repair and all other equipment of every kind), restaurant, bar and all other indoor or outdoor furniture (including tables, chairs, booths, serving stands, planters, desks, sofas, racks, shelves, lockers and cabinets), bar equipment, glasses, cutlery, uniforms, linens, memorabilia and other decorative items, furnishings, appliances, supplies, inventory, rugs, carpets and other floor coverings, draperies, drapery rods and brackets, awnings, venetian blinds, partitions, chandeliers and other lighting fixtures, freezers, refrigerators, walk-in coolers, signs (indoor and outdoor), computer systems, cash registers and inventory control systems, and all other apparatus, equipment, furniture, furnishings, and articles used in connection with the use or operation of the Improvements or the Premises, it being understood that the enumeration of any specific articles of property shall in no way result in or be held to exclude any items of property not specifically mentioned (the property referred to in this subparagraph (3), the Personal Property );
(4) all general intangibles owned by Mortgagor and relating to design, development, operation, management and use of the Premises or the Improvements, all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations and consents obtained from and all materials prepared for filing or filed with any Governmental Authority in connection with the development, use, operation or management of the Premises and Improvements, all construction, service, engineering, consulting, leasing, architectural and other similar contracts concerning the design, construction, management, operation, occupancy and/or use of the Premises and Improvements, all architectural drawings, plans, specifications, soil tests, feasibility studies, appraisals, environmental studies, engineering reports and similar materials relating to any portion of or all of the Premises and Improvements, and all payment and performance bonds or warranties or guarantees relating to the Premises or the Improvements, to the extent assignable without violating the terms thereof and without consent of third parties (the Permits, Plans and Warranties );
D-4
(5) all now or hereafter existing leases or licenses (under which Mortgagor is landlord or licensor) and subleases (under which Mortgagor is sublandlord), concession, management, mineral or other agreements of a similar kind that permit the use or occupancy of the Premises or the Improvements for any purpose in return for any payment, or the extraction or taking of any gas, oil, water or other minerals from the Premises in return for payment of any fee, rent or royalty (collectively, Leases ), and all agreements or contracts for the sale or other disposition of all or any part of the Premises or the Improvements, now or hereafter entered into by Mortgagor, together with all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable thereunder ( Rents );
(6) except as may be provided to the contrary in the Credit Agreement, all real estate tax refunds and all proceeds of the conversion, voluntary or involuntary, of any of the Mortgaged Property into cash or liquidated claims ( Proceeds ), including Proceeds of insurance maintained by the Mortgagor and condemnation awards, any awards that may become due by reason of the taking by eminent domain or any transfer in lieu thereof of the whole or any part of the Premises or Improvements or any rights appurtenant thereto, and any awards for change of grade of streets, together with any and all moneys now or hereafter on deposit for the payment of real estate taxes, assessments or common area charges levied against the Mortgaged Property, unearned premiums on policies of fire and other insurance maintained by the Mortgagor covering any interest in the Mortgaged Property or required by the Credit Agreement; and
(7) all extensions, improvements, betterments, renewals, substitutes and replacements of and all additions and appurtenances to, the Land, the Premises, the Improvements, the Personal Property, the Permits, Plans and Warranties and the Leases, hereinafter acquired by or released to the Mortgagor or constructed, assembled or placed by the Mortgagor on the Land, the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, Mortgage, conveyance, assignment or other act by the Mortgagor, all of which shall become subject to the lien of this Mortgage as fully and completely, and with the same effect, as though now owned by the Mortgagor and specifically described herein.
TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its successors and assigns, for the ratable benefit of the Secured Parties, forever, subject only to those Liens expressly permitted by Section 6.02 of the Credit Agreement and matters set forth in the title insurance policy issued to Mortgagee in connection with this Mortgage (collectively, the Permitted Encumbrances ) and to satisfaction and release as provided in Section 3.04 hereof.
D-5
ARTICLE I
Representations, Warranties and Covenants of Mortgagor
Mortgagor covenants as follows:
SECTION 1.01. Title, Mortgage Lien. (a) Mortgagor has good and marketable fee simple title to the Land and Improvements and is the owner of all other Mortgaged Property, subject only to Permitted Encumbrances, except for minor defects of title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such property and assets for their intended purposes.
(b) The execution and delivery of this Mortgage is within Mortgagors corporate or other organizational powers and has been duly authorized by all necessary corporate or other organizational and, if required, stockholder action. This Mortgage has been duly executed and delivered by Mortgagor and constitutes, a legal, valid and binding obligation of Mortgagor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affects creditors rights generally and to general principle of equity.
(c) To the best of Mortgagors knowledge, the execution, delivery and recordation of this Mortgage (i) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect the lien of this Mortgage or where the failure to obtain would not reasonably be expected to have a Material Adverse Effect, (ii) except as would not reasonably be expected to have a Material Adverse Effect, will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of Mortgagor or any order of any Governmental Authority, (iii) except as would not reasonably be expected to have a Material Adverse Effect, will not violate or result in a default under any material indenture, agreement or material other instrument binding upon Mortgagor or its assets, or give rise to a right thereunder to require any payment to be made by Mortgagor, and (iv) will not result in the creation or imposition of any Lien on any asset of Mortgagor, except the lien of this Mortgage.
(d) This Mortgage and the Uniform Commercial Code Financing Statements described in Section 1.09 of this Mortgage, when duly recorded in the applicable public records will create a valid, perfected and enforceable lien upon and security interest in all of the Mortgaged Property.
(e) Except as otherwise agreed to by the Collateral Agent, Mortgagor will forever warrant and, using commercially reasonable efforts, defend its title to the Mortgaged Property, the rights of Mortgagee therein under this Mortgage and the validity and priority of the lien of this Mortgage thereon against the claims of all persons and parties except those having rights under Permitted Encumbrances to the extent of those rights.
SECTION 1.02. Credit Agreement. This Mortgage is given pursuant to the Credit Agreement. Mortgagor expressly covenants and agrees to pay when due, and to timely perform, and to cause the other Loan Parties to pay when due, and to timely perform, the Obligations in accordance with the terms of the Loan Documents.
D-6
SECTION 1.03. Payment of Taxes, and Other Obligations. (a) Mortgagor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto, all Taxes and other obligations with respect to the Mortgaged Property or any part thereof or upon the Rents from the Mortgaged Property or arising in respect of the occupancy, use or possession thereof in accordance with, and to the extent required by, the Credit Agreement.
(b) In the event of the passage of any state, Federal, municipal or other governmental law, order, rule or regulation subsequent to the date hereof (i) deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or in any manner changing or modifying the laws now in force governing the taxation of this Mortgage or debts secured by mortgages or deeds of trust (other than laws governing income, franchise and similar taxes generally) or the manner of collecting taxes thereon and (ii) imposing a tax to be paid by Mortgagee, either directly or indirectly, on this Mortgage or any of the Loan Documents, or requiring an amount of taxes to be withheld or deducted therefrom, Mortgagor will promptly (i) notify Mortgagee of such event, (ii) enter into such further instruments as are reasonably necessary or desirable to obligate Mortgagor to make any additional payments necessary to put the Secured Parties in the same financial position they would have been if such law, order, rule or regulation had not been passed and (iii) make such additional payments to Mortgagee for the benefit of the Secured Parties.
SECTION 1.04. Maintenance of Mortgaged Property. Mortgagor will maintain the Improvements and the Personal Property in the manner required by the Credit Agreement.
SECTION 1.05. Insurance . Mortgagor will keep or cause to be kept the Improvements and Personal Property insured against such risks, and in the manner, described in Section 5.02 of the Credit Agreement and shall purchase such additional insurance as may be required from time to time pursuant thereto. Federal Emergency Management Agency Standard Flood Hazard Determination Forms will be purchased by Mortgagor for each Mortgaged Property on which Improvements are located. If at any time the area in which the Premises are located is designated a special flood hazard area in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), Mortgagor will obtain flood insurance in such total amount as the Mortgagee may from time to time reasonably require and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as it may be amended from time to time.
SECTION 1.06. Casualty Condemnation/Eminent Domain. Mortgagor shall give Mortgagee prompt written notice of any material casualty or other material damage to the Mortgaged Property or any proceeding for the taking of the Mortgaged Property or any material portion thereof or interest therein under power of eminent domain or by condemnation or any similar proceeding in accordance with, and to the extent required by, the Credit Agreement. Any Net Cash Proceeds received by or on behalf of the Mortgagor shall be reinvested in accordance with the terms of the Credit Agreement or, if prepayment shall be required pursuant to the Credit Agreement, such Net Cash Proceeds shall be applied in accordance with the Credit Agreement.
D-7
SECTION 1.07. Assignment of Leases and Rents. (a) Mortgagor hereby irrevocably and absolutely grants, transfers and assigns all of its right title and interest in all Leases, together with any and all extensions and renewals thereof, to Mortgagee, for the benefit of the Secured Parties, for purposes of securing and discharging the performance by Mortgagor of the Obligations. Mortgagor has not assigned or executed any assignment of, and will not assign or execute any assignment of, any Leases or the Rents payable thereunder to anyone other than Mortgagee.
(b) All Leases shall be subordinate to the lien of this Mortgage. Mortgagor will not enter into, modify or amend any Lease if such Lease, as entered into, modified or amended, will not be subordinate to the lien of this Mortgage.
(c) Subject to Section 1.07(d), Mortgagor has assigned and transferred to Mortgagee, for the benefit of the Secured Parties, all of Mortgagors right, title and interest in and to the Rents now or hereafter arising from each Lease heretofore or hereafter made or agreed to by Mortgagor, it being intended that this assignment establish, subject to Section 1.07(d), an absolute transfer and assignment of all Rents and all Leases to Mortgagee and not merely to grant a security interest therein. Subject to Section 1.07(d), Mortgagee (or any agent appointed by the Mortgagee) may in Mortgagors name and stead (with or without first taking possession of any of the Mortgaged Property personally or by receiver as provided herein) operate the Mortgaged Property and rent, lease or let all or any portion of any of the Mortgaged Property to any party or parties at such rental and upon such terms as the Mortgagee shall determine, and may collect and have the benefit of all of said Rents arising from or accruing at any time thereafter or that may thereafter become due under any Lease.
(d) So long as an Event of Default shall not have occurred and be continuing, Mortgagee will not exercise any of its rights under Section 1.07(c), and Mortgagor shall (a) receive and collect the Rents accruing under any Lease, (b) exercise all rights of Mortgagor under the Leases and (c) enforce the obligations of tenants under the Leases; but after the occurrence and during the continuance of any Event of Default, Mortgagee may, at its option, receive and collect all Rents and enter upon the Premises and Improvements through its officers, agents, employees or attorneys for such purpose and for the operation and maintenance thereof. Mortgagor hereby irrevocably authorizes and directs each tenant, if any, and each successor, if any, to the interest of any tenant under any Lease, respectively, to rely upon any notice of a claimed Event of Default sent by Mortgagee to any such tenant or any of such tenants successors in interest, and thereafter to pay Rents to Mortgagee without any obligation or right to inquire as to whether an Event of Default actually exists and even if some notice to the contrary is received from the Mortgagor, who shall have no right or claim against any such tenant or successor in interest for any such Rents so paid to Mortgagee. Each tenant or any of such tenants successors in interest from whom Mortgagee or any officer, agent, attorney or employee of Mortgagee shall have collected any Rents, shall be authorized to pay Rents to Mortgagor only after such tenant or any of their successors in interest shall have received written notice from Mortgagee that the Event of Default is no longer continuing, unless and until a further notice of an Event of Default is given by Mortgagee to such tenant or any of its successors in interest.
(e) Mortgagee will not become a mortgagee in possession so long as it does not enter or take actual possession of the Mortgaged Property. In addition, Mortgagee shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenant, or others, for any dangerous or defective conditions of any of the Mortgaged Property, for negligence in the management, upkeep, repair or control of any of the Mortgaged Property or any other act or omission by any other person, other than Mortgagees gross negligence, bad faith or willful misconduct.
D-8
SECTION 1.08. Restrictions on Transfers and Encumbrances. Mortgagor shall not directly or indirectly sell, convey, alienate, assign, lease, sublease, license, mortgage, pledge, encumber or otherwise transfer, create, consent to or suffer the creation of any lien, charge or other form of encumbrance upon any interest in or any part of the Mortgaged Property, or be divested of its title to the Mortgaged Property or any interest therein in any manner or way, whether voluntarily or involuntarily (other than resulting from a condemnation), or engage in any common, cooperative, joint, time-sharing or other congregate ownership of all or part thereof, except in each case in accordance with and to the extent permitted by the Credit Agreement; provided , that Mortgagor may, to the extent permitted by the Credit Agreement, in the ordinary course of business and in accordance with reasonable commercial standards, enter into easement or covenant agreements that (i) relate to and/or benefit the operation of the Mortgaged Property and (ii) do not materially and adversely affect the value, use or operation of the Mortgaged Property ( Permitted Easements or Covenant Agreements ), and, within a reasonable amount of time following a request from Mortgagor, Mortgagee shall execute and deliver any instrument reasonably necessary to subordinate the lien of the Mortgage to a Permitted Easement or Covenant Agreement. If any of the foregoing transfers or encumbrances results in a prepayment requirement under the Credit Agreement, any Net Cash Proceeds received by or on behalf of the Mortgagor in respect thereof shall constitute trust funds to be held by the Mortgagor for the benefit of the Secured Parties and applied in accordance with the Credit Agreement.
SECTION 1.09. Security Agreement. This Mortgage is both a Mortgage of real property and a grant of a security interest in personal property, and shall constitute and serve as a Security Agreement within the meaning of the uniform commercial code as adopted in the state wherein the Premises are located ( UCC ). Mortgagor has hereby granted unto Mortgagee a security interest in and to all the Mortgaged Property described in this Mortgage that is not real property, and simultaneously with the recording of this Mortgage, Mortgagor has filed or will file UCC financing statements, and will file continuation statements prior to the lapse thereof, at the appropriate offices in the jurisdiction of formation of the Mortgagor to perfect the security interest granted by this Mortgage in all the Mortgaged Property that is not real property. Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to execute any document and to file the same in the appropriate offices (to the extent it may lawfully do so), and to perform each and every act and thing reasonably requisite and necessary to be done to perfect the security interest contemplated by the preceding sentence. Mortgagee shall have all rights with respect to the part of the Mortgaged Property that is the subject of a security interest afforded by the UCC in addition to, but not in limitation of, the other rights afforded Mortgagee hereunder and under the Guarantee and Collateral Agreement. In the event of any conflict between the terms and provisions of this Section 1.09 and the terms and provisions contained in the Guarantee and Collateral Agreement, the terms and provisions in the Guarantee and Collateral Agreement shall govern and control.
D-9
SECTION 1.10. Filing and Recording. Mortgagor will cause this Mortgage, the UCC financing statements referred to in Section 1.09, any other security instrument creating a security interest in or evidencing the lien hereof upon the Mortgaged Property and each UCC continuation statement and instrument of further assurance to be filed, registered or recorded and, if necessary, refiled, rerecorded and reregistered, in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to perfect the lien hereof upon, and the security interest of Mortgagee in, the Mortgaged Property until this Mortgage is terminated and released in full in accordance with Section 3.04. Mortgagor will pay all filing, registration and recording fees, all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges, and all reasonable expenses incidental to or arising out of or in connection with the execution, delivery and recording of this Mortgage, UCC continuation statements any mortgage supplemental hereto, any security instrument with respect to the Personal Property, Permits, Plans and Warranties and Proceeds or any instrument of further assurance.
SECTION 1.11. Further Assurances. Upon demand by Mortgagee, Mortgagor will, at the cost of Mortgagor and without expense to Mortgagee, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, mortgages, assignments, notices of assignment, transfers and assurances as Mortgagee shall from time to time reasonably require for the better assuring, conveying, assigning, transferring and confirming unto Mortgagee the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage, or for filing, registering or recording this Mortgage, and on demand, Mortgagor will also execute and deliver and hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to execute and file to the extent it may lawfully do so (provided that the Mortgagee shall not be required to do so), one or more financing statements, chattel mortgages or comparable security instruments reasonably required to evidence more effectively the lien hereof upon the Personal Property and to perform each and every act and thing requisite and necessary to be done to accomplish the same.
SECTION 1.12. Additions to Mortgaged Property. All right, title and interest of Mortgagor in and to all extensions, improvements, betterments, renewals, substitutions and replacements of, and all additions and appurtenances to, the Mortgaged Property hereafter acquired by or released to Mortgagor or constructed, assembled or placed by Mortgagor upon the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, Mortgage, conveyance, assignment or other act by Mortgagor, shall become subject to the lien and security interest of this Mortgage as fully and completely and with the same effect as though now owned by Mortgagor and specifically described in the grant of the Mortgaged Property above, but at any and all times Mortgagor will execute and deliver to Mortgagee any and all such further assurances, mortgages, deeds of trust, conveyances or assignments thereof as reasonably necessary for the purpose of expressly and specifically subjecting the same to the lien and security interest of this Mortgage.
D-10
SECTION 1.13. No Claims Against Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Mortgaged Property or any part thereof, nor as giving Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Mortgagee in respect thereof.
SECTION 1.14. Fixture Filing. (a) Certain portions of the Mortgaged Property are or will become fixtures (as that term is defined in the UCC) on the Land, and this Mortgage, upon being filed for record in the real estate records of the county wherein such fixtures are situated, shall operate also as a financing statement filed as a fixture filing in accordance with the applicable provisions of said UCC upon such portions of the Mortgaged Property that are or become fixtures.
(b) The real property to which the fixtures relate is described in Exhibit A attached hereto. The record owner of the real property described in Exhibit A attached hereto is Mortgagor. The name, type of organization and jurisdiction of organization of the debtor for purposes of this financing statement are the name, type of organization and jurisdiction of organization of the Mortgagor set forth in the first paragraph of this Mortgage, and the name of the secured party for purposes of this financing statement is the name of the Mortgagee set forth in the first paragraph of this Mortgage. The mailing address of the Mortgagor/debtor is the address of the Mortgagor set forth in the first paragraph of this Mortgage. The mailing address of the Mortgagee/secured party from which information concerning the security interest hereunder may be obtained is the address of the Mortgagee set forth in the first paragraph of this Mortgage. Mortgagors organizational identification number is []. The Mortgagor shall inform the Mortgagee (and take any steps required by Sections 1.10 and 1.11) if any of the Mortgagors information set forth in this subparagraph (b) shall change.
ARTICLE II
Defaults and Remedies
SECTION 2.01. Events of Default. Any Event of Default under the Credit Agreement (as such term is defined therein) shall constitute an Event of Default under this Mortgage.
SECTION 2.02. Demand for Payment. If an Event of Default shall occur and be continuing, then, upon written demand of Mortgagee, Mortgagee may 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 Mortgagor 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, to the fullest extent permitted by applicable law, by the Mortgagor, anything contained herein or in any other Loan Document to the contrary notwithstanding, and Mortgagee shall be entitled and empowered to institute an action or proceedings at law or in equity for the collection of the sums so due and unpaid, to prosecute any such action or proceedings to judgment or final decree, to enforce any such judgment or final decree against Mortgagor and to collect, in any manner provided by law, all moneys adjudged or decreed to be payable.
