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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
__________________________________________________
FORM 10-K
 __________________________________________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Annual Period Ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___ to ___
Commission file number 001-37936
__________________________________________________________________________________________________________________________________________________________________________________________

SND-20191231_G1.JPG
SMART SAND, INC.
(Exact name of registrant as specified in its charter) 
Delaware 45-2809926
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1725 Hughes Landing Blvd, Suite 800
The Woodlands, Texas 77380
(281) 231-2660
(Address of principal executive offices) (Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $0.001 per share The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes x    No  ¨
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  ý
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 13(a) of the Exchange Act.  ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  x
As of June 28, 2019, the last business day of the registrant’s second fiscal quarter of 2019, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $52,991,876 based on the closing price of $2.44 per share, as reported on NASDAQ on that date.
Number of shares of common shares outstanding, par value $0.001 per share as of February 19, 2020 was 42,847,996.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the 2019 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2019.



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Certain Definitions
The following definitions apply throughout this annual report unless the context requires otherwise:
“We”, “Us”, “Company”, “Smart Sand” or “Our” Smart Sand, Inc., a company organized under the laws of Delaware, and its subsidiaries.
“shares”, “stock” The common stock of Smart Sand, Inc., nominal value $0.001 per share.
“ABL Credit Facility”, “ABL Credit Agreement”, “ABL Security Agreement” The five-year senior secured asset-based lending credit facility (the “ABL Credit Facility”) pursuant to: (i) an ABL Credit Agreement, dated December 13, 2019, between the Company, and Jefferies Finance LLC (the “ABL Credit Agreement”); and (ii) a Guarantee and Collateral Agreement, dated December 13, 2019, between the Company and Jefferies Finance LLC, as agent (the “Security Agreement”).
“Oakdale Equipment Financing”, “MLA”
The five-year Master Lease Agreement, dated December 13, 2019, between Nexseer Capital (“Nexseer”) and related lease schedules in connection therewith (collectively, the “MLA”). The MLA is structured as a sale-leaseback of substantially all of the equipment at the Company’s mining and processing facility located near Oakdale, Wisconsin. The Oakdale Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement (and not a lease) for accounting or financial reporting purposes.
“Former Credit Agreement”, “Former Credit Facility” The $45 million 3-year senior secured revolving credit facility (the “Former Credit Facility”) under a revolving credit agreement, dated December 8, 2016, with Jefferies Finance LLC, as administrative and collateral agent (as amended, the “Former Credit Agreement”). The Former Credit Facility was paid in full and terminated with proceeds from the Oakdale Equipment Financing.
“Exchange Act” The Securities Exchange Act of 1934, as amended.
“Securities Act” The Securities Act of 1933, as amended.
“FCA”, “DAT”, “DAP” Free Carrier, Delivered at Terminal, Delivered at Place, respectively, Incoterms 2010.
“FASB”, “ASU”, “ASC”, “GAAP” Financial Accounting Standards Board, Accounting Standards Update, Accounting Standards Codification, Accounting Principles Generally Accepted in the United States, respectively.

3

Disclaimer Regarding Forward-looking Statements 
This Annual Report on Form 10-K contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate’’, “estimate’’, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “will”, “should”, “can have”, “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expected, including without limitation:
•fluctuations in demand for frac sand;
•the cyclical nature of our customers’ businesses;
•operating risks that are beyond our control, such as changes in the price and availability of transportation, natural gas or electricity; unusual or unexpected geological formations or pressures; pit wall failures or rock falls: or unanticipated ground, grade or water conditions;
•our dependence on our Oakdale mine and processing facility for current sales;
•the level of activity in the oil and natural gas industries;
•the development of either effective alternative proppants or new processes to replace hydraulic fracturing;
•increased competition from new or existing sources of frac sand supply, including frac sand mines in locations such as the Permian Basin of West Texas, and elsewhere;
•federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing and the potential for related regulatory action or litigation affecting our customers’ operations, including possible bans on hydraulic fracturing;
•potential negative outcomes under our current or future litigation;
•our rights and ability to mine our properties and our renewal or receipt of the required permits and approvals from governmental authorities and other third parties;
•our ability to successfully compete in the frac sand market;
•loss of, or reduction in, business from our largest customers;
•increasing costs or a lack of dependability or availability of transportation services and transload network access or infrastructure;
•increases in the prices of, or interruptions in the supply of, natural gas, electricity, or any other energy sources;
•increases in the price of diesel fuel;
•loss of or diminished access to water;
•our ability to successfully complete acquisitions or integrate acquired businesses;
•expiration or termination of our take-or-pay contracts without new contracts to take their place;
•our ability to fully protect our intellectual property rights;
•our ability to make capital expenditures to maintain, develop and increase our asset base and our ability to obtain needed capital or financing on satisfactory terms;
•restrictions imposed by our indebtedness on our current and future operations;
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•border restrictions;
•contractual obligations that require us to deliver minimum amounts of frac sand or purchase minimum amounts of products or services;
•the accuracy of our estimates of mineral reserves and resource deposits;
•a shortage of skilled labor and rising costs in the frac sand mining and manufacturing industries;
•our ability to attract and retain key personnel;
•our ability to maintain satisfactory labor relations;
•our ability to maintain effective quality control systems at our mining, processing and production facilities;
•seasonal and severe weather conditions;
•fluctuations in our sales and results of operations due to seasonality and other factors;
•interruptions or failures in our information technology systems, including cyber-attacks;
•the impact of a terrorist attack or armed conflict;
•extensive and evolving environmental, mining, health and safety, licensing, reclamation and other regulation (and changes in their enforcement or interpretation);
•silica-related health issues and corresponding litigation;
•our ability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property; and
•other factors disclosed in Item I A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the Securities and Exchange Commission (the “SEC”) and public communications. You should evaluate all forward-looking statements made in this Annual Report on Form 10-K in the context of these risks and uncertainties.
We caution users of the financial statements that the important factors referenced above may not contain all of the factors that may be important to every user. In addition, we cannot make assurances that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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PART I
ITEM 1. — BUSINESS

The Company
We are a fully integrated frac sand supply and services company, offering complete mine to wellsite proppant supply and logistics solutions to our customers. We produce low-cost, high quality Northern White frac sand, which is a premium proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells. We also offer proppant logistics solutions to our customers through our in-basin transloading terminal and our SmartSystemsTM wellsite proppant storage capabilities. We currently market our products and services primarily to oil and natural gas exploration and production companies and oilfield service companies, sell our sand under a combination of long-term take-or-pay contracts and spot sales in the open market, and provide wellsite proppant storage solutions services and equipment under flexible contract terms custom tailored to meet customers' needs. We believe that, among other things, the size and favorable geologic characteristics of our sand reserves, the strategic location and logistical advantages of our facilities, our proprietary SmartDepotTM portable wellsite proppant storage silos and the industry experience of our senior management team make us as a highly attractive provider of frac sand and proppant logistics services from the mine to the wellsite. 
We own and operate a frac sand mine and related processing facility near Oakdale, Wisconsin, at which we have approximately 316 million tons of proven recoverable sand reserves as of December 31, 2019. We incorporated in Delaware in July 2011 and began operations with 1.1 million tons of annual nameplate processing capacity in July 2012. After several expansions, our current annual nameplate processing capacity at our Oakdale facility is approximately 5.5 million tons of frac sand. Our integrated Oakdale facility, with on-site rail infrastructure and wet and dry sand processing facilities, has access to two Class I rail lines and enables us to process and cost-effectively deliver products to our customers.
We operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. We operate this terminal under a long-term agreement with Canadian Pacific Railway to service the Van Hook terminal directly along with the other key oil and natural gas exploration and production basins of North America.  The Van Hook terminal became operational in April 2018. Since operations commenced, we have been providing Northern White sand in-basin at this terminal to our contracted and spot sales customers. This terminal allows us to offer more efficient delivery options to customers operating in the Bakken Formation in the Williston Basin.
We also offer to our customers portable wellsite proppant storage through our SmartSystems storage solutions. The SmartSystems provide our customers with the capability to unload, store and deliver proppant at the wellsite, as well as the ability to rapidly set up, takedown and transport the entire system. This capability creates efficiencies, flexibility, enhanced safety and reliability for customers. Through our SmartSystems wellsite proppant storage solutions, we offer the SmartDepot and SmartDepotXLTM silo systems, wellsite transload capabilities, and our rapid deployment trailers. Our SmartDepot silos include passive and active dust suppression technology, along with the capability of a gravity-fed operation. Our rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, and detach from the wellsite equipment allowing for removal from the wellsite during operation. We have also developed a proprietary software program, the SmartSystem TrackerTM, which allows our SmartSystems customers to monitor silo-specific information, including location, proppant type, and proppant inventory. We are currently developing a new transload technology to complement our existing solutions.
For the years ended December 31, 2019, 2018 and 2017, we generated net income of approximately $31.6 million, $18.7 million and $21.5 million, respectively, and Adjusted EBITDA of approximately $87.1 million, $66.0 million and $30.6 million, respectively. For the definition of Adjusted EBITDA and a reconciliation to its most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, please read “Note Regarding Non-GAAP Financial Measures.”  For more financial information about our business, please read “Selected Financial Data.”

Market
From early 2017 through the second quarter of 2018, improvements in oil and natural gas prices created a more stable market environment. During the second half of 2018, the demand for Northern White sand decreased, which we believe was due primarily to insufficient takeaway capacity for the incremental increases in oil and natural gas production coming online, along with increased availability of regional sand as a source of proppant in the Permian basin. Additionally, oil and natural gas companies reduced their spending in the latter portion of the year due to strong spending in the first half of 2018, decreasing oil prices in the fourth quarter of 2018 and demands from their investors for more disciplined capital spending. Demand briefly
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recovered during the summer of 2019 before declining toward the end of 2019 as oil and gas companies exhausted their budgets and managed their capital spending to be in line with their expected operating cash flows.
We have found that increasingly over the last two years, customers are disinclined to enter into long-term contracts for their frac sand supply and have instead trended toward purchasing their frac sand supply in the spot market at market prices.
Northern White frac sand, which is found predominantly in Wisconsin and limited portions of Minnesota and Illinois, is considered a premium proppant due to its favorable physical characteristics. While we anticipate that regional sand will continue to affect the demand for Northern White sand in some of the oil and natural gas producing basins in which we operate, we believe there will continue to be demand for our high-quality Northern White frac sand. We expect demand for our frac sand to continue to be supported from customers who are focused on long-term well performance and ultimate recovery of reserves from the oil and natural gas wells they are completing as well as those interested in the efficiency of their logistics supply chain and delivery of sand to the wellsite. Additionally, we believe the development of North America’s unconventional oil and natural gas reservoirs will continue to grow and increased proppant usage per well trends will continue, particularly with respect to finer 100 mesh and 40/70 mesh sizes. Finally, we believe that the increasing adoption of our SmartSystems in the marketplace will allow us to sell more sand through packaging it with our last mile solutions.

Competitive Strengths
We believe that we will be able to successfully execute our business strategies because of the following competitive strengths:
•Long-lived, strategically located, high-quality reserve base. We believe our Oakdale facility is one of the few frac sand mine and production facilities that has the unique combination of a large high-quality reserve base of primarily fine mesh sand that is contiguous to its production and primary rail loading facilities. We have a minimum implied proven reserve life of approximately 57 years based on our current annual nameplate processing capacity of 5.5 million tons. We believe that with further development and permitting, the Oakdale facility ultimately could be expanded to allow production of up to 9 million tons of frac sand per year.
We believe our reserve base positions us well to take advantage of current market trends of increasing demand for finer mesh frac sand. We also believe that having our mine, processing facilities and primary rail loading facilities at our Oakdale facility provides us with an overall low-cost structure, which enables us to compete effectively for sales of Northern White frac sand and to achieve attractive operating margins. The proximity of our mine, processing plants and primary rail loading facilities at one location eliminates the need for us to truck sand on public roads between the mine and the production facility or between wet and drying processing facilities, eliminating additional costs to produce and ship our sand.
•Intrinsic logistics advantage. We believe that we are one of the few frac sand producers with a facility custom-designed for the specific purpose of delivering frac sand to all of the major U.S. oil and natural gas producing basins by an on-site rail facility that can simultaneously accommodate multiple unit trains. Our on-site transportation assets at Oakdale include approximately nine miles of rail track in a triple-loop configuration and four railcar loading facilities that are connected to a Class I rail line owned by Canadian Pacific. We believe our customized on-site logistical configuration yields lower operating and transportation costs compared to manifest train or single-unit train facilities as a result of our higher railcar utilization, more efficient use of locomotive power and more predictable movement of product between mine and destination. In addition, we have a transload facility on a Class I rail line owned by Union Pacific in Byron Township, Wisconsin, approximately three miles from the Oakdale facility. This transload facility, which is also capable of handling multiple unit trains simultaneously, allows us to ship sand directly to our customers on more than one Class I rail carrier. We believe that we are the only sand facility in Wisconsin that has dual-served rail capabilities, which should create competition between our rail carriers and allow us to provide more competitive logistics options for our customers.
•Expanded logistics solutions. Our transloading terminal in Van Hook, North Dakota, became operational in April 2018 and was expanded in 2019. This terminal is capable of handling multiple unit trains simultaneously, and we have been providing in-basin sand at this terminal to our customers since operations began. This terminal has allowed us to expand our customer base and offer more efficient delivery options to customers operating in the Bakken Formation in the Williston Basin. Through our SmartSystems wellsite proppant storage solutions equipment, we offer various options that create efficiencies, flexibility, enhanced safety and reliability for customers by providing the capability to unload, store and deliver proppant at the wellsite, as well as the ability to rapidly set up, takedown and transport the entire system. The SmartDepot silo system includes passive and active dust
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suppression technology, along with the capability of a gravity-fed operation. We are currently developing a new transload technology to complement our existing solutions. The rapid deployment trailer is designed for rapid set up, takedown and transportation of the entire SmartSystem while detaching from the wellsite equipment allowing for removal from the wellsite during operation.
•Ample liquidity and financial flexibility. We believe we have sufficient liquidity to pursue our growth initiatives. As of December 31, 2019, we have cash on hand of $2.6 million. Further, in December 2019, we entered into a $20 million five-year senior secured asset-based lending credit facility with Jefferies Finance LLC, under which we had undrawn availability of $17.5 million as of December 31, 2019. The available borrowing amount under the ABL Credit Facility is based on the Company's eligible accounts receivable and inventory.
•Experienced management team. The members of our senior management team bring significant experience to the market environment in which we operate. Their expertise covers a range of disciplines, including industry-specific operating and technical knowledge and experience managing high-growth businesses.
•Focus on safety and environmental stewardship. We are committed to maintaining a culture that prioritizes safety, the environment and our relationship with the communities in which we operate, which we believe is critical to the success of our business. In August 2014, we were accepted as a “Tier 1” participant in Wisconsin’s voluntary “Green Tier” program, which encourages, recognizes and rewards companies for voluntarily exceeding environmental, health and safety legal requirements. In addition, we committed to certification under International Organization for Standardization (“ISO”) standards and, in April 2016, we received ISO 9001 and ISO 14001 registrations for our quality management system and environmental management system programs, respectively. In 2018, we received two awards for lowest injury rate for medium-sized companies from the Industrial Mineral Association. We are one of a select group of companies who are members of the Wisconsin Industrial Sand Association, which promotes safe and environmentally responsible sand mining standards.

Business Strategies
Our principal business objective is to provide fully-integrated, sustainable frac sand supply and logistics solutions to our customers and increase long-term stockholder value. We expect to achieve this objective through the following business strategies:
•Expanding and optimizing our existing logistics infrastructure and developing additional origination and destination points. We intend to further optimize our existing logistics infrastructure and may develop additional origination and destination points. We expect to continue to capitalize on our Oakdale facility’s ability to simultaneously accommodate multiple unit trains on-site with the Canadian Pacific rail network and ship on two Class I rail carriers to maximize our product shipment rates, increase our railcar utilization and lower our transportation costs. Through our transloading facility located on the Union Pacific rail network approximately three miles from our Oakdale facility, we have the ability to ship our frac sand directly to our customers on more than one Class I rail carrier. This facility provides increased delivery options for our customers, greater competition between our rail carriers and potentially lower freight costs. In 2018, we added a multi-unit train capable terminal in Van Hook, North Dakota, which we further expanded in 2019. We believe this allows us to be one of the most efficient and low-cost sources of frac sand in the Bakken Formation in the Williston Basin. Additionally, our SmartSystem wellsite storage systems allows us to offer expanded logistics services to our customers.
The benefits of our long-term growth strategy for in-basin delivery of sand include expanding our customer base by marketing through our own terminal, more opportunity for spot sales by forward deploying sand and the opportunity to capture incremental margin on the sale of sand farther down the supply chain by managing the cost of rail, terminal and wellsite storage operations. Additionally, having a presence in-basin gives us an opportunity to have a base of operations from which to market our SmartSystems wellsite proppant storage solutions.
We believe our patented SmartDepot silos out-perform our competitors in that they can be set up or taken down rapidly and offer multiple setup configurations, they include industry-leading passive and active dust suppression technology, they have the capability of gravity-fed operation and they can be filled by both pneumatic and gravity dump trailers. Our trailers detach, which reduces their footprint on the wellsite and lowers our capital cost for a fleet, as one trailer can service an entire system. We continue to evaluate our solutions to ensure they remain the best available option in the marketplace.
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Through the expansion of our SmartSystems fleet and other logistics options, we continue evaluating ways to reduce the landed cost of our products in-basin and to the wellsite for our customers while increasing our customized service offerings to provide our customers with additional delivery and pricing alternatives, including selling product on an “as-delivered” basis to the wellsite.
•Focusing on organic growth by increasing the utilization of our Oakdale facility. We intend to continue to pursue opportunities to maximize the value and the utilization of our Oakdale facility through the addition of new customers and increased sales volumes. Despite the emergence of regional sand in oil and natural gas producing basins, we believe the proppant market continues to offer attractive long-term growth fundamentals for Northern White frac sand due to its superior well results outweighing the incremental cost savings of regional sand. We believe coupling our premium proppant with long-term sustainable logistics supply services further mitigate the potential cost savings of using regional sand.
According to Spears and Associates, Inc. (“Spears”), demand in 2019, in North American basins, increased approximately 5% over 2018 levels and demand in 2020 is expected be consistent with 2019 levels. While fewer horizontal wells are expected to be completed, the trend of longer laterals and more sand per lateral foot drilled is expected to continue in 2020.
•Focusing on being a low-cost provider and continuing to make process improvements. We continue to focus on being a low-cost provider, which we believe will permit us to compete effectively for sales of frac sand and to achieve attractive operating margins. Our low-cost structure results from a number of key attributes, including, among others, our (i) relatively low royalty rates, (ii) balance of coarse and fine mineral reserve deposits and corresponding contractual demand that minimizes yield loss, (iii) Oakdale facility’s proximity to two Class I rail lines creates competition between railroads and other sand logistics infrastructure advantages, and (iv) maintenance of our status as one of the lowest levered companies in the frac sand supply and services industry. We have strategically designed our operations to provide for low-cost production, including having two dryers and one wet plant enclosed in a single building allowing for year-round operation. This allows us to more efficiently match our wet sand production with our drying capacity and to better utilize our workforce with a goal to reduce the overall cost of production. We continue to invest in capital projects that increase efficiencies and provide a high return on investment. In addition, we seek to maximize our mining yields on an ongoing basis by targeting sales volumes that more closely match our reserve gradation in order to minimize mining and processing of superfluous tonnage. We also continue to evaluate other mining techniques to reduce the overall cost of our mining operations.
•Creating flexible sales activities. We believe that demand for our products will remain strong in basins where regional sand is not widely available, such as the Bakken in North Dakota, the Marcellus and Utica formations in the Northeast region of the United States and the Colorado and Wyoming basins. We continue to have discussions with operators in these regions regarding new relationship and growth opportunities. We also believe that the long-term benefits of high quality Northern White sand outweighs the short-term cost savings provided by regional sand in the Permian, Eagle Ford and SCOOP/STACK basins. We believe there are additional opportunities for customers in the Permian and other basins, which have regional supply, who are focused on the long-term performance of their production and on the long-term efficiency of their logistics.
We intend to increase focus on shorter term contracts and increase sales in the spot market given the reluctance of our customers to enter into long-term take-or-pay contracts in the current market environment.

Our Customers
Our core customers are oil and natural gas exploration and production and oilfield service companies. We sell frac sand under long-term take-or-pay contracts as well as in the spot market, and provide proppant logistics solutions through our in-basin transloading terminal and SmartSystems wellsite proppant storage solutions and other logistics services.
Generally, customers under long-term take-or-pay contracts are required to take minimum volumes of sand or make shortfall payments for a specified period of time. We recognize revenue in our results of operations in the period in which the obligation becomes due. Contracted volumes decreased in the fourth quarter of 2018 and for the year-ended December 31, 2019, resulting in additional shortfall revenue.
Frac sand demand increased in 2017 from 2016 levels as increased drilling and completion activity led customers to more actively consider contracting proppant volumes under long-term contracts rather than continuing to rely on buying proppant on a spot basis in the market. From early 2017 through the second quarter of 2018, improvements in oil and natural
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gas prices created a more stable market environment. During the second half of 2018, the demand for Northern White sand decreased, which we believe was due primarily to insufficient takeaway capacity for the incremental oil and natural gas production coming online in the Permian Basin, along with increased availability of regional sand as a source of proppant in the Permian basin. Additionally, oil and natural gas companies reduced their spending in the latter portion of the year due to strong spending in the first half of 2018, decreasing oil prices in the fourth quarter of 2018, as well as demands from their investors for more disciplined capital spending. Demand briefly recovered during the summer of 2019 before declining toward the end of 2019 as oil and gas companies exhausted their budgets and managed their capital spending to be in line with their expected operating cash flows.
We have found that, increasingly over the last two years, customers are disinclined to enter into long-term contracts for their frac sand supply and have instead trended toward purchasing their frac sand supply in the spot market at market prices. Should our customer base continue to limit their exposure to longer term contracts, we intend to increase focus on shorter term contracts and increase sales in the spot market.
Customers renting SmartSystems are able to tailor the contract, including adjusting the number of SmartDepot silos to be supplied, to meet their short-term and long-term needs and may adjust the number of SmartDepot silos as required to meet their specific needs. We recognize rental revenue when the equipment is made available for the customer to use or other obligations in the contract are met. Our first SmartDepot silos became available in the third quarter of 2018 and the first set were contracted in January 2019. As of December 31, 2019, we had four fleets of SmartSystems operating with customers.
For the year ended December 31, 2019, Liberty, Rice Energy (a subsidiary of EQT Corporation), Hess Corporation, and U.S. Well Services accounted for 23.8%, 19.0%, 15.5%,and 14.7% respectively, of total revenue, and the remainder of our revenues were from 20 customers. For the year ended December 31, 2018, Liberty, EQT, WPX Energy, and Hess accounted for 22.8%, 21.4%, 11.6%, and 10.6%, respectively, of our total revenues, and the remainder of our revenues were from 18 customers. For the year ended December 31, 2017, Rice Energy, Liberty, Weatherford, and U.S. Well Services accounted for 27.1%, 20.6%, 13.7%, and 10.2%, respectively, of our total revenues, and the remainder of our revenues were from 16 customers. Please read “Risk Factors—Risks Inherent in Our Business—A substantial majority of our revenues have been generated under contracts with a limited number of customers, and the loss of, material nonpayment or nonperformance by or significant reduction in purchases by any of them could adversely affect our business, results of operations and financial condition.” For the years ended December 31, 2019, 2018, and 2017, we generated approximately 92.5%, 80.1%, and 79.8%, respectively, of our revenues from frac sand delivered under long-term take-or-pay contracts.

Capital Plans
We expect to continue expanding our SmartSystems wellsite proppant storage solutions and evaluate other proposed projects and related expenditures, such as improvements at our Oakdale facility and investments in transload facilities located in various operating basins, in light of customer demand and energy market trends. There can be no assurance, however, that all or any of these initiatives will be executed or that the results therefrom will be materially beneficial to our financial performance.

Industry Trends Impacting Our Business
Unless otherwise indicated, the information set forth under this section, including all statistical data and related forecasts, is derived from Spears’ “Proppant Market Report with Frac Market Overview - Q4 2020” published in the first quarter of 2020. While we are not aware of any misstatements regarding the proppant industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

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Demand Trends
According to Spears, the North American proppant market, including frac sand, ceramic and resin-coated proppant, was approximately 111 million tons in 2019, which is a 5% increase over the 105 million tons Spears reported for 2018. Spears estimates that 2020 demand will be flat with 111 million tons of proppant demand. 
SND-20191231_G2.JPG
2014 2015 2016 2017 2018 2019 2020E
New U.S. Horizontal Wells 20,906    14,500    8,638    13,166    15,686    14,615    12,607   
Proppant Demand (Mil Tons) 69    55    44    80    105    111    111   
Although the horizontal rig count is expected to decrease in 2020, frac sand demand is projected to be consistent with 2019 levels due to longer laterals, an increase in the number of frac stages per well and an increase in the amount of proppant used in each stage. Demand growth for frac sand and other proppants is primarily driven by advancements in oil and natural gas drilling and well completion technology and techniques, such as horizontal drilling and hydraulic fracturing. These advancements have made the extraction of oil and natural gas increasingly cost-effective in formations that historically would have been uneconomic to develop. More proppant is being used per well, which is supporting proppant demand despite horizontal drilling activity stabilizing. Spears estimates that proppant demand in 2020 will be consistent with 2019, as new wells will decrease while the average proppant used per well is expected to increase from 6,600 tons per well in 2019 to approximately 7,600 tons per well by the end of 2020.

Supply Trends
There has been consolidation activity including mergers, acquisitions, closures of mines and bankruptcy filings among our peers. Additional consolidation activity is expected in 2020 in the mining, transloading and logistics businesses. Many large oil and natural gas exploration and production companies have continued to integrate vertically by sourcing their own proppant and some own their own sand mines. Spears identifies a growing trend in this direction and estimates 50% of the North American proppant demand is currently direct-sourced. In-basin demand in the Permian basin more than tripled from 2017 through 2019. Sand supply is expected to peak in late 2019 or early 2020 with few additional suppliers entering the field.
Supplies of high-quality Northern White frac sand are limited to select areas, predominantly in western Wisconsin and limited areas of Minnesota and Illinois. We believe the ability to obtain large contiguous reserves in these areas is a key constraint and can be an important supply consideration when assessing the economic viability of a potential frac sand facility. Further constraining the supply and throughput of Northern White frac sand is that not all of the large reserve mines have on-site excavation, processing or logistics capabilities. Historically, much of the capital investment in Northern White frac sand
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mines was used for the development of coarser deposits in western Wisconsin, which is inconsistent with the increasing demand for finer mesh frac sand in recent years. As such, we’ve seen competitors in the Northern White frac sand market reduce their capacity by shuttering or idling operations as the shift to finer sands in hydraulic fracturing of oil and natural gas wells erodes the ongoing economic viability of producing coarser grades of sand.

Environmental, Social & Governance
In 2019, we set a Company objective of adopting a formal Environmental, Social & Governance (“ESG”) program. Smart Sand already has an exceptional legacy of environmental performance. In 2014, we joined the Wisconsin Green Tier program, a marquee public/private partnership, under which the Wisconsin Department of Natural Resources worked with us on a plan to meet applicable legal requirements and to improve our facility from an environmental perspective. In addition to documenting seven years of compliant operations, we have worked on, among other things, protecting wetlands, reducing usage and impact of heavy equipment, reducing fuel usage of equipment and vehicles and defining best practices for onsite water management. We are also a member of Wisconsin’s sustainability initiative, Green Masters. As part of this program, we have completed a detailed survey of our sustainability and social responsibility activities and started the process of a complete carbon inventory. As a mining company, we invest and plan for reclamation, ensuring that the land is returned to beneficial use. Smart Sand has held ISO 9001/14001-2015 environmental and quality management systems for the past five years. Smart Sand is also a member of the Wisconsin Industrial Sand Association, a select group of mining companies focused on safety, environmental and public policy.
One of the goals of the United Nations’ Paris Agreement is a carbon neutral world by the year 2050 and we are aligned with this goal. We believe that reducing our carbon footprint will lead to a better world. As a mining company, we are an energy consumer, and we have already seen that we can reduce greenhouse gas emissions by using the best technologies and taking a thoughtful approach to our energy choices. We know that energy consumption is only one part of ethical operations. For additional information regarding the United Nations’ Paris Agreement, see “Item 1A Risk Factors - Risks Related to Environmental, Mining and Other Regulation - Climate change legislation and regulatory initiatives could result in increased compliance costs for us and our customers.”
We provide social value through our excellent employment opportunities. Our first priority is keeping our employees safe, which we accomplish through daily training and inspections. Our business supports hundreds of families and we are proud to offer rewarding and interesting work with competitive compensation and benefits. We promote from within, provide continuous training, hire with a passion for diversity and provide every employee with the opportunity to participate in retirement plans and ownership of the Company. Smart Sand is an active charitable partner in the communities in which it operates, making both financial and time investments in those communities.
Sustainability has always been part of the Smart Sand story, but we are looking forward to evaluating what we have done and identifying improvement opportunities. In 2020, we will articulate our ESG goals and lay out our vision for reaching carbon-neutrality. We are embracing this growing movement and designing an area in our website to articulate our ESG goals and report on our performance.

Permits
We operate in a highly regulated environment overseen by many governmental regulatory and enforcement bodies at the local, state and federal levels. To conduct our operations, we are required to have obtained permits and approvals that address environmental, land use and safety issues at our Oakdale, Byron and Van Hook transload facilities. Our current and planned areas for excavation at our Oakdale facility are permitted for extraction of our proven reserves. Portions of our Oakdale facility lie in areas designated as wetlands, which will require additional local, state and federal permits prior to mining and reclaiming those areas.
We also must meet requirements for certain international standards concerning safety, greenhouse gases and rail operations. We have voluntarily agreed to meet the standards of the Wisconsin Department of Natural Resources’ “Green Tier” program, the “National Industrial Sand Association” (“NISA”) and the “Wisconsin Industrial Sand Association.” Further, we have agreed to meet the standards required to maintain our ISO 9001-2015 and ISO 14001-2015 quality/environmental management system registrations. These voluntary requirements are tracked and managed along with our permits.
While resources invested in securing permits are significant, this cost has not had a material adverse effect on our results of operations or financial condition. We cannot ensure that existing environmental laws and regulations will not be reinterpreted
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or revised or that new environmental laws and regulations will not be adopted or become applicable to us. Revised or additional environmental requirements that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business.

Major Stockholder
Our largest stockholder is Clearlake Capital Group, L.P., together with its affiliates and related persons (“Clearlake”). Clearlake is a leading private investment firm founded in 2006. With a sector-focused approach, the firm seeks to partner with world-class management teams by providing patient, long-term capital to dynamic businesses that can benefit from Clearlake’s operational improvement approach, O.P.S.® The firm’s core target sectors are industrials, technology, and consumer. Clearlake currently has over $17 billion of assets under management and its senior investment principals have led or co-led over 200 investments. We believe our relationship with Clearlake provides us with a unique resource to effectively compete for acquisitions within the industry by being able to take advantage of their experience in acquiring businesses to assist us in seeking out, evaluating and closing attractive acquisition opportunities over time.

Competition
The proppant industry is highly competitive. Please read “Risk Factors—Risks Inherent in Our Business—We face significant competition that may cause us to lose market share.” There are numerous large and small producers in all sand producing regions of North America with whom we compete, many of which also offer solutions for unloading, storing and delivering proppant to the wellsite. Our main competitors include Badger Mining Corporation, Emerge Energy Services LP, Hi-Crush, Inc., Covia Holdings Corporation, U.S. Silica Holdings, Inc., Black Mountain Sand, Vista Proppants and Logistics, Atlas Sand, and Solaris Oilfield Infrastructure, Inc.
Although some of our competitors may have greater financial or natural resources than we do, we believe that we are well-positioned competitively due to our low cost of sand production, low debt levels, logistics infrastructure and high-quality, balanced reserve profile and patented SmartSystems wellsite proppant storage solutions, which offer numerous benefits over our competition. The most important factors on which we compete are our service capabilities, product quality, proven performance, sand characteristics, transportation capabilities, reliability of supply, price, logistics services and the performance of patented SmartSystems wellsite proppant storage solutions technology. Demand for frac sand and logistics solutions and the prices that we will be able to obtain for our products, to the extent not subject to a fixed price or take-or-pay contract, are closely linked to proppant consumption patterns for the completion of oil and natural gas wells in North America. These consumption patterns are influenced by numerous factors, including, among other things, the price for oil and natural gas and hydraulic fracturing activity, including the number of stages completed and the amount of proppant used per stage. Further, these consumption patterns are also influenced by the location, quality, price and availability of frac sand and other types of proppants such as resin-coated sand and ceramic proppant.

Seasonality
Our business is affected to some extent by seasonal fluctuations in weather that impact the production levels for a portion of our wet processing plant capacity. While our dry plants are able to process finished product volumes evenly throughout the year, our excavation and our wet sand processing activities have historically been limited to primarily non-winter months. As a consequence, we have experienced lower cash operating costs in the first and fourth quarter of each calendar year, and higher cash operating costs in the second and third quarter of each calendar year when we overproduced wet sand to meet demand in the winter months.  These higher cash operating costs are capitalized into inventory and expensed when these tons are sold, which can lead to us having higher overall costs in the first and fourth quarters of each calendar year as we expense inventory costs that were previously capitalized. However, during the fourth quarter of 2017, we finished construction of one of our new wet plants, which is an indoor facility that allows us to produce wet sand inventory year-round to support a portion of our dry sand processing capacity, which may reduce certain of the effects of this seasonality. We may also sell frac sand for use in oil and natural gas producing basins where severe weather conditions may curtail drilling activities and, as a result, our sales volumes to those areas may be reduced during such severe weather periods. For a discussion of the impact of weather on our operations, please read “Risk Factors—Seasonal and severe weather conditions could have a material adverse impact on our business, results of operations and financial condition” and “Risk Factors—Our cash flow fluctuates on a seasonal basis.”

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Intellectual Property
Our intellectual property primarily consists of trade secrets, know-how and trademarks. We own patents and have patent applications pending related to our SmartSystems wellsite proppant storage solutions. All of the issued patents have an expiration date after July 2030. With respect to our other products, we principally rely on trade secrets, rather than patents, to protect our proprietary processes, methods, documentation and other technologies, as well as certain other business information.

Insurance
We believe that our insurance coverage is customary for the industry in which we operate and adequate for our business. As is customary in the proppant industry, we review our safety equipment and procedures and carry insurance against most, but not all, risks of our business. Losses and liabilities not covered by insurance would increase our costs. To address the hazards inherent in our business, we maintain insurance coverage that includes physical damage coverage, third-party general liability insurance, employer’s liability, business interruption, environmental and pollution and other coverage, although coverage for environmental and pollution-related losses is subject to significant limitations.

Environmental and Occupational Health and Safety Regulations
We are subject to stringent and complex federal, state, local and international laws and regulations governing the discharge of materials into the environment or otherwise relating to protection of worker health, safety and the environment. Compliance with these laws and regulations may expose us to significant costs and liabilities and cause us to incur significant capital expenditures in our operations. Any failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of remedial obligations, and the issuance of injunctions delaying or prohibiting operations. Private parties may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage. In addition, the trend in environmental regulation is to place more restrictions on activities that may affect the environment, and thus, any changes in, or more stringent enforcement of, these laws and regulations that result in more stringent and costly pollution control equipment, the occurrence of delays in the permitting or performance of projects, or waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on our operations and financial position.
We do not believe that compliance by us with federal, state, local or international environmental laws and regulations will have a material adverse effect on our business, financial position or results of operations or cash flows. We cannot be assured, however, that future events, such as changes in existing laws or enforcement policies, the promulgation of new laws or regulations or the development or discovery of new facts or conditions adverse to our operations will not cause us to incur significant costs. The following is a discussion of material environmental and worker health and safety laws, as amended from time to time that relate to our operations or those of our customers that could have a material adverse effect on our business.
Air Emissions
Our operations are subject to the federal Clean Air Act (“CAA”) and related state and local laws, which restrict the emission of air pollutants and impose permitting, monitoring and reporting requirements on various sources. Over the next several years, we may be required to incur certain capital expenditures for air pollution control equipment or to address other air emissions-related issues. Changing and increasingly stringent requirements, future non-compliance, or failure to maintain necessary permits or other authorizations could require us to incur substantial costs or suspend or terminate our operations.
Climate Change
In recent years, the U.S. Congress has considered legislation to reduce emissions of greenhouse gases (“GHG”). It presently appears unlikely that comprehensive climate legislation will be passed by either house of Congress in the near future. However, a number of states are addressing GHG emissions, primarily through the development of emission inventories or regional GHG cap and trade programs. Depending on the particular program, we could be required to control GHG emissions or to purchase and surrender allowances for GHG emissions resulting from our operations. Independent of Congress, the U.S. Environmental Protection Agency (“EPA”) has adopted regulations controlling GHG emissions under its existing authority. Compliance with new legislation may require us to incur substantial costs or suspend or terminate our operations.
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Water Discharges
The Clean Water Act (“CWA”) and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into state waters or waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands, unless authorized by the Army Corps of Engineers (“Corps”) pursuant to an appropriately issued permit. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Compliance with new rules and legislation could require us to face increased costs and delays with respect to obtaining permits for expansion activities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties as well as other enforcement mechanisms for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.
Hydraulic Fracturing
We supply frac sand to hydraulic fracturing operators in the oil and natural gas industry. Hydraulic fracturing is an important and increasingly common practice that is used to stimulate production of oil and natural gas from low permeability hydrocarbon bearing subsurface rock formations. The hydraulic fracturing process involves the injection of water, proppants, and chemicals under pressure into the formation to fracture the surrounding rock, increase permeability and stimulate production. Although we do not directly engage in hydraulic fracturing activities, our customers purchase our frac sand for use in their hydraulic fracturing activities.
The adoption of new laws or regulations at the federal or state levels imposing reporting obligations on, or otherwise limiting or delaying, the hydraulic fracturing process could make it more difficult to complete natural gas wells, increase our customers’ costs of compliance and doing business, and otherwise adversely affect the hydraulic fracturing services they perform, which could negatively impact demand for our frac sand.
Non-Hazardous and Hazardous Wastes
The Resource Conservation and Recovery Act (“RCRA”) and comparable state laws control the management and disposal of hazardous and non-hazardous waste. These laws and regulations govern the generation, storage, treatment, transfer and disposal of wastes that we generate. In the course of our operations, we generate waste that are regulated as non-hazardous wastes and hazardous wastes, obligating us to comply with applicable standards relating to the management and disposal of such wastes. In addition, drilling fluids, produced waters, and most of the other wastes associated with the exploration, development, and production of oil or natural gas, if properly handled, are currently exempt from regulation as hazardous waste under RCRA and, instead, are regulated under RCRA’s less stringent non-hazardous waste provisions, state laws or other federal laws. However, it is possible that certain oil and natural gas drilling and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. A loss of the RCRA exclusion for drilling fluids, produced waters and related wastes could result in an increase in our customers’ costs to manage and dispose of generated wastes and a corresponding decrease in their drilling operations, which developments could have a material adverse effect on our business.
Site Remediation
The Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”) and comparable state laws impose strict, joint and several liability without regard to fault or the legality of the original conduct on certain classes of persons that contributed to the release of a hazardous substance into the environment. These persons include the owner and operator of a disposal site where a hazardous substance release occurred and any company that transported, disposed of, or arranged for the transport or disposal of hazardous substances released at the site. Under CERCLA, such persons may be liable for the costs of remediating the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies. In addition, where contamination may be present, it is not uncommon for the neighboring landowners and other third parties to file claims for personal injury, property damage and recovery of response costs. We have not received notification that we may be potentially responsible for cleanup costs under CERCLA at any site.
Endangered Species
The Endangered Species Act (“ESA”) restricts activities that may affect endangered or threatened species or their habitats. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act. As a result of a settlement approved by the U.S. District Court for the District of Columbia in 2011, the U.S. Fish and Wildlife Service (“FWS”) was required to consider listing numerous species as endangered or threatened under the Endangered Species Act before the
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completion of the agency’s 2017 fiscal year. The FWS did not meet the deadline. Current ESA listings and the designation of previously unprotected species as threatened or endangered in areas where we or our customers operate could cause us or our customers to incur increased costs arising from species protection measures and could result in delays or limitations in our or our customers’ performance of operations, which could adversely affect or reduce demand for our frac sand. For example, the dunes sagebrush lizard, which is found in the active and semi-stable shinnery oak dunes of southeastern New Mexico and adjacent portions of Texas, was a candidate species for listing under the ESA by the FWS for many years.  In 2010, the FWS proposed listing the dunes sagebrush lizard as an endangered species under the ESA.  In 2012, the FWS and the Texas Comptroller’s Office agreed to the Texas Conservation Plan (“TCP”), a voluntary Candidate Conservation Agreement with Assurances (“CCAA”), to minimize disturbances to the dunes sagebrush lizard’s habitat.  Our site in Crane County, Texas has been included in the TCP. In June 2012, the FWS declined to list the species as endangered under the ESA, in part because of the TCP. However, the Texas Comptroller’s Office, which administers the TCP, provided notice to the FWS in November 2018 of its intention to relinquish the TCP. The Texas Comptroller’s Office has proposed a new CCAA that, among other things, includes a new map with habitat suitability classifications. FWS is reviewing the draft proposed CCAA. In May 2018, certain environmental groups formally petitioned the FWS again to list the dunes sagebrush lizard as a threatened or endangered species under the ESA. The FWS has not acted on the environmental groups’ petition, and the environmental groups filed a lawsuit against the FWS in October 2019 alleging that the FWS failed to take action on the petition within the time period required under the ESA. That litigation is currently pending.
Mining and Workplace Safety
Our sand mining operations are subject to mining safety regulation. The U.S. Mining Safety and Health Administration (“MSHA”) is the primary regulatory organization governing frac sand mining and processing. Accordingly, MSHA regulates quarries, surface mines, underground mines and the industrial mineral processing facilities associated with and located at quarries and mines. The mission of MSHA is to administer the provisions of the Federal Mine Safety and Health Act of 1977 and to enforce compliance with mandatory miner safety and health standards. As part of MSHA’s oversight, representatives perform at least two unannounced inspections annually for each above-ground facility.
OSHA has promulgated new rules for workplace exposure to respirable silica for several other industries. Respirable silica is a known health hazard for workers exposed over long periods. MSHA is expected to adopt similar rules as part of its “Long Term Items” for rulemaking, and in August 2019 published a formal request for information and data on feasible, best practices to protect miners' health from exposure to silica in respirable dust. Airborne respirable silica is associated with work areas at our site and is monitored closely through routine testing and MSHA inspection. If the workplace exposure limit is lowered significantly, we may be required to incur certain capital expenditures for equipment to reduce this exposure. Smart Sand also adheres to the NISA’s respiratory protection program, and ensures that workers are provided with fitted respirators and ongoing radiological monitoring.
Environmental Reviews
Our operations may be subject to broad environmental review under the National Environmental Policy Act, as amended, (“NEPA”). NEPA requires federal agencies to evaluate the environmental impact of all “major federal actions” significantly affecting the quality of the human environment. The granting of a federal permit for a major development project, such as a mining operation, may be considered a “major federal action” that requires review under NEPA. As part of this evaluation, the federal agency considers a broad array of environmental impacts, including, among other things, impacts on air quality, water quality, wildlife (including threatened and endangered species), historic and archeological resources, geology, socioeconomics, and aesthetics. NEPA also requires the consideration of alternatives to the project. The NEPA review process, especially the preparation of a full environmental impact statement, can be time consuming and expensive. The purpose of the NEPA review process is to inform federal agencies’ decision-making on whether federal approval should be granted for a project and to provide the public with an opportunity to comment on the environmental impacts of a proposed project. Though NEPA requires only that an environmental evaluation be conducted and does not mandate a particular result, a federal agency could decide to deny a permit or impose certain conditions on its approval, based on its environmental review under NEPA, or a third party could challenge the adequacy of a NEPA review and thereby delay the issuance of a federal permit or approval. In January 2020, the White House Council on Environmental Quality (“CEQ”) published a Notice of Proposed Rulemaking that would revise NEPA’s implementing regulations, with the stated purpose of facilitating more efficient and timely NEPA reviews. CEQ is currently soliciting public comments on its proposal through March 10, 2020. At this time we cannot predict what revisions, if any, will be made to NEPA’s implementing regulations, and what impacts, if any, they will have on our operations.

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State and Local Regulation
We are subject to a variety of state and local environmental review and permitting requirements. Some states, including Wisconsin where our current projects are located, have state laws similar to NEPA; thus, our development of a new site or the expansion of an existing site may be subject to comprehensive state environmental reviews even if it is not subject to NEPA. In some cases, the state environmental review may be more stringent than the federal review. Our operations may require state-law based permits in addition to federal permits, requiring state agencies to consider a range of issues, many the same as federal agencies, including, among other things, a project’s impact on wildlife and their habitats, historic and archaeological sites, aesthetics, agricultural operations, and scenic areas. Wisconsin has specific permitting and review processes for commercial silica mining operations, and state agencies may impose different or additional monitoring or mitigation requirements than federal agencies. The development of new sites and our existing operations also are subject to a variety of local environmental and regulatory requirements, including land use, zoning, building, and transportation requirements.
Demand for frac sand in the oil and natural gas industry drove a significant increase in the production of frac sand. As a result, some local communities expressed concern regarding silica sand mining operations. These concerns have generally included exposure to ambient silica sand dust, truck traffic, water usage and blasting. In response, certain state and local communities have developed or are in the process of developing regulations or zoning restrictions intended to minimize dust from becoming airborne, control the flow of truck traffic, significantly curtail the amount of practicable area for mining activities, provide compensation to local residents for potential impacts of mining activities and, in some cases, ban issuance of new permits for mining activities. To date, we have not experienced any material impact to our existing mining operations or planned capacity expansions as a result of these types of concerns. We would expect this trend to continue as oil and natural gas production increases.
In August 2014, we were accepted as a Tier 1 participant in Wisconsin’s voluntary Green Tier program, which encourages, recognizes and rewards companies for voluntarily exceeding environmental, health and safety legal requirements. Successful Tier 1 participants are required to demonstrate a strong record of environmental compliance, develop and implement an environmental management system meeting certain criteria, conduct and submit annual performance reviews to the Wisconsin Department of Natural Resources, promptly correct any findings of non-compliance discovered during these annual performance reviews, and make certain commitments regarding future environmental program improvements. Our most recent annual report required under the Tier 1 protocol was submitted to the Green Tier Program contact on August 1, 2019.

Employees
As of December 31, 2019, we employed 285 people. None of our employees are subject to collective bargaining agreements. We offer competitive salaries and a comprehensive package of employee benefits, including bonuses, retirement savings plans, medical, dental, life and disability coverage. We consider our employee relations to be good.

Executive Officers of the Registrant
Charles E. Young
Charles E. Young was named Chief Executive Officer in July 2014. Mr. Young has also served as a director since September 2011. Mr. Young founded Smart Sand, LLC (our predecessor) and served as its President from November 2009 to August 2011. Mr. Young served as our President and Secretary from September 2011 to July 2014. Mr. Young has over 25 years of executive and entrepreneurial experience in the high-technology, telecommunications and renewable energy industries. He previously served as the President and Founder of Premier Building Systems, a construction, solar, geothermal and energy audit company in Pennsylvania and New Jersey from 2006 to 2011. Mr. Young serves as a director for Gravity Oilfield Services, Inc., a privately-held company. Mr. Young received a B.A. in Political Science from Miami University. Mr. Young is the brother of William John Young, our Chief Operating Officer, and James D. Young, our Executive Vice President, General Counsel and Secretary. We believe that Mr. Young’s industry experience and deep knowledge of our business makes him well suited to serve as Chief Executive Officer and Director.
Lee E. Beckelman
Lee E. Beckelman was named Chief Financial Officer in August 2014. From December 2009 to February 2014, Mr. Beckelman served as Executive Vice President and Chief Financial Officer of Hilcorp Energy Company, an exploration and production company. From February 2008 to October 2009, he served as the Executive Vice President and Chief Financial Officer of Price Gregory Services, Incorporated, a crude oil and natural gas pipeline construction firm until its sale to Quanta
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Services. Prior thereto, Mr. Beckelman served in various roles from 2002 to 2007 at Hanover Compressor Company, an international oilfield service company, until its merger with Universal Compression to form Exterran Holdings. Mr. Beckelman received his BBA in Finance with High Honors from the University of Texas at Austin.
William John Young
William John Young was named Chief Operating Officer in April 2018. Prior to that time, he served as Executive Vice President of Sales and Logistics from October 2016 to April 2018. Mr. Young served as Vice President of Sales and Logistics from May 2014 to September 2016 and Director of Sales from November 2011 to April 2014. Prior to joining us, Mr. Young was a Director of Sales for Comcast Corporation from 2002 to 2011. Mr. Young brings over 25 years of experience in the mining, commercial telecommunications and broadband industries. Mr. Young received a BSc in Biology from Dalhousie University. Mr. Young is the brother of Charles E. Young, our Chief Executive Officer and member of our board of directors, and James D. Young, our Executive Vice President, General Counsel and Secretary.
Robert Kiszka
Robert Kiszka was named Executive Vice President of Operations in May 2014. Previously, Mr. Kiszka served as the Vice President of Operations from September 2011 to May 2014. Mr. Kiszka has over 25 years of construction, real estate, renewable energy and mining experience. Mr. Kiszka has been the owner of A-1 Bracket Group Inc. since 2005 and was a member of Premier Building Systems LLC from 2010 to 2011. Mr. Kiszka attended Pedagogical University in Krakow, Poland and Rutgers University.
Ronald P. Whelan
Ronald P. Whelan was named Executive Vice President of Sales in June 2018. Prior to that time, he served as Executive Vice President of Business Development from April 2017 to June 2018, Vice President of Business Development from September 2016 to March 2017 and as Director of Business Development from April 2014 to August 2016. Prior to being named Director of Business Development, Mr. Whelan was the Operations Manager responsible for the design, development and production of the Oakdale facility from November 2011 to April 2014. Before joining Smart Sand, Mr. Whelan ran his own software design company from 2004 to 2011 and was a member of Premier Building Systems LLC from 2008 to 2009. Mr. Whelan has over 18 years of entrepreneurial experience in mining, technology and renewable energy industries. Mr. Whelan received a B.A. in Marketing from Bloomsburg University and M.S. in Instructional Technology from Bloomsburg University.
James D. Young
James D. Young was named Executive Vice President, General Counsel and Secretary in June 2017.  Prior to joining us, Mr. Young was a partner of the law firm Fox Rothschild LLP, where he worked for thirteen years and served as our outside general counsel.  Mr. Young received a J.D. from Rutgers University School of Law and a B.A. in History and Political Science from the University of Toronto.  Mr. Young is the brother of Charles E. Young, our Chief Executive Officer and member of our board of directors, and William John Young, our Chief Operating Officer.
Susan Neumann
Susan Neumann was named Vice President of Accounting and Controller in October 2016. Previously, Ms. Neumann was named Controller and Secretary in April 2013 and July 2014, respectively. Prior to joining us in April 2013, Ms. Neumann was an assurance senior manager at BDO USA, LLP (“BDO”). At BDO, she served in various roles in the assurance group from September 2000 to March 2013. Ms. Neumann received an MBA with a Global Perspective from Arcadia University and a B.A. in Accounting from Beaver College (currently Arcadia University).