D-11
SECTION 2.03. Rights to Take Possession, Operate and Apply Revenues. (a) If an Event of Default shall occur and be continuing, Mortgagor shall, within ten (10) days of demand of Mortgagee, forthwith surrender to Mortgagee actual possession of the Mortgaged Property and, if and to the extent not prohibited by applicable law, Mortgagee itself, or by such officers or agents as it may appoint, may then enter and take possession of all the Mortgaged Property without the appointment of a receiver or an application therefor, exclude Mortgagor and its agents and employees wholly therefrom, and have access to the books, papers and accounts of Mortgagor.
(b) If Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after such demand by Mortgagee, Mortgagee may to the extent not prohibited by applicable law, obtain a judgment or decree conferring upon Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of the Mortgaged Property to Mortgagee, to the entry of which judgment or decree Mortgagor hereby specifically consents. Mortgagor will pay to Mortgagee, upon demand, all reasonable documented and out of pocket expenses of obtaining such judgment or decree, including reasonable compensation to Mortgagees attorneys and agents with interest thereon at the rate per annum applicable to overdue amounts under the Credit Agreement (the Interest Rate ); and all such expenses and compensation shall, until paid, be secured by this Mortgage.
(c) Upon every such entry or taking of possession, Mortgagee may, to the extent not prohibited by applicable law, hold, store, use, operate, manage and control the Mortgaged Property, conduct the business thereof and, from time to time, (i) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon, (ii) purchase or otherwise acquire additional fixtures, personalty and other property, (iii) insure or keep the Mortgaged Property insured, (iv) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor to the same extent as Mortgagor could in its own name or otherwise with respect to the same, or (v) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted Mortgagee, all as may from time to time be directed or determined by Mortgagee to be in its best interest and Mortgagor hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place and stead, in any and all capacities, to perform any of the foregoing acts. Mortgagee may collect and receive all the Rents, issues, profits and revenues from the Mortgaged Property, including those past due as well as those accruing thereafter, and, after deducting (i) all expenses of taking, holding, managing and operating the Mortgaged Property (including compensation for the services of all persons employed for such purposes), (ii) the costs of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions, (iii) the costs of insurance, (iv) such taxes, assessments and other similar charges as Mortgagee may at its option pay, (v) other proper charges upon the Mortgaged Property or any part thereof and (vi) the reasonable documented, out of pocket compensation, expenses and disbursements of the attorneys and agents of Mortgagee, Mortgagee shall apply the remainder of the moneys and proceeds so received in accordance with Section 2.08.
D-12
(d) Whenever, before any sale of the Mortgaged Property under Section 2.06, all Obligations that are then due shall have been paid and all Events of Default fully cured, Mortgagee will surrender possession of the Mortgaged Property back to Mortgagor, its successors or assigns. The same right of taking possession shall, however, arise again if any subsequent Event of Default shall occur and be continuing.
SECTION 2.04. Right to Cure Mortgagors Failure to Perform. Should Mortgagor fail in the payment, performance or observance of any term, covenant or condition required by this Mortgage or the Credit Agreement (with respect to the Mortgaged Property), after the expiration of any applicable cure period, Mortgagee may pay, perform or observe the same, and all payments made or costs or expenses incurred by Mortgagee in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Mortgagor to Mortgagee with interest thereon at the Interest Rate. Mortgagee is hereby empowered to enter and to authorize others to enter upon the Premises or the Improvements or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without having any obligation to so perform or observe and without thereby becoming liable to Mortgagor, to any person in possession holding under Mortgagor or to any other person, other than as a result of Mortgagees gross negligence, bad faith or willful misconduct.
SECTION 2.05. Right to a Receiver. If an Event of Default shall occur and be continuing, Mortgagee, upon application to a court of competent jurisdiction, shall be entitled as a matter of right, to the extent permitted by applicable law, to the appointment of a receiver to take possession of and to operate the Mortgaged Property and to collect and apply the Rents. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Mortgaged Property is located. Mortgagor shall pay to Mortgagee upon demand all reasonable documented and out of pocket expenses, including receivers fees, reasonable attorneys fees and disbursements, costs and agents compensation incurred pursuant to the provisions of this Section 2.05; and all such expenses shall be secured by this Mortgage and shall be, without demand, immediately repaid by Mortgagor to Mortgagee with interest thereon at the Interest Rate.
SECTION 2.06. Foreclosure and Sale. (a) If an Event of Default shall occur and be continuing, Mortgagee may elect to sell, the Mortgaged Property or any part of the Mortgaged Property by exercise of the power of foreclosure or of sale granted to Mortgagee by applicable law or this Mortgage. In such case, Mortgagee may commence a civil action to foreclose this Mortgage, or it may proceed and sell the Mortgaged Property to satisfy any Obligation. Mortgagee or an officer appointed by a judgment of foreclosure to sell the Mortgaged Property, may sell all or such parts of the Mortgaged Property as may be chosen by Mortgagee at the time and place of sale fixed by it in a notice of sale, either as a whole or in separate lots, parcels or items as Mortgagee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder. Mortgagee or an officer appointed by a judgment of foreclosure to sell the Mortgaged Property may postpone any foreclosure or other sale of all or any portion of the Mortgaged Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement or subsequently noticed sale. Without further notice, Mortgagee or an officer appointed to sell the Mortgaged Property may make such sale at the time fixed by the last postponement, or shall, give a new notice of sale. Any person, including Mortgagor, Mortgagee or any designee or affiliate thereof, may purchase at such sale.
D-13
(b) The Mortgaged Property may be sold subject to unpaid taxes and Permitted Encumbrances, and, after deducting all costs, fees and expenses of Mortgagee (including costs of evidence of title in connection with the sale), Mortgagee or an officer that makes any sale shall apply the proceeds of sale in the manner set forth in Section 2.08.
(c) Any foreclosure or other sale of less than the whole of the Mortgaged Property or any defective or irregular sale made hereunder shall not exhaust the power of foreclosure or of sale provided for herein; and subsequent sales may be made hereunder until the Obligations have been satisfied, or the entirety of the Mortgaged Property has been sold.
(d) If an Event of Default shall occur and be continuing, Mortgagee may instead of, or in addition to, exercising the rights described in Section 2.06(a) above and either with or without entry or taking possession as herein permitted, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to specifically enforce payment of some or all of the Obligations, or the performance of any term, covenant, condition or agreement of this Mortgage or any other Loan Document or any other right, or (ii) to pursue any other remedy available to Mortgagee, all as Mortgagee shall determine most effectual for such purposes.
SECTION 2.07. Other Remedies. (a) In case an Event of Default shall occur and be continuing, Mortgagee may also exercise, to the extent not prohibited by law, any or all of the remedies available to a secured party under the UCC.
(b) In connection with a sale of the Mortgaged Property or any Personal Property and the application of the proceeds of sale as provided in Section 2.08, Mortgagee shall be entitled to enforce payment of and to receive up to the principal amount of the Obligations, plus all other charges, payments and costs due under this Mortgage, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Obligations remaining unpaid, with interest.
SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale of all or any of the Mortgaged Property, the Mortgagee shall receive and apply the proceeds of the sale together with any Rents that may have been collected and any other sums that then may be held by the Mortgagee under this Mortgage as follows:
FIRST, to the payment of all reasonable, out-of-pocket, documented costs and expenses incurred by the Mortgagee in connection with such collection, sale, foreclosure or realization or otherwise in connection with this Mortgage, any other Loan Document or any of the Obligations, including all court costs and the fees and expenses of its agents and legal counsel, the repayment of all advances made by the Mortgagee hereunder or under any other Loan Document on behalf of Mortgagor and any other reasonable, out-of-pocket, documented costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of Participations (the amounts so applied to be distributed between or among the Administrative Agent and/or any relevant Issuing Bank pro rata in accordance with the amounts of Participations owed to them on the date of any such distribution);
D-14
THIRD, to the payment in full of all other Obligations (the amounts so applied to be distributed among the Secured Parties pro rata in accordance with the amounts of the Obligations owed to them on the date of any such distribution); and
FOURTH, to the Mortgagor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct.
Mortgagee shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Mortgage. Upon any sale of the Mortgaged Property by Mortgagee (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of Mortgagee or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Mortgaged Property 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 Mortgagee or such officer or be answerable in any way for the misapplication thereof; provided that such sale is permitted, and in accordance with, the terms of this Mortgage.
SECTION 2.09. Mortgagor as Tenant Holding Over. If Mortgagor remains in possession of any of the Mortgaged Property after any foreclosure sale by Mortgagee, at Mortgagees election Mortgagor shall be deemed a tenant holding over and shall forthwith surrender possession to the purchaser or purchasers at such sale or be summarily dispossessed or evicted according to provisions of law applicable to tenants holding over.
SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. Mortgagor waives, to the extent not prohibited by law, (i) the benefit of all laws now existing or that hereafter may be enacted (x) providing for any appraisement or valuation of any portion of the Mortgaged Property and/or (y) in any way extending the time for the enforcement or the collection of amounts due under any of the Obligations or creating or extending a period of redemption from any sale made in collecting said debt or any other amounts due Mortgagee, (ii) any right to at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any homestead exemption, stay, statute of limitations, extension or redemption, or sale of the Mortgaged Property as separate tracts, units or estates or as a single parcel in the event of foreclosure or notice of deficiency, and (iii) all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of or each of the Obligations and marshaling in the event of foreclosure of this Mortgage.
SECTION 2.11. Discontinuance of Proceedings. In case Mortgagee shall proceed to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall be discontinued or abandoned for any reason, or shall be determined adversely to Mortgagee, then and in every such case Mortgagor, Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Mortgagee shall continue as if no such proceeding had been taken.
SECTION 2.12. Suits to Protect the Mortgaged Property. Mortgagee shall have power (a) to institute and maintain suits and proceedings to prevent any impairment of the Mortgaged Property by any acts that may be unlawful or in violation of this Mortgage, (b) to preserve or protect its interest in the Mortgaged Property and in the Rents arising therefrom and (c) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of or compliance with such enactment, rule or order would impair the security or be prejudicial to the interest of Mortgagee hereunder.
D-15
SECTION 2.13. Filing Proofs of Claim. In case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Mortgagor, shall, to the extent permitted by law, be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Mortgagee allowed in such proceedings for the Obligations secured by this Mortgage at the date of the institution of such proceedings and for any interest accrued, late charges and additional interest or other amounts due or that may become due and payable hereunder after such date.
SECTION 2.14. Possession by Mortgagee. Notwithstanding the appointment of any receiver, liquidator or trustee of Mortgagor, any of its property or the Mortgaged Property, Mortgagee shall be entitled, to the extent not prohibited by law, to remain in possession and control of all parts of the Mortgaged Property now or hereafter granted under this Mortgage to Mortgagee in accordance with the terms hereof and applicable law.
SECTION 2.15. Waiver. (a) No delay or failure by Mortgagee to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or be construed to be a waiver of any such breach or Event of Default or acquiescence therein; and every right, power and remedy given by this Mortgage to Mortgagee may be exercised from time to time and as often as may be deemed expedient by Mortgagee. No consent or waiver by Mortgagee to or of any breach or Event of Default by Mortgagor in the performance of the Obligations shall be deemed or construed to be a consent or waiver to or of any other breach or Event of Default in the performance of the same or of any other Obligations by Mortgagor hereunder. No failure on the part of Mortgagee to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall constitute a waiver by Mortgagee of its rights hereunder or impair any rights, powers or remedies consequent on any future Event of Default by Mortgagor.
(b) Even if Mortgagee (i) grants some forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security for the payment of any sums secured hereby, (iii) waives or does not exercise some right granted herein or under the Loan Documents, (iv) releases a part of the Mortgaged Property from this Mortgage, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Loan Documents, (vi) consents to the filing of a map, plat or replat affecting the Premises, (vii) consents to the granting of an easement or other right affecting the Premises or (viii) makes or consents to an agreement subordinating Mortgagees lien on the Mortgaged Property hereunder; no such act or omission shall preclude Mortgagee from exercising any other right, power or privilege herein granted or intended to be granted in the event of any breach or Event of Default then made or of any subsequent default; nor, except as otherwise expressly provided in an instrument executed by Mortgagee, shall this Mortgage be altered thereby. In the event of the sale or transfer by operation of law or otherwise of all or part of the Mortgaged Property, Mortgagee is hereby authorized and empowered to deal with any vendee or transferee with reference to the Mortgaged Property secured hereby, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings.
D-16
SECTION 2.16. Waiver of Trial by Jury. To the fullest extent permitted by applicable law, Mortgagor, Mortgagee each hereby irrevocably and unconditionally waive trial by jury in any action, claim, suit or proceeding relating to this Mortgage and for any counterclaim brought therein.
SECTION 2.17. Remedies Cumulative. No right, power or remedy conferred upon or reserved to Mortgagee by this Mortgage is intended to be exclusive of any other right, power or remedy, and each and every such right, power and remedy shall be cumulative and concurrent and in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute.
ARTICLE III
Miscellaneous
SECTION 3.01. Partial Invalidity. In the event any one or more of the provisions contained in this Mortgage shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall, at the option of Mortgagee, not affect any other provision of this Mortgage, and this Mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein.
SECTION 3.02. Notices. All notices and communications hereunder shall be in writing and given to Mortgagor in accordance with the terms of the Credit Agreement at the address set forth on the first page of this Mortgage and to the Mortgagee as provided in the Credit Agreement.
SECTION 3.03. Successors and Assigns. All of the grants, covenants, terms, provisions and conditions herein shall run with the Premises and the Improvements and shall apply to, bind and inure to, the benefit of the permitted successors and assigns of Mortgagor and the successors and assigns of Mortgagee.
SECTION 3.04. Satisfaction and Cancellation. (a) The conveyance to Mortgagee of the Mortgaged Property as security created and consummated by this Mortgage shall be null and void when (i) all the Obligations (other than Obligations in respect of Hedging Agreements and contingent indemnities and expense reimbursement obligations to the extent no claim therefor has been made) have been paid in full, (ii) the Lenders have no further commitment to lend under the Credit Agreement and (iii) the Letters of Credit have been canceled or have expired and all L/C Disbursements shall have been reimbursed.
(b) Upon a sale or financing by Mortgagor of all or any portion of the Mortgaged Property that is permitted by the Credit Agreement and the application of the Net Cash Proceeds of such sale or financing in accordance with the terms of the Credit Agreement, the lien of this Mortgage shall be released from the applicable portion of the Mortgaged Property. Mortgagor shall give the Mortgagee reasonable written notice of any sale or financing of the Mortgaged Property prior to the closing of such sale or financing.
D-17
(c) In connection with any termination or release pursuant to paragraph (a), the Mortgage shall be marked satisfied by the Mortgagee, and this Mortgage shall be canceled of record at the request and at the expense of the Mortgagor. Mortgagee shall execute any documents reasonably requested by Mortgagor to accomplish the foregoing or to accomplish any release contemplated by this Section 3.04 and Mortgagor will pay all reasonable and documented out of pocket costs and expenses, including reasonable attorneys fees, disbursements and other charges, incurred by Mortgagee in connection with the preparation and execution of such documents.
SECTION 3.05. Definitions. As used in this Mortgage, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (a) including shall mean including but not limited to; (b) provisions shall mean provisions, terms, covenants and/or conditions; (c) lien shall mean lien, charge, encumbrance, security interest, mortgage or Mortgage; (d) obligation shall mean obligation, duty, covenant and/or condition; and (e) any of the Mortgaged Property shall mean the Mortgaged Property or any part thereof or interest therein. Any act that Mortgagee is permitted to perform hereunder may be performed at any time and from time to time by Mortgagee or any person or entity designated by Mortgagee. Each appointment of Mortgagee as attorney-in-fact for Mortgagor under the Mortgage is irrevocable, with power of substitution and coupled with an interest. Subject to the applicable provisions hereof, Mortgagee has the right to refuse to grant its consent, approval or acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder.
SECTION 3.06. Multisite Real Estate Transaction. Mortgagor acknowledges that this Mortgage is one of a number of Other Mortgages and Security Documents that secure the Obligations. Mortgagor agrees that the lien of this Mortgage shall be absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of Mortgagee, and without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Mortgagee of any security for or guarantees of any of the Obligations hereby secured, or by any failure, neglect or omission on the part of Mortgagee to realize upon or protect any Obligation or indebtedness hereby secured or any collateral security therefor including the Other Mortgages and other Security Documents. The lien hereof shall not in any manner be impaired or affected by any release (except as to the property released), sale, pledge, surrender, compromise, settlement, renewal, extension, indulgence, alteration, changing, modification or disposition of any of the Obligations secured or of any of the collateral security therefor, including the Other Mortgages and other Security Documents or of any guarantee thereof, and Mortgagee may foreclose, exercise any power of sale, or exercise any other remedy available to it under any or all of the Other Mortgages and other Security Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of Mortgagees rights and remedies under any or all of the Other Mortgages and other Security Documents shall not in any manner impair the indebtedness hereby secured or the lien of this Mortgage and any exercise of the rights or remedies of Mortgagee hereunder shall not impair the lien of any of the Other Mortgages and other Security Documents or any of Mortgagees rights and remedies thereunder. Mortgagor specifically consents and agrees that Mortgagee may exercise its rights and remedies hereunder and under the Other Mortgages and other Security Documents separately or concurrently and in any order that it may deem appropriate and waives any rights of subrogation.
D-18
SECTION 3.07. No Oral Modification. This Mortgage may not be changed or terminated orally. Any agreement made by Mortgagor and Mortgagee after the date of this Mortgage relating to this Mortgage shall be superior to the rights of the holder of any intervening or subordinate Mortgage, lien or encumbrance.
ARTICLE IV
Particular Provisions
This Mortgage is subject to the following provisions relating to the particular laws of the state wherein the Premises are located:
SECTION 4.01. Applicable Law; Certain Particular Provisions. This Mortgage shall be governed by and construed in accordance with the internal law of the state where the Mortgaged Property is located, except that Mortgagor expressly acknowledges that by their terms, the Credit Agreement, and other Loan Documents (aside from those Other Mortgages to be recorded outside New York) shall be governed by the internal law of the State of New York, without regard to principles of conflict of law. Mortgagor and Mortgagee agree to submit to jurisdiction and the laying of venue for any suit on this Mortgage in the state where the Mortgaged Property is located. The terms and provisions set forth in Appendix A attached hereto are hereby incorporated by reference as though fully set forth herein. In the event of any conflict between the terms and provisions contained in the body of this Mortgage and the terms and provisions set forth in Appendix A, the terms and provisions set forth in Appendix A shall govern and control.
D-19
IN WITNESS WHEREOF, this Mortgage has been duly executed by Mortgagor as of the date first above written.
[MORTGAGOR] | ||||
By |
|
|||
Name: | ||||
Title: |
D-20
[LOCAL FORM OF ACKNOWLEDGEMENT]
Exhibit A
to Mortgage
Description of the Land
[To be provided]
Appendix A
to Mortgage
Local Law Provisions
EXHIBIT E-1
LENDER: []
PRINCIPAL AMOUNT: $[]
FORM OF TERM PROMISSORY NOTE
New York, New York
[DATE]
FOR VALUE RECEIVED, the undersigned, AssetMark Financial Holdings, Inc., a Delaware corporation (the Borrower ), hereby promises to pay to the Lender set forth above (the Lender ) or its registered assigns, in lawful money of the United States of America in immediately available funds at the office of the Administrative Agent (as defined below) (i) on the dates set forth in the Credit Agreement, dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among the Borrower, AssetMark Holdings LLC, a Delaware limited liability company, the Lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent (in such capacity, the Administrative Agent ) and as collateral agent for the Lenders, the principal amounts set forth in the Credit Agreement with respect to Term Loans made by the Lender to the Borrower pursuant to the Credit Agreement, and (ii) on each Interest Payment Date, interest at the rate or rates per annum as provided in the Credit Agreement on the unpaid principal amount of all Term Loans made by the Lender to the Borrower pursuant to the Credit Agreement. Capitalized terms used but not defined herein shall have the meanings assigned thereto in the Credit Agreement.