Available Information
Our website address is www.smartsand.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available on our website, without charge, as soon as reasonably practicable after they are filed electronically with the SEC. The SEC also maintains a website that contains reports, proxy and information statements and other information statements and other information regarding issuers who file electronically with the SEC. The SEC’s website address is www.sec.gov.

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ITEM 1A. — RISK FACTORS
Risks Inherent in Our Business
Our business and financial performance depend on the level of activity in the oil and natural gas industry.
Substantially all of our revenues are derived from sales to companies in the oil and natural gas industry. As a result, our operations are dependent on the levels of activity in oil and natural gas exploration, development and production. More specifically, the demand for the proppants we produce and our wellsite storage solutions is closely related to the number of oil and natural gas wells completed in geological formations where sand-based proppants are used in fracturing activities. These activity levels are affected by both short- and long-term trends in oil and natural gas prices, among other factors.
Oil and natural gas prices and, therefore, the level of exploration, development and production activity, have experienced a high level of volatility leading to sustained declines from the highs in the latter half of 2014 that have continued through early 2020. Furthermore, the availability of key resources that impact drilling activity has significantly fluctuated recently, which could impact product demand.
A prolonged reduction in oil and natural gas prices or a sustained lack of key resources that impact drilling activity would generally depress the level of oil and natural gas exploration, development, production and well completion activity and would result in a corresponding decline in the demand for the proppants we produce and our wellsite proppant storage solutions. Such a decline would have a material adverse effect on our business, results of operation and financial condition. The commercial development of economically viable alternative energy sources (such as wind, solar, geothermal, tidal, fuel cells and biofuels) could have a similar effect. In addition, certain U.S. federal income tax deductions currently available with respect to oil and natural gas exploration and development may be eliminated. Any future decreases in the rate at which oil and natural gas reserves are discovered or developed, whether due to the passage of legislation, increased governmental regulation leading to limitations, or prohibitions on exploration and drilling activity, including hydraulic fracturing, or other factors, could have a material adverse effect on our business and financial condition, even in a stronger oil and natural gas price environment.
A substantial majority of our revenues have been generated under contracts with a limited number of customers, and the loss of, material nonpayment or nonperformance by or significant reduction in purchases by any of them could adversely affect our business, results of operations and financial condition.
As of January 1, 2020, we were contracted to sell frac sand produced from our Oakdale facility under six long-term take-or-pay contracts with a volume-weighted average remaining life of approximately fifteen months. Because we have a small number of customers contracted under long-term take-or-pay contracts, these contracts subject us to counterparty risk. The ability or willingness of each of our customers to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, the overall operations and financial condition of the counterparty, the condition of the U.S. oil and natural gas exploration and production industry, continuing use of frac sand in hydraulic fracturing operations and general economic conditions. In addition, in depressed market conditions, our customers may no longer need the amount of frac sand for which they have contracted or may be able to obtain comparable products at a lower price. If our customers experience a significant downturn in their business or financial condition, they may attempt to renegotiate our contracts. For example, certain of our existing contracts were adjusted in late 2018 and early 2019 resulting in a combination of reduced average selling prices per ton, adjustments to take-or-pay volumes and length of contract. We are also in litigation with one of our contracted customers over nonpayment of amounts due under such contracts. If any of our major customers substantially reduces or altogether ceases purchasing our frac sand and we are not able to generate replacement sales of frac sand into the market, our business, financial condition and results of operations could be adversely affected until such time as we generate replacement sales in the market. In addition, as contracts expire, depending on market conditions at the time, our customers may choose not to extend these contracts which could lead to a significant reduction of sales volumes and corresponding revenues, cash flows and financial condition if we are not able to replace these contracts with new sales volumes. Additionally, even if we were to replace any lost contract volumes, lower prices for our product could materially reduce our revenues, cash flow and financial condition.
We are exposed to the credit risk of our customers, and any material nonpayment or nonperformance by our customers could adversely affect our business, results of operations and financial condition.
We are subject to the risk of loss resulting from nonpayment or nonperformance by our customers. Our credit procedures and policies may not be adequate to fully eliminate customer credit risk. If we fail to adequately assess the creditworthiness of
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existing or future customers or unanticipated deterioration in their creditworthiness, any resulting increase in nonpayment or nonperformance by them and our inability to re-market or otherwise use the production could have a material adverse effect on our business, results of operations and financial condition. A decline in natural gas and crude oil prices could negatively impact the financial condition of our customers and sustained lower prices could impact their ability to meet their financial obligations to us. Further, our contract counterparties may not perform or adhere to our existing or future contractual arrangements. To the extent one or more of our contract counterparties is in financial distress or commences bankruptcy proceedings, contracts with these counterparties may be subject to renegotiation or rejection under applicable provisions of the United States Bankruptcy Code. Any material nonpayment or nonperformance by our contract counterparties due to inability or unwillingness to perform or adhere to contractual arrangements could adversely affect our business and results of operations.
Our proppant sales are subject to fluctuations in market pricing.
Several of our supply agreements involving the sale of frac sand have market-based pricing mechanisms. Accordingly, in periods with decreasing prices, our results of operations may be lower than if our agreements had fixed prices. During these periods our customers may also elect to reduce their purchases from us and seek to find alternative, cheaper sources of supply. In periods with increasing prices, these agreements permit us to increase prices; however, these increases are generally calculated on a quarterly basis and do not increase on a dollar-for-dollar basis with increases in spot market pricing. Furthermore, certain volume-based supply agreements may influence the ability to fully capture current market pricing. These pricing provisions may result in significant variability in our results of operations and cash flows from period to period.
Changes in supply and demand dynamics could also impact market pricing for proppants. A number of existing proppant providers and new market entrants have started new operations or expanded existing operations, primarily in regional sand and mobile sand processing projects. In periods where sources of supply of frac sand exceed market demand, market prices for frac sand may decline and our results of operations and cash flows may continue to decline, be volatile, or otherwise be adversely affected. For example, beginning in September 2014 and continuing through mid-2016, increasing global supply of oil, in conjunction with weakened demand from slowing economic growth in the Eurozone and China, created downward pressure on crude oil prices resulting in reduced demand for hydraulic fracturing services leading to a corresponding reduced demand for our products and pressure to reduce our product prices. Similarly, in late 2018, due to a greater than expected increase in the global supply of oil and lowered demand expectations due, in part, to a trade dispute between the United States and China, the price of crude oil decreased in late 2018, which resulted in lower demand for our products starting in the second half of 2018. This decrease in demand continued through 2019 and may continue to impact results going forward.
We face significant competition that may cause us to lose market share.
The proppant industry is highly competitive. The proppant market is characterized by a small number of large, national producers and a larger number of small, regional or local producers. Competition in this industry is based on price, consistency and quality of product, site location, distribution and logistics capabilities, customer service, reliability of supply, breadth of product offering (including wellsite storage products and services) and technical support.
Some of our competitors have greater financial and natural other resources than we do. In addition, our larger competitors may develop technology superior to ours or may have production facilities that offer lower-cost transportation to certain customer locations than we do. When the demand for hydraulic fracturing services decreases or the supply of proppant available in the market increases, prices in the frac sand market can materially decrease. Furthermore, oil and natural gas exploration and production companies and other providers of hydraulic fracturing services have acquired and in the future may acquire their own frac sand reserves to fulfill their proppant requirements, and these other market participants may expand their existing frac sand production capacity, all of which would negatively impact demand for our frac sand. In addition, increased competition in the proppant industry could have an adverse impact on our ability to enter into long-term contracts or to enter into contracts on favorable terms. For example, new supplies of regional frac sand from our competitors have come online in 2018, primarily in the Permian Basin of West Texas.  These new supplies may have a negative long-term impact on our ability to market our Northern White Sand in the Permian Basin or other markets in close proximity to these new mines, which could lead to pressure to reduce prices to compete effectively with these new regional suppliers.
We may be required to make substantial capital expenditures to maintain and grow our asset base. We may not realize enough of a return on such capital expenditures to cover their costs. Also, the inability to obtain needed capital or financing on satisfactory terms, or at all, could have an adverse effect on our business, results of operations and financial condition.
We rely on cash generated from our operations and the availability of credit to fund our capital expenditures. We have made significant capital expenditures, and expect to make additional capital expenditures in the future, particularly as it pertains to growing our SmartSystems last mile storage solution. We cannot provide any assurance that we will receive an adequate return on such capital expenditures.
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In addition, our ability to obtain debt financing or to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering, the covenants or borrowing base restrictions contained in our ABL Credit Facility or other current or future debt agreements, adverse market conditions or other contingencies and uncertainties that are beyond our control. Our failure to obtain the funds necessary to maintain, develop and increase our asset base could adversely impact our business, results of operations and financial condition.
Even if we are able to obtain financing or access the capital markets, incurring additional debt may significantly increase our interest expense and financial leverage, and our level of indebtedness could restrict our ability to fund future development and acquisition activities. In addition, the issuance of additional equity interests may result in significant dilution to our existing common stockholders.
Inaccuracies in estimates of volumes and qualities of our sand reserves could result in lower than expected sales and higher than expected cost of production.
John T. Boyd, our independent reserve engineers, prepared estimates of our reserves based on engineering, economic and geological data assembled and analyzed by our engineers and geologists. However, frac sand reserve estimates are by nature imprecise and depend to some extent on statistical inferences drawn from available data, which may prove unreliable. There are numerous uncertainties inherent in estimating quantities and qualities of reserves and non-reserve frac sand deposits and costs to mine recoverable reserves, including many factors beyond our control. Estimates of economically recoverable frac sand reserves necessarily depend on a number of factors and assumptions, all of which may vary considerably from actual results, such as:
•geological and mining conditions and/or effects from prior mining that may not be fully identified by available data or that may differ from experience;
•assumptions concerning future prices of frac sand, operating costs, mining technology improvements, development costs and reclamation costs; and
•assumptions concerning future effects of regulation, including wetland mitigation requirements, the issuance of required permits and the assessment of taxes by governmental agencies.
Any inaccuracy in John T. Boyd’s estimates related to our frac sand reserves or non-reserve frac sand deposits could result in lower than expected sales or higher than expected costs. For example, John T. Boyd’s estimates of our proven recoverable sand reserves assume that our revenue and cost structure will remain relatively constant over the life of our reserves. If these assumptions prove to be inaccurate, some or all of our reserves may not be economically mineable, which could have a material adverse effect on our results of operations and cash flows. In addition, our current customer contracts require us to deliver frac sand that meets certain API and ISO specifications. If John T. Boyd’s estimates of the quality of our reserves, including the volumes of the various specifications of those reserves, prove to be inaccurate, we may incur significantly higher excavation costs without corresponding increases in revenues, we may not be able to meet our contractual obligations, or our facilities may have a shorter than expected reserve life, any of which could have a material adverse effect on our results of operations and cash flows.
All of our sand sales are generated at one facility, and that facility is primarily served by one rail line. Any adverse developments at that facility or on the primary rail line could have a material adverse effect on our business, financial condition and results of operations.
All of our sand sales are currently derived from our facility located near Oakdale, Wisconsin, which is served primarily by a Class I rail line owned by Canadian Pacific. Any adverse development at this facility or on the rail line due to catastrophic events or weather, or any other event that would cause us to curtail, suspend or terminate operations at our Oakdale facility, could result in us being unable to meet our contracted sand deliveries. Although we have access to a second Class I rail line owned by Union Pacific at our Byron facility, we could not facilitate all shipments of product from the Byron facility. We maintain insurance coverage to cover a portion of these types of risks; however, there are potential risks associated with our operations not covered by insurance. There also may be certain risks covered by insurance where the policy does not reimburse us for all of the costs related to a loss. Downtime or other delays or interruptions to our operations that are not covered by insurance could have a material adverse effect on our business, results of operations and financial condition. In addition, under our long-term take-or-pay contracts, if we are unable to deliver contracted volumes and a customer arranges for delivery from a third party at a higher price, we may be required to pay that customer the difference between our contract price and the price of the third-party product.
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If we are unable to make acquisitions on economically acceptable terms, our future growth would be limited.
A portion of our strategy to grow our business is dependent on our ability to make acquisitions. If we are unable to make acquisitions from third parties because we are unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, we are unable to obtain financing for these acquisitions on economically acceptable terms or we are outbid by competitors, our future growth may be limited. Any acquisition involves potential risks, some of which are beyond our control, including, among other things:
•mistaken assumptions about revenues and costs, including synergies;
•inability to integrate successfully the businesses we acquire;
•inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;
•the assumption of unknown liabilities;
•limitations on rights to indemnity from the seller;
•mistaken assumptions about the overall costs of equity or debt;
•diversion of management’s attention from other business concerns;
•unforeseen difficulties operating in new product areas or new geographic areas; and
•customer or key employee losses at the acquired businesses.
If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and common stockholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of these funds and other resources.
We may not be able to complete greenfield development or expansion projects or, if we do, we may not realize the expected benefits.
Any greenfield development or expansion project requires us to raise substantial capital and obtain numerous state and local permits. A decision by any governmental agency not to issue a required permit or substantial delays in the permitting process could prevent us from pursuing the development or expansion project. In addition, if the demand for our products declines during a period in which we experience delays in raising capital or completing the permitting process, we may not realize the expected benefits from our greenfield facility or expansion project. Furthermore, our new or modified facilities may not operate at designed capacity or may cost more to operate than we expect. The inability to complete greenfield development or expansion projects or to complete them on a timely basis and in turn grow our business could adversely affect our business and results of operations.
Restrictions in our ABL Credit Facility may limit our ability to capitalize on potential acquisition and other business opportunities.
The operating and financial restrictions and covenants in our ABL Credit Facility could restrict our ability to finance future operations or capital needs or to expand or pursue our business activities. For example, our ABL Credit Facility restricts or limits our ability to:
•grant liens;
•incur additional indebtedness;
•engage in a merger, consolidation or dissolution;
•enter into transactions with affiliates;
•sell or otherwise dispose of assets, businesses and operations;
•materially alter the character of our business as conducted at the time of filing of this annual report; and
•make acquisitions, investments and capital expenditures.
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Furthermore, the borrowing base under our ABL Credit Facility is recalculated from time to time based on our eligible accounts receivable and inventory. Decreases in our eligible accounts receivable and inventory may limit our available borrowing levels and may require us to comply with certain financial ratios.
We face distribution and logistical challenges in our business.
Transportation and logistical operating expenses comprise a significant portion of the costs incurred by our customers to deliver frac sand to the wellhead, which could favor suppliers located in close proximity to the customer. As oil and natural gas prices fluctuate, our customers may shift their focus to different resource plays, some of which may be located in geographic areas that do not have well-developed transportation and distribution infrastructure systems, or seek contracts with additional delivery and pricing alternatives including contracts that sell product on an “as-delivered” basis at the target shale basin. Serving our customers in these less-developed areas presents distribution and other operational challenges that may affect our sales and negatively impact our operating costs and any delays we experience in optimizing our logistics infrastructure or developing additional origination and destination points may adversely affect our ability to renew existing contracts with customers seeking additional delivery and pricing alternatives. Disruptions in transportation services, including shortages of railcars, lack of developed infrastructure, weather-related problems, flooding, drought, accidents, mechanical difficulties, strikes, lockouts, bottlenecks or other events could affect our ability to timely and cost effectively deliver to our customers and could temporarily impair the ability of our customers to take delivery and, in certain circumstances, constitute a force majeure event under our customer contracts, permitting our customers to suspend taking delivery of and paying for our frac sand (and in some cases terminating the agreement after a period of time). Additionally, increases in the price of transportation costs, including freight charges, fuel surcharges, transloading fees, terminal switch fees and demurrage costs, could negatively impact operating costs if we are unable to pass those increased costs along to our customers. Accordingly, because we are so dependent on rail infrastructure, if there are disruptions of the rail transportation services utilized by us or our customers, and we or our customers are unable to find alternative transportation providers to transport our products, our business and results of operations could be adversely affected. Further, declining volumes could result in railcar over-capacity, which would lead to railcar storage fees while, at the same time, we would continue to incur lease costs for those railcars in storage. Failure to find long-term solutions to these logistical challenges could adversely affect our ability to respond quickly to the needs of our customers or result in additional increased costs, and thus could negatively impact our business, results of operations and financial condition.
We may be adversely affected by decreased demand for frac sand due to the development of effective alternative proppants or new processes to replace hydraulic fracturing.
Frac sand is a proppant used in the completion and re-completion of oil and natural gas wells to stimulate and maintain oil and natural gas production through the process of hydraulic fracturing. Frac sand is the most commonly used proppant and is less expensive than other proppants, such as resin-coated sand and manufactured ceramics. A significant shift in demand from frac sand to other proppants, or the development of new processes to make hydraulic fracturing more efficient could replace it altogether, could cause a decline in the demand for the frac sand we produce and result in a material adverse effect on our business, results of operations and financial condition.
An increase in the supply of frac sand having similar characteristics as the frac sand we produce could make it more difficult for us to renew or replace our existing contracts on favorable terms, or at all.
If significant new reserves of frac sand are discovered and developed, and those frac sands have similar characteristics to the frac sand we produce, we may be unable to renew or replace our existing contracts on favorable terms, or at all. Specifically, if frac sand becomes more readily available, our customers may not be willing to enter into long-term take-or-pay contracts, may demand lower prices or both, which could have a material adverse effect on our business, results of operations and financial condition. For example, new supplies of regional frac sand from our competitors have come online in 2018, primarily in the Permian Basin of West Texas. These new supplies have had, and may continue to have, a negative impact on our ability to market our Northern White Sand in the Permian Basin or other markets in close proximity to these new mines, which could lead to pressure to further reduce prices to compete effectively with these new regional suppliers.
A substantial portion of our accounts and unbilled receivables consists of shortfall payments due from one customer under a long-term take-or-pay contract, which is currently subject to litigation.
A substantial portion of our accounts and unbilled receivables consists of shortfall payments due from one customer under a long-term take-or-pay contract. We expect additional shortfall amounts to continue to accrue in 2020. We are currently in litigation with such customer regarding, among other things, nonpayment of shortfall amounts due. Litigation, by its nature, can be costly, time consuming, and unpredictable, and we can provide no assurance that the outstanding amounts due will be collected in a timely manner, if at all. As of December 31, 2019, $37.4 million of accounts and unbilled receivables were from the foregoing customer.

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Our long-term take-or-pay contracts may preclude us from taking advantage of increasing prices for frac sand or mitigating the effect of increased operational costs during the term of those contracts.
The long-term take-or-pay contracts we have may negatively impact our results of operations. Our long-term take-or-pay contracts require our customers to pay a specified price for a specified volume of frac sand each month. Although our long-term take-or-pay contracts provide for price increases based on crude oil prices, such increases are generally calculated on a quarterly basis and do not increase dollar-for-dollar with increases in spot market prices. As a result, in periods with increasing prices our sales may not keep pace with market prices.
Additionally, if our operational costs increase during the terms of our long-term take-or-pay contracts, we will not be able to pass some of those increased costs to our customers. If we are unable to otherwise mitigate those increased operational costs, our net income could decline.
Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured.
Our operations are exposed to potential natural disasters, including blizzards, tornadoes, storms, floods, other adverse weather conditions and earthquakes. If any of these events were to occur, we could incur substantial losses because of personal injury or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage resulting in curtailment or suspension of our operations.
We are not fully insured against all risks incident to our business, including the risk of our operations being interrupted due to severe weather and natural disasters. Furthermore, we may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies have increased and could escalate further. In addition, sub-limits have been imposed for certain risks. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we are not fully insured, it could have a material adverse effect on our business, results of operations and financial condition.
Our production process consumes large amounts of natural gas and electricity. An increase in the price or a significant interruption in the supply of these or any other energy sources could have a material adverse effect on our business, results of operations and financial condition.
Energy costs, primarily natural gas and electricity, represented approximately 4.7% of our total cost of goods sold for the year ended December 31, 2019. Natural gas is currently the primary fuel source used for drying in our frac sand production process. As a result, our profitability will be impacted by the price and availability of natural gas we purchase from third parties. Because we have not contracted for the provision of all of our natural gas usage on a fixed-price basis, our costs and profitability will be impacted by fluctuations in prices for natural gas. The price and supply of natural gas is unpredictable and can fluctuate significantly based on international, political and economic circumstances, as well as other events outside our control, such as changes in supply and demand due to weather conditions, actions by OPEC, governmental sanctions, and other oil and natural gas producers, regional production patterns, security threats and environmental concerns. In addition, potential climate change regulations or carbon or emissions taxes could result in higher cost of production for energy, which may be passed on to us in whole or in part. In order to manage the risk of volatile natural gas prices, we may hedge natural gas prices through the use of derivative financial instruments, such as forwards, swaps and futures. However, these measures carry risk (including nonperformance by counterparties) and do not in any event entirely eliminate the risk of decreased margins as a result of propane or natural gas price increases. We further attempt to mitigate these risks by including in our sales contracts fuel surcharges based on natural gas prices exceeding certain benchmarks. A significant increase in the price of energy that is not recovered through an increase in the price of our products or covered through our hedging arrangements or an extended interruption in the supply of natural gas or electricity to our production facilities could have a material adverse effect on our business, results of operations and financial condition.
Increases in the price of diesel fuel may adversely affect our business, results of operations and financial condition.
Diesel fuel costs generally fluctuate with increasing and decreasing world crude oil prices and, accordingly, are subject to political, economic and market factors that are outside of our control. Our operations are dependent on earthmoving equipment, locomotives and tractor trailers, and diesel fuel costs are a significant component of the operating expense of these vehicles. Accordingly, increased diesel fuel costs could have an adverse effect on our business, results of operations and financial condition.
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A facility closure entails substantial costs, and if we close our facility sooner than anticipated, our results of operations may be adversely affected.
We base our assumptions regarding the life of our Oakdale facility on detailed studies that we perform from time to time, but our studies and assumptions may not prove to be accurate. If we close our Oakdale facility sooner than expected, sales will decline unless we are able to acquire and develop additional facilities, which may not be possible. The closure of our Oakdale facility would involve significant fixed closure costs, including accelerated employment legacy costs, severance-related obligations, reclamation and other environmental costs and the costs of terminating long-term obligations, including energy contracts and equipment leases. We accrue for the costs of reclaiming open pits, stockpiles, non-saleable sand, ponds, roads and other mining support areas over the estimated mining life of our property. If we were to reduce the estimated life of our Oakdale facility, the fixed facility closure costs would be applied to a shorter period of production, which would increase the cost of production per ton produced and could materially and adversely affect our business, results of operations and financial condition.
Applicable statutes and regulations require that mining property be reclaimed following a mine closure in accordance with specified standards and an approved reclamation plan. The plan addresses matters such as removal of facilities and equipment, regrading, prevention of erosion and other forms of water pollution, re-vegetation and post-mining land use. We may be required to post a surety bond or other form of financial assurance equal to the cost of reclamation as set forth in the approved reclamation plan. The establishment of the final mine closure reclamation liability is based on permit requirements and requires various estimates and assumptions, principally associated with reclamation costs and production levels. If our accruals for expected reclamation and other costs associated with facility closures for which we will be responsible were later determined to be insufficient, our business, results of operations and financial condition may be adversely affected.
Our operations are dependent on our rights and ability to mine our properties and on our having renewed or received the required permits and approvals from governmental authorities and other third parties.
We hold numerous governmental, environmental, mining and other permits, water rights and approvals authorizing operations at our Oakdale facility. For our extraction and processing in Wisconsin, the permitting process is subject to federal, state and local authority. For example, on the federal level, a Mine Identification Request (MSHA Form 7000-51) must be filed and obtained before mining commences. If wetlands are impacted, a U.S. Army Corps of Engineers Wetland Permit is required. At the state level, a series of permits are required related to air quality, wetlands, water quality (waste water, storm water), grading permits, endangered species, archeological assessments and high capacity wells in addition to others depending upon site specific factors and operational detail. At the local level, zoning, building, storm water, erosion control, wellhead protection, road usage and access are all regulated and require permitting to some degree. A non-metallic mining reclamation permit is required. A decision by a governmental agency or other third party to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our business, results of operations and financial condition.
Title to, and the area of, mineral properties and water rights may also be disputed. Mineral properties sometimes contain claims or transfer histories that examiners cannot verify. A successful claim that we do not have title to our property or lack appropriate water rights could cause us to lose any rights to explore, develop and extract minerals, without compensation for our prior expenditures relating to such property. Our business may suffer a material adverse effect in the event we have title deficiencies.
A shortage of skilled labor together with rising labor costs in the excavation industry may further increase operating costs, which could adversely affect our business, results of operations and financial condition.
Efficient sand excavation using modern techniques and equipment requires skilled laborers, preferably with several years of experience and proficiency in multiple tasks, including processing of mined minerals. If there is a shortage of experienced labor in Wisconsin, we may find it difficult to hire or train the necessary number of skilled laborers to perform our own operations which could have an adverse impact on our business, results of operations and financial condition.
The manufacturing of our SmartSystems equipment requires skilled and experienced personnel who can perform physically demanding work. Our ability to operate the manufacturing facility in Saskatoon depends upon our ability to have access to the services of skilled workers. The demand for skilled workers is high, and the supply is limited. As a result, competition for experienced personnel is intense, and a significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the rates that we must pay or both. If either of these events were to occur, there could be an adverse impact on our business, results of operations and financial condition.
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Our business may suffer if we lose, or are unable to attract and retain, key personnel.
We depend to a large extent on the services of our senior management team and other key personnel. Members of our senior management and other key employees bring significant experience to the market environment in which we operate. Competition for management and key personnel is intense, and the pool of qualified candidates is limited. The loss of any of these individuals or the failure to attract additional personnel, as needed, could have a material adverse effect on our operations and could lead to higher labor costs or the use of less-qualified personnel. In addition, if any of our executives or other key employees were to join a competitor or form a competing company, we could lose customers, suppliers, know-how and key personnel. We do not maintain key-man life insurance with respect to any of our employees. Our success is dependent on our ability to continue to attract, employ and retain highly skilled personnel.
Failure to maintain effective quality control systems at our mining, processing and production facilities could have a material adverse effect on our business, results of operations and financial condition.
The performance and quality of our products are critical to the success of our business. These factors depend significantly on the effectiveness of our quality control systems, which, in turn, depends on a number of factors, including the design of our quality control systems, our quality-training program and our ability to ensure that our employees adhere to our quality control policies and guidelines. Any significant failure or deterioration of our quality control systems could have a material adverse effect on our business, results of operations and financial condition.
Seasonal and severe weather conditions could have a material adverse impact on our business, results of operations and financial condition.
Our business could be materially adversely affected by severe weather conditions. Severe weather conditions may affect our customers’ operations, thus reducing their need for our products, impact our operations by resulting in weather-related damage to our facilities and equipment and impact our customers’ ability to take delivery of our products at our plant site. Any weather-related interference with our operations could force us to delay or curtail services and potentially breach our contractual obligations to deliver minimum volumes or result in a loss of productivity and an increase in our operating costs.
In addition, winter weather conditions impact our operations by causing us to reduce our excavation and wet plant related production activities during the winter months. During non-winter months, we excavate excess sand to build a stockpile that will feed the dry plants (along with the sand provided by our year-round wet plant), which continue to operate during the winter months. Unexpected winter conditions (such as winter arriving earlier than expected or lasting longer than expected) may result in us not having a sufficient sand stockpile to operate our dry plants during winter months, which could result in us being unable to deliver our contracted sand amounts during such time and lead to a material adverse effect on our business, results of operations and financial condition.
Our cash flow fluctuates on a seasonal basis.
Our cash flow is affected by a variety of factors, including weather conditions and seasonal periods. Seasonal fluctuations in weather impact the production levels at our wet processing plant. While our sales and finished product production levels are contracted evenly throughout the year, our mining and wet sand processing activities are reduced during winter months. As a consequence, we experience lower cash costs in the first and fourth quarter of each calendar year.
We do not own the land on which our Van Hook, North Dakota terminal facility is located, which could disrupt our operations.
We do not own the land on which our Van Hook, North Dakota terminal is located and instead own a leasehold interest and right-of-way for the operation of this facility.  Upon expiration, termination or other lapse of our current leasehold terms, we may be unable to renew our existing lease or right-of-way on terms favorable to us, or at all.  Any renegotiation on less favorable terms or inability to enter into new leases on economically acceptable terms upon the expiration, termination or other lapse of our current lease or right-of-way could cause us to cease operations on the affected land, increase costs related to continuing operations elsewhere and have a material adverse effect on our business, financial condition and results of operations.
A terrorist attack or armed conflict could harm our business.
Terrorist activities, anti-terrorist efforts and other armed conflicts involving the United States could adversely affect the U.S. and global economies and could prevent us from meeting financial and other obligations. We could experience loss of business, delays or defaults in payments from payors or disruptions of fuel supplies and markets if pipelines, production facilities, processing plants, refineries or transportation facilities are direct targets or indirect casualties of an act of terror or war. Such activities could reduce the overall demand for oil and natural gas, which, in turn, could also reduce the demand for
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our frac sand. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could adversely affect our results of operations, impair our ability to raise capital or otherwise adversely impact our ability to realize certain business strategies.
Diminished access to water may adversely affect our operations or the operations of our customers.
The mining and processing activities at our facility requires significant amounts of water. Additionally, the development of oil and natural gas properties through fracture stimulation likewise requires significant water use. We have obtained water rights that we currently use to service the activities at our Oakdale facility, and we plan to obtain all required water rights to service other properties we may develop or acquire in the future. However, the amount of water that we and our customers are entitled to use pursuant to water rights must be determined by the appropriate regulatory authorities in the jurisdictions in which we and our customers operate. Such regulatory authorities may amend the regulations regarding such water rights, increase the cost of maintaining such water rights or eliminate our current water rights, and we and our customers may be unable to retain all or a portion of such water rights. These new regulations, which could also affect local municipalities and other industrial operations, could have a material adverse effect on our operating costs and effectiveness if implemented. Such changes in laws, regulations or government policy and related interpretations pertaining to water rights may alter the environment in which we and our customers do business, which may negatively affect our financial condition and results of operations.
We may be subject to interruptions or failures in our information technology systems, including cyber-attacks.
We rely on sophisticated information technology systems and infrastructure to support our business, including process control technology. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunication failures, usage errors by employees, computer viruses, cyber-attacks or other security breaches, or similar events. If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations.
We may be the target of attempted cyber-attacks, computer viruses, malicious code, phishing attacks, denial of service attacks and other information security threats. To date, cyber-attacks have not had a material impact on our financial condition, results or business; however, we could suffer material financial or other losses in the future and we are not able to predict the severity of these attacks. The occurrence of a cyber-attack, breach, unauthorized access, misuse, computer virus or other malicious code or other cyber security event could jeopardize or result in the unauthorized disclosure, gathering, monitoring, misuse, corruption, loss or destruction of confidential and other information that belongs to us, our customers, our counterparties, or third-party service providers that is processed and stored in, and transmitted through, our computer systems and networks. The occurrence of such an event could also result in damage to our software, computers or systems, or otherwise cause interruptions or malfunctions in our, our customers’, our counterparties’ or third parties’ operations. This could result in significant losses, loss of customers and business opportunities, reputational damage, litigation, regulatory fines, penalties or intervention, reimbursement or other compensatory costs, or otherwise adversely affect our business, financial condition or results of operations.
The reliability and capacity of our information technology systems is critical to our operations. Any material disruption in our information technology systems, or delays or difficulties in implementing or integrating new systems or enhancing current systems, could have an adverse effect on our business, and results of operations.
If we are unable to fully protect our intellectual property rights, we may suffer a loss in our competitive advantage.
The commercial success of our SmartSystems wellsite proppant storage solutions depends on patented and proprietary information and technologies, know-how and other intellectual property. Because of the technical nature of this business, we rely on a combination of patent, copyright, trademark and trade secret laws, and restrictions on disclosure to protect our intellectual property. As of December 31, 2019, we had several patents related to our SmartSystems, including patents related to our silo storage system and patents related to lifting and lowering our storage silos. We customarily enter into confidentiality or license agreements with our employees, consultants and corporate partners and control access to and distribution of our design information, documentation and other patented and proprietary information. In addition, in the future we may develop or acquire additional patents or patent portfolios, which could require significant cash expenditures. However, third parties may knowingly or unknowingly infringe our patent or other proprietary rights, or challenge patents or proprietary rights held by us, and pending and future trademark and patent applications may not be approved. Failure to protect, monitor and control the use of our existing intellectual property rights could cause us to lose our competitive advantage and incur significant expenses. It is possible that our competitors or others could independently develop the same or similar technologies or otherwise obtain access to our unpatented technologies. In such case, our trade secrets would not prevent third parties from competing with us. Consequently, our results of operations may be adversely affected. Furthermore, third parties or our employees may infringe or misappropriate our patented or proprietary technologies or other intellectual property rights, which
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could also harm our business and results of operations. Policing unauthorized use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available.
We may be adversely affected by disputes regarding intellectual property rights of third parties.
Third parties from time to time may initiate litigation against us by asserting that the conduct of our business infringes, misappropriates or otherwise violates intellectual property rights. We may not prevail in any such legal proceedings related to such claims, and our storage systems and related items may be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual property rights of others. If we are sued for infringement and lose, we could be required to pay substantial damages and/or be enjoined from using or selling the infringing products or technology. Any legal proceeding concerning intellectual property could be protracted and costly regardless of the merits of any claim and is inherently unpredictable and could have a material adverse effect on our financial condition, regardless of its outcome.
If we were to discover that our technologies or products infringe valid intellectual property rights of third parties, we may need to obtain licenses from these parties or substantially re-engineer our products in order to avoid infringement. We may not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer our products successfully. If our inability to obtain required licenses for our technologies or products prevents us from selling our products, that could adversely impact our financial condition and results of operations.
We currently rely on a limited number of suppliers for certain equipment and materials to build our SmartSystems, and our reliance on a limited number of suppliers for such equipment and materials exposes us to risks including price and timing of delivery.
We currently rely on a limited number of suppliers for equipment and materials to build our SmartSystems. If demand for our systems or the components necessary to build such systems increases or suppliers of equipment face financial distress or bankruptcy, our suppliers may not be able to provide such equipment on schedule at the current price or at all. In particular, steel is the principal raw material used in the manufacture of our systems, and the price of steel has historically fluctuated on a cyclical basis and will depend on a variety of factors over which we have no control, including trade tariffs. Additionally, we depend on a limited number of suppliers for certain mechanical and electrical components that we use in our systems which may not have direct replacements available from alternate suppliers. If our suppliers are unable to provide the raw materials and components needed to build our systems on schedule at the current price or at all, we could be required to seek other suppliers for the raw materials and components needed to build and operate our systems, which may adversely affect our revenues or increase our costs. Any inability to find alternative components at prices or with quality specifications similar to those deployed today could result in delays or a loss of customers.
Unsatisfactory safety performance may negatively affect our customer relationships and, to the extent we fail to retain existing customers or attract new customers, adversely impact our revenues.
Our ability to retain existing customers and attract new business is dependent on many factors, including our ability to demonstrate that we can reliably and safely operate all aspects of our business in a manner that is consistent with applicable laws, rules and permits, which legal requirements are subject to change. In addition, certain customers require compliance with their internal safety protocols. Existing and potential customers consider the safety record of their third-party service providers to be of high importance in their decision to engage such providers. If one or more accidents were to occur in connection with our business, the affected customer may seek to terminate, cancel or substantially reduce its business with us, which could cause us to lose substantial revenues. Furthermore, our ability to attract new customers may be impaired if such potential customers elect not to engage us because they view our safety record as unacceptable. In addition, it is possible that we will experience multiple or particularly severe accidents in the future, causing our safety record to deteriorate. This may be more likely as we continue to grow, if we experience high employee turnover or labor shortage, or if we hire inexperienced personnel to bolster our staffing needs.
We may be subject to legal claims, such as personal injury and property damage, which could materially adversely affect our financial condition, prospects and results of operations.
As we focus on growing our business, particularly as it relates to our SmartSystems offerings, our business may become increasingly subject to inherent risks that can cause personal injury or loss of life, damage to or destruction of property, equipment or the environment or the suspension of our operations. In addition, we may be subject to legal proceedings with our customers or suppliers, particularly as it relates to contract disputes. Regardless of the merit of particular claims, litigation may be expensive, time consuming, disruptive to our operations and distracting to management.
The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against us or an indemnified third party in a reporting period for amounts in excess of management’s expectations, our financial condition and operating
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results for that reporting period could be materially adversely affected. Further, such an outcome could result in significant compensatory, punitive or trebled monetary damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief against us that could materially adversely affect our financial condition and operating results. We maintain what we believe is customary and reasonable insurance to protect our business against these potential losses, but such insurance may not be adequate to cover our liabilities, and we are not fully insured against all risks.
Risks Related to Environmental, Mining and Other Regulation
Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing and the potential for related litigation could result in increased costs, additional operating restrictions or delays for our customers, which could cause a decline in the demand for our frac sand and negatively impact our business, results of operations and financial condition.
We supply frac sand to hydraulic fracturing operators in the oil and natural gas industry. Hydraulic fracturing is an important practice that is used to stimulate production of oil and natural gas from low permeability hydrocarbon bearing subsurface rock formations. The hydraulic fracturing process involves the injection of water, proppants, and chemicals under pressure into the formation to fracture the surrounding rock, increase permeability and stimulate production.
Although we do not directly engage in hydraulic fracturing activities, our customers purchase our frac sand for use in their hydraulic fracturing activities. Hydraulic fracturing is typically regulated by state oil and natural gas commissions and similar agencies. Some states have adopted, and other states are considering adopting, regulations that could impose new or more stringent permitting, disclosure or well construction requirements on hydraulic fracturing operations. Aside from state laws, local land use restrictions may restrict drilling in general or hydraulic fracturing in particular. Municipalities may adopt local ordinances attempting to prohibit hydraulic fracturing altogether or, at a minimum, allow such fracturing processes within their jurisdictions to proceed but regulating the time, place and manner of those processes. In addition, federal agencies have started to assert regulatory authority over the process and various studies have been conducted or are currently underway by the EPA, and other federal agencies concerning the potential environmental impacts of hydraulic fracturing activities. At the same time, certain environmental groups have suggested that additional laws may be needed and, in some instances, have pursued voter ballot initiatives to more closely and uniformly limit or otherwise regulate the hydraulic fracturing process, and legislation has been proposed by some members of Congress to provide for such regulation.
The adoption of new laws or regulations at the federal, state or local levels imposing reporting obligations on, or otherwise limiting or delaying, the hydraulic fracturing process could make it more difficult to complete natural gas wells, increase our customers’ costs of compliance and doing business, and otherwise adversely affect the hydraulic fracturing services they perform, which could negatively impact demand for our frac sand. In addition, heightened political, regulatory, and public scrutiny of hydraulic fracturing practices could expose us or our customers to increased legal and regulatory proceedings, which could be time-consuming, costly, or result in substantial legal liability or significant reputational harm. We could be directly affected by adverse litigation involving us, or indirectly affected if the cost of compliance limits the ability of our customers to operate. Such costs and scrutiny could directly or indirectly, through reduced demand for our frac sand, have a material adverse effect on our business, financial condition and results of operations.
We and our customers are subject to extensive environmental and occupational health and safety regulations that impose, and will continue to impose, significant costs and liabilities. In addition, future regulations, or more stringent enforcement of existing regulations, could increase those costs and liabilities, which could adversely affect our results of operations.
We are subject to a variety of federal, state, and local regulatory environmental requirements affecting the mining and mineral processing industry, including among others, those relating to employee health and safety, environmental permitting and licensing, air and water emissions, water pollution, waste management, remediation of soil and groundwater contamination, land use, reclamation and restoration of properties, hazardous materials, and natural resources. Some environmental laws impose substantial penalties for noncompliance, and others, such as the federal CERCLA, may impose strict, retroactive, and joint and several liabilities for the remediation of releases of hazardous substances. Liability under CERCLA, or similar state and local laws, may be imposed as a result of conduct that was lawful at the time it occurred or for the conduct of, or conditions caused by, prior operators or other third parties. Failure to properly handle, transport, store, or dispose of hazardous materials or otherwise conduct our operations in compliance with environmental laws could expose us to liability for governmental penalties, cleanup costs, and civil or criminal liability associated with releases of such materials into the environment, damages to property, natural resources and other damages, as well as potentially impair our ability to conduct our operations. In addition, future environmental laws and regulations could restrict our ability to expand our facilities or extract our mineral deposits or could require us to acquire costly equipment or to incur other significant expenses in connection with our business. Future events, including adoption of new, or changes in any existing environmental requirements (or their interpretation or enforcement) and the costs associated with complying with such requirements, could have a material adverse effect on us.
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Any failure by us to comply with applicable environmental laws and regulations may cause governmental authorities to take actions that could adversely impact our operations and financial condition, including:
•issuance of administrative, civil, or criminal penalties;
•denial, modification, or revocation of permits or other authorizations;
•occurrence of delays in permitting or performance of projects;
•imposition of injunctive obligations or other limitations on our operations, including cessation of operations; and
•requirements to perform site investigatory, remedial, or other corrective actions.
Any such regulations could require us to modify existing permits or obtain new permits, implement additional pollution control technology, curtail operations, increase significantly our operating costs, or impose additional operating restrictions among our customers that reduce demand for our services.
We may not be able to comply with any new or amended laws and regulations that are adopted, and any new or amended laws and regulations could have a material adverse effect on our operating results by requiring us to modify our operations or equipment or shut down our facility. Additionally, our customers may not be able to comply with any new or amended laws and regulations, which could cause our customers to curtail or cease operations. We cannot at this time reasonably estimate our costs of compliance or the timing of any costs associated with any new or amended laws and regulations, or any material adverse effect that any new or modified standards will have on our customers and, consequently, on our operations.
Silica-related legislation, health issues and litigation could have a material adverse effect on our business, reputation or results of operations.
We are subject to laws and regulations relating to human exposure to crystalline silica. Several federal and state regulatory authorities, including MSHA, may continue to propose changes in their regulations regarding workplace exposure to crystalline silica, such as permissible exposure limits and required controls and personal protective equipment. We may not be able to comply with any new or amended laws and regulations that are adopted, and any new or amended laws and regulations could have a material adverse effect on our operating results by requiring us to modify or cease our operations.
In addition, the inhalation of respirable crystalline silica is associated with the lung disease silicosis. There is evidence of an association between crystalline silica exposure or silicosis and lung cancer and a possible association with other diseases, including immune system disorders such as scleroderma. These health risks have been, and may continue to be, a significant issue confronting the proppant industry. Concerns over silicosis and other potential adverse health effects, as well as concerns regarding potential liability from the use of frac sand, may have the effect of discouraging our customers’ use of our frac sand. The actual or perceived health risks of mining, processing and handling proppants could materially and adversely affect proppant producers, including us, through reduced use of frac sand, the threat of product liability or employee lawsuits, increased scrutiny by federal, state and local regulatory authorities of us and our customers or reduced financing sources available to the frac sand industry.
We are subject to the Federal Mine Safety and Health Act of 1977, which imposes stringent health and safety standards on numerous aspects of our operations.
Our operations are subject to the Federal Mine Safety and Health Act of 1977, as amended by the Mine Improvement and New Emergency Response Act of 2006, which imposes stringent health and safety standards on numerous aspects of mineral extraction and processing operations, including the training of personnel, operating procedures, operating equipment, and other matters. Our failure to comply with such standards, or changes in such standards or the interpretation or enforcement thereof, could have a material adverse effect on our business and financial condition or otherwise impose significant restrictions on our ability to conduct mineral extraction and processing operations.
We and our customers are subject to other extensive regulations, including licensing, plant and wildlife protection and reclamation regulation, that impose, and will continue to impose, significant costs and liabilities. In addition, future regulations, or more stringent enforcement of existing regulations, could increase those costs and liabilities, which could adversely affect our results of operations.
In addition to the regulatory matters described above, we and our customers are subject to extensive governmental regulation on matters such as permitting and licensing requirements, plant and wildlife protection, wetlands protection, reclamation and restoration activities at mining properties after mining is completed, the discharge of materials into the environment, and the effects that mining and hydraulic fracturing have on groundwater quality and availability. Our future
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success depends, among other things, on the quantity and quality of our frac sand deposits, our ability to extract these deposits profitably, and our customers being able to operate their businesses as they currently do.
In order to obtain permits and renewals of permits in the future, we may be required to prepare and present data to governmental authorities pertaining to the potential adverse impact that any proposed excavation or production activities, individually or in the aggregate, may have on the environment. Certain approval procedures may require preparation of archaeological surveys, endangered species studies, and other studies to assess the environmental impact of new sites or the expansion of existing sites. Compliance with these regulatory requirements is expensive and significantly lengthens the time needed to develop a site. Finally, obtaining or renewing required permits is sometimes delayed or prevented due to community opposition and other factors beyond our control. The denial of a permit essential to our operations or the imposition of conditions with which it is not practicable or feasible to comply could impair or prevent our ability to develop or expand a site. Significant opposition to a permit by neighboring property owners, members of the public, or other third parties, or delay in the environmental review and permitting process also could delay or impair our ability to develop or expand a site. New legal requirements, including those related to the protection of the environment, could be adopted that could materially adversely affect our mining operations (including our ability to extract or the pace of extraction of mineral deposits), our cost structure, or our customers’ ability to use our frac sand. Such current or future regulations could have a material adverse effect on our business and we may not be able to obtain or renew permits in the future.
Our inability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property could have a material adverse effect on our business, financial condition and results of operations.
We are generally obligated to restore property in accordance with regulatory standards and our approved reclamation plan after it has been mined. We are required under federal, state, and local laws to maintain financial assurances, such as surety bonds, to secure such obligations. The inability to acquire, maintain or renew such assurances, as required by federal, state, and local laws, could subject us to fines and penalties as well as the revocation of our operating permits. Such inability could result from a variety of factors, including:
•the lack of availability, higher expense, or unreasonable terms of such financial assurances;
•the ability of current and future financial assurance counterparties to increase required collateral; and
•the exercise by financial assurance counterparties of any rights to refuse to renew the financial assurance instruments.
Our inability to acquire, maintain, or renew necessary financial assurances related to the reclamation and restoration of mining property could have a material adverse effect on our business, financial condition, and results of operations.
Climate change legislation and regulatory initiatives could result in increased compliance costs for us and our customers.
In recent years, the U.S. Congress has considered legislation to reduce emissions of GHGs, including methane, a primary component of natural gas, and carbon dioxide, a byproduct of the burning of natural gas. It presently appears unlikely that comprehensive climate legislation will be passed by either house of Congress in the near future, although energy legislation and other regulatory initiatives are expected to be proposed that may be relevant to GHG emissions issues. In addition, a number of states are addressing GHG emissions, primarily through the development of emission inventories or regional GHG cap and trade programs. Depending on the particular program, we could be required to control GHG emissions or to purchase and surrender allowances for GHG emissions resulting from our operations. Independent of Congress, the EPA has adopted regulations controlling GHG emissions under its existing authority under the federal CAA. For example, following its findings that emissions of GHGs present an endangerment to human health and the environment because such emissions contributed to warming of the earth’s atmosphere and other climatic changes, the EPA has adopted regulations under existing provisions of the CAA that, among other things establish construction and operating permit reviews for GHG emissions from certain large stationary sources that are already potential major sources for conventional pollutants. In addition, the EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified production, processing, transmission and storage facilities in the United States on an annual basis. In addition, in December 2015, over 190 countries, including the United States, reached an agreement to reduce global greenhouse gas emissions, also known as the Paris Agreement.  The Paris Agreement entered into force in November 2016 after more than 170 nations, including the United States, ratified or otherwise indicated their intent to be bound by the agreement.  However, in June 2017, President Trump announced that the United States intends to withdraw from the Paris Agreement and to seek negotiations either to reenter the Paris Agreement on different terms or enter into a separate agreement.  In August 2017, the U.S. Department of State officially informed the United Nations of the United States’ intent to withdraw from the Paris Agreement, and in November 2019 formally initiated the withdrawal process, which would result in an effective exit date of November 2020. The United States’ adherence to the exit process and/or the terms on which the United States may re-enter the Paris Agreement or a separately negotiated agreement are unclear at this time.  To the extent that the United States and other countries implement this agreement or impose other climate change
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regulations on the oil and natural gas industry, it could have an adverse effect on our business because substantial limitations on GHG emissions could adversely affect demand for the oil and natural gas that is produced by our customers. Finally, many scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events; if any such effects were to occur, they could have an adverse effect on our operations and our customers’ exploration and production operations.
Risks Related to Ownership of Our Common Stock
Our stock price could be volatile, and you may not be able to resell shares of your common stock at or above the price you paid.
The stock markets generally have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Volatility in the market price of our common stock may prevent you from being able to sell your common stock at or above the price at which you purchased the stock. As a result, you may suffer a loss on your investment. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.
In addition to the risks described in this section, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:
•our operating and financial performance;
•quarterly variations in the rate of growth of our financial indicators, such as revenues, EBITDA, Adjusted EBITDA, contribution margin, net income, and net income per share;
•the public reaction to our press releases, our other public announcements, and our filings with the SEC;
•strategic actions by our competitors;
•our failure to meet revenue or earnings estimates by research analysts or other investors;
•changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;
•speculation in the press or investment community;
•the failure of research analysts to cover our common stock;
•sales of our common stock by us or our, stockholders, or the perception that such sales may occur;
•changes in accounting principles, policies, guidance, interpretations, or standards;
•additions or departures of key management personnel;
•actions by our stockholders;
•general market conditions, including fluctuations in commodity prices, sand-based proppants, or industrial and recreational sand-based products;
•domestic and international economic, legal and regulatory factors unrelated to our performance; and
•the realization of any risks described under this “Risk Factors” section.
We are subject to certain requirements of Section 404 of the Sarbanes-Oxley Act. If we are unable to timely comply with Section 404 or if the costs related to compliance are significant, our profitability, stock price, results of operations and financial condition could be materially adversely affected.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act beginning December 31, 2017. Section 404 requires that we document and test our internal control over financial reporting and issue management’s assessment of our internal control over financial reporting. This section also requires that our independent registered public accounting firm opine on those internal controls upon becoming a large accelerated filer, as defined in the SEC rules, or
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otherwise ceasing to qualify as an emerging growth company under the JOBS Act. We are evaluating our existing controls against the standards adopted by the Committee of Sponsoring Organizations of the Treadway Commission. During the course of our ongoing evaluation and integration of the internal control over financial reporting, we may identify areas requiring improvement, and we may have to design enhanced processes and controls to address issues identified through this review.
We believe that the out-of-pocket costs, diversion of management’s attention from running the day-to-day operations and operational changes caused by the need to comply with the requirements of Section 404 of the Sarbanes-Oxley Act could be significant. If the time and costs associated with such compliance exceed our current expectations, our results of operations could be adversely affected.
If we fail to comply with the requirements of Section 404 or if we or our independent registered public accounting firm identify and report such material weaknesses, the accuracy and timeliness of the filing of our annual and quarterly reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the stock price of our common stock. In addition, a material weakness in the effectiveness of our internal control over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition.
The concentration of our capital stock ownership among our largest stockholders and their affiliates will limit your ability to influence corporate matters.
As of December 31, 2019, Clearlake beneficially owns approximately 25.6% of our outstanding common stock and our Chief Executive Officer beneficially owns approximately 15.6% of our outstanding common stock. Consequently, Clearlake and our Chief Executive Officer (each of whom we sometimes refer to as a “Principal Stockholder”) will continue to have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Additionally, we are party to a stockholders’ agreement pursuant to which, so long as either Principal Stockholder maintains certain beneficial ownership levels of our common stock, each Principal Stockholder will have certain rights, including board of directors and committee designation rights and consent rights, including the right to consent to change in control transactions. For additional information, please read “Certain Relationships and Related Party Transactions—Stockholders Agreement” in the prospectus included in our Registration Statement on Form S-1 (Registration No. 333-215554), initially filed with the SEC on January 13, 2017.  This concentration of ownership and the rights of our Principal Stockholders under the stockholders agreement, will limit your ability to influence corporate matters, and as a result, actions may be taken that you may not view as beneficial.
Furthermore, conflicts of interest could arise in the future between us and Clearlake and its affiliates, including its portfolio companies, concerning among other things, potential competitive business activities or business opportunities. Clearlake is a private equity firm in the business of making investments in entities in a variety of industries. As a result, Clearlake’s existing and future portfolio companies which it controls may compete with us for investment or business opportunities. These conflicts of interest may not be resolved in our favor.
The price of our common stock may fluctuate significantly, and you could lose all or part of your investment.
As of December 31, 2019, there were 21,595,357 publicly traded shares of common stock held by our public common stockholders. Although our common stock is listed on the NASDAQ, we do not know whether an active trading market will continue to develop or how liquid that market might be. You may not be able to resell your common stock at or above the public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common stock and limit the number of investors who are able to buy the common stock.
Our amended and restated certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities.
Our amended and restated certificate of incorporation provides for the allocation of certain corporate opportunities between us and Clearlake. Under these provisions, neither Clearlake, its affiliates and investment funds, nor any of their respective principals, officers, members, managers and/or employees, including any of the foregoing who serve as our officers or directors, will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. For instance, a director of our company who also serves or is a principal, officer, member, manager and/or employee of Clearlake or any of its affiliates or investment funds may pursue certain acquisitions or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition and results of operations if attractive corporate opportunities are allocated by Clearlake to itself or its affiliates or investment funds instead of to us. The terms of our amended and restated certificate of incorporation are more
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fully described in “Description of Capital Stock” in the prospectus included in our Registration Statement on Form S-1 (Registration No. 333-215554), initially filed with the SEC on January 13, 2017.
If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price and trading volume of our common stock could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our securities, the price of our securities would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and other securities and their trading volume to decline.
Our amended and restated certificate of incorporation and amended and restated bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our common stock.
Our amended and restated certificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us. In addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including:
•advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders;
•provisions that divide our board of directors into three classes of directors, with the classes to be as nearly equal in number as possible;
•provisions that prohibit stockholder action by written consent after the date on which our Principal Stockholders collectively cease to beneficially own at least 50% of the voting power of the outstanding shares of our stock entitled to vote;
•provisions that provide that special meetings of stockholders may be called only by the board of directors or, for so long as a Principal Stockholder continues to beneficially own at least 20% of the voting power of the outstanding shares of our stock, such Principal Stockholder;
•provisions that provide that our stockholders may only amend our certificate of incorporation or bylaws with the approval of at least 66 2/3% of the voting power of the outstanding shares of our stock entitled to vote, or for so long as our Principal Stockholders collectively continue to beneficially own at least 50% of the voting power of the outstanding shares of our stock entitled to vote, with the approval of a majority of the voting power of the outstanding shares of our stock entitled to vote;
•provisions that provide that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws; and
•provisions that establish advance notice and certain information requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
We do not currently pay dividends on our common stock, and our debt agreements place certain restrictions on our ability to do so. Consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
We do not currently pay dividends on shares of our common stock in the foreseeable future. Additionally, our ABL Credit Facility places certain restrictions on our ability to pay cash dividends. Consequently, unless we revise our dividend policy, your only opportunity to achieve a return on your investment in us will be if you sell your common stock at a price greater than you paid for it. There is no guarantee that the price of our common stock that will prevail in the market will ever exceed the price that you previously paid.
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Future sales of our common stock in the public market could reduce our stock price, and the sale or issuance of equity or convertible securities may dilute your ownership in us.
We may sell additional shares of common stock in subsequent public offerings. We may also issue additional shares of common stock or convertible securities. As of December 31, 2019, we have outstanding 42,852,288 shares of common stock. Clearlake beneficially owns 10,956,160 shares of our common stock, or approximately 25.6% of our total outstanding shares and our Chief Executive Officer beneficially owns 6,670,322 shares of our common stock, or approximately 15.6% of our total outstanding shares.
In connection with our initial public offering, we filed a registration statement with the SEC on Form S-8 providing for the registration of shares of our common stock issued or reserved for issuance under our equity incentive plans. Subject to the satisfaction of vesting conditions and the requirements of Rule 144, shares registered under the registration statement on Form S-8 will be available for resale immediately in the public market without restriction.
We have provided certain registration rights for the sale of common stock by certain existing stockholders in the future. The sale of these shares could have an adverse impact on the price of our common stock or on any trading market that may develop.
We cannot predict the size of future issuances of our common stock or securities convertible into common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock.
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, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company. We cannot predict if investors will find our common stock less attractive because we will 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.
We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our common stock held by non-affiliates as of any June 30 or issue more than $1.0 billion of non-convertible debt over a rolling three-year period.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies.
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.
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Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum 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 (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 or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), our amended and restated certificate of incorporation or our bylaws, or (iv) any action asserting a claim against us 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. 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 sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

ITEM 1B. — UNRESOLVED STAFF COMMENTS
None.