The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at the rate or rates provided in the Credit Agreement.
This Note is one of the promissory notes referred to in Section 2.04(e) of the Credit Agreement that, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the Term Loan Maturity Date and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This Note is entitled to the benefit of the Credit Agreement and is guaranteed and secured as provided therein and in the other Loan Documents referred to therein.
In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Note may become or be declared to be due and payable in the manner and with the effect provided in the Credit Agreement. The non-exercise by the Lender of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance.
E-1-1
To the fullest extent permitted by applicable law, the Borrower hereby waives diligence, presentment, demand, protest and notice of any kind in connection with this Note.
All Borrowings evidenced by this Note, the Type thereof, the maturity thereof, all payments, repayments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be recorded by the Lender and, prior to any transfer hereof, endorsed by the Lender on the applicable schedule attached hereto and made a part hereof, or on a continuation of such schedules attached to and made a part hereof or otherwise recorded by such Lender in its internal records; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower under this Note or under the Credit Agreement.
This Note and the Term Loans evidenced hereby may be transferred in whole or in part only by registration of such transfer on the Register maintained for such purpose by or on behalf of the undersigned as provided in Section 9.04(d) of the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
ASSETMARK FINANCIAL HOLDINGS, INC. | ||||
By |
|
|||
Name: | ||||
Title: |
E-1-2
Schedule A to Note
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
Date |
Amount of ABR Loans |
Amount Converted to ABR
Loans |
Amount of Principal of
ABR Loans Repaid |
Amount of ABR Loans
Converted to Eurodollar Loans |
Unpaid Principal Balance
of ABR Loans |
Notation Made By |
Schedule B to Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
Date |
Amount of
Eurodollar Loans |
Amount Converted to
Eurodollar Loans |
Interest Period and
Adjusted LIBOR with Respect Thereto |
Amount of Principal of
Eurodollar Loans Repaid |
Amount of Eurodollar
Loans Converted to ABR Loans |
Unpaid Principal
Balance of Eurodollar Loans |
Notation Made By |
EXHIBIT E-2
LENDER: []
PRINCIPAL AMOUNT: $[]
FORM OF REVOLVING PROMISSORY NOTE
New York, New York
[DATE]
FOR VALUE RECEIVED, the undersigned, AssetMark Financial Holdings, Inc., a Delaware corporation (the Borrower ), hereby promises to pay to the Lender set forth above (the Lender ) or its registered assigns, in lawful money of the United States of America in immediately available funds at the office of the Administrative Agent (as defined below) on the Revolving Credit Maturity Date (as defined in the Credit Agreement dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement )), among the Borrower AssetMark Holdings LLC, a Delaware limited liability company, the Lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent (in such capacity, the Administrative Agent and as collateral agent for the Lenders), (A) the lesser of (i) the principal amount set forth above and (ii) the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to the Credit Agreement and (B) interest from the date hereof on the principal amount from time to time outstanding on each Revolving Loan made by the Lender to the Borrower at the rate or rates per annum and payable on such dates as provided in the Credit Agreement. Capitalized terms used but not defined herein shall have the meanings assigned thereto in the Credit Agreement.
The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at the rate or rates provided in the Credit Agreement.
This Note is one of the promissory notes referred to in Section 2.04(e) of the Credit Agreement that, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the Revolving Credit Maturity Date and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This Note is entitled to the benefit of the Credit Agreement and is guaranteed and secured as provided therein and in the other Loan Documents referred to therein.
In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Note may become or be declared to be due and payable in the manner and with the effect provided in the Credit Agreement. The nonexercise by the Lender of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance.
E-2-1
To the fullest extent permitted by applicable law, the Borrower hereby waives diligence, presentment, demand, protest and notice of any kind in connection with this Note.
All Borrowings evidenced by this Note, the Type thereof, the maturity thereof, all payments, repayments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be recorded by the Lender and, prior to any transfer hereof, endorsed by the Lender on the applicable schedule attached hereto and made a part hereof, or on a continuation of such schedules attached to and made a part hereof or otherwise recorded by such Lender in its internal records; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower under this Note or under the Credit Agreement.
This Note and the Revolving Loans evidenced hereby may be transferred in whole or in part only by registration of such transfer on the Register maintained for such purpose by or on behalf of the undersigned as provided in Section 9.04(d) of the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
ASSETMARK FINANCIAL HOLDINGS, INC. | ||||
By |
|
|||
Name: | ||||
Title: |
E-2-2
Schedule A to Note
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
Date |
Amount of ABR
Loans |
Amount
Converted to ABR Loans |
Amount of
Principal of ABR Loans Repaid |
Amount of
ABR Loans Converted to Eurodollar Loans |
Unpaid
Principal Balance of ABR Loans |
Notation
Made By |
Schedule B to Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
Date |
Amount of Eurodollar
|
Amount Converted
|
Interest
|
Amount of
|
Amount of
|
Unpaid
|
Notation
|
EXHIBIT F-1
[FORM OF]
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement, dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among AssetMark Financial Holdings, Inc., a Delaware corporation, AssetMark Holdings LLC, a Delaware limited liability company, the lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent.
Pursuant to the provisions of Section 2.20 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 within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 881(c)(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 Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN or W-8BEN-E (or any successor thereto). 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, 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 such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER] | ||
By | ||
|
||
Name: | ||
Title: |
Date: , 20[ ]
F-1-1
EXHIBIT F-2
[FORM OF]
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement, dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among AssetMark Financial Holdings, Inc., a Delaware corporation, AssetMark Holdings LLC, a Delaware limited liability company, the lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent.
Pursuant to the provisions of Section 2.20 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 881(c)(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 or W-8BEN-E (or any successor thereto). By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT] |
||
By | ||
|
||
Name: | ||
Title: |
Date: , 20[ ]
F-2-1
EXHIBIT F-3
[FORM OF]
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement, dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among AssetMark Financial Holdings, Inc., a Delaware corporation, AssetMark Holdings LLC, a Delaware limited liability company, the lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent.
Pursuant to the provisions of Section 2.20 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 ten percent shareholder of the Borrower within the meaning of Section 881(c)(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 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 or W-8BEN-E (or any successor thereto) or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or W-8BEN-E (or any successor thereto) from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT] | ||
By |
|
|
Name: | ||
Title: |
Date: , 20[ ]
F-3-1
EXHIBIT F-4
[FORM OF]
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement, dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among AssetMark Financial Holdings, Inc., a Delaware corporation, AssetMark Holdings LLC, a Delaware limited liability company, the lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent.
Pursuant to the provisions of Section 2.20 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 this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 881(c)(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 Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or W-8BEN-E (or any successor thereto) or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or W-8BEN-E (or any successor thereto) from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, 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 such payments.
F-4-1
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER] | ||
By | ||
|
||
Name: | ||
Title: |
Date: , 20[ ]
F-4-2
EXHIBIT G
[FORM OF]
SOLVENCY CERTIFICATE
[], 20[]
This Solvency Certificate is being executed and delivered pursuant to Section 4.02(c) of the Credit Agreement dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among AssetMark Financial Holdings, Inc., a Delaware corporation (the Borrower ), AssetMark Holdings LLC ( Holdings ), a Delaware limited liability company, the lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent. Unless otherwise defined herein, capitalized terms used in this Certificate shall have the meanings set forth in the Credit Agreement.
I, [], the [Chief Financial Officer/equivalent officer] of the Borrower, in such capacity and not in an individual capacity, hereby certify as follows:
1. |
I am generally familiar with the businesses, financial position and assets of Holdings and its Subsidiaries, on a consolidated basis, and I am duly authorized to execute this Solvency Certificate on behalf of the Borrower pursuant to the Credit Agreement; and |
2. |
As of the date hereof and after giving effect to the Transactions (including after giving effect to the making of each Loan made on the Closing Date and after giving effect to the application of the proceeds thereof, including the payment of the Special Dividend), that: |
(i) |
the sum of the fair value of the assets of Holdings and its Subsidiaries, taken as a whole, exceeds the sum of all debts (including subordinated debt or contingent liabilities) of Holdings and its Subsidiaries, taken as a whole; |
(ii) |
the present fair saleable value of the assets of Holdings and its Subsidiaries, taken as a whole, is greater than the amount that will be required to pay the probable liability on existing debts (including subordinated debt or contingent liabilities) of Holdings and its Subsidiaries, taken as a whole, as such debts become absolute and matured; |
(iii) |
the capital of Holdings and its Subsidiaries, taken as a whole, is not unreasonably small in relation to the business of Holdings and its Subsidiaries, taken as a whole; and |
(iv) |
Holdings and its Subsidiaries, taken as a whole, do not intend to incur, or believe that they will incur, debts and liabilities (including current obligations and contingent liabilities) beyond their ability to pay such debt as they mature in the ordinary course of business. |
G-1
For the purposes hereof, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standards No. 5).
[Signature Page Follows]
G-2
IN WITNESS WHEREOF, I have executed this Solvency Certificate on the date first written above.
ASSETMARK FINANCIAL HOLDINGS, INC. | ||
By: |
|
|
Name: | ||
Title: |
G-3
EXHIBIT H
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: 1
To: Credit Suisse AG, Cayman Islands Branch, as Administrative Agent
Credit Suisse AG, Cayman Islands Branch
Eleven Madison Avenue
New York, NY 10010
Attn: Agency Manager
Fax: 212-322-2291
Email: agency.loanops@credit-suisse.com
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of November 14, 2018 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among AssetMark Financial Holdings, Inc., a Delaware corporation (the Borrower ), AssetMark Holdings LLC, a Delaware limited liability company, the Lenders from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent and Collateral Agent. Terms used herein and not otherwise defined shall have the meaning assigned thereto in the Credit Agreement.
The undersigned hereby certifies as of the date hereof that [he/she] is a Responsible Officer of the Borrower, and that, as such, [he/she] is authorized to execute and deliver this certificate to the Administrative Agent on the behalf of the Borrower, and that:
[ Use following paragraph 1 for fiscal year-end financial statements ] 2
1. Attached hereto as Schedule 1 are the year-end audited consolidated financial statements or Form 10-K required by Section 5.04(a) of the Credit Agreement for the fiscal year of the Borrower and its consolidated Subsidiaries ended as of the referenced fiscal year end, accompanied by the opinion of independent certified public accountants of recognized national standing as required by Section 5.04(a) of the Credit Agreement.
[ Use following paragraph 1 for fiscal quarter-end financial statements ] 3
1. Attached hereto as Schedule 1 are the unaudited consolidated financial statements or Form 10-Q required by Section 5.04(b) of the Credit Agreement for the fiscal quarter of the Borrower and its consolidated Subsidiaries ended as of the referenced fiscal quarter end. Such financial statements fairly present in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments.
1 |
To be the last day of the fiscal quarter or fiscal year, as applicable, for which the certificate is being delivered. |
2 |
Required to be delivered within 120 days after the end of each fiscal year. |
3 |
Required to be delivered within 45 days after the end of each of the first three fiscal quarters of each fiscal |
year. |
|
H-1
2. The undersigned has reviewed and is familiar with the terms of the Credit Agreement and has made, or has caused to be made under [his/her] supervision, a review of the activities of the Borrower and its consolidated Subsidiaries during the fiscal period covered by the attached financial statements.
3. To the knowledge of the undersigned, no Default or Event of Default has occurred and is continuing. [If unable to provide the foregoing certification, fully describe the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto on Annex A attached hereto.]
4. Attached as Schedule 2 hereto are reasonably detailed computations demonstrating compliance with the covenant contained in Section 6.10 of the Credit Agreement as at the end of the applicable Test Period (to the extent such financial covenant was subject to testing during such Test Period) and which such computations are true and accurate in all material respects on and as of the date hereof. 4
[ for year-end certificate ending on or after December 31, 2019 only ]
5. [Attached as Schedule 3 hereof are reasonably detailed computations with respect to Excess Cash Flow for such period, which such computations are true and accurate in all material respects on and as of the date of this certificate.]
[ for year-end certificate only, select one :]
[5/6]. [There has been no change in the information required to be set forth on the Perfection Certificate since the date of the Perfection Certificate delivered on [the Closing Date][the date of the last Compliance Certificate].]
--or--
[5/6]. [The information required to be set forth on the Perfection Certificate is set forth on Schedule 4 attached hereto.]
[ for year-end certificate only ]
[6/7]. [Schedule 5 identifies all material registered, or applications to register, Intellectual Property (as defined in the Guarantee and Collateral Agreement) of any Grantor (as defined in the Guarantee and Collateral Agreement) in the United States Patent and Trademark Office or United States Copyright Office in existence of the date hereof that has not been previously identified to the Collateral Agent.]
4 |
The calculation with respect to the covenant contained in Section 6.10 of the Credit Agreement shall only be required if, on the last day of any Test Period (commencing with the Test Period ending March 31, 2019), the aggregate principal amount of Revolving Loans and Letters of Credit (excluding Letters of Credit that have been Cash Collateralized) outstanding exceeds 30% of the aggregate principal amount of the Revolving Credit Commitments. |
[ Signature Page Follows ]
H-2
IN WITNESS WHEREOF, the undersigned has executed this certificate in such undersigneds capacity as a duly authorized officer of the Borrower, on behalf of the Borrower, and not individually, as of the day and year first above written.
ASSETMARK FINANCIAL HOLDINGS, INC. | ||
By |
|
|
Name: | ||
Title: |
H-3
SCHEDULE 1
[Section 5.04 Financial Statements]
- 1 -
SCHEDULE 2
For the Quarter/Year ended [mm/dd/yy] ($ in 000s)
I. |
Section 6.10 of the Credit Agreement Total Leverage Ratio 1 |
A. Consolidated Interest Expense 2 |
||||||
1. the sum of: |
||||||
(i) the interest expense (including imputed interest expense in respect of Capital Lease Obligations and Synthetic Lease Obligations) of the Borrower and the other Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; and |
$ | |||||
(ii) any interest accrued during such period in respect of Indebtedness of the Borrower or any other Restricted Subsidiary that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP |
$ | |||||
1.1 Consolidated Interest Expense | $ | |||||
B. Consolidated EBITDA 3 |
||||||
.
|
1. Net income or loss of the Borrower and the other Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, minus : |
$ | ||||
(i) | the income of any Restricted Subsidiary (other than the Borrower) to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to such Restricted Subsidiary | $ |
1 |
Calculated, including pro forma adjustments, giving pro forma effect in accordance with Section 1.03 of the Credit Agreement. |
2 |
For purposes of this section, interest expense shall be determined after giving effect to any net payments made or received by the Borrower or any other Restricted Subsidiary with respect to interest rate Hedging Agreements. |
3 |
Calculated after giving effect to any Specified Equity Contribution pursuant to Section 7.02 of the Credit Agreement. |
- 1 -
SCHEDULE 2
(ii) the income or loss of any person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Borrower or any other Restricted Subsidiary or the date that such persons assets are acquired by the Borrower or any other Restricted Subsidiary |
$ | |||
|
(iii) the income of any person in which any other person (other than the Borrower or any other Restricted Subsidiary that is a Wholly Owned Subsidiary of the Borrower or any director holding qualifying shares in accordance with applicable law) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any other Restricted Subsidiary that is a Wholly Owned Subsidiary of the Borrower by such person during such period |
$ | ||
(iv) the cumulative effect of a change in accounting principles during such period to the extent included in net income or loss as determined in accordance with GAAP |
$ | |||
(v) any income (loss) for such period attributable to the early extinguishment of Indebtedness, hedging agreements or other derivative instruments; and |
$ | |||
(vi) the effects of acquisition method accounting, including applying acquisition method accounting to inventory, property and equipment, leases, software and other intangible assets and deferred revenue (including deferred costs related thereto and deferred rent) required or permitted by GAAP and related authoritative pronouncements (including the effects of such adjustments pushed down to the Borrower or any other Restricted Subsidiary), as a result of any Permitted Acquisition (or other Investment permitted hereunder) or the amortization or write-off of any amounts thereof |
$ | |||
1.1 | Consolidated Net Income | $ |
- 2 -
SCHEDULE 2
2. | without duplication and to the extent deducted in determining Consolidated Net Income, the sum of: | |||
(i) Consolidated Interest Expense for such period (Line I.A.1.1) |
$ | |||
(ii) provision for taxes based on income, profits or capital and sales taxes, including federal, foreign, state, franchise, business license, value added, excise and similar taxes paid or accrued during such period (including in respect of repatriated funds) |
$ | |||
(iii) all amounts attributable to depreciation and amortization for such period |
$ | |||
(iv) any aggregate net loss during such period arising from the sale, exchange or other disposition of assets outside of the ordinary course of business |
$ | |||
(v) any Public Company Costs |
$ | |||
(vi) any fees and expenses (including any transaction or retention bonus) incurred during such period, or any amortization thereof during such period, in connection with any acquisition or Investment, asset disposition, issuance or repayment of debt, issuance of equity securities, refinancing transaction or amendment or other modification of or waiver or consent relating to any debt instrument (in each case, including Transaction Costs and any such transaction undertaken but not completed) |
$ | |||
(vii) Up to $6,000,000 in an aggregate amount for any Test Period, unusual or non-recurring charges (including any unusual or non-recurring expenses directly attributable to the implementation of cost savings initiatives), severance, relocation costs, integration and facilities opening costs, retention or completion bonuses, transition costs and costs related to closure/consolidation of facilities and curtailments or modifications to pension and other post-retirement employee benefit plans (including any settlement of pension liabilities) (in each case, other than those referred to in Line I.B.2.viii below) in any period |
$ |
- 3 -
SCHEDULE 2
|
incurred during such period, provided that the aggregate cumulative amount for all items added pursuant to this Line I.B.2.vii or Line I.B.2.viii below shall not exceed, when aggregated with the aggregate amount added to or included in Consolidated EBITDA pursuant to any pro forma adjustments during such period pursuant to clause (ii) of Section 1.03(d), 25.0% of Consolidated EBITDA (giving effect to such adjustments) for such Test Period, |
|||
(viii) Up to $8,000,000 in an aggregate amount for any Test Period, restructuring charges and expenses for such period, provided that aggregate cumulative amount for all items added pursuant to this Line I.B.2.viii or Line I.B.2.vii shall not exceed, when aggregated with the aggregate amount added to or included in Consolidated EBITDA pursuant to any pro forma adjustments during such period pursuant to clause (ii) of Section 1.03(d) of the Credit Agreement, 25.0% of Consolidated EBITDA (giving effect to such adjustments) for such Test Period, |
$ | |||
(ix) any non-cash charges or losses that have been deducted in determining Consolidated Net Income for such period in accordance with GAAP, to the extent of such deduction (other than any such non-cash charge or loss in respect of an item that increased Consolidated EBITDA in a prior period that began after the Closing Date and any such non-cash charge or loss that results from the write-down or write-off of current assets) |
$ | |||
(x) the amount of any net losses from discontinued operations |
$ | |||
(xi) the amount of any minority interest income consisting of subsidiary income attributable to minority equity interests of third parties in any Subsidiary that is not a Wholly-Owned Subsidiary deducted from (and not added back in such period to) Consolidated Net Income |
$ | |||
(xii) any extraordinary losses for such period |
$ | |||
(xiii)stock-based compensation award expenses |
$ |
- 4 -
SCHEDULE 2
|
(xiv) any loss attributable to deferred compensation plans or trusts |
$ | ||
(xv) to the extent covered by insurance and actually reimbursed, or if there is reasonable evidence that such amount will in fact be reimbursed by a third party insurer (and only to the extent that such amount is in fact reimbursed) within 180 days of the date of such determination (with a deduction in the applicable future period for any amount so excluded to the extent not so reimbursed within such 180 days), expenses, charges or losses with respect to business interruption (and if such expenses, charges or losses are added to Consolidated Net Income in determining Consolidated EBITDA, such insurance proceeds shall be excluded from Consolidated EBITDA) |
$ | |||
(xvi) all costs, fees and exposes of the board of directors of the Borrower and Holdings that are actually reimbursed by the Borrower |
$ | |||
(xvi) charges attributable to, and payments of, legal settlements, fines, judgments or orders |
$ | |||
|
(xvi) any net pension or other post-employment benefit costs representing amortization of unrecognized prior service costs, actuarial losses, including amortization of such amounts arising in prior periods, amortization of the unrecognized net obligation (and loss or cost) existing at the date of initial application of FASB Accounting Standards Codification 715, and any other items of a similar nature |
$ | ||
2.1 |
Total |
$ | ||
3. |
without duplication, and to the extent included in the calculation of such Consolidated Net Income, the sum of: | |||
(i) all cash payments made during such period on account of reserves, restructuring charges and other non-cash charges added to Consolidated Net Income pursuant to Line I.B.2.viii or Line I.B.2.ix above in a previous period |
$ |
- 5 -
SCHEDULE 2
(ii) any extraordinary gains and all non-cash items of income for such period |
$ | |||
(iii) any aggregate net gain during such period arising from the sale, exchange or other disposition of assets outside of the ordinary course of business |
$ | |||
(iv) the amount of any net gains from discontinued operations |
$ | |||
(v) the amount of any minority interest losses consisting of subsidiary losses attributable to minority equity interests of third parties in any Subsidiary that is not a Wholly Owned Subsidiary added back to (and not deducted in such period from) Consolidated Net Income; and |
$ | |||
(vi) any gain attributable to deferred compensation plans or trusts, all determined on a consolidated basis in accordance with GAAP |
$ | |||
3.1 |
Total |
$ | ||
4. |
Total Consolidated EBITDA 4 for current quarter ((Line I.B.1.1 + Line I.B.2.1) Line I.B.3.1) |
$ | ||
5. |
Total Consolidated EBITDA for previous 3 consecutive fiscal quarters |
$ | ||
6. |
Total Consolidated EBITDA for 4 consecutive fiscal quarters ended ________ (Line I.B.4 + Line I.B.5) |
$ |
C. |
Total Leverage Ratio |
4 |
For purposes of calculating the First Lien Leverage Ratio and the Total Leverage Ratio, (A) the Consolidated EBITDA of any Acquired Entity acquired by the Borrower or any other Restricted Subsidiary pursuant to a Permitted Acquisition during such period shall, to the extent reasonably determinable on a going concern basis, be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred as of the first day of such period and including the pro forma adjustments described in Section 1.03 of the Credit Agreement) and (B) the Consolidated EBITDA attributable to any Asset Sale by the Borrower or any other Restricted Subsidiary during such period shall be excluded for such period (assuming the consummation of such Asset Sale and the repayment of any Indebtedness in connection therewith and including the pro forma adjustments described in Section 1.03 of the Credit Agreement with respect to such period). |
- 6 -
SCHEDULE 2
1. Indebtedness of Holdings, the Borrower and the other Restricted Subsidiaries at such time consisting only of Indebtedness for borrowed money, notes, bonds, debentures, drawn but unreimbursed obligations under letters of credit, letters of guaranty and bankers acceptances, obligations in respect of Capital Lease Obligations and purchase money indebtedness (other than trade accounts payable in the ordinary course of business) |
$ |
divided by
2. Consolidated EBITDA 5 for four consecutive fiscal quarters ended _____________ (Line I.B.6) |
$ | |||
3. Total Leverage Ratio for four consecutive fiscal quarters ended on the Financial Statement Date |
____:1.00 |
5 |
For purposes of calculating the Total Leverage Ratio, (A) the Consolidated EBITDA of any Acquired Entity acquired by the Borrower or any other Restricted Subsidiary pursuant to a Permitted Acquisition during such period shall, to the extent reasonably determinable on a going concern basis, be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred as of the first day of such period and including the pro forma adjustments described in Section 1.03 of the Credit Agreement) and (B) the Consolidated EBITDA attributable to any Asset Sale by Holdings, the Borrower or any other Restricted Subsidiary during such period shall be excluded for such period (assuming the consummation of such Asset Sale and the repayment of any Indebtedness in connection therewith and including the pro forma adjustments described in Section 1.03 of the Credit Agreement with respect to such period). |
- 7 -
SCHEDULE 3
II. |
Excess Cash Flow 1 |
A. Consolidated EBITDA for the fiscal year to which this certificate relates |
||||
1. Total Consolidated EBITDA for fiscal year (Line I.B.6 ) |
$ | |||
B. For the fiscal year to which this certificate relates, the sum, without duplication, of |
||||
1. the amount of any Taxes payable in cash by the Borrower and the other Restricted Subsidiaries with respect to such fiscal year |
$ | |||
2. Consolidated Interest Expense for such fiscal year paid in cash |
$ | |||
3. capital expenditures made in cash during such fiscal year, to the extent financed with internally generated cash flow |
$ | |||
4. permanent repayments of Indebtedness (other than mandatory prepayments of Loans under Section 2.13 of the Credit Agreement and prepayments and repurchases of Loans referred to in clause (B) of Section 2.13(c) of the Credit Agreement) made in cash by the Borrower or any other Restricted Subsidiary during such fiscal year, but only to the extent that the Indebtedness so prepaid by its terms cannot be reborrowed or redrawn and such prepayments do not occur in connection with a refinancing of all or any portion of such Indebtedness |
$ | |||
5. all amounts added back to Consolidated Net Income in calculating Consolidated EBITDA pursuant to Lines I.B.2.vi and I.B.2.xvi above or, to the extent paid in cash during such fiscal year, Lines I.B.2.vii or I.B.2.viii above |
$ | |||
6. additions to noncash working capital for such fiscal year ( i.e. , the increase, if any, in Current Assets minus Current Liabilities from the beginning to the end of such fiscal year); |
$ | |||
7. (A) cash consideration paid during such fiscal year (or, at the option of the Borrower, committed to be paid prior to the date the Borrower is required to make a payment of Excess Cash |
$ |
1 |
Calculated without giving pro forma effect in accordance with Section 1.03 of the Credit Agreement. |
- 1 -
SCHEDULE 3
Flow in respect of such fiscal year) by the Borrower or any other Restricted Subsidiary to make Permitted Acquisitions or other similar Investments (other than (1) in Holdings or a Restricted Subsidiary and (2) in Cash Equivalents) permitted under Section 6.04 of the Credit Agreement and (B) Restricted Payments made in cash during such fiscal year (or, at the option of the Borrower, committed to be paid prior to the date the Borrower is required to make a payment of Excess Cash Flow in respect of such fiscal year) by the Borrower or any Restricted Subsidiary (other than to Holdings or any Restricted Subsidiary) permitted under Section 6.06(a) of the Credit Agreement (other than Section 6.06(a)(v) of the Credit Agreement) (except, in each case to the extent funded with the proceeds of long-term Indebtedness (other than revolving Indebtedness)); 2 and |
||||
8. payments made in cash by the Borrower or any other Restricted Subsidiary during such fiscal year (except to the extent deducted in calculating Consolidated Net Income or Consolidated EBITDA) in satisfaction of noncurrent liabilities (excluding any payments of Indebtedness for borrowed money), to the extent financed with internally generated cash flow |
$ | |||
9. Total |
$ |
C. Excess Cash Flow: | ||||
1. Consolidated EBITDA (Line II.A.4) |
$ | |||
plus |
||||
2. reductions to noncash working capital of the Borrower and the other Restricted Subsidiaries for such fiscal year ( i.e. , the absolute value of the decrease, if any, in Current Assets minus Current Liabilities from the beginning to the end of such fiscal year) 3 |
$ |
2 |
Amounts described in II.B.7. will not reduce Excess Cash Flow in subsequent periods and, to the extent not paid, will increase Excess Cash Flow in the subsequent period. |
3 |
For purposes of calculating Excess Cash Flow, increases or decreases in working capital shall exclude (A) any changes in Current Assets or Current Liabilities solely as a result of acquisitions or dispositions by the Borrower and the other Restricted Subsidiaries during the applicable period and (B) any reclassification in accordance with GAAP of assets or liabilities, as applicable, between current and noncurrent. |
- 2 -
SCHEDULE 3
minus | ||||||
3. | Total (Line II.B.9) | $ | ||||
4. | Excess Cash Flow | $ | ||||
D. |
Excess Cash Flow Prepayment : | |||||
1. | ECF Percentage 4 | % | ||||
times | ||||||
2. | Excess Cash Flow (Line II.C.4) | $ | ||||
3. | Total | $ | ||||
minus
|
||||||
4. | (x) without duplication of amounts reducing Excess Cash Flow, at the option of the Borrower, the aggregate principal amount of (x) any optional prepayments or repurchases of Term Loans, Revolving Loans or Incremental Equivalent Debt that is secured on a pari passu basis with the Credit Facilities prior to the date of prepayment pursuant to Section 2.13(c) of the Credit Agreement, and (y) the amount of any reduction in the outstanding amount of any Term Loans resulting from any assignment made to Holdings, the Borrower or any of its Restricted Subsidiaries in accordance with Section 2.12(c) of the Credit Agreement (including in connection with any Auction) prior to the date of prepayment pursuant to Section 2.13(c) of the Credit Agreement, in the case of this clause (y), based upon the actual amount of cash paid in connection with the relevant assignment, in each case, only to the extent that (I) such prepayments were not financed with the proceeds of long-term Indebtedness (other than Revolving Loans) of the Borrower and its Restricted Subsidiaries, (II) if such prepayment is a prepayment of Revolving Loans or of Incremental Equivalent Debt in the form of a revolving facility, such prepayment is accompanied by a corresponding termination or reduction of the Revolving Credit Commitment or relevant commitment, respectively, and (III) such prepayment was not previously applied to reduce the amount of any prepayment required by this clause | $ |
4 |
ECF Percentage shall mean 50% (or, if the First Lien Leverage Ratio as of the last day of the applicable fiscal year of the Borrower shall have been (x) equal to or less than 2.20 to 1.00 but greater than 1.70 to 1.00, 25% or (y) equal to or less than 1.70 to 1.00, 0%). |
- 3 -
SCHEDULE 3
5. | Excess Cash Flow Prepayment (Line II.D.3 Line II.D.4) 5 | $ |
5 |
Any such Excess Cash Flow Prepayment by the Borrower shall only required to the extent the amount of such prepayment for such fiscal year of the Borrower exceeds $2,000,000. |
- 4 -
SCHEDULE 4
[Supplement to the Perfection Certificate]
SCHEDULE 5
IP SUPPLEMENTAL SCHEDULE
U.S. COPYRIGHTS
Copyrights/Copyright Applications
Grantor / Registered Owner |
Title |
Registration/Application Number |
Expiration Date |
|||
Exclusive Copyright Licenses
Grantor / Licensee |
Licensor |
Title |
Registration Number |
Expiration Date |
||||
U.S. PATENTS
U.S. Patents/Patent Applications
Registered Owner
|
Title of Patent |
Registration/Application Number |
Expiration Date |
|||
U.S. TRADEMARKS
Trademarks/Trademark Applications
Registered Owner |
Mark |
Application/Registration Number |
Expiration Date |
|||
EXHIBIT A
AMENDED CREDIT AGREEMENT
[See attached.]
[ Exhibit A ]
Execution Version
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT TO CREDIT AGREEMENT (this Amendment ), dated as of June 28, 2019, among ASSETMARK FINANCIAL HOLDINGS, INC., a Delaware corporation (the Borrower ), ASSETMARK HOLDINGS LLC, a Delaware limited liability company ( Holdings ), and the Required Lenders party hereto.
W I T N E S S E T H :
WHEREAS, the Borrower, Holdings, the lenders from time to time party thereto (the Lenders ), and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent (in such capacity, including any successor thereto, the Administrative Agent ) and as collateral agent (in such capacity, including any successor thereto, the Collateral Agent ) for the Lenders, are parties to that certain Credit Agreement, dated as of November 14, 2018 (as amended, modified and/or supplemented prior to the Amendment Effective Date referred to below, the Credit Agreement ; capitalized terms not otherwise defined herein shall have the respective meaning assigned to such terms in the Credit Agreement as amended by this Amendment (as so amended, the Amended Credit Agreement )); and
WHEREAS, in accordance with the provisions of Section 9.08 of the Credit Agreement, the Borrower, Holdings, and the Required Lenders hereby wish to amend certain provisions of the Credit Agreement, subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows:
SECTION 1.
Amendments to Credit Agreement
. The Credit Agreement is, effective as of
the Amendment Effective Date, hereby amended pursuant to Section 9.08 of the Credit Agreement to delete the stricken text (indicated textually in the same manner as the following example:
stricken text
) and to add the double-underlined text (indicated textually in the same manner as the following example
double-underlined text
) as set forth in the pages of the form of Amended Credit
Agreement attached as
Exhibit A
hereto.
SECTION 2. Conditions of Effectiveness of this Amendment . This Amendment shall become effective on the date when the following conditions shall have been satisfied (or waived by the Required Lenders) (such date, the Amendment Effective Date ):
(a) the Administrative Agent (or its counsel) shall have received duly executed counterparts that, when taken together, bear the signatures of (i) the Borrower and Holdings and (ii) the Required Lenders (determined immediately prior to giving effect to this Amendment); and
(b) the Borrower shall have reimbursed or paid all other fees and all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent in connection with the Amendment or otherwise owed to the Administrative Agent (including the reasonable and documented out-of-pocket fees, disbursements and charges of Cravath, Swaine & Moore LLP, as counsel to the Administrative Agent).
SECTION 3. Representations and Warranties . To induce the Lenders to enter into this Amendment, each of the Loan Parties party hereto represents and warrants to the Administrative Agent and the Lenders on and as of the Amendment Effective Date that, in each case:
(a) this Amendment has been duly executed and delivered by Holdings and the Borrower and constitutes, when executed and delivered by such Loan Party, a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law);
(b) the representations and warranties set forth in Article III of the Credit Agreement and in each other Loan Document are true and correct (i) in the case of the representations and warranties qualified as to materiality, in all respects, and (ii) otherwise, in all material respects, on and as of the date of the Amendment Effective 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 as of such earlier date; and
(c) no Default or Event of Default has occurred and is continuing as of the Amendment Effective Date.
SECTION 4. Reference to and Effect on the Credit Agreement and the Loan Documents .
(a) This Amendment shall constitute a Loan Document for all purposes of the Credit Agreement and the other Loan Documents.
(b) On and after the Amendment Effective Date, each reference in the Credit Agreement to this Agreement, hereunder, hereof or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended by this Amendment.
(c) The Credit Agreement and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. 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 Amendment.
(d) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
SECTION 5. Governing Law . THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The provisions of Sections 9.07, 9.11 and 9.15 of the Credit Agreement shall apply to this Amendment to the same extent as if fully set forth herein.
2
SECTION 6. Counterparts . This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Amendment by facsimile or other electronic transmission shall be as effective as delivery of an original signed counterpart of this Amendment. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent.
[ The remainder of this page is intentionally left blank .]
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.