ITEM 2. — PROPERTIES
Our primary facility is our 1,256 acres frac sand mine and related processing facility near Oakdale, Wisconsin. In addition, we have invested in two transloading facilities, one in Byron Township, Wisconsin, approximately three miles from our Oakdale facility, and one in Van Hook, North Dakota.
The following table provides key characteristics of our Oakdale facility as of December 31, 2019:
Facility Characteristic 
Description
Site geography Situated on 1,256 contiguous acres, with on-site processing and rail loading facilities.   
Proven recoverable reserves 316 million tons.   
Deposits Sand reserves of up to 200 feet; grade mesh sizes 20/40, 30/50, 40/70 and 100 mesh.
Proven reserve mix Approximately 19% of 20/40 and coarser substrate, 41% of finer 40/70 mesh substrate and approximately 40% of fine 100 mesh substrate. Our 30/50 gradation is a derivative of the 20/40 and 40/70 blends.
Excavation technique Generally shallow overburden allowing for surface excavation.
Annual nameplate processing capacity 5.5 million tons.   
Logistics capabilities Dual served rail line logistics capabilities. On-site transportation infrastructure capable of simultaneously accommodating multiple unit trains and connected to the Canadian Pacific rail network. Additional unit train capable transload facility located approximately three miles from the Oakdale facility in Byron Township that provides access to the Union Pacific rail network.
Royalties $0.50 per ton sold of 70 mesh and coarser substrate.
Expansion Capabilities We believe that with further development and permitting, the Oakdale facility could ultimately be expanded to allow production of up to 9 million tons of frac sand per year.

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In addition to these currently operating facilities, we also own approximately 959 acres in Jackson County, Wisconsin (“Hixton”). The Hixton site is fully permitted to initiate operations and is available for future development. As of December 31, 2019, our Hixton site had approximately 100 million tons of proven recoverable sand reserves. We have no immediate plans to further develop this site.
We have two long-term surface mining leases for properties located in the Permian Basin in Texas that are available for future development.  The first site consists of 1,772 acres in Winkler County, Texas.  This location is adjacent to the Texas & New Mexico Railway (TXN) short line with direct access to State Highway 18.  The second site consists of 2,447 acres in Crane County, Texas.  This location has direct access to Interstate Highway 20.  Based on our preliminary testing, we believe there are sufficient quantities on these sites to establish reserves in the future. We have no immediate plans to further develop these sites.
We lease a 56,000 square foot facility in Saskatoon, Saskatchewan, Canada where we manufacture our SmartSystems wellsite proppant storage solutions.

Our Reserves
We believe that our strategically-located Oakdale and Hixton sites provide us with a large and high-quality mineral reserves base. Mineral resources and reserves are typically classified by confidence (reliability) levels based on the level of exploration, consistency and assurance of geologic knowledge of the deposit. This classification system considers different levels of geoscientific knowledge and varying degrees of technical and economic evaluation. Mineral reserves are derived from in situ resources through application of modifying factors, such as mining, analytical, economic, marketing, legal, environmental, social and governmental factors, relative to mining methods, processing techniques, economics and markets. In estimating our reserves, John T. Boyd does not classify a resource as a reserve unless that resource can be demonstrated to have reasonable certainty to be recovered economically in accordance with the modifying factors listed above. “Reserves” are defined by SEC Industry Guide 7 as that part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. Industry Guide 7 defines “proven (measured) reserves” as reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.
In estimating our reserves, as listed in the table above, John T. Boyd categorizes our reserves as proven recoverable in accordance with these SEC definitions. The quantity and nature of the sand reserves at our Oakdale site are estimated by third-party geologists and mining engineers, and we internally track the depletion rate on an interim basis. The recovery percentage following processing is also an important criterion in determining economic viability of our mineral reserves. We estimated an average processing recovery of approximately 70% at our Oakdale and Hixton locations. Before acquiring new reserves, we perform surveying, drill core analysis and other tests to confirm the quantity and quality of the acquired reserves.
Our Oakdale reserves are located on 1,256 contiguous acres in Monroe County, Wisconsin. We own our Monroe County acreage in fee and acquired surface and mineral rights on all of such acreage from multiple landowners in separate transactions. Our mineral rights are subject to an aggregate non-participating royalty interest of $0.50 per ton sold of coarser than 70 mesh, which we believe is significantly lower than many of our competitors.
In addition to the Oakdale facility, we own the Hixton site that is on approximately 959 acres in Jackson County, Wisconsin. The Hixton site is fully permitted and available for future development. We own our Jackson County acreage in fee and acquired surface and mineral rights on all of such acreage from multiple landowners in separate transactions. Our mineral rights are subject to an aggregate non-participating royalty interest of $0.50 per ton sold of coarser than 70 mesh, which we believe is significantly lower than many of our competitors.
To opine as to the economic viability of our reserves, John T. Boyd reviewed our financial cost and revenue per ton data at the time of the reserve determination. Historical mineral prices are considered in the context of market supply and demand dynamics to further assess the long-term economic viability of the mineral reserve assets that were evaluated over a thirty year measurement period. A range of average sales price assumptions was considered to estimate proven reserves in accordance with the Commission’s definitions. For our Oakdale location, the assumed average sales price was between $26 and $43 per ton over the course of the 30-year measurement period. For our Hixton location, the assumed average sales price was between $23 and $34 per ton over the course of the 30 year measurement period. The reserve estimates are updated annually based on a variety of factors, including sales, changes to mineral properties, changes in mine plan, current pricing forecasts and other business strategies. The recovery percentage following processing is also an important criterion in determining economic viability of our
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mineral reserves. An estimated average processing recovery of approximately 68% was used for our Oakdale and Hixton locations.
Based on their review of our cost structure and their extensive experience with similar operations, John T. Boyd concluded that it is reasonable to assume that we will operate under a similar cost structure over the remaining life of our reserves. John T. Boyd further assumed that if our revenue per ton remained relatively constant over the life of the reserves, our current operating margins are sufficient to expect continued profitability throughout the life of our reserves.

ITEM 3. — LEGAL PROCEEDINGS
From time to time we may be involved in litigation relating to claims arising out of our operations in the normal course of business. The disclosure called for by Part I, Item 3 regarding our legal proceedings is incorporated by reference herein from Part II, Item 8. Note 17 - Commitments and Contingencies - Litigation of the notes to the consolidated financial statements in this Form 10-K for the year ended December 31, 2019.

ITEM 4. — MINE SAFETY DISCLOSURES
We are committed to maintaining a culture that prioritizes mine safety. We believe that our commitment to safety, the environment and the communities in which we operate is critical to the success of our business. Our sand mining operations are subject to mining safety regulation. The U.S. Mining Safety and Health Administration (“MSHA”) is the primary regulatory organization governing frac sand mining and processing. Accordingly, MSHA regulates quarries, surface mines, underground mines and the industrial mineral processing facilities associated with and located at quarries and mines. The mission of MSHA is to administer the provisions of the Federal Mine Safety and Health Act of 1977 and to enforce compliance with mandatory miner safety and health standards. As part of MSHA’s oversight, representatives perform at least two unannounced inspections annually for each above-ground facility.
We are also subject to regulations by the U.S. Occupational Safety and Health Administration (“OSHA”) which has promulgated rules for workplace exposure to respirable silica for several other industries. Respirable silica is a known health hazard for workers exposed over long periods. MSHA is expected to adopt similar rules as part of its “Long Term Items” for rulemaking. Airborne respirable silica is associated with work areas at our site and is monitored closely through routine testing and MSHA inspection. If the workplace exposure limit is lowered significantly, we may be required to incur certain capital expenditures for equipment to reduce this exposure. We also adhere to NISA’s respiratory protection program, and ensures that workers are provided with fitted respirators and ongoing radiological monitoring.
Our operations are subject to the Federal Mine Safety and Health Act of 1977, as amended by the Mine Improvement and New Emergency Response Act of 2006, which imposes stringent health and safety standards on numerous aspects of mineral extraction and processing operations, including the training of personnel, operating procedures, operating equipment, and other matters. Our failure to comply with such standards, or changes in such standards or the interpretation or enforcement thereof, could have a material adverse effect on our business and financial condition or otherwise impose significant restrictions on our ability to conduct mineral extraction and processing operations. Following passage of The Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the numbers of citations and orders charged against mining operations.  The dollar penalties assessed for citations issued has also increased in recent years.  Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Report.
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PART II

ITEM 5. — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of our common stock, traded publicly under the symbol, “SND,” have been publicly traded since November 4, 2016, when our common stock was listed and began trading on the NASDAQ Global Select Market (“NASDAQ”).  Prior to that date, there was no public market for our stock.

Holders of Record
On February 19, 2020, there were 42,847,996 shares of our common stock outstanding, which were held by approximately 29 stockholders of record. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Dividends
Our ability to pay dividends is governed by (i) the provisions of Delaware corporate law, (ii) our Certificate of Incorporation and Bylaws, and (iii) our ABL Credit Facility.  To date, we have not paid or declared any dividends on our common stock and there is no assurance that we will pay any cash dividends on our common stock in the future.  The future payment of cash dividends on our common stock, if any, is within the discretion of our board of directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. 

Smart Sand, Inc. Comparative Stock Performance Graph
The graph below compares the cumulative total stockholder return on our common stock, the cumulative total return on the Russell 3000 Index, the Standard and Poor’s Small Cap 600 GICS Oil & Gas Equipment & Services Sub-Industry Index and a composite average of publicly traded proppant peer companies (U.S. Silica Holding, Inc., Hi-Crush Partners LP, CARBO Ceramics, Inc., Covia Holdings Corporation, and Solaris Oilfield Infrastructure, Inc.) since November 4, 2016, the first day our stock traded on the NASDAQ.
The Graph assumes $100 was invested on November 4, 2016, the first day our stock was traded on the NASDAQ, in our common stock, the Russell 3000, the Standard and Poor’s Small Cap 600 GICS Oil &Gas Equipment & Services Sub-Industry Index and a composite of publicly traded proppant peer companies. The cumulative total return assumes the reinvestment of all dividends. We elected to include the stock performance of a composite of our publicly traded peers as we believe it is an appropriate benchmark for our line of business/industry.
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SND-20191231_G3.JPG
The information contained in this Smart Sand, Inc. Comparative Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
Unregistered Sales of Equity Securities and Use of Proceeds
During the year ended December 31, 2019, no shares were sold by the Company without registration under the Securities Act of 1933.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We are authorized to repurchase shares through open market purchases at prevailing market prices or through privately negotiated transactions as permitted by securities laws and other legal requirements. On November 8, 2018, we announced that the board of directors had approved the repurchase of up to 2,000,000 shares of our common stock during the twelve month period following the announcement of the share repurchase program. On September 11, 2019, the board of directors reauthorized the existing share repurchase program for one year. At December 31, 2019, the maximum number of shares that the Company may repurchase under the current repurchase authority was 1,411,800 shares. There were no share repurchases during the three months ended December 31, 2019.
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ITEM 6. — SELECTED FINANCIAL DATA
The selected historical consolidated financial data presented below should be read in conjunction with “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes and other financial data included elsewhere in this document.
Year Ended December 31,
  2019 2018 2017
2016 (4)
2015
  (in thousands, except per share and per ton amounts)
Income Statement Data:        
Revenues $ 233,073    $ 212,470    $ 137,212    $ 59,231    $ 47,698   
Cost of goods sold 152,021    144,903    100,304    26,569    21,003   
Gross profit 81,052    67,567    36,908    32,662    26,695   
Operating expenses 37,569    41,688    18,203    12,271    10,112   
Operating income 43,483    25,879    18,705    20,391    16,583   
Net income (1)
31,623    18,688    21,526    10,379    4,990   
Net income per common share (1):
       
Basic $ 0.79    $ 0.46    $ 0.54    $ 0.43    $ 0.23   
Diluted $ 0.78    $ 0.46    $ 0.53    $ 0.42    $ 0.19   
Balance Sheet Data (at period end):        
Property, plant and equipment, net (1)
$ 230,461    $ 248,396    $ 171,762    $ 104,096    $ 108,928   
Total assets 361,603    320,292    246,802    173,452    132,564   
Long-term debt, net 28,240    47,893    —    860    64,583   
Total stockholders’ equity (deficit) (1)
244,143    209,360    190,022    142,442    3,729   
Cash Flow Statement Data:        
Net cash provided by operating activities $ 44,633    $ 50,909    $ 15,628    $ 26,703    $ 30,703   
Net cash used in investing activities (25,425)   (125,989)   (51,148)   (2,470)   (29,375)  
Net cash provided by financing activities (18,035)   41,319    23,213    19,405    1,766   
Other Data:        
Adjusted EBITDA (2)
87,071    65,993    30,615    37,839    23,881   
Contribution margin (2)
106,464    83,864    44,197    38,738    31,625   
Contribution margin per ton (2)
$ 43.24    $ 28.00    $ 18.05    $ 46.90    $ 42.11   
Capital expenditures (3)
$ 27,640    $ 110,761    $ 69,378    $ (546)   $ 28,102   
Tons Sold 2,462    2,995    2,449    826    751   
(1)The amounts previously reported have been updated to reflect an immaterial correction as of and for the years ended December 31, 2016 and 2015. The year ended December 31, 2017 includes an immaterial reclassification in Property, plant and equipment, net.
(2)For our definitions of the non-GAAP financial measures of EBITDA, Adjusted EBITDA and contribution margin, and reconciliations of Adjusted EBITDA and contribution margin to our most directly comparable financial measures calculated and presented in accordance with GAAP, please see the section entitled “Non-GAAP Financial Measures” in Item 7 of this Annual Report on Form 10-K.
(3)Negative capital expenditures for the year ended December 31, 2016 resulted from return of deposits paid for projects included in construction in progress. The year ended December 31, 2018 includes approximately $30.0 million for the acquisition of Quickthree Solutions, Inc. (“Quickthree”) and $15.5 million for the acquisition of assets at the Van Hook terminal.
(4)Includes the impact of our IPO, including proceeds received and additional charges incurred.
_________________________
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

ITEM 7. — MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read together with Item 1, “Business,” Item 6, “Selected Financial Data,” and the Consolidated Financial Statements and the related notes in Item 8 of this Annual Report on Form 10-K.
This discussion contains forward-looking statements as a result of many factors, including those set forth under Item 1, “Business—Forward-Looking Statements” and Item 1A, “Risk Factors,” and elsewhere in this report. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those discussed in or implied by forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in Item 1A, “Risk Factors.”
We use EBITDA, Adjusted EBITDA and contribution margin herein as non-GAAP measures of our financial performance. For further discussion of EBITDA, Adjusted EBITDA and contribution margin, see the section entitled “Non-GAAP Financial Measures.” in Item 7 of this Annual Report on Form 10-K. We define various terms to simplify the presentation of information in this Report. All share amounts are presented in thousands.

Factors Impacting Comparability of Our Financial Results
Our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future, principally for the following reasons:
•Impairment loss. In 2019, we recorded impairment loss of $15.5 million, of which $7.6 million relates to our finite-lived developed technology intangible assets and $7.9 million relates to our Hixton, Wisconsin property. In 2018, we recorded an impairment loss of $17.8 million, which related to our goodwill and indefinite-lived trade name intangible asset. These amounts were recorded as an operating expense on the consolidated income statement. See our discussion in the section entitled “GAAP Results of Operations” for additional information regarding these transactions.
•Expansion of our Oakdale facility. In May 2018, we completed an expansion project to increase our nameplate processing capacity at our Oakdale facility from approximately 3.3 million tons per year to approximately 5.5 million tons per year.
•We have increased our sand sales delivered in-basin. In 2018 and 2019, a greater portion of the frac sand that we sold was delivered directly to the Bakken formation in the Williston Basin through our Van Hook terminal. This resulted in higher average selling prices along with additional costs related to such delivery.
•Shortfall Revenue. In 2019, we recorded shortfall revenue of $49.3 million compared to $6.0 million and $1.2 million in 2018 and 2017, respectively. Shortfall revenue of $24.8 million for year ended December 31, 2019 was from a customer with which we have ongoing litigation.
•Market Trends. From early 2017 through the second quarter of 2018, improvements in oil and natural gas prices created a more stable market environment. During the second half of 2018, the demand for Northern White sand decreased, which we believe was due primarily to insufficient takeaway capacity for the incremental oil and natural gas production coming online in the Permian Basin, along with increased availability of regional sand as a source of proppant in the Permian basin. Additionally, oil and natural gas companies reduced their spending in the latter portion of the year due to strong spending in the first half of 2018 and lower oil prices, particularly in the fourth quarter of 2018. Demand briefly recovered during the summer of 2019 before declining toward the end of 2019 as oil and gas companies exhausted their budgets and managed their capital spending to be in line with their expected operating cash flows.
We have found that increasingly over the last two years, customers are disinclined to enter into long-term contracts for their frac sand supply and have instead trended toward purchasing their frac sand supply in the spot market at
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

market prices. Should our customer base continue to limit their exposure to longer term contracts, we intend to increase focus on shorter term contracts to increase sales in the spot market.

Overview
We are a fully integrated frac sand supply and services company, offering complete mine to wellsite proppant supply and logistics solutions to our customers. We produce low-cost, high quality Northern White frac sand, which is a premium proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells. We also offer proppant logistics solutions to our customers through our in-basin transloading terminal and our SmartSytemsTM wellsite proppant storage capabilities. We currently market our products and services primarily to oil and natural gas exploration and production companies and oilfield service companies, sell our sand under a combination of long-term take-or-pay contracts and spot sales in the open market, and provide wellsite proppant storage solutions services and equipment under flexible contract terms custom tailored to meet customers’ needs. We believe that, among other things, the size and favorable geologic characteristics of our sand reserves, the strategic location and logistical advantages of our facilities, our proprietary SmartDepotTM portable wellsite proppant storage silos and the industry experience of our senior management team make us a highly attractive provider of frac sand and proppant logistics services from the mine to the wellsite. 
We own and operate a frac sand mine and related processing facility near Oakdale, Wisconsin, at which we have approximately 316 million tons of proven recoverable sand reserves as of December 31, 2019. We incorporated in Delaware in July 2011 and began operations with 1.1 million tons of annual nameplate processing capacity in July 2012. After several expansions, our current annual nameplate processing capacity at our Oakdale facility is approximately 5.5 million tons of frac sand. Our integrated Oakdale facility, with on-site rail infrastructure and wet and dry sand processing facilities, has access to two Class I rail lines and enables us to process and cost-effectively deliver products to our customers.
We operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin. We operate this terminal under a long-term agreement with Canadian Pacific Railway to service the Van Hook terminal directly along with the other key oil and natural gas exploration and production basins of North America.  The Van Hook terminal became operational in April 2018. Since operations commenced, we have been providing Northern White sand in-basin at this terminal to our contracted and spot sales customers. This terminal allows us to offer more efficient delivery options to customers operating in the Bakken Formation in the Williston Basin.
We also offer to our customers portable wellsite proppant storage through our SmartSystems storage solutions. The SmartSystems provide our customers with the capability to unload, store and deliver proppant at the wellsite, as well as the ability to rapidly set up, takedown and transport the entire system. This capability creates efficiencies, flexibility, enhanced safety and reliability for customers. Through our SmartSystems wellsite proppant storage solutions, we offer the SmartDepot and SmartDepotXLTM silo systems, wellsite transload capabilities, and our rapid deployment trailers. Our SmartDepot silos include passive and active dust suppression technology, along with the capability of a gravity-fed operation. Our rapid deployment trailers are designed for quick setup, takedown and transportation of the entire SmartSystem, and detach from the wellsite equipment, which allows for removal from the wellsite during operation. We have also developed a proprietary software program, the SmartSystem Tracker, which allows our SmartSystems customers to monitor silo-specific information, including location, proppant type and proppant inventory. We are currently developing a new transload technology to complement our existing solutions.

Assets and Operations
Oakdale
Our sand reserves include a balanced concentration of coarse sand, (19% 20/40 and coarser), finer sand (41% of 40/70 mesh) and fine sand (40% 60/140 gradation, which we refer to in this annual report as “100 mesh”). Our 30/50 gradation is a derivative of the 20/40 and 40/70 blends. We believe that this mix of coarse and fine sand reserves, combined with contractual demand for our products across a range of mesh sizes, provides us with relatively higher mining yields and lower processing costs than frac sand mines with predominantly coarse sand reserves. In addition, our approximate 316 million tons of proven recoverable reserves implies a reserve life of approximately 57 years based on our current annual nameplate processing capacity of 5.5 million tons. This long reserve life enables us to better serve demand for different types of frac sand as compared to mines with shorter reserve lives.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Our Oakdale facility is purpose-built to exploit the reserve profile in place and produce high-quality frac sand. Unlike some of our competitors, our primary processing and rail loading facilities are located in close proximity to the mine site, which limits the need for us to truck sand on public roads between the mine and the production facility or between wet and dry processing facilities. Our on-site transportation assets include approximately nine miles of rail track in a triple-loop configuration and four railcar loading facilities that are connected to a Class I rail line owned by Canadian Pacific. This enables us to simultaneously accommodate multiple unit trains and significantly increases our efficiency in meeting our customers’ frac sand transportation needs. Our unit train capable transload facility approximately three miles from the Oakdale facility in Byron Township, Wisconsin, provides us with the ability to ship sand to our customers on the Union Pacific rail network. We believe that we are the only sand facility in Wisconsin that has dual served rail capabilities, which should create competition among our rail carriers and allow us to provide more competitive logistics options for our customers.
Due to sustained freezing temperatures in our area of operation during winter months, we have historically halted the operation of our wet plant for approximately three to five months. As a result, we have excavated and washed sand in excess of current delivery requirements during the months when the wet plant was operational. This excess sand is placed in stockpiles that feed the dry plants and enable us to fill customer orders throughout the year without interruption. Our second wet plant facility, brought online in the fourth quarter of 2017, is enclosed, which allows us to operate at its full capacity during the winter months.
Logistics
Through our transloading terminal in Van Hook, North Dakota, we provide one of the most efficient and lowest-cost sources of Northern White sand in-basin to customers operating in the Bakken Formation in the Williston Basin.
Through our SmartSystems offering, we have the technology, production capacity and management team to compete further in the frac sand supply chain for our customers by offering logistics services from the mine all the way to the wellsite. Our SmartSystems consist of our SmartDepot proppant storage silos, transload technology, and rapid deployment trailer system.
We believe our patented SmartDepot silos will outperform our competitors in that they can be set up or taken down rapidly, they include industry-leading passive and active dust suppression technology, they have the capability of gravity-fed operation and they can be filled by both pneumatic and gravity dump trailers. Our trailers detach, which reduces their footprint on the wellsite. We are currently developing a new transload technology to complement our existing solutions.
Through the expansion of our SmartSystems fleet and other logistics options, we continue evaluating ways to reduce the landed cost of our products in-basin and to the wellsite for our customers while increasing our customized service offerings to provide additional delivery and pricing alternatives, including selling product on an “as-delivered” basis to the wellsite.
We intend to continue expanding our footprint in-basin through the expansion of our SmartSystems wellsite storage solutions fleets and potentially through the addition of one or more terminals in other oil and natural gas operating basins. Benefits of our long-term growth strategy for in-basin delivery of sand include new contracted customers by marketing through our own terminal, more opportunity for spot sales by forward deploying sand and the opportunity to capture incremental margin on the sale of sand farther down the supply chain by managing the cost of rail and terminal operations. Additionally, having a presence in-basin gives us an opportunity to have a base of operations from which to market our SmartSystems wellsite proppant storage solutions. We have also developed a proprietary software program, the SmartSystem Tracker, which allows our SmartSystems customers to monitor silo-specific information, including location, proppant type, and proppant inventory.
How We Generate Revenue
We generate revenue by excavating and processing frac sand, which we sell to our customers under long-term price agreements or as spot sales at prevailing market rates. In some instances, revenues also include a charge for transportation services provided to customers. Our transportation revenue fluctuates based on a number of factors, including the volume of product transported and the distance between the plant and our customers. Our contracts contain a minimum volume purchase requirement and provide for delivery of frac sand FCA at our Oakdale facility, our Van Hook transloading terminal in the Bakken, or another location specified by our customers. Revenue is generally recognized as products are delivered in accordance with the contract.
We generate revenue on our SmartSystems by renting equipment to our customers under contract terms tailored to meet the short-term or long-term needs with any number of SmartDepot silos they require. We recognize rental revenue when the equipment is made available for the customer to use or other obligations in the contract are met. Our first SmartDepot silos
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

became available in the third quarter of 2018 and the first set was contracted in January 2019. As of December 31, 2019, we had four SmartSystems fleets with customers.
Costs of Conducting Our Business
The principal direct costs involved in operating our business are freight charges, which consist of transportation, railcar rental and storage, labor, maintenance, utility costs, equipment, excavation and depreciation of our property, plant and equipment. We incur labor costs associated with employees at our processing facility represent the most significant cost of converting frac sand to finished product. Our Oakdale facility undergoes maintenance to minimize unscheduled downtime and ensure the ongoing quality of our frac sand. We incur utility costs in connection with the operation of our processing facility, primarily electricity and natural gas, which are both susceptible to market fluctuations. We lease equipment in many areas of our operations including our mining and hauling equipment and logistics services. Excavation costs relate to the blasting and excavation of sand and other materials from which we ultimately do not derive revenue. However, the ratio of rejected materials to total amounts excavated has been, and we believe will continue to be, in line with our expectations, given the extensive core sampling and other testing we undertook at the Oakdale facility. In addition, other costs include processing costs, overhead allocation, depreciation and depletion are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold.

Overall Trends and Outlook
Demand Trends
According to Spears, the North American proppant market, including frac sand, ceramic and resin-coated proppant, was approximately 111 million tons in 2019, which is a 5% increase over the 105 million tons Spears reported for 2018. Spears estimates that 2020 demand will be flat with 111 million tons of proppant demand. 
SND-20191231_G4.JPG
2014 2015 2016 2017 2018 2019 2020E
New U.S. Horizontal Wells 20,906    14,500    8,638    13,166    15,686    14,615    12,607   
Proppant Demand (Mil Tons) 69    55    44    80    105    111    111   
Although the horizontal rig count is expected to decrease in 2020, frac sand demand is projected to be consistent with 2019 levels due to longer laterals, an increase in the number of frac stages per well and an increase in the amount of proppant used in each stage. Demand growth for frac sand and other proppants is primarily driven by advancements in oil and natural gas
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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(UNAUDITED)

drilling and well completion technology and techniques, such as horizontal drilling and hydraulic fracturing. These advancements have made the extraction of oil and natural gas increasingly cost-effective in formations that historically would have been uneconomic to develop. More proppant is being used per well, which is supporting proppant demand despite horizontal drilling activity stabilizing. Spears estimates that proppant demand in 2020 will be consistent with 2019 as new wells will decrease while the average proppant used per well is expected to increase from 6,600 tons per well in 2019 to approximately 7,600 tons per well by the end of 2020.
Supply Trends
There has been consolidation activity including mergers, acquisitions, closures of mines and bankruptcy filings among our peers. Additional consolidation activity is expected in 2020 in the mining, transloading and logistics businesses. Many large oil and natural gas exploration and production companies have continued to integrate vertically by sourcing their own proppant and some own their own sand mines. Spears identifies a growing trend in this direction and estimates 50% of the North American proppant demand is currently direct-sourced. In-basin demand in the Permian basin more than tripled from 2017 through 2019. Sand supply is expected to peak in late 2019 or early 2020 with few additional suppliers entering the field.
Supplies of high-quality Northern White frac sand are limited to select areas, predominantly in western Wisconsin and limited areas of Minnesota and Illinois. We believe the ability to obtain large contiguous reserves in these areas is a key constraint and can be an important supply consideration when assessing the economic viability of a potential frac sand facility. Further constraining the supply and throughput of Northern White frac sand is that not all of the large reserve mines have on-site excavation, processing or logistics capabilities. Historically, much of the capital investment in Northern White frac sand mines was used for the development of coarser deposits in western Wisconsin, which is inconsistent with the increasing demand for finer mesh frac sand in recent years. As such, we’ve seen competitors in the Northern White frac sand market reduce their capacity by shuttering or idling operations as the shift to finer sands in hydraulic fracturing of oil and natural gas wells erodes the ongoing economic viability of producing coarser grades of sand.
Management’s Outlook
We expect the demand for frac sand in 2020 to be consistent with the demand during 2019. Demand for both frac sand and our SmartSystems is influenced by the volume of oil and natural gas well drilling and completion activity, as well as the types of wells that are completed. The industry is trending towards drilling and completing wells with longer laterals and more frac stages per lateral foot drilled. This trend is leading to higher volumes of sand per well and the need for oil and natural gas exploration companies to manage larger volumes of sand at the wellsite. We believe these trends support continued demand for frac sand and increased demand for SmartSystems as customers look to create synergies in the time and cost of managing their sand needs at the wellsite.
We generally expect the price of raw frac sand to correlate with the level of drilling activity for oil and natural gas, although the increasing supply of sand could keep the price depressed. The willingness of exploration and production companies to engage in new drilling is determined by a number of factors, the most important of which are the prevailing and projected prices of oil and natural gas, the cost to drill, complete and operate a well, the availability and cost of capital and environmental and government regulations, as well as their ability to acquire the sand at the wellsite. We generally expect the level of drilling to correlate with long-term trends in commodity prices. Similarly, oil and natural gas production levels nationally and regionally generally tend to correlate with drilling activity.


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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

GAAP Results of Operations

Year Ended December 31, 2019 compared to the Year Ended December 31, 2018:
  Year Ended December 31, Change
  2019 2018 Dollars Percentage
  (in thousands, except percentage change)
Revenues $ 233,073    $ 212,470    $ 20,603    10  %
Cost of goods sold 152,021    144,903    7,118    5  %
Gross profit 81,052    67,567    13,485    20  %
Operating expenses:
Salaries, benefits and payroll taxes 11,560    11,043    517    5  %
Depreciation and amortization 2,411    1,843    568    31  %
Selling, general and administrative 11,328    12,825    (1,497)   (12) %
Change in estimated fair value of contingent consideration
(3,272)   (1,858)   (1,414)   76  %
Impairment loss
15,542    17,835    (2,293)   (13) %
Total operating expenses 37,569    41,688    (4,119)   (10) %
Operating income 43,483    25,879    17,604    68  %
Other income (expenses):
Interest expense, net (3,621)   (2,266)   (1,355)   60  %
Loss on extinguishment of debt (561)   —    (561)   Not meaningful   
Other income 131    197    (66)   (34) %
Total other income (expenses), net (4,051)   (2,069)   (1,982)   96  %
Income before income tax expense 39,432    23,810    15,622    66  %
Income tax expense 7,809    5,122    2,687    52  %
Net income $ 31,623    $ 18,688    $ 12,935    69  %

Revenue
Revenue was $233.1 million for the year ended December 31, 2019, during which we sold approximately 2,462,000 tons of sand. Revenue for the year ended December 31, 2018 was $212.5 million, during which we sold approximately 2,995,000 tons of sand. The key factors contributing to the increase in revenues for the year ended December 31, 2019 as compared to the year ended December 31, 2018 were as follows:
•We had $49.3 million in contractual shortfall revenue for the year ended December 31, 2019 and $6.0 million for the year ended December 31, 2018, respectively. Our contracts with customers dictate whether shortfall is earned quarterly or at the end of their respective contract year. We recognize revenue to the extent of the unfulfilled minimum contracted quantity at the shortfall price per ton as stated in the contract. In 2019, shortfall revenue of $24.8 million was from a customer with which we have pending litigation.
•Logistics revenue, which includes freight for certain mine gate sand sales, railcar usage, logistics services and SmartSystems rentals, was $74.2 million for the year ended December 31, 2019, an increase of $11.3 million when compared to logistics revenue of $62.9 million for the year ended December 31, 2018. The increase in logistics revenue was due to higher in-basin sales and rentals of our SmartSystems equipment. At December 31, 2019, we had four fleets of SmartSystems in the field.
•Sand sales revenue decreased to $109.6 million for the year ended December 31, 2019 compared to $143.1 million for the year ended December 31, 2018, primarily due to decreased sales volumes.
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SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Cost of Goods Sold
Cost of goods sold was $152.0 million and $144.9 million, for the years ended December 31, 2019 and December 31, 2018, respectively. Cost of goods sold increased in December 31, 2019 compared to December 31, 2018 primarily due to higher transportation costs as a result of increased in-basin sales volumes and increased depreciation and amortization due to our Oakdale expansion project being operational for the full year, partially offset by decreases in labor and equipment costs on lower total volumes sold.
Gross Profit
Gross profit was $81.1 million and $67.6 million for the years ended December 31, 2019 and December 31, 2018, respectively. The increase in gross profit for the year ended December 31, 2019 was primarily due to higher shortfall and logistics revenue, partially offset by increased transportation costs as a result of increased in-basin sales volumes and lower total sales volumes.
Operating Expenses
Operating expenses were $37.6 million and $41.7 million for the years ended December 31, 2019 and December 31, 2018, respectively. Operating expenses are primarily comprised of wages and benefits, professional services fees and other administrative expenses, all of which were relatively consistent year over year. Salaries, benefits and payroll taxes were $11.6 million and $11.0 million for the years ended December 31, 2019 and December 31, 2018, respectively. Selling, general and administrative expenses decreased from $12.8 million for the year ended December 31, 2018 to $11.3 million for the year ended December 31, 2019, primarily as a result of wellsite storage solution acquisition-related costs in the prior year. We recorded a decrease in the estimated fair value of contingent consideration related to our acquisition of Quickthree, which resulted in an offset to operating expenses in the amount of $3.3 million for the year ended December 31, 2019 and $1.9 million for the year ended December 31, 2018. In 2019, we recorded an impairment charge of $15.5 million of which $7.6 million related to our finite-lived developed technology intangible assets in intangible assets, net on the balance sheet and $7.9 million related to our Hixton, Wisconsin property in property, plant and equipment, net on the balance sheet. The impairment of the finite-lived intangible assets is from our developed technology allocated to the Quickload acquired in connection with the acquisition of Quickthree in 2018. We are developing and testing a new transload technology and no longer plan to actively market the Quickload and as such, all developed technology intangible assets related to the Quickload were fully impaired during the third quarter of 2019. In the fourth quarter of 2019, we determined that the carrying amount of the Hixton, Wisconsin property may not be fully recoverable as we have no current plans to further develop the site. In the fourth quarter of 2018, we recorded an impairment charge of $17.8 million related to goodwill and an other indefinite-lived intangible asset. The impairment charge was primarily due to the decline in our stock price in 2018 and the relationship between the resulting market capitalization and the equity recorded on our balance sheet.
Other Income (Expense)
We incurred $3.6 million and $2.3 million of net interest expense for the years ended December 31, 2019 and 2018, respectively. The increase in net interest expense for the year ended December 31, 2019 was primarily due to higher average borrowings under the Former Credit Facility to fund acquisition activities in 2018. In 2019, we also recognized $0.6 million of costs due to the extinguishment of the Former Credit Facility. Our borrowings and total debt were reduced late in 2019 as a result of the payment in full and termination of the Former Credit Facility and our entry into the ABL Credit Facility.
Income Tax Expense (Benefit)
Income tax expense was $7.8 million for the year ended December 31, 2019 compared to income tax expense of $5.1 million for the year ended December 31, 2018. For the years ended December 31, 2019 and 2018, our effective tax rate was approximately 19.8% and 21.5%, respectively, based on the statutory federal rate net of discrete federal and state taxes. The computation of the effective tax rate for the years ended December 31, 2019 and December 31, 2018 included modifications for income tax credits, among other items.
For the year ended December 31, 2018, we recorded a net operating loss for tax purposes due to the significant amount of capital expenditures we incurred, which were eligible for 100% expensing available under the Tax Reform Act. There are additional provisions in the Tax Reform Act that could impact us that will continue to be monitored as additional guidance is released and any necessary adjustments will be recorded in the period that the guidance is released.  
48
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Net Income
Net income was $31.6 million for year ended December 31, 2019 compared to $18.7 million for the year ended December 31, 2018. The increase in net income was primarily due to higher shortfall revenue from customers that did not take their contractual minimum volumes of sand, higher logistics revenue from increased volumes shipped through our Van Hook terminal and rented SmartSystems equipment and lower impairment charges in 2019 compared to 2018.

Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017:
  Year Ended December 31, Change
  2018 2017 Dollars Percentage
  (in thousands, except percentage change)
Revenues $ 212,470    $ 137,212    $ 75,258    55  %
Cost of goods sold 144,903    100,304    44,599    44  %
Gross profit 67,567    36,908    30,659    83  %
Operating expenses:
Salaries, benefits and payroll taxes 11,043    8,219    2,824    34  %
Depreciation and amortization 1,843    525    1,318    251  %
Selling, general and administrative 12,825    9,459    3,366    36  %
Change in estimated fair value of contingent consideration
(1,858)   —    (1,858)   Not meaningful
Impairment loss
17,835    —    17,835    Not meaningful   
Total operating expenses 41,688    18,203    23,485    129  %
Operating income 25,879    18,705    7,174    38  %
Other income (expenses):
Interest expense, net (2,266)   (450)   (1,816)   404  %
Other income 197    462    (265)   (57) %
Total other income (expenses), net (2,069)   12    (2,081)   Not meaningful
Income before income tax (benefit) expense 23,810    18,717    5,093    27  %
Income tax (benefit) expense 5,122    (2,809)   7,931    (282) %
Net income $ 18,688    $ 21,526    $ (2,838)   (13) %

Revenue
Revenue was $212.5 million for the year ended December 31, 2018, during which we sold approximately 2,995,000 tons of sand. Revenue for the year ended December 31, 2017 was $137.2 million, during which we sold approximately 2,449,000 tons of sand. Revenues increased for the year ended December 31, 2018 as compared to the year ended December 31, 2017 as a result of higher sales volumes and higher average selling prices.
The key factors contributing to the increase in revenues for the year ended December 31, 2018 as compared to the year ended December 31, 2017 were as follows:
•Sand sales revenue increased to $143.1 million for the year ended December 31, 2018 compared to $80.2 million for the year ended December 31, 2017 due to increased sales volumes and higher average selling prices. Tons sold increased by 22.3% as exploration and production activity in the oil and natural gas industry improved in 2018 compared to 2017.
•Average selling price per ton increased to $47.76 for the year ended December 31, 2018 from $32.74 for the year ended December 31, 2017 due to increased volumes and higher average selling prices related to increased in-basin sand sales volumes, which are sold at a higher price than sand sold at the mine gate and favorable price adjustments under certain of our take-or-pay contracts based upon the Average Cushing Oklahoma WTI Spot Prices.
49
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

•We had $6.0 million in contractual shortfall revenue for the year ended December 31, 2018 and $1.2 million for the year ended December 31, 2017, respectively. Our contracts with customers dictate whether shortfall is earned quarterly or at the end of their respective contract year. We recognize revenue to the extent of the unfulfilled minimum contracted quantity at the shortfall price per ton as stated in the contract.
•Transportation revenue, which includes freight for certain mine gate sand sales and railcar usage, increased approximately $7.1 million for the year ended December 31, 2018 when compared to the year ended December 31, 2017, increasing from $55.8 million to $62.9 million. The increase in transportation revenue was due to the increased sales volumes in 2018 compared to 2017 as a result of increased exploration and production activity in the oil and natural gas industry as well as our increased in-basin sales activity generated from our Van Hook terminal which began operations in April 2018.
Cost of Goods Sold
Cost of goods sold was $144.9 million and $100.3 million, or $48.38 and $40.96 per ton sold, for the years ended December 31, 2018 and December 31, 2017, respectively. Cost of goods sold and per ton cost of goods sold increased in 2018 compared to 2017 due to higher sales volumes, which led to increased staffing, utilities and equipment expenses, and increased freight charges. Freight charges, which consist of transportation costs and railcar rental and storage expense, were higher primarily due to increased volumes sold and increased in-basin activities. Additionally, we incurred an increase in operating labor costs for the year ended December 31, 2018 due to additional staffing to support the expansion of the Oakdale facility.
Gross Profit
Gross profit was $67.6 million and $36.9 million for the years ended December 31, 2018 and 2017, respectively. The increase in gross profit for the year ended December 31, 2018 was primarily due to higher sales volumes, including in-basin and spot sales, and higher average selling prices, partially offset by increased staffing, utilities and equipment expenses, along with increased transportation charges.
Operating Expenses
Operating expenses were $41.7 million and $18.2 million for the years ended December 31, 2018 and 2017, respectively. Operating expenses are primarily comprised of wages and benefits, professional services fees and other administrative expenses. An impairment charge of $17.8 million related to goodwill and an other indefinite-lived intangible asset was recorded in the fourth quarter of 2018. The impairment charge relates primarily to the decline in our stock price in 2018 and the relationship between the resulting market capitalization and the equity recorded on our balance sheet. Additionally, salaries, benefits and payroll taxes were $11.0 million and $8.2 million for the years ended December 31, 2018 and 2017, respectively. The approximate $2.8 million increase was primarily due to additional headcount in 2018 as compared to 2017. Selling, general and administrative expenses increased from $9.5 million for the year ended December 31, 2017 to $12.8 million for the year ended December 31, 2018, primarily as a result of well-site storage solution acquisition-related costs and royalty payments relating to our Texas land leases. We recorded a decrease in the estimated fair value of contingent consideration, which resulted in an offset to operating expenses in the amount of $1.9 million for the year ended December 31, 2018, for our acquisition of Quickthree.
Other Income (Expense)
We incurred $2.3 million and $0.5 million of net interest expense for the years ended December 31, 2018 and 2017, respectively. The increase in interest expense for the year ended December 31, 2018 was primarily due to borrowings under the Former Credit Facility to fund acquisition activity. Interest expense in 2017 was derived primarily from deferred finance fees and unused line fees for the Former Credit Facility.
Income Tax (Benefit) Expense
Income tax expense was $5.1 million for the year ended December 31, 2018 compared to a benefit of $2.8 million for the year ended December 31, 2017. We recorded a tax benefit of approximately $8.5 million due to a re-measurement of deferred tax assets and liabilities in the fourth quarter of 2017, as a result of the Tax Reform Act that was enacted on December 22, 2017. For the years ended December 31, 2018 and 2017, our effective tax rate was approximately 21.5% and (15.0)%, respectively, based on the statutory federal rate net of discrete federal and state taxes. Our effective tax rate for the year ended December 31, 2018 benefited from the decrease in the U.S. statutory tax rate from 35.0% in 2017 to 21.0% in 2018. The
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SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

computation of the effective tax rate for the year ended December 31, 2018 included modifications for income tax credits, among other items. The computation for the year ended December 31, 2017 also included a benefit related to share-based compensation and the domestic production activities deduction (“DPAD”). The DPAD was repealed for tax years beginning after January 1, 2018 under the Tax Reform Act. The computation for 2017 also included the impact of depletion method change for tax purposes on our prior year returns.
The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, repealing the deduction for domestic production activities and implementing 100% direct expensing of certain non-residential property. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.
For the year of 2018, we recorded a net operating loss for tax purposes due to the significant amount of capital expenditures, which are eligible for 100% expensing available under the Tax Reform Act. There are additional provisions in the Tax Reform Act that could impact us that will continue to be monitored as additional guidance is released and any necessary adjustments will be recorded in the period that the guidance is released.
Net Income
Net income was $18.7 million for year ended December 31, 2018 compared to $21.5 million for the year ended December 31, 2017. The decrease in net income was primarily due to an impairment charge of $17.8 million related to goodwill and an other indefinite-lived intangible asset was recorded in the fourth quarter of 2018. The impairment charge relates primarily to the decline in our stock price in 2018 and the relationship between the resulting market capitalization and the equity recorded on our balance sheet. Increased sales volumes during 2018 and favorable pricing trends in the first half of the year led to higher gross profit which partially offset the impairment charge.

Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA and contribution margin are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA and gross profit is the GAAP measure most directly comparable to contribution margin. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA, Adjusted EBITDA or contribution margin in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA, Adjusted EBITDA and contribution margin may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

EBITDA and Adjusted EBITDA 
We define EBITDA as net income, plus: (i) depreciation, depletion and amortization expense; (ii) income tax expense (benefit); (iii) interest expense; and (iv) franchise taxes. We define Adjusted EBITDA as EBITDA, plus: (i) gain or loss on sale of fixed assets or discontinued operations; (ii) integration and transition costs associated with specified transactions; (iii) equity compensation; (iv) acquisition and development costs; (v) non-recurring cash charges related to restructuring, retention and other similar actions; (vi) earn-out, contingent consideration obligations and other acquisition and development costs; and (vii) non-cash charges and unusual or non-recurring charges. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:
•the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;
•the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;
•our ability to incur and service debt and fund capital expenditures;
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SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

•our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods or capital structure; and
•our debt covenant compliance, as Adjusted EBITDA is a key component of critical covenants to the ABL Credit Facility.
We believe that our presentation of EBITDA and Adjusted EBITDA will provide useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA should not be considered alternatives to net income presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The following table presents a reconciliation of EBITDA and Adjusted EBITDA to net income for each of the periods indicated.
  Year Ended December 31,
  2019 2018 2017
  (in thousands)
Net income $ 31,623    $ 18,688    $ 21,526   
Depreciation, depletion and amortization 27,135    18,165    7,300   
Income tax (benefit) expense 7,809    5,122    (2,809)  
Interest expense 3,626    2,320    700   
Franchise taxes 285    442    339   
EBITDA $ 70,478    $ 44,737    $ 27,056   
(Gain) loss on sale of fixed assets (42)   321    253   
Integration and transition costs —    —    16   
Equity compensation (1)
2,755    2,670    1,652   
Acquisition and development costs (2)
(3,047)   (218)   845   
Non-cash impairment loss 15,542    17,835    —   
Cash charges related to retention and employee relocation 137    674    279   
Accretion of asset retirement obligations 687    (26)   514   
Loss on extinguishment of debt 561    —    —   
Adjusted EBITDA $ 87,071    $ 65,993    $ 30,615   
(1) Represents the non-cash expenses for stock-based awards issued to our employees and employee stock purchase plan compensation expense.
(2) Represents costs incurred related to the business combinations and current development project activities. The year ended December 31, 2019 includes $3,272 decrease in the estimated fair value of our contingent consideration related to the acquisition of Quickthree and $225 of development project activities. The year ended December 31, 2018 includes $1,858 decrease in the estimated fair value of our contingent consideration related to the acquisition of Quickthree, partially offset by $1,146 of costs related to the acquisition of Quickthree and $494 related to development project activities. The year ended December 31, 2017 includes costs related to development project activities.
_________________________

Adjusted EBITDA was $87.1 million for the year ended December 31, 2019 compared to $66.0 million for the year ended December 31, 2018. The increase in Adjusted EBITDA for the year ended December 31, 2019, as compared to the prior year, was primarily due to higher shortfall and logistics revenue, partially offset by increased transportation charges and lower overall volumes of sand sold.
Adjusted EBITDA was $66.0 million for the year ended December 31, 2018 compared to $30.6 million for the year ended December 31, 2017. The increase in Adjusted EBITDA for the year ended December 31, 2018, as compared to the prior year, was primarily due to higher sales volumes, including in-basin sales, and higher average selling prices, partially offset by increased staffing, utilities and equipment expenses, along with increased transportation charges.

52
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Contribution Margin
We also use contribution margin, which we define as total revenues less costs of goods sold excluding depreciation, depletion and accretion of asset retirement obligations, to measure our financial and operating performance. Contribution margin excludes other operating expenses and income, including costs not directly associated with the operations of our business such as accounting, human resources, information technology, legal, sales and other administrative activities. 
Gross profit is the GAAP measure most directly comparable to contribution margin. Contribution margin should not be considered an alternative to gross profit presented in accordance with GAAP. Because contribution margin may be defined differently by other companies in our industry, our definition of contribution margin may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of contribution margin to gross profit.
  Year Ended December 31,
  2019 2018 2017
(in thousands)
Revenue $ 233,073    $ 212,470    $ 137,212   
Cost of goods sold 152,021    144,903    100,304   
      Gross profit 81,052    67,567    36,908   
Depreciation, depletion, and accretion of asset retirement obligations included in cost of goods sold
25,412    16,297    7,289   
      Contribution margin $ 106,464    $ 83,864    $ 44,197   
      Contribution margin per ton $ 43.24    $ 28.00    $ 18.05   
Total tons sold 2,462    2,995    2,449   

Contribution margin was $106.5 million, or $43.24 per ton sold, for the year ended December 31, 2019 compared to $83.9 million, or $28.00 per ton sold, for the year ended December 31, 2018. The increase in contribution margin and contribution margin per ton sold for the year ended December 31, 2019, as compared to the prior year, was primarily due to higher in-basin sales volumes through our Van Hook terminal and higher shortfall revenue.
Contribution margin was $83.9 million, or $28.00 per ton sold, for the year ended December 31, 2018 compared to $44.2 million, or $18.05 per ton sold, for the year ended December 31, 2017. The increase in contribution margin and contribution margin per ton sold for the year ended December 31, 2018, as compared to the prior year, was primarily due to the increased sales volumes overall as well as increased in-basin sales volumes through our Van Hook terminal, which began operations in April 2018, coupled with favorable pricing trends in the first half of 2018.

Liquidity and Capital Resources
Currently, our primary sources of liquidity are cash flow generated from operations and availability under our ABL Credit Facility and other equipment financing sources. Based on our balance sheet, cash flows, current market conditions and information available to us at this time, we believe that we have sufficient liquidity and other available capital resources, to meet our cash needs for the next twelve months, including continued investment in our SmartSystems wellsite proppant storage solutions and other capital projects.

53
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Working Capital
Working capital is a measure of our ability to pay our liabilities as they become due. The following table presents the components of our working capital as of December 31, 2019 compared to December 31, 2018.
  Year Ended December 31,
  2019 2018
  (in thousands)
Total current assets $ 90,377    $ 50,096   
Total current liabilities 40,018    24,652   
Working capital $ 50,359    $ 25,444   

Our working capital was $50.4 million at December 31, 2019 compared to working capital of $25.4 million at December 31, 2018. The increase in working capital was primarily due to a net increase in accounts and unbilled receivables of $38.0 million, partially offset by $13.1 million new short-term operating lease liabilities as a result of adopting the new lease accounting standard on January 1, 2019 and a $5.3 million increase in the current portion of our amortizing long-term debt under the Oakdale Equipment Financing and notes payable. As of December 31, 2019 and 2018, $37.4 million and $3.2 million of accounts and unbilled receivables is attributable to a customer with which we have pending litigation.

Summary Cash Flows
The following table sets forth a summary of our cash flows for the periods indicated:
  Year Ended December 31,
  2019 2018 2017
  (in thousands)
Net cash provided by operating activities $ 44,633    $ 50,909    $ 15,628   
Net cash used in investing activities $ (25,425)   $ (125,989)   $ (51,148)  
Net cash (used in) provided by financing activities $ (18,035)   $ 41,319    $ 23,213   

Net Cash Provided by Operating Activities
Net cash provided by operating activities was $44.6 million for the year ended December 31, 2019, which included income of $31.6 million, non-cash expenses of $47.8 million, partially offset by $34.8 million in changes in operating assets and liabilities.
Net cash provided by operating activities was $50.9 million for the year ended December 31, 2018, which included net income of $18.7 million and net non-cash expenses of $39.5 million, partially offset by $7.3 million in changes in operating assets and liabilities.
Net cash provided by operating activities was $15.6 million for the year ended December 31, 2017, which included net income of $21.5 million and net non-cash expenses of $8.8 million, partially offset by $14.7 million in changes in operating assets and liabilities.
Net Cash Used In Investing Activities
Net cash used in investing activities was $25.4 million for the year ended December 31, 2019, of which $12.8 million was used to expand our SmartSystems operations and $12.7 million was used to expand our Van Hook terminal and capital improvements at our Oakdale facility.
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SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Net cash used in investing activities was $126.0 million for the year ended December 31, 2018, of which approximately $45.5 million was used for our acquisitions of the Van Hook terminal and Quickthree, and the remainder of which was used for the completion of the Oakdale expansion project which began in 2017.
Net cash used in investing activities was $51.1 million for the year ended December 31, 2017, which was primarily used in connection with the Oakdale expansion project.
Net Cash (Used in) Provided by Financing Activities
Net cash used by financing activities was $18.0 million for the year ended December 31, 2019. In 2019, we repaid a net $42.0 million on our revolving credit facilities, paid $2.3 million of deferred financing and debt issuance costs and paid $2.0 million of contingent consideration, partially offset by receipt of $23.0 million in proceeds from the Oakdale Equipment Financing and $5.4 million of net proceeds from other notes payable.
Net cash provided by financing activities was $41.3 million for the year ended December 31, 2018, which was primarily related to net draws on our Former Credit Facility of $44.5 million, partially offset by repurchases of our common shares of $2.2 million and repayments of notes payable of $0.6 million.
Net cash provided by financing activities was $23.2 million for the year ended December 31, 2017, which included net proceeds from equity issuance of $24.2 million.

Indebtedness
ABL Credit Facility
On December 13, 2019, we entered into a $20.0 million five-year senior secured asset-based credit facility with Jefferies Finance LLC. The available borrowing amount under the ABL Credit Facility is based upon our eligible accounts receivable and inventory. The ABL Credit Facility contains various reporting requirements, negative covenants and restrictive provisions and requires maintenance of specified financial covenants under certain conditions, including a fixed charge coverage ratio, as defined in the ABL Credit Agreement. As of December 31, 2019, the Company was in compliance with all covenants under the ABL Credit Facility. As of December 31, 2019, the outstanding balance on the ABL Credit Facility was $2.5 million and the amount of undrawn availability was $17.5 million.
Oakdale Equipment Financing
On December 13, 2019, we entered into an equipment financing arrangement with Nexseer, secured by substantially all of the assets at our Oakdale facility. We received $23.0 million of net proceeds, of which we used $19.3 million to repay in full and terminate our Former Credit Facility, $3.0 million for general working capital purposes and $0.7 million to pay transaction fees associated with the debt refinancing. The Oakdale Equipment Financing amortizes over 5 years, maturing on December 13, 2024, and bears interest at 5.79%. The balance of the Oakdale Equipment Financing as of December 31, 2019 was $22.4 million.
Former Credit Facility
On December 8, 2016, the Company entered into a three-year senior secured revolving credit facility under a revolving credit agreement with Jefferies Finance LLC, as administrative and collateral agent. The Former Credit Facility was paid in full and terminated with proceeds from the Oakdale Equipment Financing.
Notes Payable
We have entered into various financing arrangements to support the manufacturing of our wellsite proppant storage solutions equipment with interest rates between 6.48% and 7.49%. Title to the equipment is held by the financial institutions as collateral, though the equipment is included in the Company’s property plant and equipment. Total notes payable outstanding at December 31, 2019 was $9.8 million.

55
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Capital Requirements
We expect full year 2020 capital expenditures to be between $20 million and $30 million, which are anticipated to primarily support incremental growth in our SmartSystems. These expenditures exclude any potential acquisitions. We expect to fund these capital expenditures with cash from operations, equipment financing options available to us or borrowings under the ABL Credit Facility.

Share Repurchases
We are authorized to repurchase shares through open market purchases at prevailing market prices or through privately negotiated transactions as permitted by securities laws and other legal requirements. On November 8, 2018, we announced that our board of directors authorized the repurchase up to 2,000,000 shares of the Company’s common stock during the twelve-month period following the announcement of the share repurchase program. On September 11, 2019, our board of directors reauthorized the existing share repurchase program for one year. At December 31, 2019, the maximum number of shares that we may repurchase under the repurchase authority was 1,411,800 shares. There were no share repurchases during the year ended December 31, 2019.
The program allows us to repurchase shares at our discretion. Market conditions, price, corporate and regulatory requirements, alternative investment opportunities, and other economic conditions will influence the timing of the repurchase and the number of shares repurchased, if any. The program does not obligate us to repurchase any specific number of shares and, subject to compliance with applicable securities laws and other legal requirements, may be suspended or terminated at any time without prior notice.

Off-Balance Sheet Arrangements
We had $7.9 million and $8.6 million of outstanding performance bonds as of each of the years ended December 31, 2019 and 2018, respectively. These performance bonds assure our performance under our reclamation plan, maintenance and restoration of public roadways and an agreement with a pipeline common carrier.

Contractual Obligations
The following table presents our contractual obligations as of December 31, 2019:
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
  (in thousands)
Debt service $ 40,417    $ 7,959    $ 15,636    $ 16,822    $ —   
Operating leases 30,613    14,292    14,039    2,282    —   
Asset retirement obligations 6,142    477    144    —    5,521   
Land rights obligations 40,950    2,275    4,550    4,550    29,575   
Total $ 118,122    $ 25,003    $ 34,369    $ 23,654    $ 35,096   


Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.

56
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Seasonality
Our business is affected to some extent by seasonal fluctuations in weather that impact the production levels at our wet processing plant. While our dry plants are able to process finished product volumes evenly throughout the year, our excavation and our wet sand processing activities have historically been limited to primarily non-winter months. As a consequence, we have experienced lower cash operating costs in the first and fourth quarter of each calendar year, and higher cash operating costs in the second and third quarter of each calendar year when we overproduced to meet demand in the winter months.  These higher cash operating costs were capitalized into inventory and expensed when these tons are sold, which can lead to us having higher overall cost of production in the first and fourth quarters of each calendar year as we expense inventory costs that were previously capitalized. During the fourth quarter of 2017, we finished construction of a new wet plant, which is an indoor facility that allows us to produce wet sand inventory year-round to support a portion of our dry sand processing capacity, which may reduce certain of the effects of this seasonality. We may also sell frac sand for use in oil and natural gas producing basins where severe weather conditions may curtail drilling activities and, as a result, our sales volumes to those areas may be reduced during such severe weather periods.

Customer Concentration
For the year ended December 31, 2019, Liberty, Rice Energy (a subsidiary of EQT Corporation), Hess Corporation, and U.S. Well Services accounted for 23.8%, 19.0%, 15.5%, and 14.7%, respectively, of total revenue. For the year ended December 31, 2018, Liberty, EQT, WPX Energy, and Hess accounted for 22.8%, 21.4%, 11.6%, and 10.6%, respectively, of total revenue. For the year ended December 31, 2017, Rice Energy, Liberty, Weatherford, and U.S. Well Services accounted for 27.1%, 20.6%, 13.7%, and 10.2%, respectively, of total revenue.

Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
Listed below are the accounting policies we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved, and that we believe are critical to the understanding of our operations.
Revenue Recognition
On January 1, 2018, we adopted ASC 606, “Revenue from Contracts with Customers” and all the related amendments thereto, using the modified retrospective method. There was no adjustment made to the opening balance of retained earnings as a result of applying ASC 606. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while the comparative information is not restated and will continue to be reported under the accounting standards in effect for those periods. Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to our customers, the amount of which reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Prior to January 1, 2018, we recognized revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price charged is fixed or determinable, collectability is reasonably assured, and the risk of loss is transferred to the customer.
Under current and former revenue standards, this generally means that sales are FCA, payment made at the origination point at our facility, and title passes as the product is loaded into railcars hired by the customer or provided by us. Deliveries of
57
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

in-basin sand have shipping terms of FCA, DAT or DAP; and we recognize this revenue when the sand is received at the destination.
We derive our revenue by mining and processing sand that our customers purchase for various uses. Our revenues are primarily a function of the price per ton realized and the volumes sold. In some instances, our revenues also include transportation costs we charge to our customers, a monthly charge to reserve sand capacity and shortfall payments due from customers for minimum volume commitments. Our transportation revenue fluctuates based on a number of factors, including the volume of product we transport and the distance between our plant and our customers. Our reservation and shortfall revenue fluctuates based on negotiated contract terms.
We sell sand through short-term price agreements, at prevailing market rates, and long-term take-or-pay contracts. The expiration dates of these contracts range from 2020 through 2023. These agreements define, among other commitments, the volume of product that our customers must purchase, the volume of product that we must provide and the price that we will charge and that our customers will pay for each ton of contracted product.
SmartSystems revenues consist primarily of the rental of our patented SmartSystems equipment to customers, which is typically earned under fixed monthly fees, services related to delivery, proppant management and maintenance on the equipment. Revenues are recognized as the performance obligations are satisfied under the terms of the customer contract.
Accounts and Unbilled Receivables
Accounts receivable represents customer transactions that have been invoiced as of the balance sheet date; unbilled receivables represent customer transactions that have not yet been invoiced as of the balance sheet date. Accounts receivable are due within 30 days, or in accordance with terms agreed upon with customers, and are stated at amounts due from customers net of any allowance for doubtful accounts. We consider accounts outstanding longer than the payment terms past due. We determine the allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, the customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. Accounts receivable are written off when they are deemed uncollectible, and payments subsequently received on such receivables are credited to bad debt expense. We have not had material allowances or bad debt expense
Asset Retirement Obligation
We estimate the future cost of dismantling, restoring and reclaiming operating excavation sites and related facilities in accordance with federal, state and local regulatory requirements and recognize reclamation obligations when extraction occurs and record them as liabilities at estimated fair value. In addition, a corresponding increase in the carrying amount of the related asset is recorded and depreciated over such asset’s useful life or the estimated number of years of extraction. The reclamation liability is accreted to expense over the estimated productive life of the related asset and is subject to adjustments to reflect changes in value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. Changes in estimates at inactive mines or mining areas are reflected in earnings in the period an estimate is revised. If the asset retirement obligation is settled for more or less than the carrying amount of the liability, a loss or gain will be recognized, respectively.
At December 31, 2019, we updated our reclamation plan for certain of our asset retirement obligations which resulted in a reduction to the asset retirement obligation by $9.8 million. There was no effect on the income statement in the current period for this change in estimate but there will be a reduction to the amount of depreciation and accretion expense recorded in future periods as a result of this change in estimate.
Inventory Valuation
Sand inventory is stated at the lower of cost or net realizable value using the average cost method. Costs applied to inventory include direct excavation costs, processing costs, overhead allocation, depreciation and depletion. Stockpile tonnages are calculated by measuring the number of tons added and removed from the stockpile. Tonnages are verified periodically by a surveyor. Costs are calculated on a per ton basis and are applied to the stockpiles based on the number of tons in the stockpile.
Spare parts inventory includes critical spare parts. We account for spare parts on a first-in first-out basis, and value the inventory at the lower of cost or net realizable value.
58
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

Leases
On January 1, 2019 we adopted ASU 2016-02, Leases (Topic 842), and related amendments, which replaced the existing guidance in ASC 840, Leases. ASU 2016-02 requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The new lease standard does not substantially change lessor accounting. We adopted ASU 2016-02 and its related updates using the transition practical expedients, which allows us to use the existing lease population, classification and determination of initial direct costs when calculating the lease liability and right-of-use asset balances. We also used the optional transition method, which allows us to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. There was no adjustment made to the opening balance of retained earnings. We have implemented new accounting policies and software to facilitate the recording and reporting of lease transactions and balances. We recorded initial operating right-of-use assets of $35.9 million and related lease liabilities of $36.5 million on our consolidated balance sheet on January 1, 2019. Operating leases were not recorded on the balance sheet as of December 31, 2018.
Leases - Lessee

We use leases primarily to procure certain office space, railcars and heavy equipment as part of our operations. The majority of our lease payments are fixed and determinable with certain lease payments containing immaterial variable payments based on the number of hours the equipment is used. Certain of our leases have options that allow for renewal at market rates, purchase at fair market value or termination of the lease. We must determine that it is reasonably certain that a lease option will be exercised for such an option to be included in the right-of-use asset or lease liability. We are not reasonably certain that any of our lease options will be exercised and, as such, have not included those options in our right-of-use assets or lease liabilities. Certain of our equipment leases contain residual value guarantees which guarantee various parts of heavy equipment will have a remaining life when the equipment is returned to the lessor. It is possible that we could owe additional amounts to the lessor upon return of equipment. There are no restrictions or covenants imposed by any of our leases.
We evaluate contracts during the negotiation process and when they are executed to determine the existence of leases. A contract contains a lease when it conveys the right to use property, plant or equipment for a stated period of time in exchange for consideration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognize lease expense on a straight-line basis over the term of the lease. We evaluate the classification of our leases at the commencement date and include both lease and non-lease components in our calculation of consideration in the contract for all classes of operating leases.
We apply a single discount rate to all operating leases. We determined our incremental borrowing rate based on an average of collateralized borrowing rates offered by various lenders. We considered the nature of the assets and the life of the leases and determined that there is no significant difference in the incremental borrowing rate.
We are obligated under certain contracts for minimum payments for the right to use land for extractive activities, which is not within the scope of leases under ASC 842. See “Contractual Obligations” above for additional information.
Leases - Lessor
We manufacture and offer for lease our SmartSystems wellsite proppant storage solutions. We negotiate the terms of our lease agreements on a case-by-case basis. There are no significant options that are reasonably certain to be exercised, residual value guarantees or restrictions or covenants in our lease contracts and, therefore, no such terms have been included in our accounting for the leases. All of our SmartSystems are leased under operating leases.
Depletion
We amortize the cost to acquire land and mineral rights using a units-of-production method, based on the total estimated reserves and tonnage extracted each period.
Impairment of Indefinite-Lived and Long-Lived Assets
In applying the acquisition method of accounting for business combinations, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for
59
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment annually as of December 31, and whenever indicators of impairment arise. The fair value of the intangible assets is compared with their carrying value and an impairment loss would be recognized for the amount by which the carrying amount exceeds the fair value. Goodwill is tested for impairment annually as of December 31, and whenever indicators of impairment arise.
We periodically evaluate whether current events or circumstances indicate that the carrying value of our long-lived assets may not be recoverable. If circumstances indicate that the carrying value may not be recoverable, we estimate future undiscounted net cash (without interest charges), estimated future sales prices (considering historical and current prices, price trends and related factors) and anticipated operating costs and capital expenditures. If the carrying value of our long-lived assets is less than the undiscounted cash flows, the assets are measured at fair value and an impairment is recorded if that fair value is less than the carrying value.
During the year ended December 31, 2019, we recorded impairment loss of $15.5 million, of which $7.6 million relates to our finite-lived developed technology intangible assets and $7.9 million relates to our Hixton, Wisconsin property. The impairment of the finite-lived intangible assets is from our developed technology allocated to the Quickload acquired in connection with the acquisition of Quickthree in 2018. We are developing and testing a new transload technology and no longer plan to actively market the Quickload and as such, all developed technology intangible assets related to the Quickload were fully impaired during the third quarter of 2019. In the fourth quarter of 2019, we determined that the full amount recorded on the balance sheet related to the Hixton, Wisconsin property may not be recoverable as we have no current plans to further develop the site.
For the year ended December 31, 2018, we performed both a qualitative and quantitative analysis of its goodwill and the estimated fair value of the Company was in excess of its carrying value. To perform the test, we used valuation techniques to estimate the fair value of the Company as a single reporting unit under the income and market approaches. Under the discounted cash flow method, an income approach, the business enterprise value is determined by discounting to present value the terminal value which is calculated using debt-free after-tax cash flows for a finite period of years. Key estimates in this approach were internal financial projection estimates prepared by management, business risk, and expected rates of return on capital. The guideline company method, a market approach, develops valuation multiples by comparing our reporting units to similar publicly traded companies. Key estimates and selection of valuation multiples rely on the selection of similar companies, obtaining estimates of forecast revenues and EBITDA estimates for the similar companies and selection of valuation multiples as they apply to the reporting unit characteristics. Under the similar transactions method, a market approach, actual transaction prices and operating data from companies deemed reasonably similar to the reporting units is used to develop valuation multiples as an indication of how much a knowledgeable investor in the marketplace would be willing to pay for the Company. Following the fair value determination using the methods above, we conducted an evaluation of our stock price at or near the measurement date and the relationship between the resulting market capitalization and the fair value of the Company.
Our estimates of prices, recoverable proven reserves and operating and capital costs are subject to certain risks and uncertainties which may affect the recoverability of our long-lived assets. Although we have made our best estimate of these factors based on current conditions, it is reasonably possible that changes could occur, which could adversely affect our estimate of the net cash flows expected to be generated from our operating property. We recorded an impairment charge of $17.8 million related to goodwill and an other indefinite-lived intangible asset for the year ended December 31, 2018. The impairment charge relates primarily to the decline in our stock price in 2018 and the relationship between the resulting market capitalization and the equity recorded on our balance sheet.
There were no impairment losses in 2017.
Income Taxes
Under the balance sheet approach to provide for income taxes, we recognize deferred tax assets and liabilities for the expected future tax consequences of net operating loss carryforwards and temporary differences between the carrying amounts and the tax bases of assets and liabilities. In assessing the realizability of deferred tax assets, we consider 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. If we determine it is more likely than not that we will not be able to realize the benefits of the deductible temporary differences, we would record a valuation allowance against the net deferred tax asset.
60
SMART SAND, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)

We recognize the impact of uncertain tax positions at the largest amount that, in our judgment, is more-likely-than-not to be required to be recognized upon examination by a taxing authority.
Stock-Based Compensation
Stock-based compensation expense is recorded based upon the fair value of the award at grant date. Such costs are recognized as expense over the corresponding requisite service period. The fair value of the awards granted was calculated based on a weighted analysis of (i) publicly-traded companies in a similar line of business to us (market comparable method) and (ii) our discounted cash flows. The application of this valuation model involves inputs and assumptions that are judgmental and highly sensitive in the valuation of incentive awards, which affects compensation expense related to these awards. These inputs and assumptions include the value of a share of our common stock.
Prior to our initial public offering, we used a combination of the guideline company approach and a discounted cash flow analysis to determine the fair value of our stock. The key assumptions in this estimate included our projections of future cash flows, company-specific cost of capital used as a discount rate, lack of marketability discount, and qualitative factors to compare us to comparable guideline companies. During 2016, factors that contributed to changes in the underlying value of our stock included the continued market challenges and corresponding decline in oil and natural gas drilling activity, changes to future cash flows projected from the expansion of capacity, product mix, including mix of finer grade versus coarser grade sand, and other factors. As our operations are highly dependent on sales to the oil and natural gas industry, the market conditions for this industry had a high degree of impact on the company’s value.
Once our shares became publicly traded, we began using the actual market price of our shares or an adjusted price using a Monte Carlo simulation for awards subject to the Company’s performance as compared to a defined peer group as the grant date fair value for restricted stock awards.
The following is a summary of the restricted stock awards granted and the related grant date fair value in the years ended December 31, 2019, 2018 and 2017.
 
Number of
Shares Granted
(in thousands)
Weighted Average
Grant Date
Fair Value
For the year ended December 31, 2019 1,884    $ 2.58   
For the year ended December 31, 2018 746    $ 6.61   
For the year ended December 31, 2017 352    $ 14.77   
Emerging Growth Company
We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our election to “opt-out” of the extended transition period is irrevocable.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which modifies disclosure requirements for fair value measurements by removing the disclosure of the valuation process for Level 3 fair value measurements, among other disclosure modifications. The guidance is effective for the financial statements periods beginning after December 15, 2019, although early adoption is permitted. We early adopted ASU 2018-13 on December 31, 2019 and fair value disclosures in these financial statements have been updated accordingly. The changes in disclosures are immaterial.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and related amendments, which replaced the existing guidance in ASC 840, Leases. ASU 2016-02 requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. We adopted ASU 2016 and its related amendments on January 1, 2019. See our discussion of leases above for additional information.

61

ITEM 7A. — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices. Historically, our risks have been predominantly related to potential changes in the fair value of our long-term debt due to fluctuations in applicable market interest rates. Going forward our market risk exposure generally will be limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes. We do not believe that inflation has a material impact on our financial position or results of operations during periods covered by the financial statements included in this filing.
Commodity Price Risk
The market for proppant and proppant storage equipment is indirectly exposed to fluctuations in the prices of crude oil and natural gas to the extent such fluctuations impact drilling and completion activity levels and thus impact the activity levels of our customers in the oilfield services and exploration and production industries. We do not currently intend to hedge our indirect exposure to commodity price risk.
Interest Rate Risk
The majority of our debt is financed under fixed interest rates. Borrowings under the ABL Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at our option, either a LIBOR rate or an alternate base rate (“ABR”). The applicable margin is 2.00% for LIBOR loans and 1.00% for ABR loans. The balance on our ABL Credit Facility was $2.5 million as of December 31, 2019. We do not believe this represents a material interest rate risk.
Credit Risk
Substantially all of our revenue for the year ended December 31, 2019 was generated through long-term take-or-pay contracts with six customers. Our customers are oil and natural gas producers and oilfield service providers, all of which have been negatively impacted by the downturn in activity in the oil and natural gas industry beginning in the latter part of 2018 and continuing through much of 2019. This concentration of counterparties operating in a single industry may increase our overall exposure to credit risk, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. If a customer defaults or if any of our contracts expire in accordance with its terms, and we are unable to renew or replace these contracts, our gross profit and cash flows may be adversely affected.
Additionally, as of December 31, 2019, $37.4 million of accounts and unbilled receivables is attributable U.S. Well, a customer with which we have pending litigation. We are unable to express an opinion as to the likely outcome of the matter, and even if we are successful, we can make no assurances that U.S. Well would be able to pay.
Foreign Currency Risk
Our revenues and expenses are primarily in United States dollars; however, as a result of our acquisition of Quickthree on June 1, 2018, certain transactions are transacted in Canadian dollars. Thus, revenues, operating expenses, the results of operations, assets and liabilities may be impacted to the extent that they are not hedged by the rise and fall of the relative value of the United States dollar to the Canadian dollar. During the years ended December 31, 2019 and 2018, revenue, expenses, assets and liabilities transacted in Canadian dollars were immaterial to the results of operations.

62

ITEM 8. — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K:


63

Report of Independent Registered Public Accounting Firm
 
Board of Directors and Stockholders
Smart Sand, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Smart Sand, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated income statements, and statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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 audits 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 audits 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits 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 supporting the amounts and disclosures in the financial statements. Our audits 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 audits provide a reasonable basis for our opinion.

Change in accounting principle

As discussed in Notes 2 and 9 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of ASU 2016-02, Leases (Topic 842).

/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2014.
New York, New York
February 26, 2020

64

SMART SAND, INC.
CONSOLIDATED BALANCE SHEETS
  December 31,
  2019 2018
  (in thousands, except share amounts)
Assets    
Current assets:    
Cash and cash equivalents $ 2,639    $ 1,466   
Accounts receivable, net 60,052    18,989   
Unbilled receivables 4,765    7,823   
Inventories 21,415    18,575   
Prepaid expenses and other current assets 1,506    3,243   
Total current assets 90,377    50,096   
Property, plant and equipment, net 230,461    248,396   
Operating lease right-of-use assets 28,178    —   
Intangible assets, net 9,046    18,068   
Other assets 3,541    3,732   
Total assets $ 361,603    $ 320,292   
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 3,961    $ 11,336   
Accrued and other expenses 8,578    8,392   
Deferred revenue, current 7,654    4,095   
Income taxes payable 542    —   
Long-term debt, net, current 6,175    829   
Operating lease liabilities, current 13,108    —   
Total current liabilities 40,018    24,652   
Deferred revenue, net 1,670    —   
Long-term debt, net 28,240    47,893   
Operating lease liabilities, long-term 15,469    —   
Deferred tax liabilities, long-term, net 24,021    17,898   
Asset retirement obligation 6,142    13,322   
Contingent consideration 1,900    7,167   
Total liabilities 117,460    110,932   
Commitments and contingencies (Note 17)
Stockholders’ equity
Common stock, $0.001 par value, 350,000,000 shares authorized; 40,975,408
   issued and 40,234,451 outstanding at December 31, 2019; 40,673,513
   issued and 39,974,478 outstanding at December 31, 2018 		40    40   
Treasury stock, at cost, 740,957 and 699,035 shares at
   December 31, 2019 and 2018, respectively 		(2,979)   (2,839)  
Additional paid-in capital 165,223    162,195   
Retained earnings 81,900    50,277   
Accumulated other comprehensive loss (41)   (313)  
Total stockholders’ equity 244,143    209,360   
Total liabilities and stockholders’ equity $ 361,603    $ 320,292   
 
The accompanying notes are an integral part of these consolidated financial statements.
65

SMART SAND, INC.
CONSOLIDATED INCOME STATEMENTS
  Year Ended December 31,
  2019 2018 2017
  (in thousands, except per share amounts)
Revenues $ 233,073    $ 212,470    $ 137,212   
Cost of goods sold 152,021    144,903    100,304   
Gross profit 81,052    67,567    36,908   
Operating expenses:
Salaries, benefits and payroll taxes 11,560    11,043    8,219   
Depreciation and amortization 2,411    1,843    525   
Selling, general and administrative 11,328    12,825    9,459   
Change in the estimated fair value of contingent consideration (3,272)   (1,858)   —   
Impairment loss 15,542    17,835    —   
Total operating expenses 37,569    41,688    18,203   
Operating income 43,483    25,879    18,705   
Other income (expenses):
Interest expense, net (3,621)   (2,266)   (450)  
Loss on extinguishment of debt (561)   —    —   
Other income 131    197    462   
Total other income (expenses), net (4,051)   (2,069)   12   
Income before income tax expense (benefit) 39,432    23,810    18,717   
Income tax expense (benefit) 7,809    5,122    (2,809)  
Net income $ 31,623    $ 18,688    $ 21,526   
Net income per common share:
Basic $ 0.79    $ 0.46    $ 0.54   
Diluted $ 0.78    $ 0.46    $ 0.53   
Weighted-average number of common shares:
Basic 40,135    40,427    40,208   
Diluted 40,337    40,449    40,304   
 
The accompanying notes are an integral part of these consolidated financial statements.
66

SMART SAND, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
2019 2018 2017
(in thousands)
Net income $ 31,623    $ 18,688    $ 21,526   
Other comprehensive income:
Foreign currency translation adjustment 272    (313)   —   
Comprehensive income $ 31,895    $ 18,375    $ 21,526   
The accompanying notes are an integral part of these consolidated financial statements.


67

SMART SAND, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY 
  Common Stock Treasury Stock
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated Other Comprehensive Loss
Total
Stockholders’
Equity
 
Outstanding
Shares
Par Value Shares Amount
  (in thousands, except share amounts)
Balance at December 31, 2016 38,816,474    $ 39    67,594    $ (539)   $ 132,879    $ 10,063    $ —    $ 142,442   
Vesting of restricted stock 90,017    —    —    —    —    —    —    —   
Stock-based compensation —    —    —    —    1,973    —    —    1,973   
Employee stock purchase plan compensation —    —    —    —    39    —    —    39   
Proceeds from equity issuance, net of
   transaction costs 		1,500,000    1    —    —    24,168    —    —    24,169   
Restricted stock buy back (13,458)   —    13,458    (127)   —    —    —    (127)  
Net income —    —    —    —    —    21,526    —    21,526   
Balance at December 31, 2017 40,393,033    $ 40    81,052    $ (666)   $ 159,059    $ 31,589    $ —    $ 190,022   
Foreign currency translation adjustment —    —    —    —    —    —    (313)   (313)  
Vesting of restricted stock 177,464    —    —    —    —    —    —    —   
Stock-based compensation —    —    —    —    2,937    —    —    2,937   
Employee stock purchase plan compensation —    —    —    —    72    —    —    72   
Employee stock purchase plan issuance 21,964    —    —    —    127    —    127   
Restricted stock buy back (29,783)   —    29,783    (174)   —    —    —    (174)  
Shares repurchased (588,200)   —    588,200    (1,999)   —    —    (1,999)  
Net income —    —    —    —    —    18,688    —    18,688   
Balance at December 31, 2018 39,974,478    $ 40    699,035    $ (2,839)   $ 162,195    $ 50,277    $ (313)   $ 209,360   
Foreign currency translation adjustment —    —    —    —    —    —    272    272   
Vesting of restricted stock 260,820    —    —    —    —    —    —    —   
Stock-based compensation —    —    —    —    2,909    —    —    2,909   
Employee stock purchase plan compensation —    —    —    —    41    —    —    41   
Employee stock purchase plan issuance 41,075    —    —    —    78    —    —    78   
Restricted stock buy back (41,922)   —    41,922    (140)   —    —    —    (140)  
Net income —    —    —    —    —    31,623    —    31,623   
Balance at December 31, 2019 40,234,451    $ 40    740,957    $ (2,979)   $ 165,223    $ 81,900    $ (41)   $ 244,143   
 The accompanying notes are an integral part of these consolidated financial statements.
68

SMART SAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,
  2019 2018 2017
  (in thousands)
Operating activities:      
Net income $ 31,623    $ 18,688    $ 21,526   
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and accretion of asset retirement obligation 26,425    17,159    7,926   
Impairment loss 15,542    17,835    —   
Amortization of intangible assets 1,398    1,002    —   
Asset retirement obligation settlement (2,753)   (3,180)   —   
(Gain) loss on disposal of assets (42)   321    253   
Loss on extinguishment of debt 561    —    —   
Provision for bad debt —    42    —   
Amortization of deferred financing cost 212    300    455   
Accretion of debt discount 649    246    —   
Deferred income taxes 6,123    4,659    (1,805)  
Stock-based compensation, net 2,909    2,937    2,012   
Employee stock purchase plan compensation 41    72    —   
Change in contingent consideration fair value (3,272)   (1,858)   —   
Changes in assets and liabilities:
Accounts receivable (41,063)   4,457    (18,038)  
Unbilled receivables 3,058    (6,631)   (788)  
Inventories (1,021)   (7,343)   4,407   
Prepaid expenses and other assets 1,875    (1,761)   (3,394)  
Deferred revenue 5,229    4,095    (1,615)  
Accounts payable (4,680)   (2,271)   9,356   
Accrued and other expenses 1,277    2,140    2,391   
Income taxes payable 542    —    (7,058)  
Net cash provided by operating activities 44,633    50,909    15,628   
Investing activities:
Acquisition of businesses, net of cash acquired —    (29,921)   —   
Purchases of property, plant and equipment (25,525)   (96,090)   (51,162)  
Proceeds from disposal of assets 100    22    14   
Net cash used in investing activities (25,425)   (125,989)   (51,148)  
Financing activities:
Proceeds from the issuance of notes payable 31,202    —    —   
Repayments of notes payable (2,808)   (559)   (282)  
Payments under equipment financing obligations (103)   (168)   (353)  
Payment of deferred financing and debt issuance costs (2,262)   (233)   (193)  
Proceeds from revolving credit facility 52,750    84,000    —   
Repayment of revolving credit facility (94,750)   (39,500)   —   
Payment of contingent consideration (1,995)   (175)   —   
Proceeds from equity issuance 71    127    26,251   
Payment of equity transaction costs —    —    (2,083)  
Purchase of treasury stock (140)   (2,173)   (127)  
Net cash (used in) provided by financing activities (18,035)   41,319    23,213   
Net increase (decrease) in cash and cash equivalents 1,173    (33,761)   (12,307)  
Cash and cash equivalents at beginning of year 1,466    35,227    47,534   
Cash and cash equivalents at end of year $ 2,639    $ 1,466    $ 35,227   
 
The accompanying notes are an integral part of these consolidated financial statements.

69
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 — Organization and Nature of Business
The Company was incorporated in July 2011 and is headquartered in The Woodlands, Texas. The Company is a fully integrated frac sand supply and services company, offering complete mine to wellsite logistics solutions. The Company is engaged in the excavation, processing and sale of sand, or proppant, for use in hydraulic fracturing operations for the oil and natural gas industry. Its integrated Oakdale facility, with on-site rail infrastructure and wet and dry sand processing facilities, has access to two Class I rail lines and enables the Company to process and cost effectively deliver products to its customers. The Company also offers proppant logistics solutions to its customers through, among other things, its in-basin transloading terminal and its SmartSystemsTM wellsite proppant storage solution capabilities.
The Company completed construction of the first phase of its mine and processing facility near Oakdale, Wisconsin and commenced operations in July 2012, and subsequently expanded its operations in 2014, 2015 and 2018. Currently the Company’s annual processing capacity is approximately 5.5 million tons.
In March 2018, the Company acquired the rights to operate a unit train capable transloading terminal in Van Hook, North Dakota to service the Bakken Formation in the Williston Basin and began providing Northern White Sand in-basin in April 2018.
In June 2018, the Company acquired substantially all of the assets of Quickthree Solutions, Inc., (“Quickthree”) a manufacturer of portable vertical proppant storage solution systems. Quickthree formed the basis for the Company's SmartSystems under which it offers various proppant storage solutions that create efficiencies, flexibility, enhanced safety and reliability for customers by providing the capability to unload, store and deliver proppant at the wellsite, as well as the ability to rapidly set up, takedown and transport the entire system. The SmartDepotTM silo includes passive and active dust suppression technology, along with the capability of a gravity-fed operation.

NOTE 2 — Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements (“financial statements”) of the Company have been prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC. The accompanying financial statements include those of our controlled subsidiaries. The intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include, but are not limited to; the sand reserves and their impact on calculating the depletion expense under the units-of-production method; the depreciation and amortization associated with property, plant and equipment and definite-lived intangible assets, impairment considerations of assets (including impairment of identified intangible assets, goodwill and other long-lived assets); estimated cost of future asset retirement obligations; stock-based compensation; recoverability of deferred tax assets; inventory reserve; collectability of receivables; and certain liabilities. Actual results could differ from management’s best estimates as additional information or actual results become available in the future, and those differences could be material.
Going Concern
Management evaluates at each annual and interim period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Management’s evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the consolidated financial statements are issued. In the September 30, 2019 interim financial statements, the Company reported that there was a substantial doubt raised regarding the Company's ability to continue as a going concern due to the short-term maturity of its Former Credit Facility. The Former Credit Facility has been paid in full and terminated using proceeds from the Oakdale Equipment Financing. See Note 8 - Debt, for additional information. Management has concluded that there are no conditions or events, considered in the aggregate, that raise
70
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

substantial doubt about the Company’s ability to continue as a going concern within one year after the date of these financial statements.
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers” and all the related amendments thereto, using the modified retrospective method. There was no adjustment made to the opening balance of retained earnings as a result of applying ASC 606. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while the comparative information is not restated and will continue to be reported under the accounting standards in effect for those periods.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our customers, the amount of which reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Sand Sales Revenue
The Company derives its sand sales revenue by mining and processing sand. Its revenues are primarily a function of the price per ton realized and the volumes sold. For sand delivered FCA at the origination point at the Company’s facility, title passes as the product is loaded into railcars hired by the customer or provided by the Company and revenue is recognized when title transfers at the Company’s facility. For sand delivered in-basin, the Company recognizes the revenue when title passes at the destination. The amount invoiced reflects product, transportation and any other additional handling services, such as storage or transloading the product from railcar to truck.
Prices under the Company’s long-term agreements with customers are generally indexed to the Average Cushing Oklahoma WTI Spot Prices and contain provisions allowing for adjustments including: (i) annual percentage price increases; and/or (ii) market factor adjustments, including a natural gas surcharge/reduction and a propane surcharge/reduction which are applied if the Average Natural Gas Price or the Average Quarterly Mont Belvieu TX Propane Spot Price, respectively, as listed by the U.S. Energy Information Administration, are above or below the applicable benchmark set forth in the contract for the preceding calendar quarter.
The Company requires certain customers to pay a fixed-price monthly reservation charge based on a minimum contractual volume over the remaining life of their contract, which may be applied as a per ton credit to the sales price up to a certain contractually specified monthly volume or credited against any applicable shortfall payments. The Company recognizes revenue when the customer no longer has the right to use the reservation charge towards sand sales or shortfall payments.
Shortfall Revenue
The Company’s shortfall revenues are related to minimum commitments under take-or-pay contracts and based on negotiated contract terms and are recognized when rights of use are expired. The Company recognizes revenue to the extent of the unfulfilled minimum contracted quantity at the shortfall price per ton as stated in the contract.
Logistics Revenue
Logistics revenue includes railcar usage revenue, transportation revenue and SmartSystems revenue.
Railcar usage revenue consists of revenue derived from the usage of the Company’s railcars by customers under long-term contracts or on an as-used basis. Based on the customer contract, the Company either recognizes revenue on the usage of railcars based on when the terms of the agreement state that the railcar is available to the customer for use, or based on a specified price per ton shipped.
Transportation revenue consists primarily of railway transportation and transload services to deliver products to customers. The Company’s transportation revenue fluctuates based on many factors, including the volume of product it transports and the distance between its plant and customers.
SmartSystems revenues consists primarily from the rental of our patented SmartSystems equipment to customers, which is typically earned under fixed monthly fees and services related to delivery, proppant management and maintenance on the equipment. Revenues are recognized as the performance obligations are satisfied under the terms of the customer contract.
71
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables and deferred revenue on the consolidated balance sheet. For the Company’s sand sales, amounts are billed as sand is loaded on the railcars to fill customer orders for FCA origination point sales or when sand is received at the destination for DAP or DAT destination point sales and recorded as accounts receivable. For the Company’s freight revenue, amounts billed depend on the shipping terms and are recorded as receivables accordingly. Generally, billing occurs subsequent to revenue recognition, though certain billing occurs in advance, resulting in unbilled receivables and deferred revenue, respectively. In addition, the Company sometimes receives shortfall payments from its customers and recognizes the revenue once the rights of use are expired.
Deferred Revenues
The Company receives advance payments from certain customers in order to secure and procure a reliable provision and delivery of product. The Company classifies such advances as current or noncurrent liabilities depending upon the anticipated timing of delivery of the supplied product. Deferred revenue is recognized as revenue when performance obligations are met in accordance with the contract.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in accordance with ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. The Company’s contracts may include a single performance obligation in a single contract whereby the allocation of transaction price is not necessary. The Company's contracts may also contain multiple elements in a single contract or multiple contracts. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product or service is transferred to the customer, in satisfaction of the corresponding performance obligations. The Company expects to recognize approximately 67% of its remaining performance obligations under existing contracts as revenue in 2020 and expects to recognize the remaining 33% as revenue by 2023.
Significant Judgments
Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue, costs and satisfaction of performance obligations. The Company satisfies its performance obligation and subsequently recognizes revenue, at a point in time, upon shipment of the products as the customer obtains control over the goods once the sand is loaded into the railcars or sand is delivered to the customer’s destination. In the case of sand being delivered to customers, the transaction price is variable in nature and is directly tied to the Average Cushing Oklahoma WTI Spot Prices per barrel. There were no changes to the significant judgments used by the Company to determine the timing of satisfaction of the performance obligation under ASC 606.
Cash, Cash Equivalents and Restricted Cash
The Company considers all short-term, highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no restricted cash as of December 31, 2019 or 2018. Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits.
Accounts and Unbilled Receivables
Accounts receivable represents customer transactions that have been invoiced as of the balance sheet date; unbilled receivables represent customer transactions that have not yet been invoiced as of the balance sheet date. Accounts receivable are due within 30 days, or in accordance with terms agreed upon with customers, and are stated at amounts due from customers net of any allowance for doubtful accounts. The Company considers accounts outstanding longer than the payment terms past due. The Company determines the allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, a customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. Accounts receivable are written off when they are deemed uncollectible, and payments subsequently received on such receivables are credited to bad debt expense. As of December 31, 2019 and 2018, the Company recorded an allowance for doubtful accounts of $0 and $42, respectively. As of December 31, 2019 and 2018, the amount of unbilled receivables included in deferred revenue was $2,282 and $578, respectively. As of December 31, 2019 and 2018,
72
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