ASSETMARK FINANCIAL HOLDINGS, INC., as the Borrower | ||
By: |
/s/ Gary G. Zyla |
|
Name: Gary G. Zyla | ||
Title: Executive Vice President and Chief Financial Officer |
ASSETMARK HOLDINGS LLC, as Holdings | ||
By: |
/s/ Gary G. Zyla |
|
Name: Gary G. Zyla | ||
Title: Executive Vice President, Chief Financial Officer and Treasurer |
[ Signature Page to First Amendment to Credit Agreement ]
Apex Credit CLO 2015-II Ltd., as Lender |
||
By: Apex Credit Partners, its Asset Manager | ||
By: |
/s/ Andrew Stern |
|
Name: Andrew Stern | ||
Title: Managing Director |
[Signature Page Amendment]
Apex Credit CLO 2016 Ltd., as Lender | ||
By: Apex Credit Partners, its Asset Manager | ||
By: |
/s/ Andrew Stern |
|
Name: Andrew Stern | ||
Title: Managing Director |
[Signature Page Amendment]
Apex Credit CLO 2017 Ltd., as Lender | ||
By: Apex Credit Partners, its Asset Manager | ||
By: |
/s/ Andrew Stern |
|
Name: Andrew Stern | ||
Title: Managing Director |
[Signature Page Amendment]
Apex Credit CLO 2017-II Ltd., as Lender | ||
By: Apex Credit Partners LLC | ||
By: |
/s/ Andrew Stern |
|
Name: Andrew Stern | ||
Title: Managing Director |
[Signature Page Amendment]
Apex Credit CLO 2018 Ltd., as Lender | ||
By: |
/s/ Andrew Stern |
|
Name: Andrew Stern | ||
Title: Managing Director |
[Signature Page Amendment]
Ares CLO Warehouse 2018-3 Ltd., as Lender | ||
By: Ares CLO Management LLC, as Asset Manager |
||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares LI CLO Ltd. , as Lender | ||
By: Ares CLO Management LLC | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares LII CLO Ltd. , as Lender | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares LIII CLO Ltd. , as Lender | ||
By: Ares CLO Management LLC, its portfolio manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XL CLO Ltd. , as Lender | ||
By: Ares CLO Management II LLC, its asset manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLI CLO Ltd. , as Lender | ||
By: Ares CLO Management II LLC, its asset manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLII CLO Ltd. , as Lender | ||
By: Ares CLO Management II LLC, its asset manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLIII CLO Ltd. , as Lender | ||
By: Ares CLO Management LLC, as its Asset Manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLIV CLO Ltd. , as Lender | ||
By: Ares CLO Management II LLC, its Asset Manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLIX CLO LTD. , as Lender | ||
By: Ares CLO Management LLC, its asset manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLV CLO Ltd. , as Lender | ||
By: Ares CLO Management II LLC, its Asset Manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLVI CLO Ltd. , as Lender | ||
By: Ares CLO Management LLC, as its Asset Manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLVII CLO Ltd. , as Lender | ||
By: Ares CLO Management II LLC, as Asset Manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XLVIII CLO Ltd. , as Lender | ||
By: Ares CLO Management II LLC, as its Asset Manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXVII CLO Ltd. , as Lender | ||
By: Ares CLO Management LLC, its asset manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXVIIIR CLO Ltd. , as Lender | ||
By: Ares CLO Management LLC, its Asset Manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXXIIR CLO Ltd , as Lender | ||
By: Ares CLO Management XXXII, L.P., its Asset Manager |
||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXXIR CLO Ltd ., as Lender | ||
By: Ares CLO Management LLC, as Asset Manager |
||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXXIV CLO Ltd ., as Lender | ||
By: Ares CLO Management LLC, its collateral manager |
||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXXIX CLO Ltd. , as Lender | ||
By: Ares CLO Management II LLC, its asset manager |
||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXXVII CLO Ltd. , as Lender | ||
By: Ares CLO Management LLC, its asset manager |
||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXXVIII CLO Ltd., as Lender | ||
By: Ares CLO Management II LLC, its asset manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Ares XXXVR CLO Ltd., as Lender | ||
By: Ares CLO Management LLC, its asset manager | ||
By: |
/s/ Courtney Debolt |
|
Name: Courtney Debolt |
||
Title: Authorized Signatory |
[Signature Page Amendment]
Audax Credit Opportunities (SBA), LLC, as Lender | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory | ||
Audax Credit Opportunities Offshore Ltd., as Lender | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory | ||
Audax Senior Debt (AZ) SPV, LLC, as Lender | ||
By: Audax Management Company (NY), LLC, its manager | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory | ||
Audax Senior Debt (DMBA), LLC, as Lender | ||
By: Audax Management Company (NY), LLC, its manager | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory |
[Signature Page Amendment]
Audax Senior Debt (MP) SPV, LLC, as Lender | ||
By: Audax Management Company (NY), LLC, its manager | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory |
||
Audax Senior Debt (WCTPT) SPV II, LLC, as Lender |
||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle |
||
Title: Authorized Signatory |
||
Audax Senior Loan Fund (ST) SPV, LLC, as Lender |
||
By: Audax Management Company (NY), LLC, its manager |
||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle |
||
Title: Authorized Signatory |
||
Audax Senior Loan Fund I (Offshore) SPV, Ltd., as Lender |
||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle |
||
Title: Authorized Signatory |
[Signature Page Amendment]
Audax Senior Loan Fund III (Offshore) SPV, Ltd., as Lender | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory | ||
Audax Senior Loan Fund III SPV, LLC, as Lender | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory | ||
Audax Senior Loan IDF Fund-E SPV, LLC, as Lender | ||
By: Audax Management Company (NY), LLC, its manager | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory | ||
Audax Senior Loan Insurance Fund SPV, LLC, as Lender | ||
By: Audax Management Company (NY), LLC, its manager | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle | ||
Title: Authorized Signatory |
[Signature Page Amendment]
KOCAA/Audax Private Debt Fund, LP, as Lender |
||
By: Audax Management Company (NY), LLC, its investment manager | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle |
||
Title: Authorized Signatory |
||
Middle Market LLC, as Lender |
||
By: Audax Management Company (NY), LLC, its investment adviser | ||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle |
||
Title: Authorized Signatory |
||
Thorney Island Limited Partnership, as Lender |
||
By: Audax Management Company (NY), LLC, its investment adviser |
||
By: |
/s/ Michael McGonigle |
|
Name: Michael McGonigle |
||
Title: Authorized Signatory |
[Signature Page Amendment]
Avery Point VI CLO, Limited, as Lender |
||
By: Bain Capital Credit, LP, as Portfolio Manager |
||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens |
||
Title: Managing Director |
[Signature Page Amendment]
Avery Point VII CLO, Limited, as Lender |
||
By: Bain Capital Credit, LP, as Portfolio Manager |
||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens |
||
Title: Managing Director |
[Signature Page Amendment]
BAIN CAPITAL CREDIT CLO 2016-2, LIMITED, as Lender |
||
By: Bain Capital Credit CLO Advisors, LP, as Portfolio Manager | ||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens | ||
Title: Managing Director |
[Signature Page Amendment]
Bain Capital Credit CLO 2017-1, Limited, as Lender |
||
By: Bain Capital Credit, LP, as Collateral Manager |
||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens |
||
Title: Managing Director |
[Signature Page Amendment]
Bain Capital Credit CLO 2017-2, Limited, as Lender By: Bain Capital Credit, LP, as Collateral Manager |
||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens Title: Managing Director |
[Signature Page Amendment]
Bain Capital Credit CLO 2018-1, Limited, as Lender By: Bain Capital Credit, LP, as Portfolio Manager |
||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens Title: Managing Director |
[Signature Page Amendment]
Bain Capital Credit CLO 2018-2, Limited, as Lender By: Bain Capital Credit, LP, as Portfolio Manager |
||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens Title: Managing Director |
[Signature Page Amendment]
Bain Capital Credit CLO 2019-1, Limited, as Lender |
||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens Title: Managing Director |
[Signature Page Amendment]
Beluga IMC Inc, as Lender |
||
By: |
/s/ Amit Dutta |
|
Name: Amit Dutta | ||
Title: Portfolio Manager | ||
By: | ||
Name: Title: |
[Signature Page Amendment]
Credit Suisse AG, Cayman Islands Branch, as Lender |
||
By: |
/s/ DOREEN BARR |
|
Name: DOREEN BARR | ||
Title: AUTHORIZED SIGNATORY | ||
By: | /s/ Christopher Zybrick | |
Name: Christopher Zybrick Title: Authorized Signatory |
[Signature Page Amendment]
Crestline Denali CLO XIV, LTD., as Lender By: Crestline Denali Capital, L.P., collateral manager for Crestline Denali CLO XIV, LTD. |
||
By: | /s/ Nicole Kouba | |
Name: Nicole Kouba Title: Vice President |
[Signature Page Amendment]
Crestline Denali CLO XV, Ltd., as Lender By: Crestline Denali Capital, L.P., collateral manager for Crestline Denali CLO XV, Ltd. |
||
By: | /s/ Nicole Kouba | |
Name: Nicole Kouba Title: Vice President |
[Signature Page Amendment]
Crestline Denali CLO XVII, LTD., as Lender By: Crestline Denali Capital, L.P., collateral manager |
||
By: | /s/ Nicole Kouba | |
Name: Nicole Kouba Title: Vice President |
[Signature Page Amendment]
CRESTLINE DENALI CLO XVIII, LTD., as Lender |
||
By: | /s/ Nicole Kouba | |
Name: Nicole Kouba Title: Vice President |
[Signature Page Amendment]
Ivy Hill Middle Market Credit Fund IX, Ltd., as Lender By: Ivy Hill Asset Management, L.P., as Asset Manager |
||
By: |
/s/ Shelly Cleary |
|
Name: Shelly Cleary Title: Authorized Signatory |
[Signature Page Amendment]
IVY HILL MIDDLE MARKET CREDIT FUND VII, LTD., as Lender By: Ivy Hill Asset Management, L.P., as Asset Manager |
||
By: |
/s/ Shelly Cleary |
|
Name: Shelly Cleary Title: Authorized Signatory |
[Signature Page Amendment]
Ivy Hill Middle Market Credit Fund X, Ltd., as Lender By: Ivy Hill Asset Management, L.P., as Asset Manager |
||
By: |
/s/ Shelly Cleary |
|
Name: Shelly Cleary Title: Authorized Signatory |
[Signature Page Amendment]
Ivy Hill Middle Market Credit Fund XII, Ltd., as Lender By: Ivy Hill Asset Management, L.P., as Asset Manager |
||
By: |
/s/ Shelly Cleary |
|
Name: Shelly Cleary Title: Authorized Signatory |
[Signature Page Amendment]
Ivy Hill Middle Market Credit Fund XIV, Ltd., as Lender |
||
By: |
/s/ Shelly Cleary |
|
Name: Shelly Cleary Title: Authorized Signatory |
[Signature Page Amendment]
JFIN CLO 2012 LTD., as Lender By: Apex Credit Partners LLC, as Portfolio Manager |
||
By: |
/s/ Andrew Stern |
|
Name: Andrew Stern Title: Managing Director |
[Signature Page Amendment]
JFIN CLO 2015 LTD., as Lender By: Apex Credit Partners LLC, as Portfolio Manager |
||
By: |
/s/ Andrew Stern |
|
Name: Andrew Stern Title: Managing Director |
[Signature Page Amendment]
JMP Credit Advisors CLO III(R) Ltd., as Lender By: Medalist Partners Corporate Finance LLC, As Attorney-in-Fact |
||
By: |
/s/ Darren Newara |
|
Name: Darren Newara Title: Director |
[Signature Page Amendment]
JMP CREDIT ADVISORS CLO IV LTD., as Lender By: Medalist Partners Corporate Finance LLC, As Attorney-in-Fact |
||
By: |
/s/ Darren Newara |
|
Name: Darren Newara Title: Director |
[Signature Page Amendment]
JMP CREDIT ADVISORS CLO V LTD., as Lender By: Medalist Partners Corporate Finance LLC, As Attorney-in-Fact |
||
By: |
/s/ Darren Newara |
|
Name: Darren Newara Title: Director |
[Signature Page Amendment]
JMP CREDIT ADVISORS CLO VI WAREHOUSE LTD., as Lender By: Medalist Partners Corporate Finance LLC, As Attorney-in-Fact |
||
By: |
/s/ Darren Newara |
|
Name: Darren Newara Title: Director |
[Signature Page Amendment]
Man GLG US CLO 2018-1 Ltd., as Lender | ||
By: SILVERMINE CAPITAL MANAGEMENT, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Richard Kurth |
|
Name: Richard Kurth | ||
Title: Principal |
[Signature Page Amendment]
Man GLG US CLO 2018-2 Ltd., as Lender | ||
BY: Silvermine Capital Management LLC | ||
As Collateral Manager | ||
By: |
/s/ Richard Kurth |
|
Name: Richard Kurth | ||
Title: Principal |
[Signature Page Amendment]
Oaktree CLO 2019-1 Ltd., as Lender | ||
By: Oaktree Capital Management, L.P. | ||
its: Collateral Manager | ||
By: |
/s/ Ronald Jin |
|
Name: Ronald Jin | ||
Title: Senior Vice President | ||
/s/ Ronald Kaplan |
||
Ronald Kaplan | ||
Managing Director |
[Signature Page Amendment]
OAKTREE EIF II SERIES B2, LTD., as Lender | ||
By: Oaktree Capital Management, L.P. | ||
its: Collateral Manager | ||
By: |
/s/ Ronald Jin |
|
Name: Ronald Jin | ||
Title: Senior Vice President | ||
/s/ Ronald Kaplan |
||
Ronald Kaplan | ||
Managing Director |
[Signature Page Amendment]
Oaktree EIF III Series 1, Ltd., as Lender | ||
By: Oaktree Capital Management, L.P. | ||
its: Collateral Manager | ||
By: |
/s/ Ronald Jin |
|
Name: Ronald Jin | ||
Title: Senior Vice President | ||
/s/ Ronald Kaplan |
||
Ronald Kaplan | ||
Managing Director |
[Signature Page Amendment]
Race Point IX CLO, Limited, as Lender | ||
By: Bain Capital Credit, LP, as Portfolio Manager | ||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens | ||
Title: Managing Director |
[Signature Page Amendment]
Race Point VIII CLO, Limited, as Lender | ||
By: Bain Capital Credit, LP, as Portfolio Manager | ||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens | ||
Title: Managing Director |
[Signature Page Amendment]
Race Point X CLO, Limited, as Lender | ||
By: Bain Capital Credit, LP, as Portfolio Manager | ||
By: |
/s/ Andrew Viens |
|
Name: Andrew Viens | ||
Title: Managing Director |
[Signature Page Amendment]
Regatta II Funding LP, as Lender | ||
By: Napier Park Global Capital (US) LP Attorney-in-fact |
||
By: |
/s/ Melanie Hanlon |
|
Name: Melanie Hanlon | ||
Title: Managing Director |
[Signature Page Amendment]
REGATTA IX FUNDING LTD., as Lender By: Regatta Loan Management LLC its Collateral Manager |
||
By: |
/s/ Melanie Hanlon |
|
Name: Hanlon, Melanie Title: Managing Director |
[Signature Page Amendment]
Regatta VI Funding Ltd., as Lender By: Regatta Loan Management LLC its Collateral Manager |
||
By: |
/s/ Melanie Hanlon |
|
Name: Hanlon, Melanie Title: Managing Director |
[Signature Page Amendment]
Regatta VII Funding Ltd., as Lender By: Regatta Loan Management LLC its Collateral Manager |
||
By: |
/s/ Melanie Hanlon |
|
Name: Hanlon, Melanie Title: Managing Director |
[Signature Page Amendment]
REGATTA VIII FUNDING LTD, as Lender By: Regatta Loan Management LLC attorney-in-fact |
||
By: |
/s/ Melanie Hanlon |
|
Name: Melanie Hanlon Title: Managing Director |
[Signature Page Amendment]
REGATTA X FUNDING LTD., as Lender By: Regatta Loan Management LLC its Collateral Manager |
||
By: |
/s/ Melanie Hanlon |
|
Name: Hanlon, Melanie Title: Managing Director |
[Signature Page Amendment]
REGATTA XI FUNDING LTD., as Lender By: Regatta Loan Management LLC its Collateral Manager |
||
By: |
/s/ Melanie Hanlon |
|
Name: Hanlon, Melanie Title: Managing Director |
[Signature Page Amendment]
Regatta XII Funding Ltd., as Lender By: Regatta Loan Management LLC, its Collateral Manager |
||
By: |
/s/ Melanie Hanlon |
|
Name: Hanlon, Melanie Title: Managing Director |
[Signature Page Amendment]
Regatta XIII Funding Ltd., as Lender By: Napier Park Global Capital (US) LP Attorney-in-fact |
||
By: |
/s/ Melanie Hanlon |
|
Name: Melanie Hanlon Title: Managing Director |
[Signature Page Amendment]
Regatta XIV Funding Ltd., as Lender By: Regatta Loan Management LLC, its Collateral Manager |
||
By: |
/s/ Melanie Hanlon |
|
Name: Melanie Hanlon Title: Managing Director |
[Signature Page Amendment]
Regatta XV Funding Ltd., as Lender By: Napier Park Global Capital (US) LP, its Collateral Manager |
||
By: |
/s/ Melanie Hanlon |
|
Name: Melanie Hanlon Title: Managing Director |
[Signature Page Amendment]
TICP CLO I-2, Ltd. , as Lender | ||
By: TICP CLO I Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO II-2, Ltd. , as Lender | ||
By: TICP CLO II Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO III-2, Ltd. , as Lender | ||
By: TICP CLO III Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO IV Ltd, as Lender | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO IX, Ltd., as Lender | ||
By: TICP CLO IX Management LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO V 2016-1, Ltd., as Lender | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek |
||
Title: Vice President |
[Signature Page Amendment]
TICP CLO VI 2016-2, Ltd., as Lender | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO VII, Ltd. , as Lender | ||
By: TICP CLO VII Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO VIII, Ltd, as Lender | ||
By: TICP CLO VIII Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO X, Ltd., as Lender | ||
By: TICP CLO X Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO XI, Ltd., as Lender | ||
By: TICP CLO XI Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO XII, Ltd., as Lender | ||
By: TICP CLO XII Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
TICP CLO XIII, Ltd., as Lender | ||
By: TICP CLO XIII Management, LLC | ||
Its Collateral Manager | ||
By: |
/s/ Daniel Wanek |
|
Name: Daniel Wanek | ||
Title: Vice President |
[Signature Page Amendment]
Venture 31 CLO, Limited, as Lender | ||
By: its investment advisor | ||
MJX Venture Management III LLC | ||
By: |
/s/ Lewis Brown |
|
Name: Lewis Brown | ||
Title: Managing Director / Head of Trading |
[Signature Page Amendment]
Venture 32 CLO, Limited, as Lender | ||
By: its investment advisor | ||
MJX Asset Management LLC | ||
By: |
/s/ Lewis Brown |
|
Name: Lewis Brown | ||
Title: Managing Director / Head of Trading |
[Signature Page Amendment]
Venture 35 CLO, Limited, as Lender | ||
By: its investment advisor | ||
MJX Asset Management LLC | ||
By: |
/s/ Lewis Brown |
|
Name: Lewis Brown | ||
Title: Managing Director/ Head of Trading |
[Signature Page Amendment]
Venture 36 CLO, Limited, as Lender By: its investment advisor MJX Asset Management LLC |
||
By: |
/s/ Lewis Brown |
|
Name: Lewis Brown Title: Managing Director/Head of Trading |
[Signature Page Amendment]
VENTURE XIV CLO, Limited, as Lender By: its investment advisor MJX Venture Management LLC |
||
By: |
/s/ Lewis I. Brown |
|
Name: Lewis I. Brown Title: Managing Director / Head of Trading |
[Signature Page Amendment]
VENTURE XIX CLO, Limited, as Lender By: its investment advisor MJX Asset Management LLC |
||
By: |
/s/ Lewis I. Brown |
|
Name: Lewis I. Brown Title: Managing Director / Head of Trading |
[Signature Page Amendment]
VENTURE XV CLO, Limited, as Lender By: its investment advisor MJX Asset Management LLC |
||
By: |
/s/ Lewis I. Brown |
|
Name: Lewis I. Brown Title: Managing Director / Head of Trading |
[Signature Page Amendment]
VENTURE XVI CLO, Limited, as Lender By: its investment advisor MJX Venture Management II LLC |
||
By: |
/s/ Lewis I. Brown |
|
Name: Lewis I. Brown Title: Managing Director / Head of Trading |
[Signature Page Amendment]
Venture XXIX CLO, Limited, as Lender By: its investment advisor MJX Venture Management II LLC |
||
By: |
/s/ Lewis Brown |
|
Name: Lewis Brown Title: Managing Director / Head of Trading |
[Signature Page Amendment]
Venture XXVIII CLO, Limited, as Lender By: its investment advisor MJX Venture Management II LLC |
||
By: |
/s/ Lewis Brown |
|
Name: Lewis Brown Title: Managing Director / Head of Trading |
[Signature Page Amendment]
Venture XXX CLO, Limited, as Lender By: its investment advisor MJX Venture Management II LLC |
||
By: |
/s/ Lewis Brown |
|
Name: Lewis Brown Title: Managing Director / Head of Trading |
[Signature Page Amendment]
ZAIS CLO 1, Limited, as Lender ZAIS CLO 1, Limited |
||
By: |
/s/ Vincent Ingato |
|
Name: Vincent Ingato Title: Managing Director |
[Signature Page Amendment]
ZAIS CLO 11, Limited, as Lender By Zais Leveraged Loan Master Manager, LLC its collateral manager By: Zais Group, LLC, its sole member |
||
By: |
/s/ Vincent Ingato |
|
Name: Vincent Ingato Title: Managing Director |
[Signature Page Amendment]
ZAIS CLO 7, Limited, as Lender |
||
By: |
/s/ Vincent Ingato |
|
Name: Vincent Ingato Title: Managing Director |
[Signature Page Amendment]
ZAIS CLO 8, Limited, as Lender By Zais Leveraged Loan Master Manager, LLC its collateral manager By: Zais Group, LLC, its sole member |
||
By: |
/s/ Vincent Ingato |
|
Name: Vincent Ingato Title: Managing Director |
[Signature Page Amendment]
Exhibit 10.10
ASSETMARK FINANCIAL HOLDINGS, INC.
2019 EQUITY INCENTIVE PLAN
Section 1. Purpose and Eligibility .
(a) General Purpose. The purpose of this AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as amended from time to time, the Plan ) is to motivate and reward employees and other individuals to perform at the highest level and contribute significantly to the success of AssetMark Financial Holdings, Inc. (the Company ), thereby furthering the best interests of the Company and its shareholders.
(b) Eligible Award Recipients. The persons eligible to receive Awards are the Employees, Consultants and Directors of the Company and its Affiliates, and such other individuals designated by the Administrator who are reasonably expected to become Employees, Consultants and Directors after the receipt of Awards.
(c) Available Awards. The Plan permits the grant of Options, SARs, Restricted Stocks, RSUs, Performance Awards, Other Cash-Based Awards or Other Stock-Based Awards.