respectively, $37,422 and $3,237 of accounts and unbilled receivables were from a customer with which we have pending litigation. See Note 17 - Commitments and Contingencies for additional information.
Transportation
Transportation costs are classified as cost of goods sold. Transportation costs consist of railway transportation and transload costs to deliver products to customers. Cost of sales generated from shipping was $76,643, $70,532 and $50,313 for the years ended December 31, 2019, 2018 and 2017, respectively.
Inventories
The Company’s sand inventory consists of raw material (sand that has been excavated but not processed), work-in-progress (sand that has undergone some but not all processing) and finished goods (sand that has been completely processed and is ready for sale). Costs applied to sand inventory include direct excavation costs, processing costs, overhead allocation, depreciation and depletion, transportation and additional service costs, as applicable. Stockpile tonnages are calculated by measuring the number of tons added and removed from the stockpile. Costs are calculated on a per ton basis and are applied to the stockpiles based on the number of tons in the stockpile. The Company performs monthly physical inventory measurements to verify the quantity of sand inventory on hand. Due to variation in sand density and moisture content and production processes utilized to manufacture the Company’s products, physical inventories will not necessarily detect all variances. To mitigate this risk, the Company recognizes a yield adjustment on its inventories. Sand inventory is stated at the lower of cost or net realizable value using the average cost method. For the years ended December 31, 2019 and 2018, respectively, the Company had no write-down of inventory as a result of any lower of cost or market assessment.
The spare parts inventory consists of critical spare parts. Spare parts inventory is accounted for on a first-in, first-out basis at the lower of cost or net realizable value.
Deferred Financing Charges
Direct costs incurred in connection with the Company's debt are capitalized amortized using the straight-line method, which approximates the effective interest method, over the term of the debt. Amortization expense of the deferred financing charges of $861, $546, and $455 are included in interest expense as of December 31, 2019, 2018 and 2017, respectively. Costs related to the Oakdale Equipment Financing are presented net of the related debt and costs related to the ABL Credit Facility are presented in other assets on the balance sheet.
Financial Instruments
The carrying value of the Company’s financial instruments, consisting of cash, accounts receivable, accounts payable and accrued expenses, approximates their fair value due to the short maturity of such instruments. Financial instruments also consist of debt for which fair value approximates carrying values as the debt bears interest at fixed or variable rates which are reflective of current rates otherwise available to the Company. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
73
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Costs related to researching, surveying, drilling, and related activities are recorded at cost and capitalized once a determination has been made that the Company’s property has proven and probable reserves. Capitalized mining costs are depleted using the units-of-production method. Construction in progress is primarily comprised of machinery and equipment which has not been placed in service and is not depreciated until the related assets or improvements are ready to be placed in service. Depreciation is calculated using the straight-line method over the estimated useful lives of the property, plant and equipment, which are:
  Years
Land improvements 10   
Plant and buildings 5-15
Real estate properties 10-40
Railroad and sidings 30   
Vehicles 3-5
Machinery, equipment and tooling 3-15
Wellsite proppant storage solutions 5-15
Furniture and fixtures 3-10
Deferred mining costs 3   
Expenditures for maintenance and repairs are charged against income as incurred; betterments that increase the value or materially extend the life of the related assets are capitalized. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is recognized in the consolidated income statements.
Acquisitions
The Company determines whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, contingent considerations and any non-controlling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and expenses acquisition-related costs and fees associated with business combinations in the period in which they are incurred.
Long-Lived Assets, Including Definite-Lived Intangible Assets 
Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Definite-lived intangible assets primarily consist of developed technology and customer relationships. For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
Acquired finite-lived intangible assets are amortized on a straight-line basis over the following periods:
Estimated Useful Life (Years)
Developed technology 13
Customer relationships 1
In 2019, the Company recorded impairment losses of $15,542 of which $7,628 related to finite-lived developed technology intangible assets in intangible assets, net on the balance sheet and $7,914 related to its Hixton, Wisconsin property in property. plant and equipment, net on the balance sheet. The impairment of the finite-lived intangible assets is from developed technology allocated to the Quickload acquired in connection with the acquisition of Quickthree in 2018. The
74
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Company is developing and testing a new transload technology and no longer plans to actively market the Quickload and as such, all developed technology intangible assets related to the Quickload were fully impaired during the third quarter of 2019. In the fourth quarter of 2019, the Company determined that the carrying amount of the Hixton, Wisconsin property may not be fully recoverable as the Company has no immediate plans to further develop the site. The Company determined the fair value of the Hixton, Wisconsin property based on market prices for similar properties sold in the area and recorded an impairment loss for the amount which the carrying value exceeded the fair value.
Goodwill and Other Indefinite-Lived Intangible Assets 
The Company conducts its evaluation of goodwill and other indefinite-lived intangible assets at the reporting unit level on an annual basis as of December 31 and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. Prior to performing an impairment test, the Company assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment determines that an impairment is more likely than not, the Company performs a quantitative comparison of the fair value with the carrying amount, including goodwill. If this comparison reflects impairment, then the loss would be measured as the excess of recorded goodwill, or other intangible assets with indefinite lives, over its fair value. See Note 6 - Intangible Assets, net for additional information.
In 2018 the Company fully impaired its goodwill and other indefinite-lived intangible assets. During the second half of 2018, the Company saw a decline in demand for frac sand, consistent with the industry as a whole, which resulted in a decline in the Company’s stock price near the measurement date. The decline in the Company’s stock price near the measurement date and the relationship between the resulting market capitalization and the equity recorded on the Company’s balance sheet resulted in a full impairment of goodwill and other indefinite-lived intangible assets in 2018.
Leases
Lessee
The Company uses leases primarily to procure certain office space, railcars and heavy equipment as part of its operations. The majority of its lease payments are fixed and determinable with certain of its lease payments containing immaterial variable payments based on the number of hours the equipment is used. Certain of its leases have options that allow for renewal at market rates, purchase at fair market value or termination of the lease. The Company must determine that it is reasonably certain that a lease option will be exercised for such an option to be included in the right-of-use asset or lease liability. The Company is not reasonably certain that any of its lease options will be exercised and, as such, has not included those options in its right-of-use assets or lease liabilities. Certain of its equipment leases contain residual value guarantees which guarantee various parts of heavy equipment will have a remaining life when the equipment is returned to the lessor. It is possible that the Company could owe additional amounts to the lessor upon return of equipment. There are no restrictions or covenants imposed by any of the Company’s leases.
The Company evaluates contracts during the negotiation process and when they are executed to determine the existence of leases. A contract contains a lease when it conveys the right to use property, plant or equipment for a stated period of time in exchange for consideration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company recognizes lease expense on a straight-line basis over the term of the lease. The Company evaluates the classification of its leases at the commencement date and includes both lease and non-lease components in its calculation of consideration in the contract for all classes of operating leases.
The Company applies a single discount rate to all operating leases, which is its incremental borrowing rate. The Company determined its incremental borrowing rate based on an average of collateralized borrowing rates offered by various lenders. The Company considered the nature of the assets and the life of the leases and determined that there is no significant difference in the incremental borrowing rate among its classes of assets. See Note 9 — Leases for additional disclosures regarding the Company’s leasing activity.
The Company is obligated under certain contracts for minimum payments for the right to use land for extractive activities, which is not within the scope of leases under ASC 842. See Note 17 — Commitments and Contingencies for additional disclosures regarding these obligations.
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SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Lessor
The Company manufactures SmartSystems and offers the equipment for lease. The Company negotiates the terms of its leases on a case-by-case basis. There are no significant options that are reasonably certain to be exercised, residual value guarantees, restrictions or covenants in its lease contracts and have, therefore, not been included in its accounting for the leases. All of our SmartSystems are leased under operating leases.
Fair Value Measurements
The Company has categorized its assets and liabilities that are measured at fair value on a recurring and non-recurring basis into a three-level fair value hierarchy, of which the first two are considered observable and the last unobservable, which are as follows:
•Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3—Unobservable inputs that reflect the Company’s assumptions that market participants would use in pricing assets or liabilities based on the best information available.
Contingent Consideration 
The Company’s contingent consideration is measured at fair value on a recurring basis and is comprised of payments for production of silos and related equipment during the three-year period after the Quickthree acquisition (Note 3). Contingent liabilities are valued using significant inputs that are not observable in the market, which are defined as Level 3 inputs according to fair value measurement accounting. The Company used a probability-weighted average between 11 and 20 manufactured fleets over the remaining earnout period as the basis of its fair value determination. The actual contingent consideration could vary from the determined amount based on the actual number of silos and related equipment produced and the timing thereof.
The fair value of the Company’s financial instruments carried at fair value were as follows:
December 31, 2019 Level 1 Level 2 Level 3
Contingent consideration $ 1,900    $ —    $ —    $ 1,900   
Total liabilities $ 1,900    $ —    $ —    $ 1,900   
The following table provides a summary of changes in the fair value of the Company’s Level 3 financial instruments for the year ended December 31, 2019:
Balance as of December 31, 2018 $ 7,167   
Payment of contingent consideration (1,995)  
Fair value adjustment (3,272)  
Balance as of December 31, 2019 $ 1,900   
Asset Retirement Obligation
The Company estimates the future cost of dismantling, restoring and reclaiming operating excavation sites and related facilities in accordance with federal, state and local regulatory requirements and recognizes reclamation obligations when disturbance occurs and records them as liabilities at estimated fair value. In addition, a corresponding increase in the carrying amount of the related asset is recorded and depreciated over such asset’s useful life or the estimated number of years of extraction. The reclamation liability is accreted to expense over the estimated productive life of the related asset and is subject to adjustments to reflect changes in value resulting from the passage of time and revisions to the estimates of either the timing
76
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

or amount of the reclamation costs. Changes in estimates at inactive mines or mining areas are reflected in earnings in the period an estimate is revised. If the asset retirement obligation is settled for more or less than the carrying amount of the liability, a loss or gain will be recognized, respectively.
At December 31, 2019, the Company updated its reclamation plan for certain of the Company’s asset retirement obligations which resulted in a reduction to the asset retirement obligation by $9,828. There was no effect on the income statement in the current period for this change in estimate but there will be a reduction to the amount of depreciation and accretion expense recorded in future periods as a result of this change in estimate.
Stock-Based Compensation
The Company issues restricted stock to certain employees and members of the board of directors of the Company (the “Board”) for their services on the Board. The Company estimates the grant date fair value of each share of restricted stock at issuance. For awards subject to service-based vesting conditions, the Company recognizes, in the consolidated income statements, stock-based compensation expense equal to the grant date fair value of the award on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to both performance and service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis when it is probable that the performance condition will be achieved. Forfeitures are accounted for when they occur. The Company uses the market price of its shares as the grant date fair value for restricted stock awards.
Income Taxes
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The SEC subsequently issued Staff Accounting Bulletin 118, which allows issuers a one year measurement period to record adjustments related to the Tax Reform Act. As a result of the Tax Reform Act, the Company recorded a tax benefit of approximately $8,500 due to a re-measurement of deferred tax assets and liabilities in the fourth quarter of 2017. The Company has finalized the accounting for income taxes for the Tax Reform Act with no material adjustments to the provisional amounts recorded.
The Company applies the provisions of ASC 740, “Income Taxes” (“ASC 740”), which principally utilizes a balance sheet approach to provide for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of net operating loss carryforwards and temporary differences between the carrying amounts and the tax bases of assets and liabilities.
ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The impact of an uncertain income tax position on the income tax returns must be recognized at the largest amount that is more-likely-than-not to be required to be recognized upon audit by the relevant taxing authority. This standard also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting for interim periods, disclosure and transition issues with respect to tax positions. The Company includes interest and penalties as a component of income tax expense in the consolidated income statements. For the periods presented, no interest and penalties were recorded.
Environmental Matters
The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. Management has established procedures for the ongoing evaluation of the Company’s operations, to identify potential environmental exposures and to comply with regulatory policies and procedures. Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and do not contribute to current or future revenue generation are expensed as incurred. Liabilities are recorded when environmental costs are probable, and the costs can be reasonably estimated. The Company maintains insurance which may cover, in whole or in part, certain environmental expenditures. As of December 31, 2019 and 2018, there were no material probable environmental matters.
Segment Information
Reportable operating segments are identified as components of an enterprise about which separate discrete financial information is available and utilized by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company and the Chief Executive Officer view the Company’s operations and manage its business as one reportable operating segment.
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SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Basic and Diluted Net Income Per Share of Common Stock
Basic net income per share of common stock is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, excluding the dilutive effects of restricted stock. Diluted net income per share of common stock is computed by dividing the net income attributable to common stockholders by the sum of the weighted-average number of shares of common stock outstanding during the period plus the potential dilutive effects of restricted stock outstanding during the period calculated in accordance with the treasury stock method, although these shares and restricted stock are excluded if their effect is anti-dilutive. The number of shares underlying equity-based awards that were excluded from the calculation of diluted earnings per share for the years ended December 31, 2019, 2018, 2017 was 764, 854 and 251, respectively as their effect would be anti-dilutive. The following table reconciles the weighted-average common shares outstanding used in the calculation of basic net income per share to the weighted average common shares outstanding used in the calculation of diluted net income per share:
  Year Ended December 31,
  2019 2018 2017
Weighted average common shares outstanding 40,135    40,427    40,208   
Assumed conversion of restricted stock 202    22    96   
Diluted weighted average common stock outstanding 40,337    40,449    40,304   
Reclassification
Certain financial statement items have been reclassified to conform to the current financial statement presentation. These reclassifications have no effect on previously reported net income.
Recent Accounting Pronouncements
Adopted
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which modifies disclosure requirements for fair value measurements by removing the disclosure of the valuation process for Level 3 fair value measurements, among other disclosure modifications. The guidance is effective for the financial statements periods beginning after December 15, 2019, although early adoption is permitted. The Company early adopted ASU 2018-13 on December 31, 2019 and fair value disclosures in these financial statements have been updated accordingly. The changes in disclosures are immaterial.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and related amendments, which replaced the existing guidance in ASC 840, Leases. ASU 2016-02 requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The new lease standard does not substantially change lessor accounting. The new standard is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted ASU 2016-02 and its related updates on January 1, 2019 using the optional transition practical expedients, which allow the Company to use the existing lease population, classification and determination of initial direct costs when calculating the lease liability and right-of-use asset balances. The Company also used the optional transition method, which allows the Company to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. There was no adjustment made to the opening balance of retained earnings. The Company has implemented new accounting policies and software to facilitate the recording and reporting of lease transactions and balances. The Company recorded initial operating right-of-use assets of $35,939 and related lease liabilities of $36,484 on its consolidated balance sheet on January 1, 2019. New disclosures are included in Note 9 to these financial statements.
Not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which modifies how companies recognize expected credit losses on financial instruments and other commitments to extend credit held by an entity at each reporting date. Existing GAAP requires an “incurred loss” methodology whereby companies are prohibited from recording an expected loss until it is probable that the loss has been incurred. ASU 2016-13 requires companies to use a methodology that reflects current expected credit losses (“CECL”) and requires consideration of a broad range of reasonable and supportable information to record and report credit loss estimates, even when the CECL is remote. Companies will be required to record the allowance for credit losses and deduct that amount from the basis of the asset and a related expense will be recognized in selling, general and administrative expenses on the income statement, similar to bad debt expense under
78
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

existing GAAP. There is much latitude given to entities in determining the methodology for calculating the CECL. The guidance is effective for the Company for financial statement periods beginning after December 15, 2020, although early adoption is permitted. While the Company is still in the process of evaluating the effects of ASU 2016-13 and its related updates on its consolidated financial statements, it believes the primary effect will be an allowance recorded against its accounts and unbilled receivables on its balance sheet and related expense on its income statement upon adoption. The Company cannot determine the financial impact on its consolidated financial statements upon adoption as its accounts and unbilled receivables balances are affected by ongoing transactions with customers.

NOTE 3 — Acquisitions
Asset Acquisition - Van Hook Crude Terminal, LLC
The acquisition of the assets of Van Hook Crude Terminal, LLC occurred on March 15, 2018. The Company acquired all of the rights, title, and interest in certain properties and assigned contracts (collectively, the “Assets”) for a total consideration of $15,549 in cash.
The acquisition cost has been allocated over the assets as set forth below.
Machinery, equipment and tooling $ 1,478   
Plant and building 1,407   
Railroad and sidings 9,926   
Land improvements 2,738   
Total assets acquired $ 15,549   
Business Combination - Quickthree Solutions Inc.
On June 1, 2018, the Company acquired substantially all of the assets of Quickthree Solutions, Inc., a manufacturer of portable vertical frac sand storage solution systems.
The aggregate purchase price consisted of approximately $30,000 cash paid at closing, subject to adjustment based upon Quickthree’s closing date working capital, and up to $12,750 in potential earn-out payments over a three-year period after closing. Payment of the earn-out is based upon the production of silos and related equipment during the earn-out period. The closing portion of the purchase price was paid using cash on hand and advances under the Company’s Credit Facility. The Company expects the earn-out portion of the purchase price to be paid using cash on hand, equipment financing options available to the Company and advances under the Company’s Credit Facility. Goodwill in this transaction is attributable to planned expansion into the wellsite storage solutions market, and is fully deductible for tax purposes.
The table below presents the calculation of the total purchase consideration:
Base price - cash $ 30,000   
Contingent consideration – earnout 9,200   
Working capital adjustment (122)  
Total purchase consideration $ 39,078   
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SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company’s allocation of the purchase price in connection with the acquisition was calculated as follows.
Fair Value Useful Life
Assets Acquired
Accounts receivable $ 112   
Inventory 1,700   
Prepaid expenses and other current assets 126   
      Total current assets acquired $ 1,938   
Property, plant and equipment 740   
Customer relationships 270    1 year
Developed technology 18,800    13 years
Trade name 900    Indefinite
Goodwill 16,935   
Other assets 225   
      Total non-current assets acquired 37,870   
      Total assets acquired $ 39,808   
Liabilities Assumed
Accounts payable $ 331   
Accrued and other expenses 399   
      Total liabilities assumed 730   
      Estimated fair value of net assets acquired $ 39,078   
The purchase price allocation was considered complete as of December 31, 2018. Total acquisition costs for the Quickthree acquisition incurred during the years ended December 31, 2019 and 2018 were $0 and $1,159, respectively, which are included in selling, general and administrative expense on the Company’s consolidated income statements. The goodwill and trade name were fully impaired as of December 31, 2018 and $8,500 of gross intangible assets related to developed technology were impaired in the year ended December 31, 2019. See Note 6 — Intangible Assets, net for additional information.
The Company determined the fair value of the contingent consideration to be $9,200 at the June 1, 2018 acquisition date and recorded it as a liability in the Company’s consolidated balance sheets. Each reporting period, the Company reassesses its inputs including market comparable information and management assessments regarding potential future scenarios, then discounts the liabilities to present value and records adjustments to the fair value of the contingent consideration. The Company will continue to reassess earn-out calculations related to the contingent consideration through June 30, 2021.

NOTE 4 — Inventories
Inventories consisted of the following:
December 31,
  2019 2018
Raw material $ 527    $ 1,201   
Work in progress 14,173    10,070   
Finished goods 4,097    4,648   
Spare parts 2,618    1,356   
Total sand inventory $ 21,415    $ 17,275   
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SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

SmartSystems inventory represents work in progress inventory related to existing arrangements at the time the Company acquired Quickthree and consisted of the following:
December 31,
  2019 2018
Work in progress $ —    $ 1,300   
Total SmartSystems inventory $ —    $ 1,300   
Total inventory $ 21,415    $ 18,575   


NOTE 5 — Property, Plant and Equipment, net
Net property, plant and equipment consists of:
  December 31,
  2019 2018
Machinery, equipment and tooling $ 19,683    $ 14,858   
SmartSystems 15,811    5,286   
Vehicles 2,419    1,955   
Furniture and fixtures 1,228    1,140   
Plant and building 170,283    158,882   
Real estate properties 4,946    4,601   
Railroad and sidings 27,701    27,347   
Land and land improvements 21,320    27,167   
Asset retirement obligation 11,480    16,469   
Mineral properties 7,442    10,075   
Deferred mining costs 2,004    1,806   
Construction in progress 9,208    21,619   
293,525    291,205   
Less: accumulated depreciation and depletion 63,064    42,809   
Total property, plant and equipment, net $ 230,461    $ 248,396   
Depreciation expense was $25,689, $17,117 and $7,267 for the years ended December 31, 2019, 2018 and 2017, respectively. Depletion expense was $49, $47 and $33 for the years ended December 31, 2019, 2018 and 2017, respectively.
The Company capitalized no interest expense associated with the construction of new property, plant and equipment for the years ended December 31, 2019, 2018 and 2017.

NOTE 6 — Intangible Assets, net
The following table reflects the changes in the net carrying amounts of the Company’s intangible assets for the year ended December 31, 2019.
Balance at
December 31, 2018 		Assets Acquired Pursuant to Business Combination Impairment Charges Amortization Expense Balance at
December 31, 2019
Developed technology $ 17,956    $ —    $ 8,500    $ 410    $ 9,046   
Customer relationships 112    —    —    112    —   
$ 18,068    $ —    $ 8,500    $ 522    $ 9,046   

81
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table reflects the changes in the net carrying amounts of the Company’s finite-lived intangible assets for the year ended December 31, 2018.
Balance at
December 31, 2017 		Assets Acquired Pursuant to Business Combination Impairment Charges Amortization Expense Balance at
December 31, 2018
Developed technology $ —    $ 18,800    $ —    $ 844    $ 17,956   
Customer relationships —    270    —    158    112   
Trade name —    900    900    —    —   
$ —    $ 19,970    $ 900    $ 1,002    $ 18,068   
The following table reflects the carrying amounts of the Company's finite-lived intangible assets at December 31, 2019 and 2018.
December 31, 2019 December 31, 2018
Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Developed technology $ 10,300    $ (1,254)   $ 18,800    $ (844)  
Customer relationships 270    (270)   270    (158)  
$ 10,570    $ (1,524)   $ 19,070    $ (1,002)  
The Company uses the straight-line method to determine the amortization expense for its definite-lived intangible assets. The weighted-average remaining useful life for the intangible assets is 11.4 years. Amortization expense related to the purchased intangible assets was $1,398 and $1,002 for the year ended December 31, 2019 and 2018, respectively. There were no intangible assets or related amortization expense as of or for the year ended December 31, 2017. The Company recorded an impairment charge of $7,628 related to specific developed technology allocated to the Quickload during the third quarter of 2019. Amortizable intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. The Company is developing and testing a new transload technology and no longer plans to actively market the Quickload and as such, all developed technology intangible assets related to the Quickload has been impaired.
The table below reflects the future estimated amortization expense for amortizable intangible assets as of December 31, 2019.
Year ending December 31,   
2020 $ 792   
2021 792   
2022 792   
2023 792   
2024 792   
Thereafter 5,086   
Total
$ 9,046   
The Company conducted a review of its indefinite-lived intangible assets as of December 31, 2018 and determined the carrying value exceeded its fair value, which resulted in a full impairment of indefinite-lived intangible assets in 2018.

82
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7 — Accrued and Other Expense
Accrued and other expense consists of the following:
  December 31,
  2019 2018
Employee related expenses $ 2,233    $ 1,894   
Accrued construction related expenses 188    948   
Accrued equipment 429    —   
Accrued professional fees 750    465   
Accrued royalties 2,419    1,780   
Accrued freight and delivery charges 882    2,556   
Accrued real estate tax 806    —   
Accrued utilities 10    327   
Sales tax liability 424    65   
Deferred rent —    712   
Other accrued liabilities 437    (355)  
Total accrued liabilities $ 8,578    $ 8,392   


NOTE 8 — Debt
Long-term debt, net, current consists of the following:
  December 31,
  2019 2018
Oakdale Equipment Financing $ 3,431    $ —   
Finance leases 116    90   
Notes payable 2,628    739   
Long-term debt, net, current $ 6,175    $ 829   
Long-term debt, net consists of the following:
  December 31,
  2019 2018
ABL Credit Facility $ 2,500    $ —   
Oakdale Equipment Financing, net 18,074    —   
Former Credit Facility, net —    44,255   
Finance leases 474    547   
Notes payable 7,192    3,091   
Long-term debt, net $ 28,240    $ 47,893   
83
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

ABL Credit Facility
On December 13, 2019, the Company entered into a $20,000 five-year senior secured asset-based credit facility with Jefferies Finance LLC. The available borrowing amount under the ABL Credit Facility as of December 31, 2019 was $17,500 and is based on the Company's eligible accounts receivable and inventory, as described in the ABL Credit Agreement. Borrowings under the ABL Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at our option, either a LIBOR rate or an alternate base rate (“ABR”). The applicable margin is 2.00% for LIBOR loans and 1.00% for ABR loans. Substantially all of the U.S. assets of the Company are pledged as collateral under the ABL Credit Facility. The ABL Credit Facility contains various reporting requirements, negative covenants and restrictive provisions and requires maintenance of financial covenants, under certain conditions, including a fixed charge coverage ratio, as defined in the ABL Credit Agreement. As of December 31, 2019, the Company was in compliance with all covenants. As of December 31, 2019, the weighted average interest rate on the borrowings outstanding was 5.75%.
Oakdale Equipment Financing
On December 13, 2019, the Company received net proceeds of $23,000 in an equipment financing arrangement with Nexseer. The Oakdale Equipment Financing is legally comprised of an MLA and five lease schedules. The Oakdale Equipment Financing is considered a lease under article 2A of the Uniform Commercial Code but is considered a financing arrangement for accounting or financial reporting purposes and not a lease. Substantially all of the Company's mining and processing equipment at its Oakdale facility are pledged as collateral under the Oakdale Equipment Financing. The Oakdale Equipment Financing bears interest at a fixed rate of 5.79%. The Company used the net proceeds to repay in full and terminate the Former Credit Facility, pay transaction costs, and the remainder was used for working capital purposes. The Oakdale Equipment Financing matures on December 13, 2024. The Company has the right to prepay the financing and reacquire the underlying equipment on a lease schedule-by-lease schedule basis during the period commencing on the seventh month of the term and continuing until the 54th month of the term at a percentage of the purchase price of the relevant equipment, and at the end of the term at the fair market value of the equipment. The Oakdale Equipment Financing contains affirmative and restrictive covenants customary for transactions of this type. As of December 31, 2019, the Company was in compliance with all covenants.
Former Credit Facility
On December 8, 2016, the Company entered into a $45,000 three-year senior secured revolving credit facility under a revolving credit agreement with Jefferies Finance LLC as administrative and collateral agent. On April 8, 2018, the Credit Facility was amended to increase the Company’s total borrowing capacity under the Credit Facility to $60,000. On July 13, 2018, the Credit Facility was amended to, among other things, (i) increase the limit on the Company’s ability to sell, transfer or dispose of assets, subject to certain considerations, from an aggregate amount of $25,000 to $55,000, (ii) increase the limit on the Company’s ability to incur capital lease obligations from an aggregate principal amount of $15,000 to $30,000 and (iii) exclude certain current and future earn-out obligations from the definition of indebtedness in the Credit Agreement. On February 22, 2019, we entered into an agreement with the existing lenders on the Credit Facility to, among other things, (i) extend the maturity date of the Credit Facility to June 30, 2020 and (ii) reduce the total capacity to $50,000 by December 31, 2019. The Former Credit Facility was paid in full and terminated with proceeds from the Oakdale Equipment Financing.
Notes Payable
The Company entered into various financing arrangements to finance its manufactured wellsite proppant storage solutions equipment. Upon completion of the equipment manufacturing, the Company signs a note payable and title to the equipment passes to the financial institutions as collateral. The notes bear interest at rates between 6.48% and 7.49%.
Finance Leases
See Note 9 - Leases for additional information about the Company's finance leases.
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SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Future minimum payments as of December 31, 2019 are as follows:
Year Ended December 31, ABL Credit Facility Oakdale Equipment Financing Notes Payable Finance Leases Total
2020 $ —    $ 4,638    $ 3,170    $ 151    $ 7,959   
2021 —    4,639    3,155    151    7,945   
2022 —    4,638    2,917    136    7,691   
2023 —    4,639    1,649    245    6,533   
2024 2,500    7,701    88    —    10,289   
Total minimum payments 2,500    26,255    10,979    683    40,417   
Amount representing interest —    (3,851)   (1,159)   (93)   (5,103)  
Amount representing unamortized lender fees
—    (899)   —    —    (899)  
Present value of payments 590   
Less: current portion —    (3,431)   (2,628)   (116)   (6,175)  
Total long-term debt, net $ 2,500    $ 18,074    $ 7,192    $ 474    $ 28,240   


NOTE 9 — Leases
Disclosures subsequent to the adoption of ASC 842
Lessee
At December 31, 2019, the operating and financing components of the Company’s right-of-use assets and lease liabilities on the consolidated balance sheet are as follows:

Balance Sheet Location December 31, 2019
Right-of-use assets
   Operating Operating right-of-use assets $ 28,178   
   Financing Property, plant and equipment, net 505   
Total right-of use assets $ 28,683   
Lease liabilities
   Operating Operating lease liabilities, current and long-term portions $ 28,577   
   Financing Long-term debt, current and long-term portions 590   
Total lease liabilities $ 29,167   

85
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Operating lease costs are recorded in a single expense on the income statement and allocated to the right-of-use assets and the related lease liabilities as depreciation expense and interest expense, respectively. Lease cost recognized in the consolidated income statement for the year ended December 31, 2019 is as follows:
December 31, 2019
Finance lease cost
   Amortization of right-of-use assets $ 134   
   Interest on lease liabilities 43   
Operating lease cost 16,640   
Short-term lease cost 470   
Total lease cost $ 17,287   

Other information related to the Company’s leasing activity for year ended December 31, 2019 is as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for finance leases $ 43   
Operating cash flows used for operating leases $ 16,714   
Financing cash flows used for finance leases $ 104   
Right-of-use assets obtained in exchange for new finance lease liabilities $ 55   
Right of use assets upon adoption $ 35,939   
Right-of-use assets obtained in exchange for new operating lease liabilities $ 7,251   
Weighted average remaining lease term - finance leases 3.6 years
Weighted average discount rate - finance leases 6.55  %
Weighted average remaining lease term - operating leases 2.6 years
Weighted average discount rate - operating leases 5.50  %

Maturities of the Company’s lease liabilities as of December 31, 2019 are as follows:
Year Operating Leases Finance Leases Total
2020 $ 14,292    $ 151    $ 14,443   
2021 10,005    151    10,156   
2022 4,034    136    4,170   
2023 1,394    245    1,639   
2024 888    —    888   
Total cash lease payments 30,613    683    31,296   
Less: amounts representing interest (2,036)   (93)   (2,129)  
Total lease liabilities $ 28,577    $ 590    $ 29,167   

86
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Disclosures prior to the adoption of ASC 842 
Capital Leases
The Company entered into various lease arrangements to lease equipment. Equipment cost of $657 was capitalized and included in the Company’s property, plant and equipment as of December 31, 2018. Depreciation expense under leased assets for the years ended December 31, 2018 and 2017 was $155 and $255, respectively.
        Operating Leases
Expense related to operating leases and rental agreements for the years ended December 31, 2018 and 2017 was $10,239 and $7,065, respectively. Lease expense related to railcars is included in cost of goods sold in the consolidated statements of operations. 

NOTE 10 — Asset Retirement Obligation
The Company had a post-closure reclamation and site restoration obligation of $6,142 as of December 31, 2019. The following is a reconciliation of the total reclamation liability for asset retirement obligations.
Balance at December 31, 2017 $ 8,982   
Additions and revisions of prior estimates 7,546   
Accretion expenses (26)  
Settlement of liability (3,180)  
Balance at December 31, 2018 $ 13,322   
Additions and revisions of prior estimates (5,114)  
Accretion expenses 687   
Settlement of liability (2,753)  
Balance at December 31, 2019 $ 6,142   


NOTE 11 — Revenue
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by type and percentage of total revenues for the periods indicated.
Year Ended December 31,
2019 2018 2017
Revenue Percentage of Total Revenue Revenue Percentage of Total Revenue Revenue Percentage of Total Revenue
Sand sales revenue $ 109,621    47  % $ 143,533    67  % $ 80,200    59  %
Shortfall revenue 49,259    21  % 6,032    3  % 1,244    1  %
Logistics revenue 74,193    32  % 62,905    30  % 55,768    40  %
Total revenues $ 233,073    100  % $ 212,470    100  % $ 137,212    100  %
Total current and long-term deferred revenue balances at December 31, 2019 and 2018 were $9,324 and $4,095, respectively. The Company expects to recognize the current portion of deferred revenue in 2020 and expects to recognize the long-term portion through 2023. In 2019, the Company recognized $1,017 of the 2018 deferred revenue balance, recharacterized $2,500 due to an amended contract and $578 remains in the current portion of deferred revenue at December 31, 2019.

87
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 12 — Stock-Based Compensation
Equity Incentive Plan
In May 2012, the Board approved the 2012 Equity Incentive Plan (“2012 Plan”), which provides for the issuance of Awards (as defined in the 2012 Plan) of up to a maximum of 440 shares of the Company’s common stock to employees, non-employee members of the Board, and consultants of the Company. During 2014, the 2012 Plan was amended to provide for the issuance of Awards up to 880 shares of the Company’s common stock. The awards could be issued in the form of incentive stock options, non-qualified stock options or restricted stock, and have expiration dates of 5 or 10 years after issuance, depending on whether the recipient held above 10% of the voting power of all classes of the Company’s shares as of the grant date. The exercise price was based on the fair market value of the share on the date of issuance; vesting periods were determined by the Board upon issuance of the Award.
In November 2016, in connection with its initial public offering, the Company adopted the 2016 Omnibus Incentive Plan (“2016 Plan”) which provides for the issuance of Awards (as defined in the 2016 Plan) of up to a maximum of 3,911 shares of the Company’s common stock to employees, non-employee members of the Board and consultants of the Company. The awards can be issued in the form of incentive stock options, non-qualified stock options or restricted stock. Together, the 2012 Plan and the 2016 Plan are referenced to collectively as the “Plans”.
During 2019, 2018 and 2017, 1,884, 746 and 352 shares of restricted stock were issued under the Plans, respectively. The grant date fair value of all the restricted stock per share was $2.44 - $19.00. The shares vest over one to five years from their respective grant dates. For Awards issued under the 2016 Plan, the grant date fair value was the either the actual market price of the Company’s shares or an adjusted price using a Monte Carlo simulation for awards subject to the Company’s performance as compared to a defined peer group. The significant assumptions used in the Monte Carlo simulation are presented in the following table.
Years ended December 31,
  2019 2018
Expected volatility 71.05  % 67.13  %
Expected life (years) 2.0 2.7
Risk-free interest rate 1.63  % 2.55  %
The total number of shares and their respective fair values that vested during the years ended December 31, 2019, 2018 and 2017 were 261 at $844, 177 at $1,047 and 90 at $731, respectively. For awards issued under the 2012 Plan, the grant date fair value was calculated based on a weighted analysis of (i) publicly-traded companies in a similar line of business to the Company (market comparable method) - Level 2 inputs, and (ii) discounted cash flows of the Company - Level 3 inputs.
The Company recognized $2,909, $2,938 and $1,973 of compensation expense for the restricted stock during 2019, 2018 and 2017, respectively, in cost of goods sold and operating expenses on the consolidated income statements. There is no impact to the cash flows of the Company related to stock-based compensation expense. At December 31, 2019, the Company had unrecognized compensation expense of $7,598 related to granted but unvested stock awards. That expense is expected to be recognized as follows:
Year Ended December 31,
2020 $ 3,849   
2021 2,349   
2022 885   
2023 515   
$ 7,598   

88
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table summarizes restricted stock activity under the Plans from January 1, 2018 through December 31, 2019:
 
Number of
Shares
Weighted
Average
Unvested, January 1, 2018 534    $ 11.27   
Granted 746    $ 6.61   
Vested (177)   $ 12.15   
Forfeiture (76)   $ 11.56   
Unvested, December 31, 2018 1,027    $ 9.83   
Granted 1,884    $ 2.58   
Vested (261)   $ 8.76   
Forfeiture (32)   $ 5.85   
Unvested December 31, 2019 2,618    $ 6.91   
Employee Stock Purchase Plan
Shares of the Company’s common stock may be purchased by eligible employees under the Company’s 2016 Employee Stock Purchase Plan in six-month intervals at a purchase price equal to at least 85% of the lesser of the fair market value of the Company’s common stock on either the first day or the last day of each six-month offering period. Employee purchases may not exceed 20% of their gross compensation during an offering period.

NOTE 13 — Income Taxes
The provision for income taxes consists of the following:
  Year Ended December 31,
  2019 2018 2017
Current      
Federal $ 913    $ 230    $ (965)  
State and local 550    161    (39)  
Foreign 223    72    —   
Total current expense (benefit) 1,686    463    (1,004)  
Deferred
Federal 5,746    4,611    (2,221)  
State and local 377    48    416   
Foreign —    —    —   
Total deferred income tax expense (benefit) 6,123    4,659    (1,805)  
Total income tax expense (benefit) $ 7,809    $ 5,122    $ (2,809)  

89
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Income tax expense differs from the amounts computed by applying the statutory income tax rates to pretax income. The statutory income tax rates were 21% for the years ended December 31, 2019 and 2018 and 35.0% for the year ended December 31, 2017. The reconciliations from the applicable statutory income tax rates to income tax (benefit) expense are as follows:
  Year Ended December 31,
  2019 2018 2017
At statutory rate $ 8,281    $ 5,000    $ 6,551   
Non-deductible interest expense —    —    —   
State taxes, net of U.S. federal benefit 926    209    377   
Foreign taxes 223    72    —   
Federal tax deductions (1,248)   238    (73)  
Change in applicable tax rate —    144    (8,468)  
Provision to return permanent difference 7    (129)   (767)  
Refund claims (29)   (120)   (201)  
Fuel tax credit (176)   (243)   (166)  
Foreign tax credit (175)   (49)   —   
Other —    —    (62)  
Total income tax expense (benefit) $ 7,809    $ 5,122    $ (2,809)  
Deferred income taxes reflect the net tax effects of loss and credit carry-forwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets for federal and state income taxes are as follows:
  Year Ended December 31,
  2019 2018
Deferred tax assets:    
Reserves and accruals $ 463    $ 918   
Prepaid expenses and other 958    1,086   
Federal net operating losses —    7,391   
State net operating losses —    106   
Operating lease liabilities 6,385    —   
Total deferred tax assets 7,806    9,501   
Deferred tax liabilities:
Depreciation and amortization (25,531)   (27,399)  
Operating lease right-of-use assets (6,296)   —   
Total deferred tax liabilities (31,827)   (27,399)  
Deferred tax liabilities, long-term, net $ (24,021)   $ (17,898)  
In assessing the realizability of deferred tax assets, the Company considered 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. At December 31, 2019 and 2018, based on the Company’s future income projections and reversal of taxable temporary differences, management determined it was more likely than not that the Company will be able to realize the benefits of the deductible temporary differences. As of December 31, 2019 and 2018, the Company determined no valuation allowance was necessary.
The Company has evaluated its tax positions taken as of December 31, 2019 and 2018 and believes all positions taken would be upheld under examination from income taxing authorities. Therefore, no liability for the effects of uncertain tax positions has been recorded in the accompanying consolidated balance sheets as of December 31, 2019 or 2018. The Company is open to examination by taxing authorities beginning with the 2014 tax year.

90
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 14 — Retirement Benefits
U.S. Defined Contribution Plan
The Company is the sponsor of a defined contribution plan, subject to the provisions of the Employee Retirement Income Security Act of 1974, that covers substantially all U.S. employees over the age of 21 that have been employed for at least 90 days. The plan allows participants to make pre-tax and Roth after-tax contributions and the Company provides 100% matching contributions on the first 3% of employee contributions and 50% matching contributions on the next 2% of employee contributions. Employees are immediately vested in both their contributions and the Company’s matching contributions. In accordance with the provisions of the plan, the Company may make additional discretionary contributions to the accounts of its participants. There were no additional discretionary contributions during the years ended December 31, 2019, 2018 and 2017. During the years ended December 31, 2019, 2018 and 2017, the Company made matching contributions of $488, $425 and $336, respectively to its U.S. Defined Contribution Plan.
Canada Group Savings Plan and Deferred Profit Sharing Plan
The Company is the sponsor of a defined contribution plan that covers substantially all Canada employees that have been employed for at least 90 days. The plan allows participants to make contributions to the Group Savings Plan and after six months of employment the Company provides 100% matching contributions on between 3% - 5% of the employee’s salary, depending on their length of service to the Deferred Profit Sharing Plan. Employees are immediately vested in their contributions to the Group Savings Plan and vest in the Company’s contributions to the Deferred Profit Sharing Plan after two years of service. All accounts opened prior to May 31, 2018 are fully vested. During the year ended December 31, 2019 and subsequent to the acquisition of Quickthree in 2018, the Company made matching contributions of $59 and $25, respectively, to its Deferred Profit Sharing Plan.

NOTE 15 — Concentrations
As of December 31, 2019, two customers accounted for 81% of the Company’s total accounts receivable. As of December 31, 2018, four customers accounted for 89% of the Company’s total accounts receivable.
During the years ended December 31, 2019, 2018 and 2017, 73%, 66% and 72% of our revenues were earned from four customers, respectively.
As of December 31, 2019, one vendor accounted for 26% of the Company’s accounts payable. As of December 31, 2018, one vendor accounted for 16% of the Company’s accounts payable.
During the years ended December 31, 2019, 2018 and 2017, two suppliers accounted for 44%, 40% and 59% of the Company’s cost of goods sold, respectively.
The Company’s sand inventory and mining operations are located in Wisconsin. There is a risk of loss if there are significant environmental, legal or economic changes to this geographic area.
The Company primarily utilizes one third-party rail company to ship its products to customers from its plant. There is a risk of business loss if there are significant impacts to this third party’s operations.

NOTE 16 — Common Stock
On February 1, 2017, the Company completed the public offering and sale of 1,500 shares of common stock at a price of $17.50 per share, generating net proceeds to the Company of approximately $24,200 after underwriting discounts and expenses. The Company used the proceeds from this offering for capital projects and general corporate services. The offering closed on February 7, 2017.

91
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 17 — Commitments and Contingencies
Future Minimum Commitments
The Company is obligated under certain contracts for minimum payments for the right to use land for extractive activities, which is not within the scope of leases under ASC 842. Future minimum annual commitments under such contracts at December 31, 2019 are as follows:
2020 $ 2,275   
2021 2,275   
2022 2,275   
2023 2,275   
2024 2,275   
Thereafter 29,575   
Total future minimum annual commitments under operating lease obligations $ 40,950   
Litigation
In addition to the matters described below, we may be subject to various legal proceedings, claims and governmental inspections, audits or investigations arising out of our operations in the normal course of business, which cover matters such as general commercial, governmental and trade regulations, product liability, environmental, intellectual property, employment and other actions. Although the outcomes of these routine claims cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on our financial statements.
U.S. Well Services, LLC
On January 14, 2019, Smart Sand, Inc. (plaintiff) filed suit against U.S. Well Services, LLC (defendant) in the Superior Court of the State of Delaware in and for New Castle County (C.A. No. N19C-01-144-PRW [CCLD]). In the suit, plaintiff alleges that defendant is in breach of contract for failure to pay amounts due and payable under a long-term take-or-pay Master Product Purchase Agreement and coterminous Railcar Usage Agreement and is seeking unspecified monetary damages and other appropriate relief. Plaintiff is also seeking a declaratory judgment that the relevant agreements are continuing in full force and effect despite defendant’s purported notice of termination to the contrary. Defendant has filed an Answer, Affirmative Defenses and Amended Counterclaim seeking unspecified monetary damages and declaratory relief. The case is currently in the discovery phase. The Company intends to continue to both vigorously prosecute its claims and defend against U.S. Well’s counterclaims. At this time, the Company is unable to express an opinion as to the likely outcome of the matter.
The Company recorded revenue of $34,271 for the year ended December 31, 2019, related to U.S. Well. As of December 31, 2019 and 2018, $37,422 and $3,237 of accounts and unbilled receivables is attributable to U.S. Well. Amounts recorded as accounts and unbilled receivables in the financial statements do not represent the full amounts sought in this lawsuit.
Schlumberger Technology Corporation
On January 3, 2019, Smart Sand, Inc. (plaintiff) filed suit against Schlumberger Technology Corporation (defendant) (“STC”) in the District Court of Harris County, Texas (Case No. 2019-00557). In the suit, plaintiff alleged that defendant was in breach of contract for failure to pay amounts due and payable under a long-term take-or-pay Master Product Purchase Agreement and was seeking unspecified monetary damages and other appropriate relief. Defendant filed an Answer, Affirmative Defenses and Counterclaim seeking unspecified monetary damages and declaratory relief. On September 10, 2019, the Company and defendant entered into an agreement to settle such lawsuit and the case has been dismissed with prejudice. The settlement included an upfront cash payment, a new take-or-pay contract for up to four years, and existing amounts recorded as accounts and unbilled receivables and deferred revenue were removed from the Company’s consolidated balance sheet.

92
SMART SAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Bonds
The Company entered into performance bonds with Jackson County, Wisconsin and Monroe County, Wisconsin for $4,400 and $900, respectively. The Company provided these performance bonds to assure performance under the reclamation plan filed with each respective county. The Company entered into permit bonds amounting to $1,350 with certain towns and counties in which it operates to use designated town and county roadways. The Company provided these permit bonds to assure maintenance and restoration of the roadways. The Company has an outstanding 1230 bond to assure performance under its agreement with a pipeline common carrier.

NOTE 18 — Supplemental Disclosures of Cash Flow information
Supplemental disclosures regarding cash flow information and non-cash investing and financing activities are as follows:
Year Ended December 31,
2019 2018 2017
Cash paid for interest $ 2,833    $ 1,660    $ 251   
Cash paid for taxes $ 207    $ 666    $ 7,664   
Non-cash investing activities:
Contingent consideration $ —    $ 9,200    $ —   
Asset retirement obligation $ (5,114)   $ 7,546    $ 7,084   
Non-cash financing activities:
Equipment purchased with debt $ —    $ 4,733    $ —   
Leasehold improvements funded by landlord $ —    $ —    $ 787   
Write-off of remaining balance of returned equipment under capital lease
$ —    $ 398    $ —   
Capitalized expenditures in accounts payable and accrued expenses $ 899    $ 3,014    $ 17,477   

NOTE 19 — Quarterly Financial Data (Unaudited)
The following table sets forth our unaudited quarterly consolidated statements of operations for each of the last four quarters for the periods ended December 31, 2019 and 2018. This unaudited quarterly information has been prepared on the same basis as our annual audited financial statements and includes all adjustments, consisting only of normal recurring adjustments that are necessary to present fairly the financial information for the fiscal quarters presented.
2019: First Quarter Second Quarter Third Quarter Fourth Quarter
Revenue $ 51,775    $ 67,941    $ 65,690    $ 47,667   
Cost of goods sold 40,605    43,068    38,555    29,793   
Operating expenses 5,219    5,668    12,687    13,995   
Net income 4,033    14,276    10,926    2,388   
Earnings per share, basic 0.10    0.36    0.27    0.06   
Earnings per share, diluted 0.10    0.36    0.27    0.05   

2018: First Quarter Second Quarter Third Quarter Fourth Quarter
Revenue $ 42,628    $ 54,448    $ 63,146    $ 52,248   
Cost of goods sold 35,413    34,678    40,595    34,217   
Operating expenses 5,862    6,861    5,145    23,820   
Net income 975    10,021    12,125    (4,433)  
Earnings per share, basic 0.02    0.25    0.30    (0.11)  
Earnings per share, diluted 0.02    0.25    0.30    (0.11)  


93

ITEM 9. — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.

ITEM 9A. — CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements.  Also, projections of any evaluation of the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2019, our management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on its assessment, management determined that we maintained effective internal control over financial reporting as of December 31, 2019.
Our independent registered public accounting firm is not yet required to formally attest to the effectiveness of our internal controls over financial reporting, and will not be required to do so for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting for the three months ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. — OTHER INFORMATION
None.
94

PART III

ITEM 10. — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item with respect to directors and corporate governance will be set forth under “Proposal No. 1: Election of Directors” in the 2020 Proxy Statement and is incorporated herein by reference.
The information required by this item with respect to executive officers of Smart Sand, Inc., pursuant to instruction 3 of paragraph (b) of Item 401 of Regulation S-K, is set forth following Part I, Item 1 of this Annual Report on Form 10-K under “Executive Officers of the Registrant”.
The information required by this item regarding Section 16(a) beneficial ownership reporting compliance will be set forth under “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2020 Proxy Statement and is incorporated herein by reference.

ITEM 11. — EXECUTIVE COMPENSATION
The information required by this item will be set forth under “Executive Compensation” in the 2020 Proxy Statement and is incorporated herein by reference.

ITEM 12. — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The Equity Compensation Plan Information table required pursuant to Item 201(d) of Regulation S-K will be set forth in the 2020 Proxy Statement and is incorporated herein by reference.
The information required by Item 403 of Regulation S-K regarding security ownership of certain beneficial owners and management will be set forth under “Principal Stockholders” in the 2020 Proxy Statement and is incorporated herein by reference.

ITEM 13. — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth under “Certain Relationships and Transactions with Related Persons” and “Corporate Governance” in the 2020 Proxy Statement and is incorporated herein by reference.

ITEM 14. — PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth under “Ratification of the Selection of Grant Thornton LLP as the Company’s Independent Registered Public Accounting Firm for the Year Ending December 31, 2020” in the 2020 Proxy Statement and is incorporated herein by reference.

95

PART IV

ITEM 15. — EXHIBITS
3.1   
3.2   
4.1   
4.2   
4.3*   
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8
10.9
10.10*
10.11*
10.12*
10.13‡
10.14‡
10.15‡
96

10.16‡
10.17‡
10.18‡
10.19†
10.20‡
10.21‡
10.22‡
10.23‡
10.24‡
10.25‡
10.26*‡
10.27‡
10.28‡
10.29‡
10.30‡
21.1*
23.1*
31.1*
31.2*
32.1*t
32.2*t
95.1*
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema
101.CAL* XBRL Taxonomy Extension Calculation Linkbase
97

101.DEF* XBRL Taxonomy Extension Definition Linkbase
101.LAB* XBRL Taxonomy Extension Label Linkbase
101.PRE* XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith
†

Compensatory plan, contract or arrangement.
‡ Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been separately filed with the Securities and Exchange Commission.
t This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.

ITEM 16. — FORM 10-K SUMMARY
None.
98

Signatures
Date: February 26, 2020
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ Charles E. Young   /s/ Lee E. Beckelman
Charles E. Young, Lee E. Beckelman
Director and Chief Executive Officer Chief Financial Officer
(Principal Executive Officer)   (Principal Financial Officer)
   
/s/ Susan Neumann
Susan Neumann
Controller and Vice President of Accounting
(Principal Accounting Officer)
/s/ José E. Feliciano /s/ Andrew Speaker
José E. Feliciano Andrew Speaker
Director Director
(Co-Chairman of the Board) (Co-Chairman of the Board)
/s/ Colin Leonard /s/ Timothy J. Pawlenty
Colin Leonard Timothy J. Pawlenty
Director Director
/s/ Sharon Spurlin
Sharon Spurlin
Director

99

Exhibit 4.3

DESCRIPTION OF THE COMPANY’S CAPITAL STOCK REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

The following description of our capital stock registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to the complete text of our Second Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and our Second Amended and Restated Bylaws (the “Bylaws”), each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.3 is a part. We encourage you to read our Certificate of Incorporation, our Bylaws and the applicable provisions of the General Corporation Law of the State of Delaware (the “DGCL”), Title 8 of the Delaware Code for additional information.

The authorized capital stock of Smart Sand, Inc. consists of 350,000,000 shares of common stock, $0.001 par value per share (“common stock”), and 10,000,000 shares of preferred stock, $0.001 par value per share (“preferred stock”). Our preferred stock is not registered pursuant to Section 12 of the Exchange Act.

As of February 19, 2020, 43,590,249 shares of common stock were issued and 42,847,996 shares of common stock were outstanding. As of that date, 2,568,876 shares of common stock were reserved for issuance upon exercise of options or in connection with other awards outstanding under various employee or director incentive, compensation and option plans.

Common Stock

Dividend Rights

Subject to the rights of any holders of any outstanding shares or series of preferred stock, holders of common stock are entitled to the payment of dividends when and as declared by our board of directors in accordance with applicable law and to receive other distributions.

Voting Rights

Except as provided by law or in a preferred stock designation, holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, have the exclusive right to vote for the election of directors and do not have cumulative voting rights. Except as otherwise required by law, holders of common stock are not entitled to vote on any amendment to the Certificate of Incorporation (including any certificate of designations relating to any series of preferred stock) that relates solely to the terms of any outstanding series of preferred stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation (including any certificate of designations relating to any series of preferred stock) or pursuant to the DGCL.



Liquidation Rights

Subject to the rights of any holders of any outstanding shares or series of preferred stock, in the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, our funds and assets, to the extent they may be legally distributed to holders of common stock, shall be distributed among the holders of the then outstanding common stock pro rata in accordance with the number of shares of common stock held by each such holder.

Other Rights and Preferences

All outstanding shares of common stock are fully paid and non-assessable. The holders of common stock have no pre-emptive or other subscription rights.

Classification of the Board of Directors

Our Certificate of Incorporation divide our board of directors into three classes, as nearly equal in number as possible, with staggered three-year terms. Subject to our stockholders agreement, under our Certificate of Incorporation and our Bylaws, any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by the affirmative vote of a majority of our directors then in office, even though less than a quorum of the board of directors.

Listing
Our common stock is traded on the NASDAQ Global Select Market under the symbol, “SND.”

Anti-Takeover Effects of Provisions of Our Certificate of Incorporation and our Bylaws

Provisions of our Certificate of Incorporation and Bylaws may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock.

Among other things our Certificate of Incorporation and Bylaws:

•establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. Our Bylaws specify the requirements as to form and content of all stockholders’ notices. These requirements may preclude stockholders from bringing matters before the stockholders at an annual or special meeting;


•provide our board of directors the ability to authorize undesignated preferred stock. This ability makes it possible for our board of directors to issue, without stockholder approval, preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company;

•provide that our board of directors will be divided into three classes, as nearly equal in number as possible, with staggered three-year terms;

•subject to the stockholders agreement, provide that the size of our board of directors may be changed only by resolution of the board of directors;

•subject to the stockholders agreement, provide that all vacancies, including newly created directorships, shall, except as otherwise required by law or, if applicable, the rights of holders of a series of preferred stock, be filled exclusively by the affirmative vote of a majority of directors then in office, even if less than a quorum;

•provide that any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders, subject to the rights of the holders of any series of preferred stock with respect to such series;

•provide that our stockholders may only amend or repeal our Bylaws with the affirmative vote of at least 66 2/3% of the voting power of the outstanding shares of our stock entitled to vote;

•provide that special meetings of our stockholders may only be called by the board of directors (except that Clearlake Capital Group, L.P., together with its affiliates and related persons, and Charles E. Young (each, a “Principal Stockholder”) may also call special meetings of our stockholders so long as such Principal Stockholder beneficially owns at least 20% of the voting power of the outstanding shares of our stock);

•provide that our stockholders may only amend our Certificate of Incorporation with the affirmative vote of at least 66 2/3% of the voting power of the outstanding shares of our stock entitled to vote;

•provide that, subject to the rights of the preferred stockholders and the stockholders agreement, if any, any director may be removed only upon the affirmative vote of the holders of at least 66 2/3% of the voting power of the outstanding shares of our stock entitled to vote; and

•provide that our Bylaws can be amended or repealed by the board of directors.


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MASTER LEASE AGREEMENT No. 105960
                       
2211 Michelson Drive, Suite 1110, Irvine, CA 92612  Voice (949) 720-9511 Facsimile (949) 720-9611

LESSEE          STATE OF INCORPORATION
Smart Sand, Inc. and Smart Sand Oakdale LLC as Co-Lessees (“Lessee”)  Delaware Page 1 of 5
STREET       CITY  COUNTY   STATE    ZIP
1725 Hughes Landing Boulevard, Suite 800  The Woodlands Montgomery  TX   77380

1. Agreement & Lease: Lessee agrees to lease from Consultants Group Commercial Funding Corporation doing business as Nexseer Capital (“Nexseer”), and, subject to Nexseer’s written acceptance of a Lease (“Acceptance”) and any conditions specified by Nexseer in the Acceptance, Nexseer agrees to lease to Lessee, the personal property described in each Lease Schedule(s) (“Schedule(s)”) executed from time to time in accordance with this Master Lease Agreement, together with all replacement parts, additions, repairs, accessions, attachments and accessories now or hereafter made a part thereof (collectively, the "Equipment"). This Master Lease Agreement is herein defined as the “Agreement”. Each Schedule shall incorporate all of the terms and conditions of this Agreement. Each Schedule shall constitute a complete and separate Lease, independent of all other Schedules. In the event of a conflict between the provisions of this Agreement and the provisions of any Schedule, the provisions of the Schedule shall prevail. The term "Lease" shall mean this Agreement and any Schedule executed in connection therewith. A Lease is legal, valid and in force and binding upon Lessee to the extent of the unilateral obligations of Lessee contained herein when signed by Lessee and shall become legal, valid and binding upon Lessee and Nexseer in all respects upon Acceptance.

2. Uniform Commercial Code: Lessee agrees and acknowledges that the term “Finance Lease” as used in a Lease has the meanings ascribed to it under Article 2A of the Uniform Commercial Code (and has no effect on any tax or accounting treatment of a Lease) and any Lease shall be considered a "finance lease”. By executing a Lease, Lessee agrees that either: (i) Lessee has received a copy of the contract by which Nexseer intends to acquire the Equipment, or (ii) that Nexseer has informed Lessee of the identity of the vendor, seller or other supplier of the Equipment or (iii) Lessee has selected the vendor, seller or other supplier of the Equipment and has directed Nexseer to acquire the Equipment or the right to possession and use of the Equipment from the vendor, seller or other supplier of the Equipment Lessee has selected. Lessee is entitled to the promises and warranties provided by the vendor, seller, or other supplier of the Equipment, and Lessee may contact the vendor, seller or other supplier of the Equipment for a description of those promises and warranties, and any disclaimers, limitations and modifications of remedies. This provision survives expiration or earlier termination of a Lease.

3. No Warranties/Manufacturer's Warranties: Nexseer, not being the manufacturer, vendor, seller, publisher, distributor, licensor or supplier (“Supplier(s)”) of the Equipment, nor Supplier's agent or employer, MAKES NO AND EXPRESSLY DISCLAIMS ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY, MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR WORKMANSHIP THEREOF, IT BEING AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT ALL SUCH RISKS, AS BETWEEN NEXSEER AND LESSEE, ARE TO BE BORNE BY LESSEE AT ITS SOLE RISK AND EXPENSE. Lessee accordingly agrees not to assert any claim whatsoever against Nexseer based thereon. Lessee further agrees, regardless of cause, not to assert any claim whatsoever against Nexseer for loss of anticipatory profits or consequential damages. Nexseer shall have no obligation to install, erect, test, adjust or service the Equipment. Lessee shall look to the Supplier for any claims related to the Equipment. Provided that no Event of Default (as defined below) shall have occurred and be continuing, Lessee shall be entitled to the benefit of any applicable Supplier’s warranties and such warranties are hereby assigned by Nexseer to Lessee, to the extent assignable.

4. Supplier Not an Agent: Lessee further understands and agrees that neither the Supplier, nor any sales representative or agent of the Supplier, is an agent or employee of Nexseer. Sales representatives of the Supplier, persons not employed by Nexseer (including, without limitation, brokers) or by any Nexseer personnel who is not a duly authorized signer of a Lease are not authorized to waive or alter any term or condition of a Lease. Only a duly authorized signer of a Lease may waive or alter any term or condition of a Lease. No representation as to the Equipment by the Supplier, by any person not employed by Nexseer or by any Nexseer personnel who is not a duly authorized signer of a Lease shall in any way bind Nexseer or affect Lessee's obligations under a Lease.

5. Performance of Lessee’s Obligations by Nexseer: If Lessee shall fail duly and promptly to perform any of its obligations under a Lease, Nexseer may, at its option, perform the same for the account of Lessee without thereby waiving such default, and any amount paid or expense (including reasonable attorneys' fees), penalty or other liability incurred by Nexseer in such performance, together with interest at the rate of 1 1/2% per month thereon (but in no event greater than the highest rate permitted by applicable law) until paid by Lessee to Nexseer, shall be payable by Lessee upon demand as additional Rent for the Equipment. Lessee shall be responsible for and pay to Nexseer for all other related costs and expenses incurred by Nexseer.

6. Further Assurances and Notices: Lessee’s signing of a Lease constitutes a firm offer (the “Offer”). In consideration of Nexseer’s time and effort in reviewing and acting on the Offer, Lessee agrees that its Offer is irrevocable until thirty business days from the receipt by Nexseer of all credit, financial and business information and documentation requested by Nexseer (the “Acceptance Period”). After expiration of the Acceptance Period, unless the Offer has been accepted by Nexseer, the Offer will expire five business days after Nexseer’s receipt of Lessee’s notice to revoke the Offer. The Acceptance shall be evidenced by Nexseer’s signing of the Lease or other written acceptance of the Offer. An Acceptance is conditioned upon and subject to no adverse change in the financial condition of Lessee or guarantor or the financial markets each as judged solely by Nexseer and such adverse change shall not be applicable to any assigned portion of the Lease (an “Adverse Change”). The Acceptance may be subject to commercially reasonable conditions, if any, as specified in the Acceptance. Lessee agrees that during the Acceptance Period Lessee will not offer or submit the proposed transaction related to the Offer to any other finance source or agency thereof. Nexseer at its sole discretion, for some or all of the Equipment, may elect to document the transaction in one or more Schedules. Nexseer may accept all or part of the Equipment or the value of the Equipment offered by Lessee in a Lease. The Deposit indicated on a Schedule is due and payable to Nexseer at the time Lessee signs a Lease and upon Acceptance by Nexseer, shall be fully earned by Nexseer and shall not, in whole or in part, be either applied to Rents accruing upon such Schedule (unless otherwise specified in such Schedule) or be returned or refunded to Lessee. In the event Lessee does not fulfill its commitment with respect to completion of the terms and conditions of a Lease, including the agreed upon Equipment Cost, then the Deposit will be considered an earned processing fee by Nexseer. Lessee agrees to sign and provide any documents which Nexseer deems necessary in its sole discretion for confirmation, assignment and assurance of performance by Lessee of its obligations under a Lease and for perfection of a Lease, Nexseer’s title to the Equipment and a first priority security interest of Nexseer in the Equipment in
                                   
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NEXSEER CAPITAL             MASTER LEASE AGREEMENT No. 105960
2211 Michelson Drive, Suite 1110, Irvine, CA 92612               
Voice (949) 720-9511 Facsimile (949) 720-9611                  Page 2 of 5

the event a Lease or any part thereof is deemed to be a lease creating a security interest to secure Lessee’s obligations under a Lease. Lessee authorizes Nexseer to and agrees that Nexseer may file Uniform Commercial Code (UCC) Financing Statements naming Lessee and describing the Equipment and to take any similar action with respect to the titling and registration of titled Equipment subject to a state certificate of title law. UCC filing and lien search fees, physical inspection fees, reasonable legal fees and all other transaction costs will be Lessee’s sole responsibility. Lessee authorizes Nexseer to insert or update applicable dates, supplier information, Equipment description, cost, and quantity information, invoice numbers and other such information, as well as such information as serial numbers and other such information as necessary to complete all documentation for a Lease. If required by Nexseer, Lessee agrees to ACH payment processing. Prior to Nexseer’s Acceptance and for the duration of a Lease, Lessee agrees to promptly provide Nexseer with all business and credit information and documentation requested by Nexseer including, but not limited to, Lessee’s audited financial statements for the most current annual reporting period and un-audited financial statements for the most current interim reporting periods, in each case to the extent such financial statements are publicly available. After Acceptance and before funding and commencement of a Lease, the occurrence of a material adverse change in the financial condition (as determined by Nexseer) or the occurrence of any Event of Default as defined herein shall, at the option of Nexseer, permit Nexseer to revoke its Acceptance of a Lease. If Acceptance is revoked in whole, or as to any Schedule, then the Deposit indicated in a Lease as to which Acceptance has been revoked, shall be deemed fully earned by Nexseer and such Deposit shall not, in whole or in part, be returned or refunded to Lessee. All notices from Lessee to Nexseer shall be sent certified mail, return receipt requested, or via nationally recognized overnight courier service to Nexseer at its address shown herein or to such other address as directed by Nexseer in writing.

1.Lessee's Representations and Warranties: Lessee represents and warrants that (i) Lessee is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization, which state is accurately shown on this Agreement, and is qualified to do business where necessary to carry on its business and operations and own its property, (ii) a Lease has been duly authorized, executed and delivered by Lessee and constitutes the valid, legal and binding obligation of Lessee, enforceable in accordance with its terms, (iii) the execution, delivery and performance by Lessee of its obligations under a Lease or with respect to the Equipment will not violate any judgment, order, law or governmental regulation applicable to Lessee or any provision of Lessee's formation documents, by-laws or other organizational documents or result in any breach of or constitute a default under any instrument or agreement to which Lessee is a party or by which Lessee or its assets may be bound, (iv) the Equipment will be used solely in the conduct of Lessee’s business and not for personal, family, household or other consumer purposes, and (v) Lessee or any other person who owns a controlling interest or otherwise controls Lessee in any manner is not listed on the Specially Designated Nationals and Blocked Persons Lists maintained by the Office of Foreign Assets Control (“OFAC”) or other similar lists maintained by the federal government pursuant to any federal law or regulation regarding a person designated under Executive Order No. 13224 or similar lists. All representations and warranties contained herein shall be continuing in nature and in effect at all times prior to Lessee satisfying all of Lessee’s obligations to Nexseer under each Lease.
             
8. Rent & Lease Duration: The rent and other amounts payable by Lessee to Nexseer under a Lease shall be as set forth in the applicable Schedule (the “Rent”). A Lease commences and Rent is due beginning on the date that Lessee certifies in writing to Nexseer that all of the Equipment has been completely received, installed, tested and accepted as satisfactory by Lessee, and Lessee authorizes Nexseer in writing to disburse payment to the Supplier (“Acceptance Date”). The Initial Period of each Schedule is reflected on each Schedule and begins on the first day of the calendar quarter following the Acceptance Date. A calendar quarter begins on the first day of January, April, July and October. Rent is due to Nexseer, in advance, for each month or portion of a month beginning on the Acceptance Date and continuing for each month that a Lease is in effect. If the Acceptance Date does not fall on the first day of a calendar month, then the first Rent payment shall be calculated by multiplying the number of days beginning on the Acceptance Date through the last day of the month by a daily rental equal to one-thirtieth of the Rent. The term “Index Rate” means the the ICE Swap Rate as published by the ICE Benchmark Administration equally maturing with the Initial Period. Prior to the Acceptance Date of a Lease, Nexseer at its sole discretion and while maintaining the implicit rate herein may adjust the Deposit, the Initial Period, MELRF, Rent, and any not less than FMV percentage as provided in Option (2). Lessee shall pay all Rents hereunder to Nexseer, its successors or assigns, at Nexseer’s address set forth above (or as otherwise directed in writing by Nexseer, its successors or assigns), whether or not Lessee has received any notice that such payment is due. LESSEE’S OBLIGATION TO PAY RENT AND OTHER OBLIGATIONS HEREUNDER SHALL BE ABSOLUTE AND UNCONDITIONAL AND ARE NOT SUBJECT TO ANY ABATEMENT, SET OFF, DEFENSES, CLAIMS, COUNTERCLAIMS, OR RIGHT OF CANCELLATION OR TERMINATION FOR ANY REASON WHATSOEVER, AND LESSEE SHALL NOT DEDUCT ANY AMOUNT OR DAMAGES FROM OR REDUCE ANY RENT OR OTHER ITEMS PAYABLE UNDER A LEASE FOR ANY REASON WITHOUT THE PRIOR WRITTEN CONSENT OF NEXSEER, ITS SUCCESSORS OR ASSIGNS. In the event Nexseer agrees to make payment(s) to Supplier(s) prior to the Acceptance Date, which such payments shall be paid solely and directly to the Supplier (or Lessee as applicable and if agreed to in writing by Nexseer), such payments shall be billed from the respective acceptance date(s) of the Equipment at the Rent. Lessee shall not be entitled to reimbursement from Nexseer for any amount paid by Lessee to the Supplier prior to the Acceptance Date unless agreed to in writing by Nexseer at its sole discretion. Late charges on any past due Rent, taxes, or other charges hereunder shall accrue at the rate of $.015 per dollar (1.5%) per month of the unpaid amount (or if such rate shall exceed the maximum rate allowed by law, then at the highest rate that is permitted to be charged on liquidated amounts after judgment) beginning with the date that such amount was due and continuing until the amount is paid, payable promptly upon demand by Nexseer. Lessee and Nexseer mutually agree that a Lease extends for a period of twelve months at the Rent unless Lessee provides to Nexseer written notice of Lessee’s election not to extend the Lease past the Initial Period at least three months and not greater than twelve months prior to the expiration of the Initial Period.

9. Return of Equipment Option: Unless otherwise provided in writing and made part of a Lease, Lessee may return all but not less than all of the Equipment pursuant to the terms and conditions herein and subject to any Schedule as of the expiration of any extension period as agreed to by Lessee and Nexseer, provided no Event of Default has occurred and remains continuing hereunder and Lessee has provided notice to Nexseer as specified in this Agreement. If Lessee elects to return the Equipment in accordance with this paragraph (“Return of Equipment Option”), Lessee will discontinue the use of the Equipment and immediately, at its own expense, ship the Equipment with all manuals, as originally furnished by Supplier, to a location not more than 500 miles from the then-current location of such Equipment, unless otherwise stated in a Schedule and in accordance with the Equipment




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NEXSEER CAPITAL               MASTER LEASE AGREEMENT No. 105960
2211 Michelson Drive, Suite 1110, Irvine, CA 92612               
Voice (949) 720-9511 Facsimile (949) 720-9611                  Page 3 of 5

return instructions provided by Nexseer. Lessee agrees that the Equipment, when returned, shall be in the same condition as when delivered to Lessee, reasonable wear and tear excepted, and as further set forth in the Schedule, and shall be eligible for the manufacturer's or vendor's best standard maintenance contract without the need for repair or rehabilitation. Lessee agrees that Lessee will, upon the request of Nexseer, store the Equipment on Lessee's premises, at a safe location acceptable to Nexseer that is in accordance with the manufacturer's recommendations, without charge to Nexseer for a period of up to 90 days following the expiration or earlier termination of a Schedule. During such storage period, Lessee shall not use the Equipment for any purpose. Upon the expiration of the storage period Lessee will return the Equipment to Nexseer in accordance with this Section. Until Lessee has complied with all of the requirements of this Section, Rent payment obligations will continue and be payable on a quarterly basis, in advance, or Nexseer may, in its sole discretion, declare an Event of Default.

10. Additions & Modifications to the Equipment: Unless Nexseer shall otherwise agree in writing, all accessions, upgrades, modifications, alterations or additions (collectively “Additions & Modifications”) to the Equipment at any time during a Lease, become a part of the Equipment and are owned by Nexseer. Lessee shall notify Nexseer of any material Additions & Modifications to the Equipment. All Additions & Modifications to the Equipment must be free and clear of any liens or rights of other parties and will not impair the value or performance of the Equipment.

11. Default: Lessee shall promptly notify Nexseer of the occurrence of any Event of Default. An Event of Default shall occur if: (a) Lessee fails to pay when due any installment of Rent or any other sum owed by Lessee under a Lease and such failure continues for a period of ten (10) days; (b) Lessee fails to perform or observe any covenant, condition or agreement to be performed or observed by it under a Lease and such failure continues uncured for ten (10) days after written notice thereof to Lessee by Nexseer; (c) Lessee ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of it or of all or any substantial part of its assets or properties, or if it or its shareholders shall take any action looking to its dissolution or liquidation, or an Adverse Change has occurred; (d) within sixty (60) days after the commencement of any proceedings against Lessee seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or within sixty (60) days after the appointment without Lessee's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated; (e) Lessee removes, sells, transfers, encumbers allows an encumbrance upon, misplaces, parts with possession or subleases the Equipment or any item thereof, or attempts to do any of the aforementioned (without Nexseer’s prior written consent); (f) Lessee defaults in payment or performance of any obligation or indebtedness of any kind or description, whether direct, indirect, absolute or contingent, due or to become due, now existing or hereafter arising with Nexseer (subject to the ten (10) day cure period in subsection (a) of this section) or in the case of any other lender or lessor to Lessee where the aggregate amount of all such indebtedness referred to equals or exceeds $20,000,000.00 at any time outstanding such default is continuing; and (g) Lessee or any guarantor fails to complete on a timely basis when due the exercise of any option provided for in a Lease once elected; (h) any warranty, representation, covenant or statement made or furnished to Nexseer by or on behalf of Lessee in or in connection with a Lease proves to have been false in any material respect when made or furnished; (i) any change by Lessee of its legal name, state of organization or organizational structure without the prior written notice to Nexseer or (j) without the prior written consent of Nexseer (which shall not be unreasonably withheld, conditioned or delayed), Lessee or any guarantor of Lessee obligations under a Lease, or any subsidiary or controlling entity of either, undergoes a sale, buyout, change in control, change in ownership of any type (excluding a change in ownership of a Co-Lessee other than Smart Sand, Inc. as long as such Co-Lessee remains under the control and ownership of Smart Sand, Inc. and as long as Smart Sand, Inc. remains a Co-Lessee hereunder) which as judged solely by Nexseer results in a material deterioration in Lessee’s or the guarantor’s credit worthiness, unless Lessee has given Nexseer written notice of its intent to exercise its Early Purchase Option pursuant to Addendum “A” on the next succeeding Early Purchase Option due date, in which case no Event of Default shall be deemed to exist pursuant to this clause (j) unless and until Lessee has failed to make all payments due in connection with such Early Purchase Option pursuant to the terms and conditions of Addendum “A”.

12. Remedies: Upon the occurrence and during the continuation of an Event of Default, Nexseer shall have all the rights and remedies provided by applicable law, in equity and by a Lease. In addition, Nexseer, at its option, may: (a) by written notice to Lessee cancel a Lease; (b) proceed by appropriate court action or actions or other proceedings either at law or equity to enforce performance by Lessee of any and all covenants of a Lease and to recover damages for the breach thereof; (c) without notice or liability or legal process, enter into any premises of or under the control or jurisdiction of Lessee or any agent of Lessee where the Equipment may be or by Nexseer is believed to be, and repossess all or any item thereof, disconnecting and separating all thereof from any other property and using all force necessary or permitted by applicable law so to do, Lessee hereby expressly waiving all further rights to possession of the Equipment and all claims for injuries suffered through or loss caused by such repossession or demand that Lessee deliver the Equipment forthwith to Nexseer at Lessee's expense at the location of such Equipment set forth on the applicable Schedule; (d) in the event Nexseer repossesses the Equipment, Nexseer may in Nexseer’s sole discretion elect to sell, re-lease or otherwise dispose of all or part of the Equipment or to retain all or part thereof, in such manner and on such terms and conditions as Nexseer may determine in its sole discretion, with or without notice to Lessee, which Lessee hereby waives to the extent permitted by applicable law; (e) declare immediately due and payable any past unpaid Rent, late charges and any other amounts due hereunder that accrued on or before the occurrence of the Event of Default, plus as liquidated damages for loss of the bargain and not as a penalty, an amount equal to the Stipulated Value for the Equipment as of the Rent payment date immediately preceding the date Nexseer declares such Event of Default has occurred , in addition, all attorney and court costs incurred by Nexseer as a result of an Event of Default or relating to the enforcement of its rights under a Lease. Nexseer may in its sole and absolute discretion, re-lease or sell any Equipment at a public or private sale, whether the Equipment is present or not and in such manner and on such terms as Nexseer shall deem reasonable, without any duty to account to Lessee and the proceeds of any such sale or lease shall be applied to reimburse Nexseer for any amounts owed to Nexseer. Lessee shall remain liable for any deficiency (for purposes of this Section, the proceeds of any lease of repossessed Equipment by Nexseer shall be the amount reasonably assigned by Nexseer as the cost of such Equipment in determining the Rent under such lease). The proceeds of sale, lease or other disposition, if any, of the Equipment shall be applied (i) to all Nexseer's costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of the Equipment or other damages incurred, including attorney fees; then (ii) to the extent not previously paid by Lessee, to pay Nexseer the Stipulated Value or the fair market value of the Equipment as determined by Nexseer or any accrued and unpaid Rent, late charges, indemnities and any other amounts then remaining unpaid under a Lease; then (iii) to reimburse to Lessee any such sums previously paid by Lessee as liquidated damages.





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NEXSEER CAPITAL           MASTER LEASE AGREEMENT No. 105960
2211 Michelson Drive, Suite 1110, Irvine, CA 92612             
Voice (949) 720-9511 Facsimile (949) 720-9611                 Page 4 of 5


Nexseer shall retain any surplus. In no event shall Lessee upon demand by Nexseer for payment hereunder or otherwise be obligated to pay any amount in excess of that permitted by law. The waiver by Nexseer of any breach of any obligation of Lessee shall not be deemed a waiver of any future breach of the same or any other obligation. No remedy of Nexseer hereunder shall be exclusive of any remedy herein or by law provided, but each shall be cumulative and in addition to every other remedy. Lessee shall remain liable for any deficiency remaining should Nexseer sell or otherwise dispose of the Equipment. If any Lease is a loan or secured transaction, Lessee further agrees that Nexseer shall have all the rights and remedies of a secured party under Article 9 of the UCC.
13. GOVERNING LAW; JURISDICTION, JURY TRIAL WAIVER. Each Lease shall be governed by and construed in accordance with, the laws of the State of California, without giving effect to the principles of conflicts of laws. Each Lease is entered into and is to be performed in the County of Orange in the State of California. Lessee submits and consents to the exclusive jurisdiction of any claims or causes of action arising directly or indirectly from each Lease in any federal or state court located in the State of California. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LESSEE AND NEXSEER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, A LEASE OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN LESSEE AND NEXSEER, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. Lessee and Nexseer prefer that any dispute between or among them shall be resolved in litigation subject to the above jury trial waiver. If, and only if, a pre-dispute jury trial waiver of the type provided for herein is unenforceable in litigation to resolve any dispute, claim, cause of action or controversy under a Lease (each, a “Claim”), and the parties to such Claim do not waive their rights ot a jury trial in a manner effective under applicable law, then, upon the written request of any party, such Claim, including any and all questions of law or fact relating thereto, shall be determined exclusively by a judicial reference proceeding in any federal or state court located in the State of California (the “Court”). Lessee and Nexseer shall each select a single neutral referee, who shall be a retired state or federal judge. If the parties cannot agree upon a referee within 30 days, the Court shall appoint the referee. The referee shall report a statement of decision to the Court. Notwithstanding the foregoing, nothing in this paragraph shall limit any party’s right at any time to exercise self-help remedies, foreclose against the Equipment or other collateral or obtain provisional remedies (including without limitation, requests for temporary restraining orders, preliminary injunctions, writs of possession, writs of attachment, appointment of a receiver, or any orders that a court may issue to preserve the status quo, to prevent irreparable injury or to allow a party to enforce its liens and security interests). Unless the referee orders otherwise, the party determined by the referee to be the prevailing party in any such proceeding shall be entitled to recover from the other party, as part of the statement of decision reported to the Court, all of the prevailing party’s reasonable costs and expenses related to such proceedings including, without limitation, the prevailing party’s reasonable attorneys’ fees and expenses. The referee also shall determine all issues relating to the applicability, interpretation, and enforceability of this Section. Lessee and Nexseer acknowledge that any Claim determined by reference pursuant to this Section shall not be adjudicated by a jury.

14. Indemnity: Lessee agrees that Nexseer shall not be liable to Lessee for, and Lessee shall indemnify and save Nexseer harmless from and against any and all liability, loss, damage, expense, causes of action, suits, claims or judgments arising from or caused directly or indirectly by any Lease or Equipment, including but not limited to (whether prior to or after acceptance of any item of Equipment): (a) Lessee's failure to promptly perform any of its obligations under the provisions of a Lease; (b) injury to persons or damage to property resulting from or based upon actual or alleged condition, use, operation, delivery or transportation of any or all of the Equipment or its location or condition; (c) breach of any environmental laws or regulations or claim involving or alleging environmental damage; (d) inadequacy of the Equipment, or any part thereof, for any purpose or any deficiency or defect therein or the use or maintenance thereof or any repairs, servicing or adjustments thereto or any delay in providing or failure to provide any part or service thereof or any interruption or loss of service or use thereof or any loss of business; (e) the manufacture, inspection, purchase, acceptance, rejection, lease, sublease, possession, registration, titling, sale, return, removal, repossession, storage or other disposition of the Equipment (f) any accident in connection with any item of Equipment, or (g) any claim involving or alleging environmental damage, product liability or strict or absolute liability in tort, latent and other defects (whether or not discoverable), and from any other risk or matter and Lessee shall, at its own cost and expense, defend any and all suits which may be brought against Nexseer, either alone or in conjunction with others upon any such liability or claim(s) and shall satisfy, pay and discharge any and all judgments and fines that may be recovered against Nexseer in any such action or actions, provided, however, that Nexseer shall give Lessee written notice of any such claim or demand; provided, however, that the foregoing indemnity shall not extend to any liability, loss, damage, expense, causes of action, suits, claims or judgments to the extent resulting from the gross negligence or willful misconduct of Nexseer or its agents. Lessee agrees that its obligations under this Section shall survive the expiration or earlier termination of a Lease.

15. Assignment: Each Lease and all rights and obligations of Nexseer thereunder shall be assignable by Nexseer without Lessee's consent, but Lessee shall not be obligated to any assignee of Nexseer except after written notice of such assignment from Nexseer. Following such assignment (i) solely for the purpose of determining assignee's rights under a Lease, the term "Nexseer" shall be deemed to include or refer to Nexseer's assignee, (ii) such assignee shall have all the rights and benefits of Nexseer under a Lease, but none of Nexseer's obligations (except as expressly agreed in writing), (iii) Lessee shall make all payments as directed by such assignee, and (iv) Lessee shall provide Nexseer with a copy of any notices sent by Lessee to Assignee regarding a Lease; and (v) Lessee agrees that it will not assert against any assignee any claim, defense, counterclaim or offset that Lessee may have against Nexseer, it being understood and agreed that no assignment shall impair any such claims or counterclaims Lessee may have against Nexseer. Without the prior written consent of Nexseer, which shall not be unreasonably withheld, conditioned or delayed, Lessee shall not assign, sell or transfer a Lease or its interests hereunder, in any manner including but not limited to, an assignment due to sale, merger, liquidation, sub-lease, change of ownership or change-in-control, in each case that would constitute an Event of Default hereunder.

16. Miscellaneous: If any provision of a Lease is contrary to, prohibited by or deemed invalid under applicable laws or regulations of any jurisdiction, such provision shall be inapplicable and deemed omitted but shall not invalidate the remaining provisions of a Lease. In the event a Lease or any part thereof is deemed to be a lease creating a security interest, Lessee grants Nexseer a first priority security interest in each item of Equipment as security for all of Lessee's indebtedness and obligations owing under a Lease. All notices to Lessee shall be in writing and shall be delivered by mail, facsimile, or electronic mail. All agreements, representations and warranties contained in a Lease, or in any document or certificate delivered pursuant to or in connection with a Lease, shall expressly survive the expiration or earlier termination of a Lease. Lessee authorizes and agrees that Nexseer may supply missing information or correct obvious errors in a Lease. This Lease (and all documents executed in connection herewith) may be executed and delivered in counterparts all of which shall constitute

                              





            
LEB   LEB                          
                               Initials    Initials


NEXSEER CAPITAL             MASTER LEASE AGREEMENT No. 105960
2211 Michelson Drive, Suite 1110, Irvine, CA 92612               
Voice (949) 720-9511 Facsimile (949) 720-9611                Page 5 of 5

one and the same agreement. The exchange of signed copies by facsimile or electronic transmission (including pdf files) shall constitute effective execution and delivery and may be used in lieu of manually signed documents. Signatures of the parties transmitted by facsimile or electronic transmission qualify as authentic original signatures for purposes of enforcement thereof (including all matters of evidence and the “best evidence” rule). For purposes of perfection of a security interest in chattel paper under the UCC, only the counterpart of each Lease that bears Nexseer’s manually applied signature shall constitute the sole
original counterpart of the original chattel paper for purposes of possession. No security interest in a Lease can be perfected by possession of any other counterpart, each of which shall be deemed a duplicate original or copy for such purposes. Nexseer may not publish or issue, or cause to be made or issued, any announcement, statement, or other form of advertising referring to the business purpose and activities related to a Lease for dissemination to the general public or any third party without the prior written consent of Lessee. Time is of the essence with regard to each provision of a Lease.

Each Schedule (along with this Agreement) shall constitute a separate Lease and the obligation of Lessee to pay Rent and any other sums due under each Schedule and the Agreement shall be absolute and unconditional. A Lease cannot be terminated or canceled for any reason except as expressly provided herein. To the extent permitted by applicable law, Lessee hereby waives the following rights and remedies conferred on Lessee by law: (1) right to unilaterally terminate or cancel the Lease; (2) right to reject the Equipment; (3) right to revoke acceptance of the Equipment; (4) right to recover any general, specific, incidental and consequential damages or recover damages from any Nexseer breach of warranty; (5) right to specific performance, replevin, detinue, sequestration, claim and delivery of the like for the Equipment subject to the Lease. To the extent permitted by applicable law, Lessee also waives any rights which may require Nexseer to sell, lease or otherwise use any Equipment in mitigation of Nexseer’s damages as set forth in Section 12 and to the extent permitted by applicable law, Lessee hereby waives any and all rights and remedies conferred upon Lessee by Article 2A-507 – 2A-522 of the UCC.

This Agreement and each Schedule executed from time to time in connection therewith contain the entire agreement between the parties with respect to the Equipment and may not be altered, modified, terminated or discharged except by a writing signed by the party against whom such alteration, modification, termination or discharge is sought. A Lease once accepted by Nexseer shall be binding upon and inure to the benefit of Nexseer, Lessee and their permitted successors and assigns. Lessee and Nexseer agree that no oral or other written agreements or promises shall be relied upon or be binding on the parties unless made part of a Lease by written authorization provided by authorized signers of both Lessee and Nexseer. Lessee shall provide Lease documentation original signatures for receipt by Nexseer within three business days of Nexseer’s request.

A Lease is subject to acceptance by Nexseer. By signing below, the signer certifies that signer has read this Agreement, has had an opportunity to discuss its terms with Nexseer, and is authorized to sign on behalf of Lessee.

          LESSEE/OFFEROR           NEXSEER CAPITAL
        

        Smart Sand, Inc.     ACCEPTANCE:

By:  /s/ Lee E Beckelman    By:  /s/ Roberty C Davis

Name:  Lee E. Beckelman    Name:   Robert C. Davis  

Title:  Chief Financial Officer   Title:   Executive Vice President 

Date:  12-13-2019    Date:    12-13-2019  

   LESSEE/OFFEROR
        

        Smart Sand Oakdale LLC       

By: Smart Sand, Inc.
Its sole Member


By:  /s/ Lee E Beckelman

Name:  Lee E. Beckelman   

Title:  Chief Financial Officer  

Date:  12-13-2019   




ABL CREDIT AGREEMENT
dated as of
December 13, 2019,
among
SMART SAND, INC.,
as Parent, a Borrower and Administrative Loan Party
THE OTHER BORROWERS PARTY HERETO
as Borrowers,
THE GUARANTORS PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO
as Lenders
and
JEFFERIES FINANCE LLC,
as Agent
JEFFERIES FINANCE LLC,
as Sole Lead Arranger and Sole Bookrunner




Table of Contents
Page
ARTICLE I DEFINITIONS
1
SECTION 1.01. Defined Terms
1
SECTION 1.02. Terms Generally
46
SECTION 1.03. Pro Forma Calculations
48
SECTION 1.04. Classification of Loans and Borrowings
49
SECTION 1.05. [Intentionally Omitted]
49
SECTION 1.06. Basket Amounts and Application of Multiple Relevant Provisions
49
SECTION 1.07. Limited Condition Transactions
50
SECTION 1.08. LIBO Rate Discontinuation
51
SECTION 1.09. Division of Limited Liability Company
51
ARTICLE II THE CREDITS
52
SECTION 2.01. Commitments
52
SECTION 2.02. Loans
52
SECTION 2.03. Borrowing Procedure
54
SECTION 2.04. Evidence of Debt; Repayment of Loans
55
SECTION 2.05. Fees
55
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
58
SECTION 2.11. Protective Advances and Optional Overadvances
59
SECTION 2.12. Voluntary Prepayment
61
SECTION 2.13. Mandatory Prepayments
61
SECTION 2.14. Reserve Requirements; Change in Circumstances
62
SECTION 2.15. Change in Legality
64
SECTION 2.16. Breakage
64
SECTION 2.17. Pro Rata Treatment
65
SECTION 2.18. Sharing of Setoffs
65
SECTION 2.19. Payments
66
SECTION 2.20. Taxes
66
SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate
69
SECTION 2.22. Swingline Loans
70
SECTION 2.23. Letters of Credit
73
SECTION 2.24. Increase in Total Revolving Credit Commitments
78
SECTION 2.25. Joint and Several Liability of Borrowers
80
SECTION 2.26. Defaulting Lenders
82
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ARTICLE III REPRESENTATIONS AND WARRANTIES
84
SECTION 3.01. Organization; Powers
84
SECTION 3.02. Authorization
85
SECTION 3.03. Enforceability
85
SECTION 3.04. Governmental Approvals
85
SECTION 3.05. Financial Statements; Projections
85
SECTION 3.06. No Material Adverse Change
86
SECTION 3.07. Title to Properties; etc
86
SECTION 3.08. Subsidiaries
86
SECTION 3.09. Litigation; Compliance with Laws
87
SECTION 3.10. Agreements
87
SECTION 3.11. Federal Reserve Regulations
87
SECTION 3.12. Investment Company Act; etc
87
SECTION 3.13. Use of Proceeds
88
SECTION 3.14. Tax Matters
88
SECTION 3.15. No Material Misstatements
88
SECTION 3.16. Plans
88
SECTION 3.17. Environmental Matters
89
SECTION 3.18. Insurance
89
SECTION 3.19. Security Documents
89
SECTION 3.20. Locations of Real Property
90
SECTION 3.21. Labor Matters
90
SECTION 3.22. Solvency
90
SECTION 3.23. Anti-Corruption and Sanctions
90
SECTION 3.24. Intellectual Property
91
SECTION 3.25. Eligible Receivables
92
SECTION 3.26. Eligible Inventory
92
SECTION 3.27. Location of Inventory
92
SECTION 3.28. Inventory Records
92
ARTICLE IV CONDITIONS OF LENDING
92
SECTION 4.01. All Credit Events
92
SECTION 4.02. First Credit Event
93
ARTICLE V AFFIRMATIVE COVENANTS
96
SECTION 5.01. Existence; Compliance with Laws; Businesses and Properties
96
SECTION 5.02. Insurance
96
SECTION 5.03. Obligations and Taxes
97
SECTION 5.04. Financial Statements, Reports, etc
97
SECTION 5.05. Litigation and Other Notices
99
SECTION 5.06. Certain Information Regarding Loan Parties
100
SECTION 5.07. Maintaining Records; Access to Properties and Inspections; Quarterly Conference Calls
100
SECTION 5.08. Use of Proceeds
101
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SECTION 5.09. Locations of Inventory/Designated Subleased Equipment
101
SECTION 5.10. Compliance with Environmental Laws
101
SECTION 5.11. Notifications Regarding Environmental Matters
102
SECTION 5.12. Further Assurances; Additional Guarantors and Borrowers; Additional Collateral
102
SECTION 5.13. Collateral Field Examinations/Appraisals
104
ARTICLE VI NEGATIVE COVENANTS
105
SECTION 6.01. Indebtedness
105
SECTION 6.02. Liens
108
SECTION 6.03. Sale and Lease-Back Transactions
111
SECTION 6.04. Investments, Loans and Advances
111
SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions
115
SECTION 6.06. Restricted Payments; Restrictive Agreements
117
SECTION 6.07. Transactions with Affiliates
119
SECTION 6.08. Business of Loan Parties and Subsidiaries
120
SECTION 6.09. Other Indebtedness and Agreements
120
SECTION 6.10. [Intentionally Omitted]
121
SECTION 6.11. Financial Covenant
121
SECTION 6.12. Fiscal Year
123
SECTION 6.13. Sanctions
123
SECTION 6.14. Sanctioned Person
123
ARTICLE VII EVENTS OF DEFAULT
123
SECTION 7.01. Events of Default
123
SECTION 7.02. Application of Proceeds
126
ARTICLE VIII THE AGENT
128
SECTION 8.01. Appointment
128
SECTION 8.02. Agent in its Individual Capacity
129
SECTION 8.03. Exculpatory Provisions.
129
SECTION 8.04. Reliance by Agent
130
SECTION 8.05. Delegation of Duties
130
SECTION 8.06. Successor Agent
130
SECTION 8.07. Bankruptcy Related Matters
131
SECTION 8.08. Non-Reliance on Agent and Other Lenders
132
SECTION 8.09. Name Agents
132
SECTION 8.10. Intercreditor Agreements/Subordination Agreements
132
ARTICLE IX MISCELLANEOUS
133
SECTION 9.01. Notices; Electronic Communications
133
SECTION 9.02. Survival of Agreement
136
SECTION 9.03. Binding Effect
136
SECTION 9.04. Successors and Assigns
136
SECTION 9.05. Expenses; Indemnity
140
SECTION 9.06. Right of Setoff
142
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SECTION 9.07. Applicable Law
142
SECTION 9.08. Waivers; Amendment
143
SECTION 9.09. Interest Rate Limitation
146
SECTION 9.10. Entire Agreement
146
SECTION 9.11. WAIVER OF JURY TRIAL
146
SECTION 9.12. Severability
147
SECTION 9.13. Counterparts
147
SECTION 9.14. Headings
147
SECTION 9.15. Jurisdiction; Consent to Service of Process
147
SECTION 9.16. Confidentiality
148
SECTION 9.17. Lender Action
149
SECTION 9.18. USA PATRIOT Act Notice
149
SECTION 9.19. Release of Liens
149
SECTION 9.20. No Advisory or Fiduciary Responsibility
150
SECTION 9.21. Acknowledgement and Consent to Bail-In of EEA Financial Institutions
150
SECTION 9.22. Smart Sand as Administrative Loan Party
151
SECTION 9.23. Bank Product Providers
152


4
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SCHEDULES
Schedule 1.01(a) Lenders and Revolving Credit Commitments
Schedule 1.01(b) Designated Equipment
Schedule 1.01(c) Subsidiary Guarantors
Schedule 1.01(d) Locations of Inventory
Schedule 3.08(a) Subsidiaries
Schedule 3.08(b) Immaterial Subsidiaries
Schedule 3.09(a) Certain Litigation
Schedule 3.18 Insurance
Schedule 3.19(a) Filing Offices
Schedule 3.20 Real Property
Schedule 6.01(a) Existing Indebtedness
Schedule 6.02(a) Existing Liens
Schedule 6.04(a) Existing Investments
Schedule 6.07 Existing Affiliate Transactions
Schedule 9.01 Certain Addresses for Notices
EXHIBITS
Exhibit A - Form of Administrative Questionnaire
Exhibit B - Form of Assignment and Acceptance
Exhibit C-1 - Form of Borrowing Request
Exhibit C-2 - Form of Swingline Borrowing Request
Exhibit D - [Intentionally Omitted]
Exhibit E - Form of Compliance Certificate
Exhibit F - Form of Solvency Certificate
Exhibit G - Form of Intercompany Note
Exhibit H  Form of Borrowing Base Certificate
Exhibit I  Form of Joinder


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155657.01206/121720408v.9

ABL CREDIT AGREEMENT
This ABL CREDIT AGREEMENT (as amended, amended and restated, supplemented, renewed, extended, replaced and/or otherwise modified from time to time, this “Agreement”) dated as of December 13, 2019, is entered into by and among SMART SAND, INC., a Delaware corporation (“Parent”), each Subsidiary (such term and each other capitalized term used but not defined herein having the meaning given to it in Article I) of Parent party hereto on the date hereof as a “Borrower”, and those additional entities that hereafter become parties hereto as “Borrowers” in accordance with the terms hereof by executing the form of Joinder attached hereto as Exhibit I (each, a “Borrower” and individually and collectively, jointly and severally, the “Borrowers”), each Subsidiary Guarantor and together with any other Person that at any time after the date hereof becomes a Guarantor (each a “Guarantor” and collectively, the “Guarantors”), the Lenders, and JEFFERIES FINANCE LLC, as Issuing Bank, Swingline Lender, and as agent (in such capacity, including any successor thereto, the “Agent”) for the Lenders.
IN CONSIDERATION of the mutual covenants and undertakings herein contained, Loan Parties, Lenders and Agent hereby agree as follows:
ARTICLE I.DEFINITIONS
SECTION i..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, shall mean that such Loan, or the Loans comprising such Borrowing, bears or bear interest at a rate determined by reference to the Alternate Base Rate.
“Acquired Entity” shall have the meaning assigned to such term in Section 6.04(k).
“Acquisition” shall have the meaning assigned to such term in Section 6.04(k).
“Adjusted LIBO Rate” shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum equal to the greater of (a) 0.00% per annum and (b) the product of (i) the LIBO Rate in effect for such Interest Period and (ii) Statutory Reserves.
“Administrative Loan Party” has the meaning specified therefor in Section 9.22 of this Agreement.
“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 Agent.
155657.01206/121720408v.9