Section 2. Definitions . As used in the Plan, the following terms shall have the meanings set forth below:
(a) Affiliate means, with respect to a Person, any entity that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person (or, if no Person is specified, the Company).
(b) Award means any Option, SAR, Restricted Stock, RSU, Performance Award, Other Cash-Based Award or Other Stock-Based Award granted under the Plan.
(c) Award Agreement means any written agreement, contract or other instrument or document (including in electronic form) evidencing an Award granted under the Plan.
(d) Beneficial Owner has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms Beneficial Ownership, Beneficially Owns and Beneficially Owned have a corresponding meaning.
(e) Beneficiary means a Person entitled to receive payments or other benefits or exercise rights that are available under the Plan in the event of a Participants death. If no such Person can be named or is named by a Participant, or if no Beneficiary designated by a Participant is eligible to receive payments or other benefits or exercise rights that are available under the Plan at a Participants death, such Participants Beneficiary shall be such Participants estate.
1
(f) Board means the Board of Directors of the Company.
(g) Cause means, with respect to a Participant, cause as defined in such Participants Service Agreement, if any, or if not so defined, except as otherwise provided in such Participants Award Agreement, such Participants: (i) serious misconduct in the performance of his or her employment duties, (ii) conviction of, plea of guilty to, or plea of nolo contendere to (x) a felony or (y) a misdemeanor involving moral turpitude, fraud or dishonesty, (iii) commission of an act involving personal dishonesty that results in financial, reputational or other harm to the Company or its Affiliates; (iv) breach of any applicable term set forth in such Participants Service Agreement, if any, or (v) breach or violation of any rule, policy, procedure or guideline of the Company or its Affiliates.
(h) Change in Control means the occurrence of any one or more of the following events:
(i) the acquisition by any Person of Beneficial Ownership, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 50% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote in the election of directors (the Outstanding Company Voting Securities ); provided, however that for purposes of this Plan any acquisition which complies with clauses (A), (B) and (C) of subsection (v) of this definition shall not constitute a Change of Control;
(ii) a majority of the members of the Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election;
(iii) the date which is ten (10) business days prior to the consummation of a complete liquidation or dissolution of the Company;
(iv) the direct or indirect sale, transfer, conveyance or disposition (other than by way of merger or consolidation) by the Company of all or substantially all of the Companys assets in which any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person) assets from the Company that have a total gross fair market value equal to more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; or
(v) the consummation of a reorganization, merger, consolidation or similar form of corporate transaction involving the Company that requires the approval of the Companys shareholders, whether for such transaction or the issuance of securities in the transaction (a Business Combination ), unless immediately following such Business Combination: (A) more than 50% of the
2
total voting power of (I) the entity resulting from such Business Combination (the Surviving Company ), or (II) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the members of the board of directors (or the analogous governing body) of the Surviving Company (the Parent Company ), is represented by the Outstanding Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Outstanding Company Voting Securities among the holders thereof immediately prior to the Business Combination; (B) no Person (other than any employee benefit plan sponsored or maintained by the Surviving Company or the Parent Company) is or becomes the Beneficial Owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect members of the board of directors of the Parent Company (or the analogous governing body) (or, if there is no Parent Company, the Surviving Company); and (C) at least a majority of the members of the board of directors (or the analogous governing body) of the Parent Company (or, if there is no Parent Company, the Surviving Company) following the consummation of the Business Combination were Board members at the time of the Boards approval of the execution of the initial agreement providing for such Business Combination; or
In no event, however shall a Change in Control be deemed to occur as a result of any acquisition (w) by the Company, Huatai International Investment Holding Limited, or any of their respective Affiliates, (x) by any employee benefit plan sponsored or maintained by the Company or any subsidiary, (y) by any underwriter temporarily holding securities pursuant to an offering of such securities, or (z) in respect of an Award held by a particular Participant, by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant);
Notwithstanding the foregoing or any provision of any Award Agreement to the contrary, for any Award that provides for accelerated distribution on a Change in Control of amounts that constitute deferred compensation (as defined in Section 409A of the Code), if the event that constitutes such Change in Control does not also constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Companys assets (in either case, as defined in Section 409A of the Code), such amount shall not be distributed on such Change in Control but instead shall vest as of such Change in Control and shall be distributed on the scheduled payment date specified in the applicable Award Agreement, except to the extent that earlier distribution would not result in the Participant who holds such Award incurring interest or additional tax under Section 409A of the Code.
(i) Code means the Internal Revenue Code of 1986, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Code shall be deemed to include a reference to any regulations promulgated thereunder and any successor provision thereto.
3
(j) Committee means the compensation committee of the Board or such other committee of one or more members of the Board as may be designated by the Board from time to time to administer the Plan in accordance with Section 4 hereof.
(k) Common Stock means the Companys common stock, $0.001 par value per share.
(l) Company means AssetMark Financial Holdings, Inc., a Delaware corporation, or any successor thereto.
(m) Consultant means any individual, including an advisor, who is providing services to the Company or any Subsidiary other than as an Employee or Director, and who may be offered securities registerable pursuant to a registration statement on Form S-8 under the Securities Act.
(n) Director means any member of the Board.
(o) Disability means, unless the applicable Award Agreement provides otherwise, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment; provided, however, that for purposes of determining the term of an Incentive Stock Option, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Administrator. Except in situations where the Administrator is determining Disability for purposes of the term of an Incentive Stock Option within the meaning of Section 22(e)(3) of the Code, the Administrator may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates
(p) Effective Date means the date on which the registration statement covering the initial public offering of the Shares is declared effective pursuant to Section 12(g) of the Exchange Act by the Securities and Exchange Commission.
(q) Employee means any individual, including any officer or Director, employed by the Company or any Subsidiary or any prospective employee or officer who has accepted an offer of employment from the Company or any Subsidiary, with the status of employment determined based upon such factors as are deemed appropriate by the Committee in its discretion, subject to any requirements of the Code or applicable laws. Mere service as a Director or payment of a directors fee by the Company or an Affiliate will not be sufficient to constitute employment by the Company or an Affiliate.
(r) Exchange Act means the Securities Exchange Act of 1934, as amended.
4
(s) Fair Market Value means, as of any date, (i) with respect to Shares, the closing price of a Share on the trading day immediately preceding the date of determination (or, if there is no reported sale on such date, on the last preceding date on which any reported sale occurred), on the principal stock market or exchange on which the Shares are quoted or traded, or if Shares are not so quoted or traded, the fair market value of a Share as determined by the Committee, and (ii) with respect to any property other than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee.
(t) Grant Date means the date on which the Administrator adopts a resolution, or takes other appropriate action, expressly granting an Award to a Participant that specifies the key terms and conditions of the Award or, if a later effective date is set forth in such resolution, then such effective date as is set forth in such resolution.
(u) Incentive Stock Option means an option representing the right to purchase Shares from the Company, granted pursuant to Section 6, that meets the requirements of Section 422 of the Code.
(v) Intrinsic Value with respect to an Option or SAR Award means (i) the excess, if any, of the price or implied price per Share in a Change in Control or other event over (ii) the exercise or hurdle price of such Award multiplied by (iii) the number of Shares covered by such Award.
(w) Non-Qualified Stock Option means an option representing the right to purchase Shares from the Company, granted pursuant to Section 6, that is not an Incentive Stock Option.
(x) Option means an Incentive Stock Option or a Non-Qualified Stock Option.
(y) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(z) Other Cash-Based Award means an Award granted pursuant to Section 11, including cash awarded as a bonus or upon the attainment of specified performance criteria or otherwise as permitted under the Plan.
(aa) Other Stock-Based Award means an Award granted pursuant to Section 11 that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares or factors that may influence the value of Shares, including convertible or exchangeable debt securities, other rights convertible or exchangeable into Shares, purchase rights for Shares, dividend rights or dividend equivalent rights or Awards with value and payment contingent upon performance of the Company or business units thereof or any other factors designated by the Committee.
(bb) Participant means an eligible person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.
5
(cc) Performance Award means an Award granted pursuant to Section 10.
(dd) Performance Period means the period established by the Committee with respect to any Performance Award during which the performance goals specified by the Committee with respect to such Award are to be measured.
(ee) Permitted Transferee means (i) a member of the Optionholders immediate family (child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships), (ii) any person sharing the Optionholders household (other than a tenant or employee), (iii) a trust in which these persons have more than 50% of the Beneficial Ownership interest, (iv) a foundation in which these persons (or the Optionholder) control the management of assets, (v) any other entity in which these persons (or the Optionholder) own more than 50% of the voting interests; and (vi) such other transferees as may be permitted by the Administrator in its sole discretion..
(ff) Person has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a group as defined in Section 13(d) thereof.
(gg) Plan means this AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan, as amended from time to time.
(hh) Restricted Stock means any Share subject to certain restrictions and forfeiture conditions, granted pursuant to Section 8.
(ii) Restricted Stock Unit or RSU means a right granted pursuant to Section 9. Each RSU represents an unfunded and unsecured right to receive cash, Shares or a combination thereof, in an amount equal to the Fair Market Value of one Share.
(jj) Service Agreement means any employment, severance, consulting or similar agreement between the Company or any of its Affiliates and a Participant.
(kk) Share means a share of the Companys Common Stock.
(ll) Stock Appreciation Right or SAR means a right granted pursuant to Section 7. Each SAR represents an unfunded and unsecured right to receive upon exercise, cash, Shares or a combination thereof, in an amount equal to the excess of (i) the Fair Market Value of one Share on the date of exercise or settlement over (ii) the exercise or hurdle price of the right on the Date of Grant.
(mm) Subsidiary means an entity of which the Company directly or indirectly holds all or a majority of the value of the outstanding equity interests of such entity or a majority of the voting power with respect to the voting securities of such entity. Whether employment by or service with a Subsidiary is included within the scope of the Plan shall be determined by the Committee.
6
(nn) Substitute Award means an Award granted in assumption of, or in substitution for, an outstanding award previously granted by a company or other business acquired by the Company or with which the Company combines.
(oo) Termination of Service means the cessation of a Participants performance of services as an Employee, Director or Consultant for the Company or any Subsidiary ; provided , however , that in the case of a Participant who is an Employee, the transfer of employment from the Company to a Subsidiary, from a Subsidiary to the Company, from one Subsidiary to another Subsidiary or, unless the Committee determines otherwise, the cessation of employee status but the continuation of the performance of services for the Company or a Subsidiary as a Director or Consultant shall not be deemed a cessation of service that would constitute a Termination of Service; provided , further , that a Termination of Service shall be deemed to occur for a Participant employed by, or performing services for, a Subsidiary when such Subsidiary ceases to be a Subsidiary unless such Participants employment or service continues with the Company or another Subsidiary. Notwithstanding the foregoing, with respect to any Award subject to Section 409A of the Code (and not exempt therefrom), a Termination of Service occurs when a Participant experiences a separation of service (as such term is defined under Section 409A of the Code).
Section 3. Eligibility .
(a) Any Employee, Director or Consultant shall be eligible to be selected to receive an Award under the Plan, to the extent that an offer or receipt of an Award is permitted by applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations.
(b) Holders of options and other types of awards granted by a company or other business that is acquired by the Company or with which the Company combines are eligible for grants of Substitute Awards under the Plan to the extent permitted under applicable regulations of any stock exchange on which the Company is listed.
Section 4. Administration .
(a) Administration of the Plan . The Plan shall be administered by the Committee. All decisions of the Committee with respect to the Plan shall be final, conclusive and binding upon all parties, including the Company, its shareholders, Participants and any Beneficiaries thereof, unless determined by a court having jurisdiction to be arbitrary and capricious.
(b) Delegation of Authority . To the extent permitted by applicable law, including under Section 157(c) of the Delaware General Corporation Law, the Committee may delegate to one or more officers of the Company some or all of its authority under the Plan, including the authority to grant Options and SARs or other Awards in the form of Share rights (except that such delegation shall not apply to any Award for a Person then covered by Section 16 of the Exchange Act), and the Committee may delegate to one or more committees of the Board (which may consist of solely one Director) some or all of its authority under the Plan, including the authority to grant all types of Awards, in accordance with applicable law.
7
(c) Authority of Committee . Subject to the terms of the Plan and applicable law, the Committee (or its delegate) shall have full discretion and authority to:
(i) determine when Awards are to be granted under the Plan and the applicable Date of Grant;
(ii) select the eligible Award recipients to whom Awards shall be granted;
(iii) determine the type or types of Awards (including Substitute Awards) to be granted to each Participant under the Plan;
(iv) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) Awards;
(v) prescribe the form of each Award Agreement and determine the terms and conditions of any Award, which need not be identical for each Participant, including but not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, any Performance Goals over any Performance Periods, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Committee will determine;
(vi) determine whether, to what extent, under what circumstances and by which methods Awards may be settled or exercised in cash, Shares, other Awards, other property, net settlement, or any combination thereof, or canceled, forfeited or suspended;
(vii) determine whether, to what extent and under what circumstances cash, Shares, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee;
(viii) waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue or terminate any Award theretofore granted, subject to the provisions of Section 14(c) below;
(ix) determine the duration and purpose of leaves of absences which may be granted to a Participant without constituting termination of their employment for purposes of the Plan, which periods shall be no shorter than the periods generally applicable to Employees under the Companys employment policies;
8
(x) make decisions with respect to outstanding Awards that may become necessary upon a change in corporate control or an event that triggers anti-dilution adjustments;
(xi) allow Participants to satisfy withholding tax obligations in a manner prescribed in Section 15(d);
(xii) authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Committee;
(xiii) interpret, administer, correct any defect, supply any omission and reconcile any inconsistency in the Plan, any instrument or agreement relating to the Plan or any Award;
(xiv) establish, amend, suspend, rescind or waive such rules and regulations and appoint such agents, trustees, brokers, depositories and advisors and determine such terms of their engagement as it shall deem appropriate for the proper administration of the Plan and due compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations; and
(xv) exercise discretion to make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan and due compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations.
Notwithstanding anything to the contrary contained herein, the Board may, in its sole discretion, at any time and from time to time, grant Awards or administer the Plan. In any such case, the Board shall have all of the authority and responsibility granted to the Committee herein.
(d) In addition to such other rights of indemnification as they may have as Directors or members of the Committee or otherwise, and to the extent allowed by Applicable Laws, each person who is, either individually or as a member of the Board or a Committee, or who administers the Plan pursuant to a delegation pursuant to Section 4(b) above, shall be indemnified by the Company against the reasonable expenses, including attorneys fees, actually incurred in connection with any action, suit or proceeding or in connection with any appeal therein, to which the Committee or such person may be party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted under the Plan, and against all amounts paid by such person in settlement thereof (provided, however, that the settlement has been approved by the Company, which approval shall not be unreasonably withheld) or paid by such person in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person did not act in good faith and in a manner which such person reasonably believed to be in the best interests of the Company, or in the case of a criminal proceeding, had no
9
reason to believe that the conduct complained of was unlawful; provided, however, that within 60 days after the institution of any such action, suit or proceeding, such person shall, in writing, offer the Company the opportunity at its own expense to handle and defend such action, suit or proceeding.
Section 5. Shares Available for Awards .
(a) Subject to adjustment as provided in Section 5(c) and except for Substitute Awards, the maximum number of Shares available for issuance under the Plan as of the Effective Date shall equal 4,887,691 Shares (the Share Reserve ).
(b) If any Award is forfeited, cancelled, expires, terminates or otherwise lapses or is settled in cash, in whole or in part, without the delivery of Shares, then the Shares covered by such forfeited, expired, terminated or lapsed Award shall again be available for grant under the Plan; provided, however, that any Shares withheld in respect of taxes relating to any Award, and any Shares tendered or withheld to pay the exercise price of an Option, will not again become available for issuance under the Plan.
(c) In the event that the Committee determines that, as a result of any dividend or other distribution (other than an ordinary dividend or distribution), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, separation, rights offering, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, issuance of Shares pursuant to the anti-dilution provisions of securities of the Company, or other similar corporate transaction or event affecting the Shares, an adjustment is appropriate in order to prevent disproportional dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, subject to compliance with Section 409A of the Code and other applicable law, adjust equitably so as to ensure no undue enrichment or harm (including by payment of cash), any or all of:
(i) the number and type of Shares (or other securities) which thereafter may be made the subject of Awards, including the aggregate limits specified in Section 5(a) and Section 5(f);
(ii) the number and type of Shares (or other securities) subject to outstanding Awards; and
(iii) the grant, purchase, exercise or hurdle price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award.
(d) Shares available for distribution under the Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner.
10
(e) Subject to adjustment as provided in Section 5(c)(i), the maximum number of Shares available for issuance with respect to Incentive Stock Options shall equal the Share Reserve.
Section 6. Options . The Committee is authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine in its discretion:
(a) The exercise price per Share under an Option shall be determined by the Committee at the time of grant; provided , however , that, except in the case of Substitute Awards, such exercise price shall not be less than the Fair Market Value of a Share on the date of grant of such Option.
(b) The term of each Option shall be fixed by the Committee but shall not exceed 10 years from the date of grant of such Option. The Committee shall determine the time or times at which an Option becomes vested and exercisable in whole or in part.
(c) The Committee shall determine the method or methods by which, and the form or forms, including cash, Shares, other Awards, other property, net settlement, broker-assisted cashless exercise or any combination thereof, having a Fair Market Value on the exercise date equal to the exercise price of the Shares as to which the Option shall be exercised, in which payment of the exercise price with respect thereto may be made or deemed to have been made.
(d) The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code. Incentive Stock Options may be granted only to employees of the Company or of a parent or subsidiary corporation (as defined in Section 424 of the Code).
Section 7. Stock Appreciation Rights . The Committee is authorized to grant SARs to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(a) SARs may be granted under the Plan to Participants either alone (freestanding) or in addition to other Awards granted under the Plan (tandem) and may, but need not, relate to a specific Option granted under Section 6.
(b) The exercise or hurdle price per Share under a SAR shall be determined by the Committee; provided , however , that, except in the case of Substitute Awards, such exercise or hurdle price shall not be less than the Fair Market Value of a Share on the date of grant of such SAR.
(c) The term of each SAR shall be fixed by the Committee but shall not exceed 10 years from the date of grant of such SAR. The Committee shall determine the time or times at which a SAR may be exercised or settled in whole or in part.
11
(d) Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of Shares subject to the SAR multiplied by the excess, if any, of the Fair Market Value of one Share on the exercise date over the exercise or hurdle price of such SAR. The Company shall pay such excess in cash, in Shares valued at Fair Market Value, or any combination thereof, as determined by the Committee.
Section 8. Restricted Stock. The Committee is authorized to grant Awards of Restricted Stock to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(a) The Award Agreement shall specify the vesting schedule.
(b) Awards of Restricted Stock shall be subject to such restrictions as the Committee may impose, which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate.
(c) Subject to the restrictions set forth in the applicable Award Agreement, a Participant generally shall have the rights and privileges of a stockholder with respect to Awards of Restricted Stock, including the right to vote such Shares of Restricted Stock and the right to receive dividends; provided that, (i) the Committee may reserve the right to exercise the voting rights with respect to the Restricted Stock; and (ii) any cash dividends and stock dividends with respect to the Restricted Stock shall be withheld by the Company for the Participants account, and interest may be credited on the amount of the cash dividends withheld at a rate and subject to such terms as determined by the Committee. The cash dividends or stock dividends so withheld by the Committee and attributable to any particular share of Restricted Stock (and earnings thereon, if applicable) shall be distributed to the Participant, if applicable, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends.
(d) The Committee may, in its discretion, specify in the applicable Award Agreement that any or all dividends or other distributions paid on Awards of Restricted Stock prior to vesting be paid either in cash or in additional Shares and either on a current or deferred basis and that such dividends or other distributions may be reinvested in additional Shares, which may be subject to the same restrictions as the underlying Awards.
(e) Any Award of Restricted Stock may be evidenced in such manner as the Committee may deem appropriate, including book-entry registration.
(f) The Committee may provide in an Award Agreement that an Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to an Award of Restricted Stock, such Participant shall be required to file promptly a copy of such election with the Company and the applicable Internal Revenue Service office.
12
Section 9. RSUs. The Committee is authorized to grant Awards of RSUs to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(a) The Award Agreement shall specify the vesting schedule and the delivery schedule (which may include deferred delivery later than the vesting date).
(b) Awards of RSUs shall be subject to such restrictions as the Committee may impose, which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate.
(c) An RSU shall not convey to a Participant the rights and privileges of a stockholder with respect to the Shares subject to such RSU, such as the right to vote or the right to receive dividends, unless and until such Shares are issued to such Participant to settle such RSU.
(d) Shares delivered upon the vesting and settlement of an RSU Award may be evidenced in such manner as the Committee may deem appropriate, including book-entry registration.
(e) The Committee may determine the form or forms (including cash, Shares, other Awards, other property or any combination thereof) in which payment of the amount owing upon settlement of any RSU Award may be made.
Section 10. Performance Awards. The Committee is authorized to grant Performance Awards to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine in its discretion:
(a) Performance Awards may be denominated as a cash amount, number of Shares or units or a combination thereof and are Awards that may be earned upon achievement or satisfaction of performance conditions specified by the Committee. In addition, the Committee may specify that any other Award shall constitute a Performance Award by conditioning the grant to a Participant or the right of a Participant to exercise the Award or have the Award vested or settled, and the timing thereof, upon achievement or satisfaction of such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions. Subject to the terms of the Plan, the performance goals to be achieved during any Performance Period, the length of any Performance Period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee.
13
(b) Each Performance Award shall include a pre-established formula, such that payment, retention or vesting of the Award is subject to the achievement during a Performance Period or Performance Periods, as determined by the Committee, of a level or levels of, or increases in, in each case as determined by the Committee, one or more of the following performance measures with respect to the Company: net flows; platform assets; new producing advisers; production lift from existing advisers; net flows lift from existing advisers; gross or net revenue; revenue growth; operating income; income or loss (before or after allocation of corporate overhead and bonus); net earnings; earnings per share; net income or loss; return on equity; total shareholder return; return on assets or net assets; appreciation in and/or maintenance of share price; market share; gross profits; earnings or loss (including earnings or loss before taxes, before interest and taxes, or before earnings before interest, taxes, depreciation and amortization, with or without adjustments); economic value-added models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; improvement in or attainment of expense levels or working capital levels (including cash and accounts receivable); operating margin; gross margin; cash margin; year-end cash; debt reduction; shareholder equity; operating efficiencies; market share; customer satisfaction; customer growth or household growth; employee satisfaction; research and development achievements; financial ratios, including those measuring liquidity, activity, profitability or leverage; cost of capital or assets under management; financing and other capital raising transactions (including sales of the Companys equity or debt securities; factoring transactions; sales or licenses of the Companys assets, including its intellectual property, whether in a particular jurisdiction or territory or globally; or through partnering transactions); implementation, completion or attainment of measurable objectives with respect to research, development, products or services, acquisitions or divestitures; factoring transactions; recruiting or maintaining personnel; or such other performance measures as may be determined by the Committee from time to time. Performance criteria may be measured on an absolute (e.g., plan or budget) or relative basis; before or after taxes; with or without adjustments and may be established on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries or business segments. Performance may be measured against a group of peer companies, a financial market index or other acceptable objective and quantifiable indices. The Award Agreement may provide that if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which the Committee conducts its business, or other events or circumstances render the performance objectives unsuitable, the Committee may modify the performance objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable. Performance measures may vary from Performance Award to Performance Award, respectively, and from Participant to Participant, and may be established on a stand-alone basis, in tandem or in the alternative. The Committee shall have the power to impose such other restrictions on Awards subject to this Section as it may deem necessary or appropriate.
(c) If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which the
14
Company conducts its business, or other events or circumstances render the performance objectives for a Performance Award unsuitable, the Committee may modify the performance objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable such that it does not provide any undue enrichment or harm.
(d) Performance measures may vary from Performance Award to Performance Award and from Participant to Participant, and may be established on a stand-alone basis, in tandem or in the alternative. The Committee shall have the power to impose such other restrictions on Performance Awards as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements of any applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations.
(e) Settlement of Performance Awards shall be in cash, Shares, other Awards, other property, net settlement, or any combination thereof, as determined in the discretion of the Committee.
(f) The Committee may, in its discretion, increase or reduce the amount of a settlement otherwise to be made in connection with a Performance Award.
Section 11. Other Cash-Based Awards and Other Stock-Based Awards. The Committee is authorized, subject to limitations under applicable law, to grant Other Cash-Based Awards (either independently or as an element of or supplement to any other Award under the Plan) and Other Stock-Based Awards. The Committee shall determine the terms and conditions of such Awards. Shares delivered pursuant to an Award in the nature of a purchase right granted under this Section 11 shall be purchased for such consideration, and paid for at such times, by such methods and in such forms, including cash, Shares, other Awards, other property, net settlement, broker-assisted cashless exercise or any combination thereof, as the Committee shall determine; provided that the purchase price therefor shall not be less than the Fair Market Value of such Shares on the date of grant of such right.
Section 12. Effect of Termination of Service or a Change in Control on Awards .
(a) The Committee may provide, by rule or regulation or in any applicable Award Agreement, or may determine in any individual case, the circumstances in which, and the extent to which, an Award may be exercised, settled, vested, paid or forfeited in the event of a Participants Termination of Service prior to the end of a Performance Period or vesting, exercise or settlement of such Award.
(b) Subject to the last sentence of Section 2(nn), the Committee may determine, in its discretion, whether, and the extent to which, (i) an Award will vest during a leave of absence, (ii) a reduction in service level (for example, from full-time to part-time employment) will cause a reduction, or other change, to an Award and (iii) a leave of absence or reduction in service will be deemed a Termination of Service.
15
(c) In the event of a Change in Control, the Committee may, in its sole discretion, and on such terms and conditions as it deems appropriate, take any one or more of the following actions with respect to any outstanding Award, which need not be uniform with respect to all Participants and/or Awards:
(i) continuation or assumption of such Award by the Company (if it is the surviving corporation) or by the successor or surviving corporation or its parent;
(ii) substitution or replacement of such Award by the successor or surviving corporation or its parent with cash, securities, rights or other property to be paid or issued, as the case may be, by the successor or surviving corporation (or a parent or subsidiary thereof), with substantially the same terms and value as such Award (including any applicable performance targets or criteria with respect thereto);
(iii) acceleration of the vesting of such Award and the lapse of any restrictions thereon and, in the case of an Option or SAR Award, acceleration of the right to exercise such Award during a specified period (and the termination of such Option or SAR Award without payment of any consideration therefor to the extent such Award is not timely exercised), in each case, either (A) immediately prior to or as of the date of the Change in Control or (B) upon a Participants involuntary Termination of Service (including upon a termination of a Participants employment by the Company (or a successor corporation or its parent) without cause, by a Participant for good reason and/or due to a Participants death or disability, as such terms may be defined in the applicable Award Agreement and/or a Participants Service Agreement) on or within a specified period following the Change in Control;
(iv) in the case of a Performance Award, determination of the level of attainment of the applicable performance condition(s); and
(v) cancellation of such Award in consideration of a payment, with the form, amount and timing of such payment determined by the Committee in its sole discretion, subject to the following: (A) such payment shall be made in cash, securities, rights and/or other property; (B) the amount of such payment shall equal the value of such Award, as determined by the Committee in its sole discretion; provided that, in the case of an Option or SAR Award, if such value equals the Intrinsic Value of such Award, such value shall be deemed to be valid; provided further that, if the Intrinsic Value of an Option or SAR Award is equal to or less than zero, the Committee may, in its sole discretion, provide for the cancellation of such Award without payment of any consideration therefor; and (C) such payment shall be made promptly following such Change in Control or on a specified date or dates following such Change in Control; provided that the timing of such payment shall comply with Section 409A of the Code.
16
Section 13. General Provisions Applicable to Awards .
(a) Awards shall be granted for such cash or other consideration, if any, as the Committee determines; provided that in no event shall Awards be issued for less than such minimal consideration as may be required by applicable law.
(b) Awards may, in the discretion of the Committee, be granted either alone or in addition to or in tandem with any other Award or any award granted under any other plan of the Company. Awards granted in addition to or in tandem with other Awards, or in addition to or in tandem with awards granted under any other plan of the Company, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(c) Subject to the terms of the Plan, payments or transfers to be made by the Company upon the grant, exercise or settlement of an Award may be made in the form of cash, Shares, other Awards, other property, net settlement, or any combination thereof, as determined by the Committee in its discretion at the time of grant, and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of dividend equivalents in respect of installment or deferred payments.
(d) Except as may be permitted by the Committee or as specifically provided in an Award Agreement, (i) no Award and no right under any Award shall be assignable, alienable, saleable or transferable by a Participant other than by will or pursuant to Section 13(e) and (ii) during a Participants lifetime, each Award, and each right under any Award, shall be exercisable only by such Participant or, if permissible under applicable law, by such Participants guardian or legal representative. The provisions of this Section 13(d) shall not apply to any Award that has been fully exercised or settled, as the case may be, and shall not preclude forfeiture of an Award in accordance with the terms thereof.
(e) If permitted by the Committee, a Participant may designate a Beneficiary or change a previous Beneficiary designation only at such times as prescribed by the Committee, in its sole discretion, and only by using forms and following procedures approved or accepted by the Committee for that purpose.
(f) All certificates for Shares and/or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock market or exchange upon which such Shares or other securities are then quoted, traded or listed, and any applicable securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
17
(g) The Committee may impose restrictions on any Award with respect to non-competition, non-solicitation, confidentiality and other restrictive covenants as it deems necessary or appropriate in its sole discretion.
Section 14. Amendments and Terminations .
(a) Amendment or Termination of the Plan . Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan, the Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time; provided , however , that no such amendment, alteration, suspension, discontinuation or termination shall be made without (i) shareholder approval if such approval is required by applicable law or the rules of the stock market or exchange, if any, on which the Shares are principally quoted or traded or (ii) subject to Section 5(c) and Section 12, the consent of the affected Participant, if such action would materially adversely affect the rights of such Participant under any outstanding Award, except (x) to the extent any such amendment, alteration, suspension, discontinuance or termination is made to cause the Plan to comply with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations or (y) to impose any clawback or recoupment provisions on any Awards (including any amounts or benefits arising from such Awards) in accordance with Section 18. Notwithstanding anything to the contrary in the Plan, the Committee may amend the Plan, or create sub-plans, in such manner as may be necessary to enable the Plan to achieve its stated purposes in any jurisdiction in a tax-efficient manner and in compliance with local rules and regulations.
(b) Dissolution or Liquidation . In the event of the dissolution or liquidation of the Company, each Award shall terminate immediately prior to the consummation of such action, unless otherwise determined by the Committee.
(c) Terms of Awards . The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue or terminate any Award theretofore granted, prospectively or retroactively, without the consent of any relevant Participant or holder or Beneficiary of an Award; provided , however , that, subject to Section 5(c) and Section 12, no such action shall materially adversely affect the rights of any affected Participant or holder or Beneficiary under any Award theretofore granted under the Plan, except (x) to the extent any such action is made to cause the Plan to comply with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations, or (y) to impose any clawback or recoupment provisions on any Awards (including any amounts or benefits arising from such Awards) in accordance with Section 18. The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of events (including the events described in Section 5(c)) affecting the Company, or the financial statements of the Company, or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
18
(d) No Repricing . Notwithstanding the foregoing, except as provided in Section 5(c), no action (including the repurchase of Options or SAR Awards (in each case, that are out of the money) for cash and/or other property) shall directly or indirectly, through cancellation and regrant or any other method, reduce, or have the effect of reducing, the exercise or hurdle price of any Award established at the time of grant thereof without approval of the Companys shareholders.
Section 15. Miscellaneous .
(a) No Employee, Consultant, Director, Participant, or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of employees, Participants or holders or Beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each recipient. Any Award granted under the Plan shall be a one-time Award that does not constitute a promise of future grants. The Company, in its sole discretion, maintains the right to make available future grants under the Plan.
(b) The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or to continue to provide services to, the Company or any Subsidiary. Further, the Company or any applicable Subsidiary may at any time dismiss a Participant, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or in any other agreement binding on the parties. The receipt of any Award under the Plan is not intended to confer any rights on the receiving Participant except as set forth in the applicable Award Agreement.
(c) Nothing contained in the Plan shall prevent the Company from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.
(d) To the extent provided by the terms of an Award Agreement and subject to the discretion of the Committee, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under an Award by any of the following means (in addition to the Companys right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (a) tendering a cash payment; (b) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the maximum amount of tax required to be withheld by law; or (c) delivering to the Company previously owned and unencumbered shares of Common Stock of the Company.
(e) If any provision of the Plan or any Award Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to
19
applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award Agreement, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and any such Award Agreement shall remain in full force and effect.
(f) Notwithstanding any other provision of this Plan or any Award to the contrary, no Option or other award shall be granted hereunder if, at the time of grant, such Option or award would result in this Plan or any portion hereof being deemed a scheme involving the grant by a subsidiary of a listed issuer on the Stock Exchange of Hong Kong for options over new shares or other new securities, or an arrangement analogous to such a scheme, that is required to comply with the requirements of Chapter 17 of the Main Board Listing Rules of the Stock Exchange of Hong Kong or any successor thereto (as amended from time to time, Chapter 17 of the HKEX Listing Rules), other than pursuant to a sub-plan or other scheme that satisfies all the requirements of Chapter 17 of the HKEX Listing Rules.
(g) Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company.
(h) No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash or other securities shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.
(i) Awards may be granted to Participants who are non-United States nationals or employed or providing services outside the United States, or both, on such terms and conditions different from those applicable to Awards to Participants who are employed or providing services in the United States as may, in the judgment of the Committee, be necessary or desirable to recognize differences in local law, tax policy or custom. The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Companys obligation with respect to tax equalization for Participants on assignments outside their home country.
Section 16. Effective Date of the Plan. The Plan shall be effective as of the Effective Date, provided that the Board and the Companys stockholders may approve the Plan prior to such date.
Section 17. Term of the Plan. No Award shall be granted under the Plan after the earliest to occur of (i) the 10-year anniversary of the Effective Date; (ii) the maximum number of Shares available for issuance under the Plan have been issued; or (iii) the Board terminates the Plan in accordance with Section 14(a). However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to
20
amend, alter, adjust, suspend, discontinue or terminate any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board to amend the Plan, shall extend beyond such date.
Section 18. Clawback of Awards . Notwithstanding any other provisions in this Plan, the Company may cancel any Award, require reimbursement of any Award by a Participant, and effect any other right of recoupment of equity or other compensation provided under the Plan in accordance with any Company policies that may be adopted and/or modified from time to time ( Clawback Policy ). In addition, a Participant may be required to repay to the Company previously paid compensation, whether provided pursuant to the Plan or an Award Agreement, in accordance with the Clawback Policy. By accepting an Award, the Participant is agreeing to be bound by the Clawback Policy, as in effect or as may be adopted and/or modified from time to time by the Company in its discretion (including, without limitation, to comply with applicable law or stock exchange listing requirements).
Section 19. Section 409A of the Code. With respect to Awards subject to Section 409A of the Code, the Plan is intended to comply with the requirements of Section 409A of the Code, and the provisions of the Plan and any Award Agreement shall be interpreted in a manner that satisfies the requirements of Section 409A of the Code, and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition shall be interpreted and deemed amended so as to avoid this conflict. Notwithstanding anything in the Plan to the contrary, if the Board considers a Participant to be a specified employee under Section 409A of the Code at the time of such Participants separation from service (as defined in Section 409A of the Code), and any amount hereunder is deferred compensation subject to Section 409A of the Code, any distribution of such amount that otherwise would be made to such Participant with respect to an Award as a result of such separation from service shall not be made until the date that is six months after such separation from service, except to the extent that earlier distribution would not result in such Participants incurring interest or additional tax under Section 409A of the Code. If an Award includes a series of installment payments (within the meaning of Section 1.409A-2(b)(2)(iii) of the Treasury Regulations), a Participants right to such series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment, and if an Award includes dividend equivalents (within the meaning of Section 1.409A-3(e) of the Treasury Regulations), a Participants right to such dividend equivalents shall be treated separately from the right to other amounts under the Award. Notwithstanding the foregoing, the tax treatment of the benefits provided under the Plan or any Award Agreement is not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by a Participant on account of non-compliance with Section 409A of the Code.
Section 20. Successors and Assigns . The terms of the Plan shall be binding upon and inure to the benefit of the Company and any successor entity, including any successor entity contemplated by Section 12(c).
21
Section 21. Data Protection . By participating in the Plan, a Participant consents to the holding and processing of personal information provided by such Participant to the Company or any Affiliate, trustee or third party service provider, for all purposes relating to the operation of the Plan. These include:
(a) administering and maintaining Participant records;
(b) providing information to the Company, any Subsidiary, trustees of any employee benefit trust, registrars, brokers or third party administrators of the Plan;
(c) providing information to future purchasers or merger partners of the Company or any Affiliate, or the business in which such Participant works; and
(d) transferring information about such Participant to any country or territory that may not provide the same protection for the information as such Participants home country.
Section 22. Governing Law . The Plan and each Award Agreement shall be governed by the laws of the State of Delaware, without application of the conflicts of law principles thereof.
22
ASSETMARK FINANCIAL HOLDINGS, INC.
NOTICE OF RESTRICTED STOCK AWARD
Except as otherwise indicated, any capitalized term used but not defined in this Notice of Restricted Stock Award (this Notice ) shall have the meaning ascribed to such term in the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the Plan ).
Name: []
Address: []
The undersigned Participant has been granted an Award of Restricted Stock (the Award ) under the Plan, subject to the terms and conditions of the Plan, this Notice and the attached Restricted Stock Award Agreement.
By signing where indicated below, AssetMark Financial Holdings, Inc. (the Company ) grants the Award to the Participant upon the terms and conditions set forth in this Notice and the Restricted Stock Award Agreement, and the applicable provisions of the Plan, and the Participant acknowledges receipt of the Award and agrees to observe and be bound by such terms and conditions.
Participant: | AssetMark Financial Holdings, Inc. | |||||
|
By: |
|
||||
[] | Name: | |||||
Title: |
1
ASSETMARK FINANCIAL HOLDINGS, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
This Restricted Stock Award Agreement (this Agreement ) is made and entered into as of Grant Date (the Grant Date ) set forth in the Notice of Restricted Stock Award to which this Agreement is attached (the Notice ) by and among AssetMark Financial Holdings, Inc. (the Company ) and the Participant (the Participant ) set forth in the Notice.