“Advisors” shall mean legal counsel (including local and foreign counsel), auditors, accountants, consultants, appraisers, engineers or other advisors.
“Affected Equity Cure Testing Periods” shall have the meaning assigned to such term in Section 6.11(c).
“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; provided, however, that, for purposes of the definition of “Eligible Assignee”, the term “Affiliate” shall also include any Person that directly or indirectly owns 10% or more of any class of Equity Interests of the Person specified or that is an officer or director of the Person specified. Neither Agent nor the Lead Arranger nor any Affiliate thereof shall be deemed to be an “Affiliate” of any Loan Parties for purposes of this Agreement. For purposes of this Agreement and the other Loan Documents, Jefferies LLC and its Affiliates shall be deemed to be Affiliates of Jefferies Finance LLC and its Affiliates.
“Agent” shall have the meaning assigned to such term in the introductory statement to this Agreement.
“Agent Fee Letter” shall mean the confidential Fee Letter, dated the Closing Date, among the Loan Parties and Agent.
“Agent Fees” shall have the meaning assigned to such term in Section 2.05(b).
“Aggregate Revolving Credit Exposure” shall mean the aggregate amount of the Lenders’ Revolving Credit Exposures.
“Agreement” shall have the meaning assigned to such term in the introductory statement hereto.
“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the greatest of (a) the Base Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%, and (c) one-month Adjusted LIBO Rate plus 1.00% per annum; provided that, for the avoidance of doubt, the Adjusted LIBO Rate for any day shall be determined using the Adjusted LIBO Rate as otherwise determined by Agent in accordance with the definition of “Adjusted LIBO Rate”, except that (i) if a given day is a Business Day, such determination shall be made on such day (rather than 2 Business Days prior to the commencement of an Interest Period) or (ii) if a given day is not a Business Day, the Adjusted LIBO Rate for such day shall be the rate determined by Agent pursuant to preceding clause (i) for the most recent Business Day preceding such day. If 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 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 Base Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including
        2 
155657.01206/121720408v.9

the effective date of such change in the Base Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, as the case may be.
“Anti-Corruption Laws” shall mean the FCPA, the U.K. Bribery Act of 2010, as amended, and all other applicable laws and regulations or ordinances concerning or relating to bribery, money laundering or corruption in any jurisdiction in which any Loan Party or any of its Subsidiaries or Affiliates is located or is doing business.
“Anti-Money Laundering Laws” shall mean the applicable laws or regulations in any jurisdiction in which any Loan Party or any of its Subsidiaries or Affiliates is located or is doing business that relates to money laundering, any predicate crime to money laundering, or any financial record keeping and reporting requirements related thereto.
“Applicable Margin” shall mean, for any day, with respect to Revolving Loans (a) 1.00%, in the case of ABR Loans, and (b) 2.00%, in the case of Eurodollar Loans,
“Asset Sale” shall mean the sale, transfer or other disposition (by way of merger, casualty, condemnation or otherwise) by any Loan Party or any Subsidiary to any Person other than a Loan Party or any Subsidiary of (a) any Equity Interests of any Loan Party or any Subsidiary (other than (i) directors’ qualifying shares and (ii) in the case of a Foreign Subsidiary, nominal amounts of shares required by applicable law to be held by local nationals) or (b) any other assets of any Loan Party or any Subsidiary; provided that, notwithstanding the foregoing, none of the following items will be deemed to be an Asset Sale:
(i) the sale, transfer or other disposition of Inventory, damaged, obsolete or worn out assets, equipment no longer used or useful in the business of Loan Parties or any Subsidiary, Permitted Investments and other assets, in each case sold, transferred or otherwise disposed of in the ordinary course of business;
(ii) the sale or discount without recourse of any Receivable which is not an Eligible Receivable in connection with the compromise thereof or the assignment of past due accounts receivable for collection and not in connection with any financing arrangement;
(iii) leases of properties in the ordinary course of business;
(iv) dispositions of property to the extent that (A) such property is exchanged for credit against the purchase price of similar replacement property or (B) the proceeds of such Disposition are promptly applied to the purchase price of such replacement property, including to the extent allowable under Section 1031 of the Code, any exchange of like property (excluding any boot thereon), in each case, for use in a Permitted Business;
(v) any surrender or waiver of contract rights or the settlement, release or surrender of contract rights or other litigation claims in the ordinary course of business;
(vi) the unwinding of any Hedging Agreements;
        3 
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(vii) the abandonment of any Intellectual Property rights of any Loan Party or any Subsidiary, which in the reasonable good faith determination of a Loan Party or a Subsidiary are not material to the conduct of the business of Loan Parties and their Subsidiaries taken as a whole;
(viii) the licensing or sublicensing of Intellectual Property or other general intangibles in a manner consistent with customary practice for a mining company;
(ix) the creation of a Permitted Lien (but not the sale or other disposition of property subject to the Permitted Lien);
(x) the disposition of cash or Permitted Investments;
(xi) the disposition of surface rights and termination of mining leases after the completion of mining and reclamation and termination or abandonment of water rights no longer needed for mining; and
(xii) Designated Subleased Equipment Leases.
“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by Agent, substantially in the form of Exhibit B, or such other form as shall be approved by Agent.
“Bank Product” shall mean any one or more of the following financial products or accommodations extended to any Loan Party by a Bank Product Provider: (a) Cash Management Services, or (b) transactions under Hedging Agreements.
“Bank Product Agreements” shall mean those agreements entered into from time to time by any Loan Party with a Bank Product Provider in connection with the obtaining of any of the Bank Products.
“Bank Product Obligations” shall mean (a) all Cash Management Obligations pursuant to Cash Management Services entered into with one or more Bank Products Providers, (b) all Hedging Obligations pursuant to Hedging Agreements entered into with one or more of the Bank Product Providers, and (c) all amounts that Agent or any Lender is obligated to pay to a Bank Product Provider as a result of Agent or such Lender purchasing participations from, or executing guarantees or indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank Products provided by such Bank Product Provider to any Loan Party; provided, that, in order for any item described in clause (a), (b) or (c) above, as applicable, to constitute “Bank Product Obligations,” the applicable Bank Product must have been provided on or after the Closing Date and Agent shall have received a Bank Product Provider Letter Agreement from the applicable Bank Product Provider within 10 days after the date of the provision of the applicable Bank Product to any Loan Party.
“Bank Product Provider” shall mean Agent, any Lender or any of their respective Affiliates (or any Person who at the time the respective Bank Product Agreement was entered
        4 
155657.01206/121720408v.9

into by such Person was an Agent, a Lender or an Affiliate thereof); provided, however that no such Person shall constitute a Bank Product Provider with respect to a Bank Product unless and until Agent shall have received a Bank Product Provider Letter Agreement from such Person with respect to the applicable Bank Product within 10 days after the provision of such Bank Product to any Loan Party.
“Bank Product Provider Letter Agreement” shall mean a letter agreement reasonably satisfactory to Agent, duly executed by the applicable Bank Product Provider, the applicable Loan Party and Agent.
“Bankruptcy Code” shall mean Title 11 of the United States Code entitled “Bankruptcy” as now or hereafter in effect, or any successor statute.
“Base Rate” shall mean, for any day, the “U.S. Prime Lending Rate” as published in The Wall Street Journal for such day; provided that if The Wall Street Journal ceases to publish for any reason such rate of interest, “Base Rate” shall mean the prime lending rate as set forth on the Bloomberg page PRIMBB Index (or successor page) for such day (or, if not available, such other service as determined by Agent consistent with customary industry practices from time to time for purposes of providing quotations of annual prime lending interest rates). Each change in the Base Rate shall be effective from and including the date such change is effective. The prime rate is not necessarily the lowest rate charged by any financial institution to its customers.
“Board” shall mean the Board of Governors of the Federal Reserve System of the United States of America.
“Board of Directors” shall mean, with respect to any Person, (a) in the case of any corporation, the board of directors of such Person, (b) in the case of any limited liability company, the board of managers or board of directors, as applicable, of such Person, or if such limited liability company does not have a board of managers or board of directors, the functional equivalent of the foregoing, (c) in the case of any partnership, the board of directors or board of managers, as applicable, of the general partner of such Person and (d) in any other case, the functional equivalent of the foregoing.
“Borrower Materials” shall have the meaning assigned to such term in Section 9.01(e).
“Borrowers” shall have the meanings assigned to such term in the introductory statement to this Agreement.
“Borrowing” shall mean (a) 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, or (b) a Swingline Loan.
“Borrowing Base” shall mean, as of any date of determination, the result of:
(1)85% of the amount of Eligible Receivables, plus
(2)75% of the amount of Eligible Unbilled Receivables, plus
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(3)the lesser of
i.the Inventory Sublimit, and
ii.the product of 85% multiplied by the Net Recovery Percentage identified in the most recent Inventory Appraisal, multiplied by the Value of Eligible Inventory (such determination may be made as to different categories of Eligible Inventory based upon the Net Recovery Percentage applicable to such categories) at such time, minus
(4)the aggregate amount of Reserves, if any, established by Agent from time to time under (and subject to) Section 2.01(c);
except that, prior to the Borrowing Base Effective Date, the “Borrowing Base” shall be the Deemed Borrowing Base.
“Borrowing Base Certificate” shall mean a certificate duly executed by a Financial Officer of the Administrative Loan Party, in substantially the form of Exhibit H, appropriately completed and evidencing the Borrowing Base.
“Borrowing Base Effective Date” shall mean the date on which Agent has received the Closing Date Deliverables.
“Borrowing Request” shall mean, as applicable, (a) a request by Administrative Loan Party in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C-1 or (b) a request by the Administrative Loan Party in accordance with the terms of Section 2.22 and substantially in the form of Exhibit C-2, or, in either case, such other form as shall be approved by Agent.
“Business Day” shall mean any day other than a Saturday, Sunday or day on which commercial 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.
“Capital Lease Obligations” of any Person shall mean, at the time any determination is to be made, the amount of the liabilities of such Person that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
“Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“Cash Collateralize” shall mean to pledge and deposit with or deliver to Agent, for the benefit of one or more of the Secured Parties, as collateral for Letters of Credit, obligations of Lenders to fund participations in respect of Letters of Credit or the other Obligations, cash or
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deposit account balances or, if Agent and the applicable Issuing Bank shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to Agent and each applicable Issuing Bank.
“Cash Dominion Period” shall mean any period (a) commencing on the date on which Excess Availability is less than, for 10 consecutive Business Days, the greater of (i) 15% of the Line Cap and (ii) $3,000,000 and Agent notifies Administrative Loan Party of the commencement of a “Cash Dominion Period” and ending on the first date thereafter on which Excess Availability has been equal to or in excess of, for 10 consecutive Business Days, the greater of (i) 15% of the Line Cap, and (ii) $3,000,000 and no Cash Dominion Period is otherwise in effect pursuant to clause (b) below, or (b) commencing on the date on which an Event of Default shall have occurred and, except with respect to any Event of Default under Section 7.01(g) or 7.01(h), Agent notifies Administrative Loan Party of the commencement of a “Cash Dominion Period” and ending on the first date thereafter on which no Event of Default exists and no Cash Dominion Period is otherwise in effect pursuant to clause (a) above.
“Cash Management Obligations” shall mean all present and future obligations of Borrowers and the other Loan Parties under or with respect to Cash Management Services.
“Cash Management Services” shall mean any (a) cash management or related services including treasury, depository, return items, overdraft, controlled disbursement, merchant store value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system), (b) credit cards, (c) credit card processing services, (d) debit cards, (e) stored value cards, (f) purchase cards and (g) other cash management arrangements.
“Casualty Event” shall mean any loss of title (other than through a consensual disposition of such property in accordance with this Agreement) or any loss of or damage to or any destruction of, or any condemnation or other taking (including by any Governmental Authority) of, any property of any Loan Party. 
“Change in Control” shall mean if (a) any “person” or “group” (within the meaning of Rule 13d-5 of the Exchange Act as in effect on the date hereof) other than the Permitted Holders shall own, directly or indirectly, Equity Interests representing more than 35% of (i) the aggregate economic rights or (ii) the aggregate voting power represented by the issued and outstanding Equity Interests of Parent or (b) any change in control (or similar event, however denominated) with respect Parent shall occur under and as defined in any indenture or agreement in respect of Material Indebtedness to which Parent is a party and shall have resulted in the occurrence of an event of default with respect to, a mandatory repayment of, or an obligation to make a mandatory offer to repurchase or repay, such Material Indebtedness, or (c) Parent fails to own, directly or indirectly, 100% of the Equity Interests of any other Loan Party (other than pursuant to a transaction permitted hereunder).
“Change in Law” shall mean the occurrence after the date of this Agreement (or with respect to any Lender, if later, the date on which such Lender became a Lender) of any of the
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following: (a) the adoption of any law, rule or regulation, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority or (c) compliance by any Lender or any Issuing Bank (or, for purposes of Section 2.14, by any lending office of such Lender or by such Lender’s or such Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided, however, that for purposes of this Agreement, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) 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.
“Charles Young Holders” shall have the meaning assigned to such term in clause (b) of the definition of “Permitted Holders”.
“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Credit Commitment or Swingline Commitment.
“Closing Date” shall mean December 13, 2019.
“Closing Date Deliverables” shall mean, collectively, (a) an Inventory Appraisal, and (b) a collateral field examination with respect to the Borrowers’ Inventory, Receivables and all of Borrowers’ assets and liabilities related thereto (i) which is conducted by a third-party consultant approved by Agent; (ii) which is conducted in such a manner and methodology and of such a scope as is acceptable to Agent; and (iii) upon which Agent and Lenders are expressly permitted to rely.
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
“Collateral” shall mean all the “Collateral” as defined in the Guarantee and Collateral Agreement and any other Security Document.
“Collateral Access Agreement” shall mean a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in any Loan Party’s or its Subsidiaries’ books and records, Equipment, or Inventory, in each case, in form and substance reasonably satisfactory to Agent.
“Commitment” shall mean, with respect to any Lender, such Lender’s Revolving Credit Commitment and Swingline Commitment.
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“Commitment Fee” shall have the meaning assigned to such term in Section 2.05(a).
“Commodity Exchange Act” shall mean the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“Communications” shall have the meaning assigned to such term in Section 9.01(d).
“Compliance Certificate” shall mean a certificate of a Financial Officer of Administrative Loan Party substantially in the form of Exhibit E.
“Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such period plus
(a) without duplication and, except with respect to clause (a)(xi)(B) below, to the extent deducted in determining such Consolidated Net Income, the sum of:
(i) consolidated interest expense for such period;
(ii) consolidated tax expense for such period for taxes based on income, profits or capital gains, including federal, state, foreign, local, franchise and similar taxes and foreign withholding taxes paid or accrued during such period including penalties and interest related to such taxes or arising from any tax examinations;
(iii) all amounts attributable to depreciation and amortization for such period (including (A) accelerated depreciation and amortization from the write-off or write-down of tangible or intangible assets (other than the write-down of current assets) and (B) amortization of deferred financing fees, debt issuance costs, commissions, fees and expenses, bridge, commitment and other financing fees, discounts and yield);
(iv) letter of credit fees for such period;
(v) any extraordinary, unusual or non-recurring expenses, losses or charges for such period;
(vi) any non-cash expenses, losses, charges, accruals or reserves for such period, including with respect to stock-based or other non-cash compensation, non-compete agreements and other similar agreements, goodwill or other asset impairments, impacts of fair value accounting, valuation of derivatives (including Hedging Agreements), write-offs of deferred financing costs and debt issuance costs, unrealized losses on foreign currency translation, noncash charges in respect of capitalized research and development and organizational costs, noncash losses from Permitted Joint Ventures and non-cash losses on any extinguishment of debt;
(vii) fees and expenses incurred during such period in connection with the Transactions and all fees and expenses paid pursuant to the Loan Documents and in connection with the amendment, restatement, supplement, modification or waiver of any Indebtedness, whether or not successful, and all ratings agency costs and expenses;
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(viii) fees and expenses incurred during such period in connection with any Equity Issuance, any proposed or actual issuance or incurrence of any Indebtedness, any proposed or actual acquisition (including a product acquisition, but otherwise excluding an acquisition in the ordinary course of business), any investment (other than intercompany investments and investments in the ordinary course of business) or any Asset Sales (or any other disposition of assets) permitted hereunder, including any financing fees, merger and acquisition fees (in each case, whether or not consummated);
(ix) expenses, losses or charges (A) incurred during such period to the extent covered by indemnification provisions in any agreement in connection with a Specified Transaction to the extent actually reimbursed in cash during such period, or, so long as Parent has made a determination that a reasonable basis exists for indemnification and only to the extent that such indemnity obligation has not been contested in writing by the applicable indemnitors and is in fact indemnified within 365 days of demand by Parent or any Subsidiary therefor and (B) with respect to liability or casualty events to the extent covered by insurance and actually paid or reimbursed, or, so long as Parent has made a determination that there exists reasonable evidence that such amount will in fact be paid or reimbursed by the insurer and only to the extent that such payment or reimbursement (or coverage therefor) has not been denied by the applicable carrier in writing and is in fact paid or reimbursed within 365 days of the date of the incurrence of such expense, charge or loss;
(x) non-recurring cash charges incurred during such period in respect of restructurings, retention, recruiting, relocation, signing and completion bonuses, business process optimizations, project start-up costs, headcount reductions or other similar actions, including severance charges in respect of employee terminations and related employee replacement costs, in an amount not to exceed, when combined with the aggregate amount to be added to Consolidated EBITDA pursuant to clause (a)(xi) below for such period, 10% of Consolidated EBITDA (calculated without giving effect to this clause (a)(x) or such clause (a)(xi)) for such period;
(xi) (A) restructuring, integration, transition, consolidation and closing costs for facilities, or similar charges incurred during such period in connection with any Specified Transaction, and (B) the amount of cost savings and operating expense reductions, other operating improvements and synergies projected by Parent in good faith to be realized in connection with any Specified Transaction or the implementation of an operational initiative or operational change (calculated on a Pro Forma Basis as though such cost savings, operating expense reductions, other operating improvements and synergies had been realized on the first day of such period and as if such cost savings, operating expense reductions, other operating improvements and synergies were realized during the entirety of such period), net of the amount of actual benefits realized during such period from such actions; provided that a duly completed certificate signed by a Financial Officer of Parent shall be delivered to the Agent together with the Compliance Certificate required to be delivered pursuant to Section 5.04(c), certifying that such cost savings, operating expense reductions, other operating improvements and synergies are factually supportable and reasonably anticipated to be realized in the good faith judgment of Parent, within 18 months after the consummation of the applicable Specified Transaction or the
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implementation of an initiative, which is expected to result in such cost savings, expense reductions, other operating improvements or synergies; in an amount not to exceed, when combined with the aggregate amount to be added to Consolidated EBITDA pursuant to clause (a)(x) above for such period, 10% of Consolidated EBITDA (calculated without giving effect to this clause (a)(xi) or such clause (a)(x)) for such period;
(xii) [intentionally omitted];
(xiii) any expense, loss or charge during such period resulting from the resolution (by way of judgment, settlement or otherwise) of (A) any litigation to which Parent or a Subsidiary is a party or governmental investigation of which Parent or a Subsidiary is the subject, in either case, as of the Closing Date and (B) any product liability claims arising after the Closing Date;
(xiv) all losses during such period resulting from the sale or disposition of any assets of, in each case, Parent or any Subsidiary outside the ordinary course of business;
(xv) all losses during such period resulting from the discontinuation of any operations of Parent or any Subsidiary to the extent permitted or required under Regulation S-X;
(xvi) earn-out and contingent consideration obligations (including to the extent accounted for as bonuses or otherwise) and adjustments thereof during such period;
(xvii) the amount of any expense or reduction of Consolidated Net Income consisting of Subsidiary income that is attributable to minority interests or non-Controlling interests held by third parties in any Subsidiary during such period; and minus
(b) without duplication and to the extent not deducted in determining such Consolidated Net Income, the sum of:
(i) all cash payments made during such period on account of reserves, restructuring charges (other than restructuring charges in amounts specified in clauses (a)(x) and (a)(xi) above) and other non-cash charges added to Consolidated Net Income pursuant to clause (a)(vi) above in a previous period;
(ii) any extraordinary gains for such period;
(iii) all non-cash items of income for such period, including with respect to unrealized gains on foreign currency translation;
(iv) all gains during such period resulting from the sale or disposition of any assets of, in each case, Parent or any Subsidiary outside the ordinary course of business;
(v) all gains during such period resulting from the discontinuation of any operations of Parent or any Subsidiary to the extent permitted or required under Regulation S-X; and
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(vi) any gains on extinguishment of debt during such period; and plus
(c) without duplication, the sum of:
(i) all cash receipts (or any netting arrangements resulting in reduced cash expenditures) not representing Consolidated EBITDA or Consolidated Net Income in any prior period to the extent non-cash gains relating to such income were deducted in the calculation of Consolidated EBITDA pursuant to clause (b) above for any previous period and not subsequently added-back; and
(ii) to the extent not representing Consolidated EBITDA or Consolidated Net Income in any prior period the proceeds of business interruption insurance (to the extent constituting compensation for lost earnings) actually paid or reimbursed, or, so long as Parent has made a determination that there exists reasonable evidence that such amount will in fact be paid or reimbursed by the insurer and only to the extent that such payment or reimbursement (or coverage therefor) has not been denied by the applicable carrier in writing and is in fact paid or reimbursed within 365 days of the date of the claim therefor.
For the avoidance of doubt, to the extent included in Consolidated Net Income, any impact of purchase accounting adjustments (fair value accounting) shall be excluded in determining Consolidated EBITDA.
“Consolidated Net Income” shall mean, for any period, the net income or loss of Parent and Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income of any Subsidiary to the extent and for so long that the declaration or payment of dividends or similar distributions by such 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 Subsidiary; provided, further, that any net income of a Subsidiary shall be included in determining Consolidated Net Income to the extent cash in an amount equal to such income has actually been received by Parent in such period, (b) the income or loss of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with Parent or any Subsidiary or the date that such Person’s assets are acquired by Parent or any Subsidiary (except to the extent required for any calculation of Consolidated EBITDA on a Pro Forma Basis), (c) the income of any Person in which any other Person (other than Parent or a Subsidiary or any director or local foreign national 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 Parent or a Wholly Owned Subsidiary by such Person during such period and (d) the purchase accounting effects of adjustments in component amounts required or permitted by GAAP (including in the inventory, property and equipment, software, goodwill, intangible assets, in-process research and development, deferred revenue and debt line items thereof) and related authoritative pronouncements (including the effects of such adjustments pushed down to Parent and its Subsidiaries), as a result of the Transactions or any Specified Transaction consummated prior to or after the Closing Date, or the amortization or write-off of any amounts thereof.
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“Consolidated Total Assets” shall mean, at any date of determination, the net book value of all assets of Parent and Subsidiaries determined on a consolidated basis in accordance with GAAP on such date, as shown on the most recent consolidated balance sheet of Parent delivered pursuant to Section 5.04(a) or 5.04(b), as the case may be (it being understood that the calculation of Consolidated Total Assets shall be determined after giving pro forma effect to any acquisitions or dispositions of assets since the date of such balance sheet and on or prior to such date of determination).
“Contra Claim” shall have the meaning assigned to such term in clause (k) of the definition of “Eligible Receivables”.
“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.
“Copyrights” shall have the meaning assigned to such term in the definition of “Intellectual Property”.
“Covenant Compliance Period” shall mean any period (a) commencing on the date on which Excess Availability is less than the greater of, for 10 consecutive Business Days, (i) 15% of the Line Cap and (ii) $3,000,000 and (b) ending on the first date thereafter on which Excess Availability has been equal to or in excess of, for 30 consecutive days, the greater of (i) 15% of the Line Cap, and (ii) $3,000,000.
“Credit Event” shall have the meaning assigned to such term in Section 4.01.
“Credit Facilities” shall mean the revolving credit, swingline and letter of credit facilities provided for by this Agreement.
“Cure Amount” shall have the meaning assigned to such term in Section 6.11(c).
“Cure Right” shall have the meaning assigned to such term in Section 6.11(c).
“Cure Standstill Period” shall have the meaning assigned to such term in Section 6.11(c).
“Customer” shall mean and include the account debtor with respect to any Receivable and/or the prospective purchaser of goods, services or both with respect to any contract or contract right, and/or any party who enters into or proposes to enter into any contract or other arrangement with any Borrower, pursuant to which such Borrower is to deliver any personal property or perform any services.
“Debtor Relief Laws” shall mean the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief statute, law, ordinance, rule or
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regulation of the United States of America, any state thereof or the District of Columbia, or other applicable jurisdictions from time to time in effect.
“Deemed Borrowing Base” shall mean (a) from the Closing Date up to the date which is 120 days from the Closing Date, $15,000,000, and (b) from and after the date which is 120 days from the Closing Date (or such later date as Agent may elect in its sole discretion), $0.
“Default” shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default.
“Default Rate” shall mean an interest rate equal to, (a) with respect to any overdue principal and interest, the applicable interest rate plus 2.00% per annum and (b) with respect to any overdue fees, the interest rate applicable to ABR Loans plus 2.00% per annum, in each case, to the fullest extent permitted by applicable laws.
“Defaulting Lender” shall mean any Revolving Credit Lender (a) that has defaulted in its obligation to make a Revolving Loan or to fund its participation in a Letter of Credit or Swingline Loan required to be made or funded by it hereunder, within two Business Days of the date on which it shall have been required to fund the same, unless the subject of a good faith dispute between Borrowers and such Revolving Credit Lender related hereto, (b) that has notified Agent, any Issuing Bank, the Swingline Lender or any other Lender, or a Loan Party in writing that it does not intend to satisfy any obligation referred to in clause (a) above, 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 agreements in which it commits to extend credit generally unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable Default, shall be specifically identified in such writing or public statement) cannot be satisfied, (c) that has failed, within three Business Days after written request by Agent or the Administrative Loan Party, to confirm in writing to Agent and the Administrative Loan Party that it will comply with its prospective funding obligations hereunder (provided that such Revolving Credit Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by Agent and the Administrative Loan Party) or (d) has, or has a direct or indirect parent company that has, after the Closing Date (or prior to the Closing Date if any such circumstance is continuing on the Closing Date), (i) become insolvent, (ii) become the subject of a proceeding under any Debtor Relief Law, (iii) 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 (iv) become the subject of a Bail-In Action; provided that a Revolving Credit Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Revolving Credit 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 Revolving Credit 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
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Revolving Credit Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Revolving Credit Lender. Any determination by Agent that a Revolving Credit Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error.
“Designated Subleased Equipment” shall mean any Equipment which is (a) leased by a Loan Party from a Person that is not an Affiliate of a Loan Party, (b) subleased by such Loan Party, in the ordinary course of business, to a Person that is not an Affiliate of a Loan Party pursuant to the terms and provisions of a Designated Subleased Equipment Lease, and (c) the lease referenced in clause (a) above grants the Designated Subleased Equipment Lessor with a Lien in the sublease referenced in clause (b) above.
“Designated Subleased Equipment Lease” shall mean any written lease agreement between a Loan Party, as sublessor, and a Person that is not an Affiliate of a Loan Party, as sublessee, which leases to such Person Designated Subleased Equipment, provided that such lease shall only constitute a Designated Subleased Equipment Lease if the applicable Loan Party has directed the sublessee that all lease payments required to be paid thereunder shall be made to the Designated Subleased Equipment Designated Account.
“Designated Subleased Equipment Lessor” shall mean a Person that is not an Affiliate of a Loan Party which leases Designated Subleased Equipment to a Loan Party.
“Designated Subleased Equipment Designated Account” shall mean a Deposit Account (as such term is defined in the Guarantee and Collateral Agreement) of a Loan Party into which payments from customers pursuant to a Designated Subleased Equipment Lease are remitted.
“Designated Subsidiary” shall have the meaning assigned to such term in Section 5.12(d).
“Dilution” shall mean, as of any date of determination, a percentage, based upon the experience of the immediately prior twelve (12) months, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances, credits or other dilutive items with respect to Borrowers’ Eligible Accounts during such period, by (b) Borrowers’ billings with respect to Eligible Accounts during such period.
“Dilution Reserve” shall mean, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Receivables by the extent to which Dilution is in excess of 5%.
“Disqualified Institution” shall mean (a) any Person identified by the Administrative Loan Party to Agent in writing on or before the Closing Date, (b) any Person that is a named Affiliate of a Person identified pursuant to the preceding clause (a) that is identified by the Administrative Loan Party to Agent in writing from time to time after the Closing Date, (c), any Person that is reasonably identifiable as an Affiliate of a Person identified pursuant to the preceding clause (a) or (b) solely on the basis of its name, which such Affiliates of such Persons
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may (but need not be) be identified by the Administrative Loan Party to Agent in writing from time to time after the Closing Date, and (d) any Person identified by the Administrative Loan Party to Agent in writing from time to time after the Closing Date as a commercial competitor of any Loan Party, other than any Persons primarily engaged as principals in private equity or venture capital or any affiliated debt fund thereof (other than a natural person) that is primarily engaged in making, purchasing, holding or otherwise investing in commercial loans, bonds and similar extensions of credit in the ordinary course; provided that any supplement to such list of Disqualified Institutions will become effective two Business Days after delivery of such designation to Agent and in no event shall a supplement apply retroactively to disqualify (i) any Lender or participant as of the date of such supplement or (ii) any assignee party to an Assignment or Assumption that was executed prior to the date of such supplement. Notwithstanding the foregoing, each Loan Party and each Subsidiary and the Lenders acknowledge and agree that Agent shall not have any responsibility or obligation to determine whether any Lender or potential Lender or participant or potential participant is a Disqualified Institution and Agent shall have no liability in connection with maintaining, updating, monitoring or enforcing the list of Disqualified Institutions or with respect to any assignment or participation made or purported to be made to a Disqualified Institution. Loan Parties hereby expressly authorize Agent to post via the Platform the list of Disqualified Institutions (as updated from time to time) to all Lenders and to provide such list to individual Lenders upon request therefor.
“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 at any time on or prior to the first anniversary of the Revolving Credit Maturity Date, or (b) is convertible into or exchangeable (unless 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 first anniversary of the Revolving Credit Maturity Date.
“Distribution Conditions” shall mean, as to any relevant action contemplated in this Agreement, that:
(a) there is no Event of Default existing and continuing or would immediately result from such action;
(b) Excess Availability on a Pro Forma Basis immediately after giving effect to such action and Thirty-Day Excess Availability on a Pro Forma Basis ending on the date of such action, in each case, is at least the greater of (i) 17.5% of the Line Cap and (ii) $4,000,000; and
        (c) if Excess Availability on a Pro Forma Basis immediately after giving effect to such action and Thirty-Day Excess Availability on a Pro Forma Basis ending on the date of such action is less than 20.0% of the Line Cap, the Fixed Charge Coverage Ratio would be at least 1.00:1.00 on a Pro Forma Basis.
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“Dollars” or “$” shall mean lawful money of the United States of America.
“Domestic Subsidiary” shall mean any Subsidiary incorporated or organized under the laws of the United States of America, any state thereof or the District of Columbia.
“Dry Sand Inventory” shall mean any above-ground sand Inventory which has been dried and screened to final size and no longer constitutes Wet Sand Inventory.
“Eligible Assignee” shall mean (a) a Revolving Credit Lender, (b) an Affiliate of a Revolving Credit Lender, (c) a Related Fund of a Revolving Credit Lender and (d) any other Person approved by Agent, the Swingline Lender, each Issuing Bank and the Administrative Loan Party in accordance with (and to the extent required by) Section 9.04(b); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include (i) any natural Person, (ii) Borrowers or any of Borrowers’ Affiliates or (iii) so long as (A) no Event of Default under Section 7.01(b) or 7.01(c) has occurred and is continuing for a period of five Business Days, (B) no Event of Default under Section 7.01(g) or 7.01(h) has occurred and is continuing or (C) the Commitments have not been terminated and the Loans have not become due and payable pursuant to Section 7.01, a Disqualified Institution.
“Eligible Canadian Receivables” shall have the meaning assigned to such term in clause (g) of the definition of “Eligible Receivables”.
“Eligible Inventory” shall mean, as to each Borrower, Inventory of such Borrower consisting of above-ground sand which is Wet Sand Inventory or Dry Sand Inventory that is not excluded as ineligible by virtue of one or more of the excluding criteria set forth below. Eligible Inventory shall not include:
(1)any Inventory other than Wet Sand Inventory or Dry Sand Inventory;
(2)spare parts for Equipment (it being understood that parts held for sale in their current condition will not be deemed spare parts for purposes of this clause (b));
(3)packaging and shipping materials;
(4)supplies used or consumed in such Borrower’s business;
(5)Inventory at premises other than those owned, leased or controlled by any Loan Party, except for (i) Inventory in transit between locations of the Loan Parties and Subsidiaries, (ii) Inventory shipped F.O.B. Customer and for which title has not yet transferred, (iii) and Inventory at, or in transit to, a third-party terminal for purposes of spot sales, so long as such Inventory is transported and stored on Equipment owned, leased or controlled by a Loan Party or Subsidiary;
(6)Inventory subject to a Lien in favor of any Person other than Agent and any other liens permitted under this Agreement that are subject to an intercreditor agreement in form and substance satisfactory to Agent between the holder of such Lien and Agent;
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(7)bill and hold goods;
(8)obsolete or slow moving Inventory (with inventory that has not been sold after a period of more than twelve (12) months being deemed to be obsolete or slow moving for this purpose);
(9)Inventory that is not subject to the first priority, valid and perfected Lien of Agent;
(10)returned Inventory that is not saleable and held for sale in the ordinary course of business,
(11)damaged and/or defective Inventory;
(12)Inventory purchased or sold on consignment;
(13)Inventory located outside the United States of America; and
(14)Inventory otherwise deemed ineligible by Agent in its Permitted Discretion based on circumstances or criteria not set forth above based on either: (A) an event, condition, fact or other circumstance arising after the date hereof, or (B) an event, condition, fact or other circumstance existing on the date hereof to the extent Agent has no written notice thereof prior to the date hereof, in either case under clause (A) or (B) which adversely affects in any material respect or could reasonably be expected to adversely affect in any material respect the Value of the Inventory.
Notwithstanding anything to the contrary contained herein, the maximum amount of Eligible Inventory consisting Wet Sand Inventory which may be considered Eligible Inventory shall not exceed, as of any given date, the sum of (i) the amount of Wet Sand Inventory necessary for the Borrowers to fulfill Customer contracts and spot sales for the 6 month period immediately following such date (with such amount being calculated based on the Borrowers’ historical sales activity for the six month period immediately preceding the Closing Date and such amount being recalculated as of the end of each calendar quarter thereafter based upon historical sales activity for the six consecutive month period ending on the last day of such calendar quarter), less (ii) the amount of the Borrowers’ Dry Sand Inventory determined as of such date.
Any Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral. Unless an Event of Default exists and is continuing (in which case no notice shall be required and any changes shall take effect immediately), Agent shall provide the Administrative Loan Party with prompt notice of any change new criteria established pursuant to clause (n) above, which changed or new criteria shall become effective no earlier than the fifth Business Day following delivery of such notice.
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“Eligible Receivables” shall mean and includes each Receivable of a Borrower arising in the ordinary course of business that is not excluded as ineligible by virtue of one or more of the excluding criteria set forth below. No Receivable shall be an Eligible Receivable if:
(1)it does not arise from the actual and bona fide rental, lease or sale and delivery of goods or rendition of services by such Borrower in the ordinary course of business of such Borrower, which transactions are completed in accordance in all material respects with the terms and provisions contained in any agreement binding on such Borrower or the other party or parties thereto;
(2)it is due or unpaid more than the earlier of 90 days after the original due date and 120 days after the original invoice date;
(1)it is owed by a Customer who has Receivables unpaid more than the earlier of (i) 90 days after the original due date and (ii) 120 days after the original invoice date, which unpaid Receivables constitute more than 25% of the total Receivables of such Customer;
(2)it is not subject to the first priority, valid and perfected Lien of Agent;
(3)any covenant, representation or warranty contained in this Agreement with respect to such Receivable has been breached in any material respect;
(4)the Customer shall apply for, suffer, or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, administrator or liquidator of itself or of all or a substantial part of its property or call a meeting of its creditors, admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its business, make a general assignment for the benefit of creditors, commence a voluntary case under any Insolvency Law, be adjudicated a bankrupt or insolvent, file a petition seeking to take advantage of any other law providing for the relief of debtors, acquiesce to, or fail to have dismissed, any petition which is filed against it in any involuntary case under such Insolvency Law or take any action for the purpose of effecting any of the foregoing;
(5)the sale is to a Customer located or incorporated (or other analogous term) outside the United States (collectively, “Foreign Customers”), except for a Foreign Customer that is acceptable in all respects to Agent in its Permitted Discretion which is located or incorporated in Canada or any province thereof (“Eligible Canadian Receivables”); provided that, the maximum aggregate amount of Eligible Canadian Receivables which may be considered eligible under this clause (g) shall not exceed 25% of all otherwise Eligible Receivables (but the portion of the Receivables not in excess of such percentage may be deemed Eligible Receivables);
(6)the sale to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase, return or contingent or conditional basis or is evidenced by chattel paper;
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(7)Receivables with respect to which the Customer is either (i) the United States or any department, agency, or instrumentality of the United States, or (ii) any state of the United States or any other Governmental Authority;
(8)the goods giving rise to such Receivable have not been made available to the Customer in accordance with the terms of any applicable rental or lease agreement, or shipped and delivered to and accepted by the Customer or the services giving rise to such Receivable have not been performed by such Borrower and accepted by the Customer (such as advanced billings) or the Receivable otherwise does not represent a final sale;
(9)the Receivable is subject to any offset, deduction, defense, dispute, or counterclaim, the Customer is also a creditor or supplier of such Borrower or the Receivable is contingent in any respect or for any reason (each such offset, deduction, defense, dispute, counterclaim or contingency, a “Contra Claim”); provided, that, such Receivables shall only be ineligible pursuant to this clause (k) to the extent of the aggregate amount of such Contra Claims;
(10)such Borrower has made any agreement with any Customer for any deduction therefrom, but only to the extent of such deductions, except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto;
(11)Receivables with respect to which the Customer is subject to a proceeding commenced by or against it under any provision of any Debtor Relief Law, is not Solvent, has gone out of business, or as to which the Borrower or any Loan Party has received notice of an imminent proceeding commenced by or against it under any provision of any Debtor Relief Law, or a material impairment of the financial condition of such Customer;
(12)any return, rejection or repossession of any asset has occurred the sale of which gave rise to such Receivable or such Receivable relates to a Customer whose obligation to pay is in any respect, conditional or subject to any such right of return, rejection, repossession or similar rights;
(13)such Receivable is not payable to a Borrower;
(14)(i) in the case of any single Customer and its Affiliates, such Receivables constitute more than 50% of all otherwise Eligible Receivables (but the portion of the Receivables not in excess of such percentage may be deemed Eligible Receivables); and (ii) in the case of any two Customers and their Affiliates, such Receivables constitute, in the aggregate, more than 75% of all otherwise Eligible Receivables (but the portion of the Receivables not in excess of such percentage may be deemed Eligible Receivables);
(15)such Receivable consists of progress billings (such that the obligation of the Customer with respect to such Receivable is conditioned upon such Borrower’s satisfactory completion of any further performance under the agreement giving rise thereto), bill and hold invoices or retainage invoices, except as to bill and hold invoices, if Agent shall have received an
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agreement in writing from the Customer, in form and substance reasonably satisfactory to Agent, confirming the unconditional obligation of the Customer to take the goods related thereto and pay such invoice;
(16)the Customer or any officer or employee of the Customer with respect to such Receivable is an officer, employee, agent or other Affiliate of any Borrower or any other Subsidiary of any Loan Party;
(17)such Receivable is subject to any factoring or similar agreement;
(18)the underlying sale and other documentation governing such Receivable do not provide that such Receivable must be paid by the Customer in Dollars;
(19)the underlying sale and other documentation governing such Receivable are not governed by the laws of the United States or any state thereof;
(20)any surety or performance bond supports the performance of the applicable Borrower’s obligations relating to the transactions giving rise to such Receivables; or
(21)such Receivable is otherwise deemed ineligible by Agent in its Permitted Discretion based on circumstances or criteria not set forth above based on either: (A) an event, condition, fact or other circumstance arising after the date hereof, or (B) an event, condition, fact or other circumstance existing on the date hereof to the extent Agent has no written notice thereof prior to the date hereof, in either case under clause (A) or (B) which adversely affects in any material respect or could reasonably be expected to adversely affect in any material respect the value of the Receivable.
Any Receivables which are not Eligible Receivables shall nevertheless be part of the Collateral. Unless an Event of Default exists and is continuing (in which case no notice shall be required and any changes shall take effect immediately), Agent shall provide the Administrative Loan Party with prompt notice of any new criteria established pursuant to clause (o) above, which new criteria shall become effective no earlier than the fifth Business Day following delivery of such notice.
“Eligible Unbilled Receivables” shall mean any Receivable of a Loan Party which would otherwise constitute an Eligible Receivable other than that an invoice or bill has not been delivered with respect thereto for a period of no more than 30 days after the last day of the calendar month in which such Loan Party has shipped the goods giving rise to such Receivable or performed the services giving rise to such Receivable; provided that in no event shall Eligible Unbilled Receivables include any Receivables to the extent consisting of award fees, provisional payments or retainage payments.
“Environmental Laws” shall mean all Federal, state, local and foreign laws (including common law), treaties, regulations, rules, ordinances, codes, decrees, judgments, directives and orders (including consent orders), in each case, relating to protection of the environment, natural resources, human health and safety, or the presence, Release of or exposure to, Hazardous
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Materials, or the generation, manufacturing, processing, distribution, use, treatment, storage, transport, recycling 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, expenses and costs (including administrative oversight costs, natural resource damages and remediation costs), whether contingent or otherwise, arising out of or relating to (a) compliance or non-compliance with any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of, or exposure to any Hazardous Materials, (c) the Release of any Hazardous Materials or (d) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Cure” shall have the meaning assigned to such term in Section 6.11(c)(ii)(B).
“Equity Cure Testing Period” shall have the meaning assigned to such term in Section 6.11(c).
“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 (other than Indebtedness that is convertible into, or exchangeable for, any such equity interest) entitling the holder thereof to purchase or otherwise acquire any such equity interest.
“Equity Issuance” shall mean any issuance or sale by Parent or any of Subsidiaries of any Equity Interests of Parent or any such Subsidiary, as applicable, except in each case (a) any issuance or sale to Parent or any Subsidiary, (b) any issuance of directors’ qualifying shares and, in the case of a Foreign Subsidiary, nominal amounts of shares required by applicable law to be issued to local nationals and (c) sales or issuances of common stock of Parent (or options, warrants or rights to purchase shares of common stock of Parent) to officers, directors or employees of Parent or any Subsidiary under any employee stock option or stock purchase plan or other employee benefit plan in existence from time to time.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.
“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that, together with Parent, is treated as a single employer under Section 414(b) or 414(c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“ERISA Event” shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day notice period is waived), (b) the failure to meet the minimum funding standard of Section 412 of the Code with respect to any Plan (whether or not waived in accordance with Section 412(c) of the Code) or the failure to make by its due date a required installment under
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Section 430(j) of the Code with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan, (c) the filing pursuant to Section 412(c) of the Code or Section 302(b) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan, (d) the incurrence by Parent, any of Subsidiaries 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 Parent, any of Subsidiaries or any of their ERISA Affiliates from any Plan or Multiemployer Plan, (e) the receipt by Parent, any of Subsidiaries or any of their ERISA Affiliates from the PBGC of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan, (f) the imposition of a lien pursuant to Section 430(k) of the Code or ERISA or a violation of Section 436 of the Code, (g) the receipt by Parent, any of Subsidiaries or any of their ERISA Affiliates of any notice (not issued in error), concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent (within the meaning of Section 4245 of ERISA) or in reorganization (within the meaning of Section 4241 of ERISA), (h) the occurrence of a non-exempt prohibited transaction within the meaning of Section 4975 of the Code that would subject any Parent or any of Subsidiaries to a tax on prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of the Code or (i) the imposition of liability on Parent, any of Subsidiaries or any of their ERISA Affiliates pursuant to Sections 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA.
“Eurodollar”, when used in reference to any Loan or Borrowing, shall mean that such Loan, or the Loans comprising such Borrowing, bears or bear interest at a rate determined by reference to the Adjusted LIBO Rate.
“Events of Default” shall have the meaning assigned to such term in Section 7.01.
“Excess Availability” shall mean, as of any date of determination, an amount equal to (a) the Line Cap as of such date minus (b) the Aggregate Revolving Credit Exposure as of such date.
“Exchange Act” shall mean the Securities Exchange Act of 1934.
“Excluded Domestic Holdco” shall mean a Domestic Subsidiary, substantially all of the assets of which consist of Equity Interests of one or more Excluded Foreign Subsidiaries, which has not guaranteed or pledged any of its assets to secure, or with respect to which there shall not have been pledged two-thirds or more of the voting Equity Interests to secure, any Indebtedness (other than the Loans) of a Loan Party that is a United States person within the meaning of Section 7701(a)(30) of the Code.
“Excluded Domestic Subsidiary” shall mean any Domestic Subsidiary that is (a) a direct or indirect Subsidiary of an Excluded Foreign Subsidiary or (b) an Excluded Domestic Holdco.
“Excluded Foreign Subsidiary” shall mean a Foreign Subsidiary which is (a) a “controlled foreign corporation” (as defined in the Code) that has not guaranteed or pledged any of its assets to secure, or with respect to which there shall not have been pledged two-thirds or
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more of its voting Equity Interests to secure, any Indebtedness (other than the Loans) of a Loan Party that is a United States person within the meaning of Section 7701(a)(30) of the Code, (b) a direct or indirect Foreign Subsidiary owned by a Foreign Subsidiary described in clause (a), or (c) a Foreign Subsidiary that has no material assets other than Equity Interests of one or more Subsidiaries described in clause (a).
“Excluded Subsidiary” shall mean (a) any Subsidiary (i) that is prohibited or restricted by applicable law, rule or regulation or by contract existing on the Closing Date (or, in the case of any newly acquired Subsidiary, in existence at the time of acquisition but not entered into in contemplation thereof) from guaranteeing the Obligations or (ii) if guaranteeing the Obligations would require governmental (including regulatory) consent, approval, license or authorization (unless such consent, approval, license or authorization has been obtained), (b) any Excluded Domestic Subsidiary or Excluded Foreign Subsidiary to the extent a guaranty of the Obligations by such Excluded Domestic Subsidiary or Excluded Foreign Subsidiary could reasonably be expected to result in material adverse tax consequences to Parent under Section 956 of the Code or any similar Law in any applicable jurisdiction, as reasonably determined by Parent, and (c) any other Subsidiary with respect to which, in the reasonable judgment of the Agent in consultation with Parent, the burden or cost of providing a Guarantee and complying with the other requirements of Section 5.12(c) shall be excessive in view of the benefits to be obtained by the Lenders therefrom.
“Excluded Swap Obligation” shall mean, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.
“Excluded Taxes” shall mean, with respect to Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of Borrowers hereunder, (a) income, franchise or branch profits Taxes imposed on (or measured by) its net income (however denominated), in each case, (i) imposed by the United States of America, or by the jurisdiction (or political subdivision) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located or (ii) imposed by reason of any present or former connection between the recipient and the jurisdiction imposing the Tax (other than connections arising from the execution, delivery, performance, filing, recording and enforcement of, and the other activities pursuant to or enforced in this Agreement and the other Loan Documents), (b) any United States Federal withholding Tax imposed by FATCA, (c) in the case of a Lender (other than an assignee
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pursuant to a request by the Administrative Loan Party under Section 2.21(a)), any withholding Tax that is imposed on amounts payable to such Lender under the law in effect at the time such Lender becomes a party to this Agreement (or designates a new lending office), except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from Borrowers with respect to such withholding Tax pursuant to Section 2.20(a), and (d) any Taxes imposed as a result of or attributable to such Lender’s failure to comply with Section 2.20(f), 2.20(g) or 2.20(h).
“Existing Credit Agreement” shall mean that certain Credit Agreement, dated as of December 8, 2016, among Parent, the financial institutions from time to time party thereto, and Jefferies Finance LLC, as administrative agent, as amended.
“Fair Market Value” shall mean, with respect to any asset or group of assets on any date of determination, the value of the consideration obtainable in a sale of such asset at such date of determination assuming a sale by a willing seller to a willing purchaser dealing at arm’s length and arranged in an orderly manner over a reasonable period of time taking into account the nature and characteristics of such asset, as reasonably determined by the Administrative Loan Party in good faith.
“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) and any current or future regulations thereunder or official governmental interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code and any laws, rules or regulations implementing any intergovernmental agreements entered into with respect to the foregoing.
“Federal Funds Effective Rate” shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by Agent from three Federal funds brokers of recognized standing selected by it; provided that if the Federal Funds Effective Rate shall be less than zero, such rate shall be deemed to be zero for purposes of the Agreement.
“Fees” shall mean the Commitment Fee, Agent Fees, the L/C Participation Fee, and the Issuing Bank Fees.
“Financial Officer” of any Person shall mean the chief financial officer, principal accounting officer, treasurer or controller of such Person.
“Fixed Charge Coverage Ratio” shall mean, for any Test Period, the ratio of (a) Consolidated EBITDA for such Test Period minus, without duplication, (i) all taxes based on income, profits or capital gains, including federal, state, foreign, local, franchise and similar taxes and foreign withholding taxes, including penalties and interest related to such taxes or arising from any tax examinations, in each case paid or required to be paid in cash during such
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Test Period, plus all cash tax refunds to the extent not included in Consolidated EBITDA, minus (ii) the aggregate amount of Unfinanced Capital Expenditures made in cash during such Test Period, and (iii) all Restricted Payments paid in cash pursuant to Sections 6.06(a)(ii), 6.06(a)(iv), 6.06(a)(v), 6.06(a)(vi) and 6.06(a)(vii) during such Test Period, to (b) the sum of (i) cash interest expense determined in accordance with GAAP and (ii) regularly scheduled amortization payments on Indebtedness of the types described in clauses (a), (b) and (d) of the definition of “Indebtedness”.
“Foreign Customer” shall have the meaning assigned to such term in clause (g) of the definition of “Eligible Receivables”.
“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 (a) any Issuing Bank, such Defaulting Lender’s Pro Rata Percentage of the aggregate L/C Exposure at such time, other than L/C Exposure as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms of Section 2.23(j) or 2.23(k), and (b) with respect to the Swingline Lender, such Defaulting Lender’s Pro Rata Percentage of the aggregate Swingline Exposure at such time other than Swingline Exposure as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders in accordance with the terms of Section 2.22(d) or 2.22(e).
“GAAP” shall mean United States generally accepted accounting principles as in effect from time to time and applied on a basis consistent with the audited financial statements of Parent for its fiscal year ended December 31, 2018 delivered pursuant to Section 4.02(h) (but otherwise subject to Section 1.02).
“Governmental Authority” shall mean any Federal, state, local, foreign or supranational court or governmental agency, authority, instrumentality or regulatory body (including any group or body charged with setting financial accounting or regulatory capital rules or standards (including the Financial Accounting Standards Board, the Bank for International Settlements or the Basel Committee on Banking Supervision or any successor or similar authority to any of the foregoing)).
“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, however, that
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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 among Loan Parties and Agent for the benefit of the Secured Parties.
“Guarantor” or “Guarantors” shall have the meaning set forth in the preamble to this Agreement and shall extend to all permitted successors and assigns of such Persons as well as (a) other Person that becomes a Subsidiary Guarantor of any of the Obligations after the Closing Date pursuant to the Guarantee and Collateral Agreement or otherwise and (b) each Borrower in its capacity as a guarantor of the Bank Product Obligations of any Loan Party.
“Hazardous Materials” shall mean 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 any chemical, material, substance or waste that is prohibited, limited, defined or regulated by or pursuant to any Environmental Law.
“Hedging Agreement” shall mean (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, currency swap transactions, cross-currency rate swap transactions, currency options, cap transactions, floor transactions, collar transactions, spot contracts, futures contracts or other liabilities for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract or any other similar transactions or any combination of any of the foregoing (including any options or warrants to enter into any of the foregoing), whether or not any such transaction is governed by, or otherwise subject to, any master agreement or any netting agreement, and (b) any and all transactions or arrangements of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement (or similar documentation) published from time to time by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such agreement or documentation, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement; provided that “Hedging Agreement” shall not include any fixed price or similar commodity contract entered into in the ordinary course of business by any Loan Party or Subsidiary in connection with the provision of commodities used in such Loan Party’s or Subsidiary’s business.
“Hedging Obligations” shall mean obligations under or with respect to Hedging Agreements.
“Hedging Termination Value” shall mean, in respect of any one or more Hedging Agreements, after taking into account the effect of any netting agreements relating to such Hedging Agreements (to the extent, and only to the extent, such netting agreements are legally
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enforceable in any bankruptcy, insolvency, receivership or other similar proceeding against the applicable counterparty obligor thereunder), (a) for any date on or after the date such Hedging Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in preceding clause (a), the amount(s) determined as the mark-to-market value(s) for such Hedging Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedging Agreements (which may include an Agent, a Lender or any Affiliate of an Agent or a Lender).
“Immaterial Subsidiary” shall mean (subject to Section 5.12), as of any date of determination, any Subsidiary that is not a Borrower: (i) whose total assets (on a consolidated basis including its Subsidiaries) as of the last day of the most recently ended period for which financial statements have been delivered pursuant to Section 5.04(a) or 5.04(b) did not exceed 2.5% of Consolidated Total Assets as of such date, or (ii) whose gross revenues (on a consolidated basis including its Subsidiaries) for such period did not exceed 2.5% of the consolidated gross revenues of Parent and Subsidiaries for such period.
“Immaterial Subsidiary Thresholds” shall have the meaning assigned to such term in Section 5.12(d).
“Indebtedness” of any Person shall mean, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments representing extensions of credit, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person (excluding trade accounts payable and other accrued obligations, in each case incurred in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business) due more than six months from the date of incurrence or on a payment plan, (e) 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, but limited to the lower of (i) the Fair Market Value of such property and (ii) the amount of the Indebtedness so secured, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all Synthetic Lease Obligations of such Person, (i) all Bank Product Obligations under Hedging Agreements valued at the Hedging Termination Value thereof, (j) 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 equity interests, valued, in the case of redeemable preferred interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends if and to the extent that the foregoing would constitute indebtedness or a liability in accordance with GAAP, (k) all obligations of such Person as an account party in respect of letters of credit and (l) all obligations, contingent or otherwise, 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, to the extent such Person is liable therefor as a result of such Person’s
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ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness do not provide that such Person is liable therefor. Notwithstanding the foregoing, the term “Indebtedness” shall not include, for any Person, (i) in connection with any Specified Transaction, contingent postclosing purchase price adjustments, indemnification payments, earn-outs or other contingent payments until such purchase price adjustments, indemnification payments, earn-outs or other contingent payments become liabilities on the balance sheet of such Person in accordance with GAAP, (ii) obligations of such Person in respect of operating leases, or (iii) Royalty Obligations.
“Indemnified Taxes” shall mean Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation under any Loan Document.
“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.
“Intellectual Property” shall mean any and all intellectual property rights recognized under applicable law, whether arising under United States laws or otherwise, including without limitation, the following: (a) patents and applications therefor, including continuations, divisionals, continuations-in-part, renewals, extensions and supplemental protection certificates (collectively, “Patents”), (b) registered and unregistered trademarks, service marks, trade names, service names, trade dress rights and corporate names, together with the goodwill associated with any of the foregoing, and all applications, registrations and renewals thereof (collectively, “Trademarks”), (c) copyrights and registrations (including supplementary copyright registrations) and applications therefor, rights in original works of authorship (including copyrights in website content) and mask work rights (collectively, “Copyrights”), (d) rights in Internet domain names (including registrations therefor), (e) Software, (f) Trade Secrets, (g) moral rights, rights of privacy and rights of publicity, and (h) all rights to sue at law or in equity for any past, present or future infringement, misappropriation or other impairment in any of the foregoing, including the right to receive all proceeds and damages therefrom.
“Intercompany Note” shall mean a promissory note substantially in the form of Exhibit G.
“Interest Payment Date” shall mean (a) with respect to any ABR Loan (excluding any Swingline Loan), the last Business Day of each March, June, September and December, (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 and (c) with respect to any Swingline Loan, the date on which the principal of such Swingline Loan is due and payable pursuant to Section 2.04.
“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,
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2, 3 or 6 months thereafter (or such period shorter than 1 month that is acceptable to Agent in its sole discretion), as the Administrative Loan Party 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 Revolving Credit Maturity Date. 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.
“Internally Generated Cash” shall mean, with respect to any Person, funds of such Person and its Subsidiaries not constituting (a) proceeds of the issuance of (or contributions in respect of) Equity Interests of such Person, (b) proceeds of the incurrence of Indebtedness (other than the incurrence of Revolving Credit Loans or extensions of credit under any other revolving credit or similar facility) by such Person or any of its Subsidiaries or (c) proceeds of Asset Sales (or any other disposition of assets) and casualty or other insured damage to any property or asset of such Person.
“Inventory Appraisal” shall mean a Qualified Appraisal of Borrowers’ Inventory.
“Inventory Sublimit” shall mean an amount equal to the lesser of (a) 50% of the Borrowing Base calculated under clauses (a), (b)(ii) and (c) of the definition of “Borrowing Base”, and (b) 50% of the Total Revolving Credit Commitments.
“Issuing Bank” shall mean, as the context may require, (a) Agent, (b) any other Lender approved by Agent and the Administrative Loan Party that agrees to act as an Issuing Bank and (c) any other Lender that becomes an Issuing Bank pursuant to Section 2.23(i), 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 such 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. Jefferies Finance LLC will cause Letters of Credit to be issued by unaffiliated financial institutions and such Letters of Credit, which shall only be standby Letters of Credit, shall be treated as issued by Jefferies Finance LLC for all purposes under the Loan Documents. 
“Issuing Bank Fees” shall have the meaning assigned to such term in Section 2.05(c).
“Joinder Agreement” shall mean a joinder agreement substantially in the form of Exhibit I.
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“L/C Commitment” shall mean the commitment of each Issuing Bank to issue Letters of Credit pursuant to Section 2.23.
“L/C Disbursement” shall mean a payment or disbursement made by any 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 Borrowers 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.
“L/C Participation Fee” shall have the meaning assigned to such term in Section 2.05(c).
“Landlord Reserve” shall mean, as to each location at which a Loan Party has Eligible Inventory and as to which a Collateral Access Agreement has not been received by Agent, a reserve established by Agent in its Permitted Discretion in an amount equal to 3 months’ rent, storage charges, fees or other amounts under the lease or other applicable agreement relative to such location or, if greater and Agent so elects, the number of months’ rent, storage charges, fess or other amounts for which the landlord, bailee, warehouseman or other property owner will have, under applicable law, a Lien in such Eligible Inventory to secure the payment of such amounts under the lease or other applicable agreement relative to such location.
“LCT Election” shall mean the election by the Administrative Loan Party, on behalf of Loan Parties, to treat a specified acquisition or Permitted Investment as a Limited Condition Transaction.
“LCT Test Date” shall have the meaning assigned to such term in Section 1.07.
“Lead Arranger” shall mean Jefferies Finance LLC, in its capacity as the sole lead arranger and sole bookrunner for the Credit Facilities.
“Leaseholds” shall mean all the right, title and interest of Loan Parties or any Subsidiary as lessee, sublessee, franchisee or licensee in, to and under leases, subleases, franchises or licenses of land, improvements and/or fixtures.
“Legal Requirements” shall mean, as to any person, any treaty, law (including the common law), statute, ordinance, code, rule, regulation, guidelines, license, permit requirement, judgment, decree, verdict, order, consent order, consent decree, writ, declaration or injunction, policies and procedures, Order or determination of an arbitrator or a court or other Governmental Authority, and the interpretation or administration thereof, in each case applicable to or binding upon such person or any of its property or to which such person or any of its property is subject, in each case whether or not having the force of law.
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“Lender Group” shall mean each of the Lenders (including Issuing Bank and the Swing Lender) and Agent, or any one or more of them.
“Lenders” shall mean (a) the financial institutions and other persons party hereto as “Lenders” on the date hereof, and (b) each financial institution or other person that becomes a party hereto pursuant to an Assignment and Acceptance, other than, in each case, any such financial institution or person that has ceased to be a party hereto pursuant to an Assignment and Acceptance. Unless the context clearly indicates otherwise, the term “Lenders” shall include the Swingline Lender.
“Letter of Credit” shall mean any standby or commercial letter of credit issued pursuant to Section 2.23.
“LIBO Rate” shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate per annum determined by Agent at approximately 11:00 a.m., London, England time, on the second full Business Day preceding the first day of such Interest Period to be the offered rate that appears on the page of the Reuters Screen LIBOR01 (or any successor thereto), which displays the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person that takes over the administration of that rate) for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period; provided, however, that (a) if no comparable term for an Interest Period is available, the LIBO Rate shall be determined using the weighted average of the offered rates for the two terms most nearly corresponding to such Interest Period and (b) if Reuters Screen LIBOR01 shall at any time no longer exist, the “LIBO Rate” shall be, with respect to each day during each Interest Period pertaining to Eurodollar Loans comprising part of the same Borrowing, the rate per annum equal to the rate at which Agent is offered deposits in Dollars at approximately 11:00 a.m., London, England time, two (2) Business Days prior to the first day of such Interest Period in the London interbank market for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to its portion of the amount of such LIBOR Rate Loan to be outstanding during such Interest Period.