WHEREAS, the Company has adopted the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the Plan ), pursuant to which Awards of Restricted Stock may be granted; and
WHEREAS, the Company has determined that it is in the best interests of the Company and its shareholders to grant the Award of Restricted Stock provided for herein; and
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1. Grant of Restricted Stock Award; Consideration . Pursuant to Section 8 of the Plan, the Company hereby issues to the Participant on the Grant Date an Award of Restricted Stock on the terms and conditions and subject to the restrictions set forth in the Notice, this Agreement and the Plan (the Award ). The number of Shares of Restricted Stock granted pursuant to the Award is set forth in the Notice. The Award is made in consideration of the services to be rendered by Participant to the Company and to any Affiliate of the Company that the Participant serves as an Employee, Consultant or Director (the Company and each such Affiliate, as applicable, the Employer ).
2. Restricted Period; Vesting . Except as otherwise provided herein, provided that the Participant does not experience a Termination of Service prior to the applicable vesting date[, and further provided that any additional conditions and performance goals set forth in Schedule [ ] have been satisfied] subject to Section 2, the Award shall vest according to the vesting schedule set forth in the Notice. The Restricted Period shall mean the period during which the Award remains outstanding and not fully vested.
3. Termination of Service . In the event of the Participants Termination of Service for any reason, any Restricted Stock that are not vested as of the date of such Termination of Service will be forfeited.
4. Change in Control; Adjustments . In the event of a Change in Control while the Restricted Stock remains outstanding and unvested, the Restricted Stock will be treated in accordance with Section 12(c) of the Plan. If any change is made to the outstanding Common Stock or the capital structure of the Company, the Committee may make adjustments in the terms and conditions of, and the criteria included in the Restricted Stock in any manner as contemplated by Section 14(c) of the Plan.
2
5. Restrictions . Subject to any exceptions set forth in this Agreement or the Plan or as otherwise permitted by the Committee, during the Restricted Period, neither the Restricted Stock nor any rights relating thereto may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant other than by will or pursuant to the laws of descent and distribution. Any attempt to assign, alienate, pledge, attach, sell or otherwise transfer or encumber the Restricted Stock or any rights relating thereto in contravention of this Agreement or the Plan shall be wholly ineffective. This provision shall not apply to any portion of the Award that has been vested and fully settled and shall not preclude forfeiture of any portion of the Award in accordance with the terms herein.
6. Rights as a Shareholder.
(a) Voting Rights . The Participant shall be the record owner of the Restricted Stock until such Shares are sold or otherwise disposed of, and shall be entitled to all of the rights of a shareholder of the Company including, without limitation, the right to vote such shares and receive all dividends or other distributions paid with respect to such shares. Notwithstanding the foregoing, any dividends or other distributions shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid.
(b) Documentation of Issuance . The Company may issue stock certificates or evidence the Participants interest by using a restricted book entry account with the Companys transfer agent. Physical possession or custody of any stock certificates that are issued shall be retained by the Company until such time as the Restricted Stock vests.
(c) Legend . A legend may be placed on any certificate(s) or other document(s) delivered to the Participant indicating restrictions on transferability of the shares of Restricted Stock pursuant to this Agreement or any other restrictions that the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any applicable federal or state securities laws or any stock exchange on which the shares of Common Stock are then listed or quoted.
(d) Forfeiture . If the Participant forfeits any rights he or she has under this Agreement in accordance with Section 3, the Participant shall, on the date of such forfeiture, no longer have any rights as a shareholder with respect to the Restricted Stock and shall no longer be entitled to vote or receive dividends on such shares.
7. Section 83(b) Election . The Participant may make an election under Code Section 83(b) (a Section 83(b) Election ) with respect to the Restricted Stock. Any such election must be made within thirty (30) days after the Grant Date. If the Participant elects to make a Section 83(b) Election, the Participant shall provide the Company with a copy of an executed version and satisfactory evidence of the filing of the executed Section 83(b) Election with the Internal Revenue Service. The Participant agrees to assume full responsibility for ensuring that the Section 83(b) Election is actually and timely filed with the Internal Revenue Service and for all tax consequences resulting from the Section 83(b) Election.
3
8. Responsibility for Taxes .
(a) The Participant shall be required to pay to the Company, and the Company shall have the right to deduct from any compensation paid to the Participant pursuant to the Plan, the amount of any required withholding taxes in respect of the Restricted Stock and to take all such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding taxes. The Committee may permit the Participant to satisfy any federal, state or local tax withholding obligation by any of the following means, or by a combination of such means:
(i) tendering a cash payment.
(ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable or deliverable to the Participant as a result of the vesting of the Restricted Stock; provided, however, that no shares of Common Stock shall be withheld with a value exceeding the maximum amount of tax required to be withheld by law.
(iii) delivering to the Company previously owned and unencumbered shares of Common Stock.
(b) Notwithstanding any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding ( Tax-Related Items ), the ultimate liability for all Tax-Related Items is and remains the Participants responsibility and the Company (i) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant, or vesting or settlement of the Restricted Stock or the subsequent sale of any shares; and (ii) does not commit to structure the Award or the Restricted Stock to reduce or eliminate the Participants liability for Tax-Related Items.
9. Not Salary, Pensionable Earnings or Base Pay . The Participant acknowledges that the Award shall not be included in or deemed to be a part of (a) salary, normal salary or other ordinary compensation, (b) any definition of pensionable or other earnings (however defined) for the purpose of calculating any benefits payable to or on behalf of the Participant under any pension, retirement, termination or dismissal indemnity, severance benefit, retirement indemnity or other benefit arrangement of the Company or any Affiliate (including the Employer) or (c) any calculation of base pay or regular pay for any purpose.
10. Cancellation/Clawback . The Participant hereby acknowledges and agrees that the Participant and the Award are subject to the terms and conditions of Section 18 of the Plan.
11. Provisions of Plan Control . This Agreement is subject to all the terms, conditions and provisions of the Plan, including the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. The Plan is incorporated herein by reference. If and to the extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.
12. Notices . Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or by courier, or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently by similar process give notice of:
4
If to the Company:
AssetMark Financial Holdings, Inc.
[Address]
Attention: [ ]
Email: [ ]
If to the Participant, to the address of the Participant on file with the Company.
13. No Right to Continued Service . Neither the Plan, the Notice or this Agreement shall be construed as giving the Participant any right to be retained in the employ of, or to continue to provide services to, the Company or any Affiliate (including the Employer).
14. No Right to Future Awards . Any Award granted under the Plan shall be a one-time Award that does not constitute a promise of future grants. The Company, in its sole discretion, maintains the right to make available future grants under the Plan.
15. Entire Agreement . This Agreement, the Plan, the Notice and any other agreements, schedules, exhibits and other documents referred to herein or therein constitute the entire agreement and understanding between the parties in respect of the subject matter hereof and supersede all prior and contemporaneous arrangements, agreements and understandings, both oral and written, whether in term sheets, presentations or otherwise, between the parties with respect to the subject matter hereof.
16. Severability . If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or this Agreement under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of this Agreement, such provision shall be stricken as to such jurisdiction, and the remainder of this Agreement shall remain in full force and effect.
17. Amendment; Waiver . No amendment or modification of any provision of this Agreement that has a material adverse effect on the Participant shall be effective unless signed in writing by or on behalf of the Company and the Participant; provided that the Company may amend or modify this Agreement without the Participants consent in accordance with the provisions of the Plan or as otherwise set forth in this Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. Any amendment or modification of or to any provision of this Agreement, or any waiver of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which such amendment, modification or waiver is made or given.
18. Assignment . Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Participant.
5
19. Successors and Assigns; No Third-Party Beneficiaries . This Agreement shall inure to the benefit of and be binding upon the Company and the Participant and their respective heirs, successors, legal representatives and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the Company and the Participant, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
20. Dispute Resolution . All controversies and claims arising out of or relating to this Agreement, or the breach hereof, shall be settled by the Companys or the Employers mandatory dispute resolution procedures, if any, as may be in effect from time to time with respect to matters arising out of or relating to the Participants employment with the Company or the Employer.
21. Governing Law; Venue . All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts.
22. Imposition of other Requirements and Participant Undertaking . The Company reserves the right to impose other requirements on the Participants participation in the Plan, on the Award and on any Shares to be issued upon settlement of the Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons. The Participant agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable to accomplish the foregoing or to carry out or give effect to any of the obligations or restrictions imposed on either the Participant or the Restricted Stock pursuant to this Agreement.
23. References . References herein to rights and obligations of the Participant shall apply, where appropriate, to the Participants legal representative or estate without regard to whether specific reference to such legal representative or estate is contained in a particular provision of this Agreement.
6
ASSETMARK FINANCIAL HOLDINGS, INC.
NOTICE OF RESTRICTED STOCK UNIT AWARD
Except as otherwise indicated, any capitalized term used but not defined in this Notice of Restricted Stock Unit Award (this Notice ) shall have the meaning ascribed to such term in the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the Plan ).
Name: []
Address: []
The undersigned Participant has been granted an Award of Restricted Stock Units or RSUs (the Award ) under the Plan, subject to the terms and conditions of the Plan, this Notice and the attached Restricted Stock Unit Award Agreement.
By signing where indicated below, AssetMark Financial Holdings, Inc. (the Company ) grants the Award to the Participant upon the terms and conditions set forth in this Notice and the Restricted Stock Unit Award Agreement, and the applicable provisions of the Plan, and the Participant acknowledges receipt of the Award and agrees to observe and be bound by such terms and conditions.
Participant: | AssetMark Financial Holdings, Inc. | |||||
|
By: |
|
||||
[] | Name: | |||||
Title: |
1
ASSETMARK FINANCIAL HOLDINGS, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
This Restricted Stock Unit Award Agreement (this Agreement ) is made and entered into as of Grant Date (the Grant Date ) set forth in the Notice of Restricted Stock Unit Award to which this Agreement is attached (the Notice ) by and among AssetMark Financial Holdings, Inc. (the Company ) and the Participant (the Participant ) set forth in the Notice.
WHEREAS, the Company has adopted the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the Plan ), pursuant to which Awards of Restricted Stock Units may be granted; and
WHEREAS, the Company has determined that it is in the best interests of the Company and its shareholders to grant the Award of Restricted Stock Units or RSUs provided for herein; and
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1. Grant of Restricted Stock Award; Consideration . Pursuant to Section 9 of the Plan, the Company hereby issues to the Participant on the Grant Date an Award of RSUs on the terms and conditions and subject to the restrictions set forth in the Notice, this Agreement and the Plan (the Award ). The number of RSUs granted pursuant to the Award is set forth in the Notice. Each RSU shall represent the right to receive one Share upon the vesting of such RSU, as determined in accordance with and subject to the terms of this Agreement, the Plan and the Notice. The Award is made in consideration of the services to be rendered by Participant to the Company and to any Affiliate of the Company that the Participant serves as an Employee, Consultant or Director (the Company and each such Affiliate, as applicable, the Employer ).
2. Restricted Period; Vesting . Except as otherwise provided herein, provided that the Participant does not experience a Termination of Service prior to the applicable vesting date[, and further provided that any additional conditions and performance goals set forth in Schedule [ ] have been satisfied] subject to Section 3, the Award shall vest according to the vesting schedule set forth in the Notice. The Restricted Period shall mean the period during which the Award remains outstanding and not fully vested.
3. Termination of Service . In the event of the Participants Termination of Service for any reason, any RSUs that are not vested as of the date of such Termination of Service will be forfeited.
4. Change in Control; Adjustments . In the event of a Change in Control while the RSUs remain outstanding and unvested, the RSUs will be treated in accordance with Section 12(c) of the Plan. If any change is made to the outstanding Common Stock or the capital structure of the Company, the Committee may make adjustments in the terms and conditions of, and the criteria included in, the RSUs in any manner as contemplated by Section 14(c) of the Plan.
2
5. Restrictions . Subject to any exceptions set forth in this Agreement or the Plan or as otherwise permitted by the Committee, during the Restricted Period and until such time as the RSUs are settled in accordance with Section 7, neither the RSUs nor any rights relating thereto may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant other than by will or pursuant to the laws of descent and distribution. Any attempt to assign, alienate, pledge, attach, sell or otherwise transfer or encumber the RSUs or any rights relating thereto in contravention of this Agreement or the Plan shall be wholly ineffective. This provision shall not apply to any portion of the Award that has been vested and fully settled and shall not preclude forfeiture of any portion of the Award in accordance with the terms herein.
6. No Rights as a Shareholder.
(a) No Voting Rights . The Participant shall have no voting rights or any other rights as a shareholder of the Company with respect to the RSUs unless and until such time as the RSUs are settled in accordance with Section 7.
(b) Dividend Equivalents . If the Notice specifically designates the Award as providing for dividend equivalents, and a cash dividend is declared on Shares with a record date that is within the period commencing on the Grant Date and ending on the date on which the Shares underlying the RSUs are distributed to the Participant pursuant to this Agreement, then the Participant shall be eligible to receive an amount in cash (a Dividend Equivalent ) equal to the dividend that the Participant would have received had the Shares underlying the RSUs been held by the Participant as of the time at which such dividend was declared. Any such Dividend Equivalent will be paid to the Participant in cash as soon as reasonably practicable (and in no event later than 30 days) after the applicable Vesting Date of the corresponding RSUs. For clarity, no Dividend Equivalent will be paid with respect to any RSUs that are forfeited.
(c) Forfeiture . If the Participant forfeits any rights he or she has under this Agreement in accordance with Section 3, the Participant shall no longer be entitled to receive any Dividend Equivalents with respect to the Award.
7. Distribution of Shares . Subject to the provisions of this Agreement, upon the vesting of any of the RSUs, the Company shall, as soon as reasonably practicable (and in no event later than 30 days) after the applicable Vesting Date, (a) issue and deliver to the Participant one Share for each such RSU, and (b) make a cash payment to the Participant equal to the amount of any Dividend Equivalents credited with respect to such RSUs and any interest credited thereon or, at the discretion of the Committee, Shares having a Fair Market Value equal to such amount. Upon delivery, all such Shares shall be fully assignable, alienable, saleable and transferrable by the Participant; provided that any such assignment, alienation, sale, transfer or other alienation with respect to such Shares shall be in accordance with applicable securities laws and any applicable Company policy.
3
8. Responsibility for Taxes .
(a) The Participant shall be required to pay to the Company, and the Company shall have the right to deduct from any compensation paid to the Participant pursuant to the Plan, the amount of any required withholding taxes in respect of the RSUs and to take all such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding taxes. The Committee may permit the Participant to satisfy any federal, state or local tax withholding obligation by any of the following means, or by a combination of such means:
(i) tendering a cash payment.
(ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable or deliverable to the Participant as a result of the vesting of the RSUs; provided, however, that no shares of Common Stock shall be withheld with a value exceeding the maximum amount of tax required to be withheld by law.
(iii) delivering to the Company previously owned and unencumbered shares of Common Stock.
(b) Notwithstanding any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding ( Tax-Related Items ), the ultimate liability for all Tax-Related Items is and remains the Participants responsibility and the Company (i) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant, or vesting or settlement of the RSUs or the subsequent sale of any shares; and (ii) does not commit to structure the Award or the RSUs to reduce or eliminate the Participants liability for Tax-Related Items.
9. Not Salary, Pensionable Earnings or Base Pay . The Participant acknowledges that the Award shall not be included in or deemed to be a part of (a) salary, normal salary or other ordinary compensation, (b) any definition of pensionable or other earnings (however defined) for the purpose of calculating any benefits payable to or on behalf of the Participant under any pension, retirement, termination or dismissal indemnity, severance benefit, retirement indemnity or other benefit arrangement of the Company or any Affiliate (including the Employer) or (c) any calculation of base pay or regular pay for any purpose.
10. Cancellation/Clawback . The Participant hereby acknowledges and agrees that the Participant and the Award are subject to the terms and conditions of Section 18 of the Plan.
11. Provisions of Plan Control . This Agreement is subject to all the terms, conditions and provisions of the Plan, including the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. The Plan is incorporated herein by reference. If and to the extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.
4
12. Notices . Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or by courier, or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently by similar process give notice of:
If to the Company:
AssetMark Financial Holdings, Inc.
[Address]
Attention: [ ]
Email: [ ]
If to the Participant, to the address of the Participant on file with the Company.
13. No Right to Continued Service . Neither the Plan, the Notice or this Agreement shall be construed as giving the Participant any right to be retained in the employ of, or to continue to provide services to, the Company or any Affiliate (including the Employer).
14. No Right to Future Awards . Any Award granted under the Plan shall be a one-time Award that does not constitute a promise of future grants. The Company, in its sole discretion, maintains the right to make available future grants under the Plan.
15. Entire Agreement . This Agreement, the Plan, the Notice and any other agreements, schedules, exhibits and other documents referred to herein or therein constitute the entire agreement and understanding between the parties in respect of the subject matter hereof and supersede all prior and contemporaneous arrangements, agreements and understandings, both oral and written, whether in term sheets, presentations or otherwise, between the parties with respect to the subject matter hereof.
16. Severability . If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or this Agreement under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of this Agreement, such provision shall be stricken as to such jurisdiction, and the remainder of this Agreement shall remain in full force and effect.
17. Amendment; Waiver . No amendment or modification of any provision of this Agreement that has a material adverse effect on the Participant shall be effective unless signed in writing by or on behalf of the Company and the Participant; provided that the Company may amend or modify this Agreement without the Participants consent in accordance with the provisions of the Plan or as otherwise set forth in this Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. Any amendment or modification of or to any provision of this Agreement, or any waiver of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which such amendment, modification or waiver is made or given.
5
18. Assignment . Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Participant.
19. Successors and Assigns; No Third-Party Beneficiaries . This Agreement shall inure to the benefit of and be binding upon the Company and the Participant and their respective heirs, successors, legal representatives and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the Company and the Participant, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
20. Dispute Resolution . All controversies and claims arising out of or relating to this Agreement, or the breach hereof, shall be settled by the Companys or the Employers mandatory dispute resolution procedures, if any, as may be in effect from time to time with respect to matters arising out of or relating to the Participants employment with the Company or the Employer.
21. Governing Law; Venue . All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts.
22. Imposition of other Requirements and Participant Undertaking . The Company reserves the right to impose other requirements on the Participants participation in the Plan, on the Award and on any Shares to be issued upon settlement of the Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons. The Participant agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable to accomplish the foregoing or to carry out or give effect to any of the obligations or restrictions imposed on either the Participant or the RSU pursuant to this Agreement.
23. References . References herein to rights and obligations of the Participant shall apply, where appropriate, to the Participants legal representative or estate without regard to whether specific reference to such legal representative or estate is contained in a particular provision of this Agreement.
6
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the use in this Registration Statement of AssetMark Financial Holdings, Inc. on Amendment No. 1 to Form S-1 of our report dated March 11, 2019, except as to note 15, which is as of July 8, 2019, on the 2017 consolidated financial statements of AssetMark Financial Holdings, Inc. and to the reference to us under the heading Experts in the prospectus.
/s/ Crowe LLP
New York, New York
July 8, 2019
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
The Shareholder and Board of Directors
AssetMark Financial Holdings, Inc.:
We consent to the use of our report dated March 11, 2019, except as to note 15, which is as of July 8, 2019, with respect to the consolidated balance sheet of AssetMark Financial Holdings, Inc. and its subsidiaries as of December 31, 2018, the related consolidated statements of income and comprehensive income, stockholders equity and cash flows for the year ended December 31, 2018, and the related notes, included herein and to the reference to our firm under the heading Experts in the prospectus.
/s/ KPMG LLP
San Francisco, California
July 8, 2019