“License Fee Reserve Period” shall mean any period (a) commencing on the date on which Excess Availability is less than, for 10 consecutive Business Days, the greater of (i) 15% of the Line Cap and (ii) $3,000,000, and ending on the first date thereafter on which Excess Availability has been equal to or in excess of, for 10 consecutive Business Days, the greater of (i) 15% of the Line Cap, and (ii) $3,000,000 and no License Fee Reserve Period is otherwise in effect pursuant to clause (b) below, or (b) commencing on the date on which a Default or an Event of Default shall have occurred and ending on the first date thereafter on which no Default or Event of Default exists and no License Fee Reserve Period is otherwise in effect pursuant to clause (a) above.
“Lien” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, 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
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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.
“Limited Condition Acquisition Agreement” shall have the meaning assigned to such term in Section 1.07.
“Limited Condition Transaction” shall mean any Permitted Acquisition or permitted investment whose consummation is not conditioned on the availability of, or on obtaining, third party financing and subject to Section 1.07.
“Line Cap” shall mean, as of any date of determination, the lesser of (a) the Total Revolving Credit Commitments, and (b) the Borrowing Base as of such date of determination.
“Loan Documents” shall mean this Agreement, the Letters of Credit, the Security Documents, each Joinder Agreement, the Master Lease Facility Intercreditor Agreement, the promissory notes, if any, executed and delivered pursuant to Section 2.04(e), and any and all other agreements, instruments and documents, including, without limitation, guaranties, pledges, security agreements, mortgages, deeds of trust, debentures, control agreements, other collateral documents, Subordination Agreements, intercreditor agreements, powers of attorney, consents, and all other writings heretofore, now or hereafter executed and/or delivered by any Loan Party (including any officer or employee of any thereof) to Agent or any Lender in respect of the transactions contemplated by this Agreement, in each case, as such agreements, instruments and documents are amended, restated, modified or supplemented from time to time.
“Loan Parties” shall mean Borrowers and Guarantors.
“Loan Party Intellectual Property” shall have the meaning assigned to such term in Section 3.24.
“Loans” shall mean the Revolving Loans and the Swingline Loans.
“Mandatory Borrowing” shall have the meaning assigned to such term in Section 2.22(e).
“Margin Stock” shall have the meaning assigned to such term in Regulation U.
“Master Lease Facility Documents” shall mean Master Lease Agreement No. 105960 dated as of the date hereof, by and among Parent and Oakdale, as lessees, and Master Lease Facility Lessor, any Master Lease Schedule A now or hereafter executed and delivered in connection therewith, and all related addendums and supplementary documents thereunder.
“Master Lease Facility Intercreditor Agreement” shall mean that certain Lien Acknowledgement and Use Agreement, dated as of the date hereof, by and between Agent and the Master Lease Facility Lessor, and acknowledged by Parent and Oakdale.
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“Master Lease Facility Lessor” shall mean Consultants Group Commercial Funding Corporation, doing business as Nexseer Capital, and its successors and assigns.
“Material Adverse Effect” shall mean any (a) material adverse effect on the business, assets, financial condition or results of operations, in each case, of Loan Parties and Subsidiaries, taken as a whole, (b) material impairment on the rights and remedies (taken as a whole) of Agent and the Lenders under the Loan Documents, or (c) material impairment on the ability of Loan Parties (taken as a whole) to perform their payment obligations under the Loan Documents (taken as a whole).
“Material Contract” shall mean (a) Sand Mining Leases, and (b) any contract, agreement, instrument, permit, lease or license, (other than any license for (i) Intellectual Property embedded in any equipment or fixture or (ii) the use of any commercially available off-the-shelf software), of Loan Parties, the loss of which, or failure to comply with, could reasonably be expected to result in a Material Adverse Effect.
“Material Indebtedness” shall mean Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Hedging Agreements, of any one or more of any Loan Party or any Subsidiary in an aggregate principal amount of $20,000,000 or more. For purposes of determining Material Indebtedness, the “principal amount” in respect of any Bank Product Obligations under any Hedging Agreement of any Company at any time shall be the Hedging Termination Value thereof at such time.
“Maximum Rate” shall have the meaning assigned to such term in Section 9.09.
“Minimum Collateral Amount” shall mean, at any time, with respect to Cash Collateral consisting of cash or deposit account balances, an amount equal to 102% of the aggregate Fronting Exposures of all Issuing Banks with respect to Letters of Credit issued by such Issuing Banks and outstanding at such time.
“Moody’s” shall mean Moody’s Investors Service, Inc., or any successor thereto.
“Multiemployer Plan” shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA which is contributed to by (or to which there is or may be an obligation to contribute of) Parent, any of Subsidiaries or any of their ERISA Affiliates or with respect to which Parent or any Subsidiary could reasonably be expected to incur liability, whether absolute or contingent.
“Net Cash Proceeds” shall mean:
(a) with respect to any Asset Sale (or other disposition of assets), the cash proceeds (including cash proceeds subsequently received (as and when received) in respect of noncash consideration initially received), net of (i) selling expenses (including reasonable broker’s fees or commissions, investment banking fees, legal fees, transfer and similar taxes and Loan Parties’ good faith estimate of ordinary income or capital gain Taxes paid or payable in connection with such sale), (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Asset
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Sale or other disposition (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 Indebtedness for borrowed money or other obligation that is secured by the asset or assets sold in such Asset Sale or other disposition and which is required to be repaid with such cash proceeds (other than the Obligations); and
(b) with respect to any issuance or incurrence of Indebtedness or any Equity Issuance, the cash proceeds thereof, net of all Taxes and customary fees, commissions, costs and other expenses incurred in connection therewith.
“Net Recovery Percentage” shall mean the percentage of the book value of Eligible Inventory that is estimated to be recoverable in an orderly liquidation of such Eligible Inventory, net of all associated costs and expenses of such liquidation, such percentage to be as determined from time to time by the most recent Inventory Appraisal.
“Non-compliant Equity Cure Testing Period” shall have the meaning assigned to such term in Section 6.11(c).
“Non-Defaulting Lender” shall mean, at any time, each Revolving Credit Lender that is not a Defaulting Lender at such time.
“Oakdale” shall mean Smart Sand Oakdale LLC, a Delaware limited liability company.
“Obligations” shall mean all (a) all obligations of Borrowers and the other Loan Parties from time to time arising under or in respect of the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency or similar proceeding, regardless of whether allowed or allowable in any 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 Borrowers and the other Loan Parties from time to time under this Agreement in respect of any Letter of Credit, when and as due, including payments in respect of L/C Disbursements, interest thereon and obligations to provide Cash Collateral, and (iii) all other monetary obligations, 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 or similar proceeding, regardless of whether allowed or allowable in any such proceeding), of Borrowers and the other Loan Parties under this Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of Borrowers and the other Loan Parties under or pursuant to this Agreement and the other Loan Documents, in each case, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising, and (c) without limiting the generality of the foregoing, obligations defined as “Secured Obligations” in the Guarantee and Collateral Agreement and the other applicable Security Documents; provided, that in no circumstances shall Excluded Swap Obligations constitute Obligations.
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“Order” shall mean any judgment, decree, verdict, order, consent order, consent decree, writ, declaration or injunction.
“Other Taxes” shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document, except any such Taxes imposed with respect to an assignment (other than an assignment pursuant to a request by the Administrative Loan Party under Section 2.21(a)).
“Overadvances” shall have the meaning assigned to such term in Section 2.11(b).
“Parent” shall have the meaning assigned to such term in the introductory statement hereto.
“Participant Register” shall have the meaning assigned to such term in Section 9.04(f).
“Patents” shall have the meaning assigned to such term in the definition of “Intellectual Property”.
“Payment Conditions” shall mean, as to any relevant action contemplated in this Agreement, that:
(a) there is no Event of Default existing and continuing or would immediately result from such action;
(b) Excess Availability on a Pro Forma Basis immediately after giving effect to such action and Thirty-Day Excess Availability on a Pro Forma Basis ending on the date of such action, in each case, is at least the greater of (i) 15% of the Line Cap and (ii) $3,000,000; and
        (c) if Excess Availability on a Pro Forma Basis immediately after giving effect to such action and Thirty-Day Excess Availability on a Pro Forma Basis ending on the date of such action is less than the greater of (i) 17.5% of the Line Cap and (ii) $3,000,000, the Fixed Charge Coverage Ratio would be at least 1.00:1.00 on a Pro Forma Basis.
“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
“Perfection Certificate” shall mean a Perfection Certificate substantially in the form of Exhibit B to the Guarantee and Collateral Agreement.
“Permitted Acquisition” shall mean the acquisition of an Acquired Entity meeting all the criteria of Section 6.04(k).
“Permitted Business” shall mean a business described in Section 6.08.
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“Permitted Discretion” shall mean a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment in accordance with customary business practices for asset-based lending transactions.
“Permitted Hedging Agreement” shall mean any Hedging Agreement to the extent constituting a swap, cap, collar, forward purchase or similar agreements or arrangements dealing with interest rates or currency exchange rates, either generally or under specific contingencies, in each case entered into in the ordinary course of business and not for speculative purposes or taking a “market view.”
“Permitted Holders” shall mean, collectively (a) Sponsor and/or any other Person which, directly or indirectly, is in Control of, is Controlled by, or is under common Control with Sponsor and (b) Charles Young and/or one or more of his family estate planning vehicles or any other Person which, directly or indirectly, is Controlled by him (the “Charles Young Holders”); provided that, from and after the date that is 90 days after Charles Young becomes deceased or incapacitated, the Charles Young Holders shall no longer be Permitted Holders.
“Permitted Investments” shall mean:
(a) Dollars;
(b) 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 or instrumentality thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;
(c) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s;
(d) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody’s;
(e) investments in certificates of deposit, banker’s 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, 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-1” (or the then equivalent grade) by Moody’s or “A-1” (or the then equivalent grade) by S&P;
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(f) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (b) above and entered into with a financial institution satisfying the criteria of clause (e) above;
(g) 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 (f) above; and
(h) in the case of any Foreign Subsidiary only, instruments equivalent to those referred to in clauses (a) through (g) above denominated in a foreign currency, which are substantially equivalent in credit quality and tenor to those referred to above and customarily used by businesses for short term cash management purposes in any jurisdiction outside of the United States to the extent reasonably required in connection with any business conducted by any Foreign Subsidiary organized in such jurisdiction.
“Permitted Joint Venture” shall mean any joint venture (which may be in the form of a limited liability company, partnership, corporation or other entity, but shall not include a Subsidiary) in which Parent or any Subsidiary is a joint venturer; provided, however, that the joint venture is engaged solely in a Permitted Business and under the governing documents of the joint venture or an agreement with the other parties to the joint venture Parent or Subsidiary is entitled to participate in the management of such joint venture as a member of such joint venture’s Board of Directors or otherwise.
“Permitted Liens” shall mean Liens expressly permitted pursuant to Section 6.02.
“Permitted Refinancing Indebtedness” shall mean any Indebtedness of Loan Parties or any of Subsidiaries issued in exchange for, or the net proceeds of which are used to purchase, repay, extend, renew, refund, refinance, replace, defease or discharge other Indebtedness of Loan Parties or any of Subsidiaries, as applicable; provided that:
(a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness being purchased, repaid, extended, renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued and unpaid interest on such Indebtedness being extended, renewed, refunded, refinanced, replaced, defeased or discharged and the amount of all fees and expenses, including premiums, incurred in connection therewith);
(b) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a weighted average life to maturity equal to or greater than the weighted average life to maturity of, the Indebtedness being purchased, repaid, extended, renewed, refunded, refinanced, replaced, defeased or discharged;
(c) if the Indebtedness being purchased, repaid, extended, renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment and/or liens to the Obligations, such Permitted Refinancing Indebtedness is subordinated in right of payment and/or liens to the Obligations on terms at least as favorable to the holders of the Obligations as
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those contained in the documentation governing the Indebtedness being purchased, repaid, extended, renewed, refunded, refinanced, replaced, defeased or discharged;
(d) if such Permitted Refinancing Indebtedness is secured, it shall not be secured by any assets other than the assets that secured the Indebtedness being purchased, repaid, extended, renewed, refunded, refinanced, replaced, defeased or discharged; and
(e) such Permitted Refinancing Indebtedness does not add any additional obligors or guarantors with respect to the Indebtedness being purchased, repaid, extended, renewed, refunded, refinanced, replaced, defeased or discharged.
“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 benefit plan” as defined in Section 3 of ERISA (other than a Multiemployer Plan) that is subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA which is maintained or contributed to by Parent, any of Subsidiaries or any of their ERISA Affiliates or with respect to which Parent or any Subsidiary could reasonably be expected to incur liability, whether absolute or contingent (including under Section 4069 of ERISA).
“Platform” shall have the meaning assigned to such term in Section 9.01(e).
“Pro Forma Basis” shall mean, with respect to compliance with any test or covenant or calculation of any ratio hereunder, the determination or calculation of such test, covenant or ratio (including in connection with Specified Transactions) in accordance with Section 1.03.
“Pro Rata Percentage” of any Revolving Credit Lender at any time shall mean the percentage of the Total Revolving Credit Commitment represented by such Lender’s 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.
“Projections” shall have the meaning assigned to such term in Section 3.05(b).
“Protective Advances” shall have the meaning assigned to such term in Section 2.11(a).
“Public Lender” shall have the meaning assigned to such term in Section 9.01(e).
“Qualified Appraisal” shall mean an appraisal (a) which is or was conducted by an independent appraiser selected or approved by Agent in its Permitted Discretion; (b) which will be or was conducted in such a manner and methodology and of such a scope as is acceptable to Agent in its Permitted Discretion; and (c) upon which Agent and Lenders are expressly permitted to rely.
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“Qualified Capital Stock” of any Person shall mean any Equity Interest of such Person that is not Disqualified Stock.
“Qualified Equity Cure Subordinated Debt” shall mean unsecured Indebtedness incurred by Parent, which Indebtedness (a) shall provide for no cash payments of interest and/or principal at any time any Obligations are outstanding, and (b) shall be subordinated to the Obligations pursuant to the terms of a Subordination Agreement between Agent and the holder of the Qualified Equity Cure Subordinated Debt, in form and substance satisfactory to Agent.
“Real Property” shall mean all the right, title and interest of any Loan Party or any Subsidiary in and to land, improvements and fixtures, including Leaseholds.
“Receivables” shall mean and include, as to each Loan Party, all of such Loan Party’s accounts (as defined in Article 9 of the UCC as in effect in the State of New York) and all supporting obligations in respect thereof.
“Recipient” shall have the meaning assigned to such term in Section 2.20(f).
“Register” shall have the meaning assigned to such term in Section 9.04(d).
“Regulation S-X” shall mean Regulation S-X (and the interpretations of the Securities and Exchange Commission thereunder) under the Securities Act of 1933, as amended.
“Regulation T” shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation U” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation X” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Related Fund” shall mean any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank and other commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective directors, trustees, officers, employees, agents and advisors of such Person and such Person’s Affiliates.
“Release” shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the indoor or outdoor environment.
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“Required Lenders” shall mean, at any time, (a) that there are 2 or fewer Lenders, all Lenders, and (b) that there are 3 or more Lenders, Lenders having Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit Commitments representing more than 50% of the sum of all Loans outstanding (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit Commitments at such time; provided that the Revolving Loans, L/C Exposure, Swingline Exposure and unused Revolving Credit Commitments of any Defaulting Lender shall be disregarded in the determination of the Required Lenders at any time.
“Reserves” shall mean, subject to Section 2.01(c), such reserves as Agent may from time to time establish in its Permitted Discretion, including reserves for (a) matters that could adversely affect the Collateral, its value or the amount that Agent and the Lenders might receive from the sale or other disposition thereof or the ability of Agent to realize thereon, (b) sums that any Loan Party is required to pay under any provision of this Agreement or any other Loan Document, (c) amounts owing by any Loan Party to any person (i) for royalties, (ii) for transload fees, or (iii) to the extent secured by a Lien on, or trust over, any of the Collateral or over any assets or properties of any Customer of any Loan Party, (d) Dilution Reserves, (e) during a License Fee Reserve Period, amounts that Agent is or may be required to pay Master Lease Facility Lessor in accordance with the Master Lease Facility Intercreditor Agreement in respect of the License Fee (as defined in the Master Lease Facility Intercreditor Agreement), and (f) Landlord Reserves.
“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 Indebtedness” shall mean Indebtedness of Loan Parties or any Subsidiary, the payment, prepayment, repurchase, redemption or acquisition of which is restricted under 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 of the Person making such dividend or distribution that is issued ratably to such Person’s equity holders) with respect to any Equity Interests in Parent or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Equity Interests in Parent or any Subsidiary (other than any such payment made with Qualified Capital Stock of the issuer of the Equity Interests being purchased, redeemed, retired, acquired, cancelled or terminated).
“Revolving Credit Borrowing” shall mean a Borrowing comprised of Revolving Loans made to Borrowers.
“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 Swingline Loans and Letters of Credit as provided for herein) as set forth on Schedule 1.01(a), or in the Assignment and Acceptance pursuant to which such Lender assumed, agreed to provide
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or agreed to increase its Revolving Credit 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.
“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 Lender’s L/C Exposure, plus the aggregate amount at such time of such Lender’s Swingline Exposure.
“Revolving Credit Lender” shall mean a Lender with a Revolving Credit Commitment or an outstanding Revolving Loan.
“Revolving Credit Maturity Date” shall mean December 13, 2024.
“Revolving Loans” shall mean (a) the revolving loans made by the Lenders to Borrowers pursuant to Section 2.01 or (b) a Mandatory Borrowing made by the Lenders pursuant to Section 2.22(e).
“Royalty Obligations” shall mean obligations in respect of royalty or similar payments, whether or not incurred as deferred purchase price for assets or otherwise denominated as indebtedness.
“S&P” shall mean Standard & Poor’s Ratings Service, or any successor thereto.
“Sanctioned Country” shall mean, at any time, a country, region or territory which is itself the subject or target of any Sanctions (at the time of this Agreement, Crimea, Cuba, Iran, North Korea, Sudan and Syria).
“Sanctioned Entity” shall mean (a) a country or territory or a government of a country or territory, (b) an agency of the government of a country or territory, (c) an organization directly or indirectly controlled by a country or territory or its government, or (d) a Person resident in or determined to be resident in a country or territory, in each case of clauses (a) through (d) that is a target of Sanctions, including a target of any country sanctions program administered and enforced by OFAC.
“Sanctioned Person” shall mean, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clause (a) or (b).
“Sanctions” shall mean all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government (including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State) or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury.
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“Sand Mining Leases” shall mean, collectively, all leases of Real Property of a Loan Party at which a Loan Party is actively mining sand.
“SEC” shall mean the United States Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions thereof.
“Secured Bank Product Obligations” shall mean Bank Product Obligations to the extent that such Bank Product Obligations constitute Secured Obligations or otherwise receive the benefit of the security interest of Agent in any Collateral.
“Secured Obligations” shall mean all the “Secured Obligations” as defined in the Guarantee and Collateral Agreement.
“Secured Parties” shall have the meaning assigned to such term in the Guarantee and Collateral Agreement.
“Security Documents” shall mean the Guarantee and Collateral Agreement, each short form security agreement filed with the United States Patent and Trademark Office or the United States Copyright Office, each deposit account control agreement and securities account control agreement executed and delivered pursuant to the Guarantee and Collateral Agreement or this Agreement and each of the other security agreements and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.12.
“Software” shall mean any and all (a) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, including, without limitation, “software” as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York and computer programs that may be construed as included in the definition of “goods” in the Uniform Commercial Code as in effect on the date hereof in the State of New York, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, (d) all outsourced computing and information technology arrangements, including cloud computing and SaaS offerings, and (e) all documentation, including user manuals and other training documentation, related to any of the foregoing, and all media that may contain Software or recorded data of any kind.
“Solvent” shall mean, with respect to any Person or Persons on any date of determination, that on such date such Person or Persons (a) the Fair Value of the assets of such Person or Persons taken as a whole exceeds their Stated Liabilities and Identified Contingent Liabilities, (b) the Present Fair Salable Value of the assets of such Person or Persons taken as a whole exceeds the amount that will be required to pay the probable liability of their Stated Liabilities and Identified Contingent Liabilities, (c) such Person or Persons taken as a whole are not engaged in, and are not about to engage in, business for which they have Unreasonably Small Capital and (d) such Person or Persons taken as a whole will be able to pay their Stated Liabilities and Identified Contingent Liabilities as they mature. For purposes of the definition of
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“Solvent” the following terms or phrases used in this definition have the following meanings: (i)“Fair Value” means the amount at which the assets (both tangible and intangible), in their entirety, of any Person or Persons taken as a whole would change hands between a willing buyer and a willing seller, within a commercially reasonable period of time, each having reasonable knowledge of the relevant facts, with neither being under any compulsion to act; (ii) “Present Fair Salable Value” means the amount that could reasonably be expected to be obtained by an independent willing seller from an independent willing buyer if the assets (both tangible and intangible) of any Person or Persons taken as a whole are sold on a going concern basis with reasonable promptness in an arm’s-length transaction under present conditions for the sale of comparable business enterprises insofar as such conditions can be reasonably evaluated; (iii) “Stated Liabilities” means the recorded liabilities (including contingent liabilities that would be recorded in accordance with GAAP) of any Person or Persons taken as a whole, as of the date hereof after giving effect to the consummation of the Transactions (including the execution and delivery of this Agreement, the making of the Loans hereunder and the use of proceeds of such Loans on any date of determination), determined in accordance with GAAP consistently applied; (iv) “Identified Contingent Liabilities” means the maximum estimated amount of liabilities reasonably likely to result from pending litigation, asserted claims and assessments, guaranties, uninsured risks and other contingent liabilities of any Person or Persons taken as a whole after giving effect to the Transactions (including the execution and delivery of this Agreement, the making of the Loans hereunder and the use of proceeds of such Loans on any date of determination) (including all fees and expenses related thereto but exclusive of such contingent liabilities to the extent reflected in Stated Liabilities), as identified and explained in terms of their nature and estimated magnitude by responsible officers of any Person or Persons (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5); (v) “Will be able to pay their Stated Liabilities and Identified Contingent Liabilities as they mature” means any Person or Persons taken as a whole will have sufficient assets and cash flow to pay their respective Stated Liabilities and Identified Contingent Liabilities as those liabilities mature or (in the case of Identified Contingent Liabilities) otherwise become payable, in light of business conducted or anticipated to be conducted by any Person or Persons as reflected in the projected financial statements and in light of the anticipated credit capacity; and (vi) “Do not have Unreasonably Small Capital” means any Person or Persons taken as a whole after consummation of the Transactions (including the execution and delivery of this Agreement, the making of the Loans hereunder and the use of proceeds of such Loans on any date of determination) is a going concern and has sufficient capital to reasonably ensure that it will continue to be a going concern for such period.
“Specified Transaction” shall mean (a) any investment that results in a Person becoming a Subsidiary, any Permitted Acquisition or any disposition that results in a Subsidiary ceasing to be a Subsidiary, (b) any Permitted Acquisition, (c) any Investment, (d) any disposition (including any disposition of a business unit, line of business or division of Parent or a Subsidiary, in each case whether by merger, consolidation, amalgamation or otherwise), (e) any issuance, incurrence, assumption or repayment or redemption of Indebtedness, (f) any issuance or redemption of preferred stock, or (g) any operational change.
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“Sponsor” shall mean, collectively, Clearlake Capital Partners II (Master), L.P., a Delaware limited partnership, and Clearlake Capital Group, a Delaware limited partnership.
“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) expressed as a decimal established by the Board and any other banking authority, domestic or foreign, to which Agent or any Lender (including any branch, Affiliate or other fronting office making or holding a Loan) is subject for Eurocurrency Liabilities (as defined in Regulation D of the Board). Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities (as defined in Regulation D of the Board) and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. The Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“Subordinated Indebtedness” shall mean unsecured Indebtedness of any Loan Party that is contractually subordinated in right of payment to the Obligations pursuant to a Subordination Agreement.
“Subordination Agreement” shall mean a Subordination Agreement between Agent and the holder of any Subordinated Indebtedness, which Subordination Agreement shall be in form and substance reasonably satisfactory to Agent and shall subordinate the payment of such Subordinated Indebtedness to the Obligations on terms reasonably satisfactory to Agent.
“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 Parent.
“Subsidiary Guarantor” shall mean (a) each direct and indirect Subsidiary listed on Schedule 1.01(c) and (b) subsequent to Closing Date and subject to Section 5.12, (i) any Domestic Subsidiary and (ii) with the prior written consent of Agent, any other Foreign Subsidiary, in each case, that becomes a party to this Agreement and the Guarantee and Collateral Agreement; provided that in no event shall any Excluded Subsidiary be required to become a Subsidiary Guarantor. Notwithstanding any provision of this Agreement, Administrative Loan Party may elect, in its sole discretion (A) to cause any Domestic Subsidiary and (B) with the prior written consent of Agent, to cause any other Foreign Subsidiary, in each case, that is not otherwise required by the terms of any Loan Document, to be or become a Subsidiary Guarantor.
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“Swap Obligation” shall mean, with respect to any Guarantor, any Secured Bank Product Obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
“Swingline Commitment” shall mean the commitment of the Swingline Lender to make loans pursuant to Section 2.22, as the same may be reduced from time to time pursuant to Section 2.09.
“Swingline Exposure” shall mean, at any time, the aggregate principal amount at such time of all outstanding Swingline Loans. The Swingline Exposure of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage of the aggregate Swingline Exposure at such time.
“Swingline Lender” shall mean Jefferies Finance LLC, acting through any of its Affiliates or branches, in its capacity as lender of Swingline Loans hereunder.
“Swingline Loan” shall mean any revolving loan made by the Swingline Lender pursuant to Section 2.22.
“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 and (b) in respect of which the lessee is deemed to own 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.
“Synthetic Purchase Agreement” shall mean any swap, derivative or other agreement or combination of agreements pursuant to which any Loan Party or any Subsidiary is or may become obligated to make (a) any payment in connection with a purchase by any third party from a Person other than any Loan Party or any Subsidiary of any Equity Interest or Restricted Indebtedness or (b) any payment (other than on account of a permitted purchase by it of any Equity Interest or Restricted Indebtedness) the amount of which is determined by reference to the price or value at any time of any Equity Interest or Restricted Indebtedness; provided that no phantom stock or similar plan providing for payments only to current or former directors, officers or employees of any Loan Party or any Subsidiary (or to their heirs or estates) shall be deemed to be a Synthetic Purchase Agreement.
“Target Person” shall have the meaning assigned to such term in Section 6.04.
“Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
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“Test Period” shall mean, for any date of determination, the four consecutive fiscal quarters of the Borrower most recently ended as of such date of determination for which financial statements are available or were required to be delivered and for which a Compliance Certificate is required to be delivered in accordance with Section 5.04(c).
“Thirty-Day Excess Availability” shall mean each day’s Excess Availability during the 30 consecutive day period immediately preceding the date of the proposed transaction for which it is being determined whether the Distribution Conditions or Payment Conditions have been satisfied.
“Total Revolving Credit Commitment” shall mean $20,000,000, decreased by the amount of reductions in the Revolving Credit Commitments made in accordance with Section 2.09(b) and increased by the amount of any increase in the Revolving Credit Commitments made in accordance with Section 2.24.
“Total Revolving Credit Commitments Increase Effective Date” shall have the meaning assigned to such term in Section 2.24(c).
“Trade Secrets” shall mean any trade secrets or other proprietary and confidential information, including unpatented inventions, invention disclosures, engineering or other technical data, financial data, procedures, know-how, designs personal information, supplier lists, customer lists, business, production or marketing plans, formulae, methods (whether or not patentable), processes, compositions, schematics, ideas, algorithms, techniques, analyses, proposals, source code, object code and data collections.
“Trademarks” shall have the meaning assigned to such term in the definition of “Intellectual Property”.
“Transactions” shall mean, collectively, (a) the execution, delivery and performance by each of Loan Parties of the Loan Documents to which it is a party, the making of the Borrowings and the issuances of the Letters of Credit hereunder from time to time and the use of proceeds thereof, and (b) the payment of related fees and expenses.
“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.
“UCC” shall mean the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
“Unfinanced Capital Expenditures” shall mean, for any period, without duplication, all expenditures of Loan Parties and Subsidiaries that are (or should be) included as capital expenditures on a consolidated statement of cash flows of Parent and Subsidiaries for such period prepared in accordance with GAAP, including amounts capitalized by reason of Capital Lease Obligations or Synthetic Lease Obligations incurred by Parent and Subsidiaries during
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such period, in each case to the extent made in cash, but excluding, in each case: (a) any such expenditure made by Parents and its Subsidiaries to the extent not financed with Internally Generated Cash (including any such capital expenditures (1) made to restore, replace or rebuild property to the condition of such property immediately prior to any damage, loss, destruction or condemnation of such property, and other capital expenditures, in each case to the extent such expenditure is made with, or subsequently reimbursed out of, insurance proceeds condemnation awards (or payments in lieu thereof) or damage recovery proceeds relating to any such damage, loss, destruction or condemnation or other expenditures, (2) constituting the reinvestment of Net Cash Proceeds from Asset Sales (or any other disposition of assets) in productive assets of a kind then used or useable in the business of Loan Parties and Subsidiaries, and (3) constituting the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent of the credit granted by the seller of the equipment being traded at such time), (b) constituting the consideration paid (and transaction expenses incurred) in connection with a Permitted Acquisition, and (c) constituting the purchase price of equipment that has subsequently been refinanced with purchase money Indebtedness or sold in a sale and leaseback transaction, in each case permitted hereunder, to the extent of the cash proceeds received in respect thereof.
“Unfunded Pension Liability” shall mean the excess of a Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan’s assets, determined in accordance with the actuarial assumptions used for funding the Plan pursuant to Section 412 of the Code for the applicable plan year.
“Uniform Customs” shall have the meaning assigned to such term in Section 9.07.
“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)).
“Value” shall mean, with respect to Inventory, the lower of (a) cost computed on an average cost basis in accordance with GAAP, consistently applied, or (b) market value; provided, that, for purposes of the calculation of the Borrowing Base, (i) the Value of the Inventory shall not include: (A) the portion of the value of Inventory equal to the profit earned by any Affiliate on the sale thereof to any Borrower or (B) write-ups or write-downs in value with respect to currency exchange rates and (ii) notwithstanding anything to the contrary contained herein, the cost of the Inventory shall be computed in the same manner and consistent with the most recent Inventory Appraisal.
“Wet Sand Inventory” shall mean any above-ground sand Inventory located in a wet plant, on a decanting tunnel or part of a wet stockpile, which has not yet been dried and screened to final size for sale as Dry Sand Inventory.
“Wholly Owned Subsidiary” shall mean a Subsidiary of which securities (except for directors’ qualifying shares and, in the case of a Foreign Subsidiary, nominal amounts of shares required by applicable law to be held by local nationals) or other ownership interests representing 100% of the outstanding Equity Interests are, at the time any determination is being
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made, owned, Controlled or held by a Loan Party, by one or more Wholly Owned Subsidiaries of Loan Parties or by Loan Parties and one or more Wholly Owned Subsidiaries of Loan Parties.
“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.
a.Terms Generally
. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined.
(22)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”; and the words “asset” and “property” shall be construed as having the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(23)All references to “knowledge” of any Loan Party or any Subsidiary shall mean the actual knowledge of a Responsible Officer of such Loan Party or Subsidiary.
(24)The phrase “Material Adverse Effect” shall be deemed to be followed by the phrase “, individually or in the aggregate”.
(25)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.
(26)Except as otherwise expressly provided herein, (i) any references to any agreement (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, refinancings, restatements, renewals, restructurings, extensions, supplements and other modifications thereto, but only to the extent that such amendments, refinancings, restatements, renewals, restructurings, extensions, supplements and other modifications are not prohibited by the Loan Documents and (ii) 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 (A) for purposes of determining the outstanding amount of any Indebtedness, (1) any election by Administrative Loan Party to measure an item of Indebtedness using fair value (as permitted by the Financial Accounting Standards Board Accounting Standards Codification 825-10-25, and any statements replacing, modifying or superseding such guidance) shall be disregarded and such determination shall be made as if such election had not been made and (2) any original issue discount with respect to such Indebtedness shall not be deducted in determining the outstanding amount of such Indebtedness, and (B) if the Administrative Loan Party notifies Agent that Borrowers wish to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP occurring after the
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date of this Agreement on the operation of such covenant (or if Agent notifies the Administrative Loan Party that the Required Lenders wish to amend Article VI or any related definition for such purpose), then 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 the Administrative Loan Party and the Required Lenders.
(27)For purposes of determining compliance with any Section of Article VI at any time, in the event that any Lien, Investment, Indebtedness (whether at the time of incurrence or upon application of all or a portion of the proceeds thereof), Asset Sale, Restricted Payment, Affiliate transaction, contractual obligation or prepayment of Indebtedness meets the criteria of one or more than one of the categories of transactions permitted pursuant to any clause of such Sections, such transaction (or portion thereof) at any time shall be permitted under one or more of such clauses as determined by the Administrative Loan Party in its sole discretion at such time.
(28)Notwithstanding any other provision contained herein, any lease that was, or would have been, characterized as an operating lease in accordance with GAAP prior to Parent’s adoption of ASC 842 (regardless of the date on which such lease was or is entered into) shall not be treated as Indebtedness or as a Capital Lease Obligation, and any such lease shall be, for all purposes of this Agreement other than the requirement that financial statements be prepared in accordance with GAAP, treated as though it were reflected on the Borrower’s consolidated financial statements in the same manner as an operating lease would have been reflected prior to the Borrower’s adoption of ASC 842.
(29)Determinations of “extraordinary” shall satisfy each of the following conditions: (A) the underlying event or transaction should possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity, taking into account the environment in which the entity operates, and (B) the underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future, taking into account the environment in which the entity operates.
b.Pro Forma Calculations
.
(30)Whenever a financial ratio or test is to be calculated on a pro forma basis, the reference to the “Test Period” for purposes of calculating such financial ratio or test shall be deemed to be a reference to, and shall be based on, the most recently ended Test Period.
(31)For purposes of calculating any financial ratio or test, Specified Transactions that have been made (i) during the applicable Test Period and (ii) subsequent to such Test Period and prior to or simultaneously with the event for which the calculation of any such ratio is made shall be calculated on a pro forma basis assuming that all such Specified Transactions (and any increase or decrease in Consolidated EBITDA and the component financial definitions used in such financial ratio or test attributable to any Specified Transaction
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(including Indebtedness issued, incurred or assumed or repaid or redeemed as a result of, or to finance, any relevant transaction and for which any such financial ratio or test is being calculated, but excluding the identifiable proceeds of any Indebtedness being incurred substantially simultaneously therewith or as part of the same transaction or series of related transactions for purposes of netting cash to calculate the applicable ratio or test)) had occurred on the first day of the applicable Test Period (or, in the case of the determination of Consolidated Total Assets, the last day). For purposes of making any computation referred to herein: (A) if any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date for which such pro forma determination is made had been the applicable rate for the entire period (taking into account any Hedging Agreement applicable to such Indebtedness if such Hedging Agreement has a remaining term in excess of 12 months), (B) interest on a Capital Lease shall be deemed to accrue at an interest rate reasonably determined by a Responsible Officer, in his or her capacity as such and not in his or her personal capacity, to be the rate of interest implicit in such Capital Lease in accordance with GAAP, (C) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Administrative Loan Party may designate and (D) interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period. If since the beginning of any applicable Test Period any Person that subsequently became a Subsidiary or was merged, amalgamated or consolidated with or into Parent or any of its Subsidiaries since the beginning of such Test Period shall have made any Specified Transaction that would have required adjustment pursuant to this Section 1.03, then such financial ratio or test (or the calculation of Consolidated Total Assets) shall be calculated to give pro forma effect thereto in accordance with this Section 1.03; provided that, at the election of the Administrative Loan Party, no such adjustment pursuant to this Section 1.03 shall be required to be made with respect to any Subsidiary acquired pursuant to a Permitted Acquisition or other permitted investment if the aggregate consideration paid for all Permitted Acquisitions and such permitted investments during any fiscal year is less than the greater of (1) $18,500,000 and (2) 5.0% of Consolidated Total Assets in the aggregate for all such transactions during such fiscal year of Parent.
(32)For purposes of calculating Thirty-Day Excess Availability and Excess Availability on a pro forma basis on the date of any action or proposed action, each of Thirty-Day Excess Availability and Excess Availability will be calculated on a pro forma basis after giving effect to the Borrowing of any Loans or issuance of any Letters of Credit in connection with the action or proposed action and, with respect to Thirty-Day Excess Availability, assuming that such Loans and Letters of Credit had remained outstanding throughout the applicable 30-day period for which Thirty-Day Excess Availability is to be determined.
(33)Whenever pro forma effect is to be given to a Specified Transaction, the pro forma calculations shall be made in good faith by a Responsible Officer and include, for the avoidance of doubt, the amount of cost savings, operating expense reductions, other operating improvements and synergies projected by Administrative Loan Party in good faith to be realized
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as a result of specified actions taken (calculated on a pro forma basis as though such cost savings, operating expense reductions, other operating improvements and synergies had been realized on the first day of such period and as if such cost savings, operating expense reductions, operating initiatives, operating changes and synergies were realized during the entirety of such period) and giving the full recurring benefit for a period that is associated with any such action taken (including any savings expected to result from the elimination of a public target’s compliance costs with public company requirements) net of the amount of actual benefits realized during such period from such actions, and any such adjustments shall be included in the initial pro forma calculations of such financial ratios or tests and during any subsequent Test Period in which the effects thereof are expected to be realized relating to such Specified Transaction; provided that (i) such amounts are reasonably identifiable and factually supportable in the good faith judgment of Administrative Loan Party, (ii) such cost savings, operating expense reductions, other operating improvements and synergies are to be realized no later than 18 months after the date of such Specified Transaction, and (iii) no amounts shall be added pursuant to this Section 1.03(c) to the extent duplicative of any amounts that are otherwise added back in computing Consolidated EBITDA, whether through a pro forma adjustment or otherwise, with respect to such period; provided that any increase to Consolidated EBITDA as a result of cost savings, operating expense reductions and synergies pursuant to this Section 1.03(c) shall be subject to the limitations set forth in clause (a)(xi) of the definition of “Consolidated EBITDA”, including the proviso at the end of such clause (a)(xi).
(34)Notwithstanding anything to the contrary in this Section 1.03, when calculating the Fixed Charge Coverage Ratio for purposes of determining actual compliance (and not compliance on a Pro Forma Basis) with the Fixed Charge Coverage Ratio pursuant to Section 6.11(a), the events described in this Section 1.03 that occurred subsequent to the end of the applicable Test Period shall not be given pro forma effect.
c.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 Credit Borrowing”) or by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g., a “Eurodollar Revolving Credit Borrowing”).
d.[Intentionally Omitted]
.
e.Basket Amounts and Application of Multiple Relevant Provisions
. Notwithstanding anything to the contrary, (a) unless specifically stated otherwise herein, any dollar, number, percentage or other amount available under any carve-out, basket, exclusion or exception to any affirmative, negative or other covenant in this Agreement or the other Loan Documents may be accumulated, added, combined, aggregated or used together by any Loan Party and its Subsidiaries without limitation for any purpose not prohibited hereby, and
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(b) any action or event permitted by this Agreement or the other Loan Documents need not be permitted solely by reference to one provision permitting such action or event but may be permitted in part by one such provision and in part by one or more other provisions of this Agreement and the other Loan Documents.
f.Limited Condition Transactions
. In the case of (i) the incurrence of any Indebtedness (other than Indebtedness hereunder, which shall remain subject to the terms and conditions applicable thereto pursuant to the terms of this Agreement with respect to the impact, if any, of any Limited Condition Transaction) or Liens or the making of any Investments or consolidations, mergers or other fundamental changes pursuant to Section 6.05(a), in each case, in connection with a Limited Condition Transaction or (ii) determining compliance with representations and warranties or the occurrence of any Default or Event of Default, in each case, in connection with a Limited Condition Transaction (other than for purposes of the incurrence of Indebtedness hereunder, each of which shall remain subject to the terms and conditions applicable thereto pursuant to the terms of this Agreement with respect to the impact, if any, of any Limited Condition Transaction), if the Administrative Loan Party has made an LCT Election, the relevant ratios and baskets and whether any such action is permitted hereunder shall be determined as of the date a definitive acquisition agreement for any such Limited Condition Transaction (a “Limited Condition Acquisition Agreement”) is entered into (the “LCT Test Date”), and calculated as if such Limited Condition Transaction (and any other pending Limited Condition Transaction) and other pro forma events in connection therewith (and in connection with any other pending Limited Condition Transaction), including the incurrence of Indebtedness and the use of proceeds thereof, were consummated on such LCT Test Date; provided that if the Administrative Loan Party has made an LCT Election, in connection with measuring compliance with any Section of Article VI following such date and prior to the earlier of the date on which (A) such Limited Condition Transaction is consummated, (B) the applicable Limited Condition Acquisition Agreement is terminated or (C) the time period for consummation thereof pursuant to the applicable Limited Condition Acquisition Agreement has expired, any ratio shall be calculated on a Pro Forma Basis assuming such Limited Condition Transaction (and any other pending Limited Condition Transaction) and other pro forma events in connection therewith (and in connection with any other pending Limited Condition Transaction) have been consummated, except that (other than solely with respect to the applicable incurrence test under which such Limited Condition Transaction or other transaction in connection therewith is being made) Consolidated EBITDA, Consolidated Total Assets and Consolidated Net Income of any target of such Limited Condition Transaction can only be used in the determination of the relevant ratios and baskets if and when such Limited Condition Transaction has closed.
(35)Notwithstanding anything set forth herein to the contrary, any determination in connection with a Limited Condition Transaction of compliance with representations and warranties or as to the occurrence or absence of any Event of Default hereunder as of the date the applicable Limited Condition Acquisition Agreement (rather than the date of consummation of the applicable Limited Condition Transaction), shall not be deemed to constitute a waiver of or consent to any breach of representations and warranties hereunder or
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any Event of Default hereunder that may exist at the time of consummation of such Limited Condition Transaction.
g.LIBO Rate Discontinuation
. If at any time the Agent or the Administrative Loan Party determines (which determination shall be conclusive absent manifest error) that (a) adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for any requested Interest Period, including, without limitation, because the LIBO Rate is not available or published on a current basis and such circumstances are unlikely to be temporary; (b) the administrator of the LIBO Rate or any applicable Governmental Authority has made a public statement identifying a specific date after which the LIBO Rate shall no longer be made available, or used for determining the interest rate of loans (such specific date, the “Scheduled Unavailability Date”); or (c) a rate other than the LIBO Rate has become a widely recognized benchmark rate for newly originated loans in Dollars in the U.S. market, then the Agent and Administrative Loan Party 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 asset-based credit facilities in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest, make adjustments to applicable margins, and such other related changes to this Agreement as may be applicable such that, to the extent practicable, the all-in interest rate based on the alternate rate of interest will be substantially equivalent to the all-in LIBO Rate based interest rate in effect prior to its replacement; provided that, if such alternate rate of interest shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement; provided further that (i) any such successor rate shall be applied by the Agent in a manner consistent with market practice, and (ii) to the extent such market practice is not administratively feasible for the Agent, such successor rate shall be applied in a manner as otherwise reasonably determined by the Agent and Administrative Loan Party.  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 Agent shall not have received, within five (5) Business Days of the date notice of such alternate rate of interest is provided to the Lenders, written notice from the Required Lenders stating that such Required Lenders object to such amendment. If no such alternate rate has been determined and the circumstances under clause (a) above exist or the Scheduled Unavailability Date has occurred (as applicable), the Agent will promptly so notify Administrative Loan Party and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain Eurodollar Loans shall be suspended, (to the extent of the affected Eurodollar Loans or Interest Periods), and (y) the Adjusted LIBO Rate component shall no longer be utilized in determining the Alternate Base Rate. Upon receipt of such notice, Administrative Loan Party may revoke any pending request for a Loan of, conversion to or continuation of Eurodollar Loans (to the extent of the affected Eurodollar Loans or Interest Periods) or, failing that, will be deemed to have converted such request into a request for a Borrowing of ABR Loans (subject to the foregoing clause (y)) in the amount specified therein.
h.Division of Limited Liability Company
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. Any reference herein to a merger, transfer, consolidation, amalgamation, assignment, sale, disposition or transfer, or similar term, shall be deemed to apply to a division of or by a limited liability company, or an allocation of assets to a series of a limited liability company (or the unwinding of such a division or allocation), as if it were a merger, transfer, consolidation, amalgamation, assignment, sale or transfer, or similar term, as applicable, to, of or with a separate Person. Any division of a limited liability company shall constitute a separate Person hereunder (and each division of any limited liability company that is a subsidiary, joint venture or any other like term shall also constitute such a Person or entity).
ARTICLE II.THE CREDITS
i.Commitments
.
(36)Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Revolving Credit Lender agrees, severally and not jointly, to make Revolving Loans to Borrowers from time to time after the Closing Date, 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 Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Credit Commitment; provided that after giving effect to any Revolving Credit Borrowing, the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving Credit Commitment.
(37)Within the limits set forth in the immediately preceding sentence and subject to the terms, conditions and limitations set forth herein, Borrowers may borrow, pay or prepay and reborrow Revolving Loans.
(38)Anything to the contrary in this Section 2.01 notwithstanding, Agent shall have the right (but not the obligation) at any time, in the exercise of its Permitted Discretion, to establish and increase or decrease Reserves against the Borrowing Base or the Total Revolving Credit Commitments. Notwithstanding anything to the contrary contained herein, (i) the amount of any Reserve established by Agent, and any additional ineligibility criteria established by Agent pursuant to clause (n) of the definition of “Eligible Inventory” or clause (o) of the definition of “Eligible Receivables”, shall have a direct and reasonable relationship to the event, condition, other circumstance, or fact that is the basis for such reserve or additional ineligibility criteria, and shall be a reasonable quantification of the incremental dilution of the Borrowing Base attributable to such contributing factors, and (ii) the amount of any Reserve established by Agent shall not be duplicative of (A) any other Reserve established and currently maintained or eligibility criteria (including, without limitation, advance rates), (B) any Reserves deducted in computing book value, (iii) any criteria or considerations taken into account in determining the Net Recovery Percentage or Value of Inventory or (iv) items taken into consideration in any applicable appraisal. After the Closing Date, Agent agrees to provide Administrative Loan Party
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with five days’ notice prior to the establishment or increase in Reserves and Agent agrees to make itself available to discuss the Reserve or increase, and Borrowers may take such action as may be required so that the event, condition, circumstance, or fact that is the basis for such reserve or increase no longer exists, in a manner and to the extent reasonably satisfactory to Agent in the exercise of its Permitted Discretion. In no event shall such notice and opportunity limit the right of Agent to establish or change such Reserve, unless Agent shall have determined, in its Permitted Discretion, that the event, condition, other circumstance, or fact that was the basis for such Reserve or such change no longer exists or has otherwise been adequately addressed by Borrowers and the other Loan Parties.
j.Loans
. Each Loan (other than Swingline Loans) shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their Commitments. The failure of any Lender to make any Loan shall not relieve any other Lender of its obligation to lend hereunder (it being understood that 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), Mandatory Borrowings and except as otherwise provided in Section 2.24, the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) (A) in the case of Eurodollar Loans, an integral multiple of $100,000 and not less than $500,000, and (B) in the case of ABR Loans, an integral multiple of $100,000 and not less than $500,000 or (ii) equal to the remaining available balance of the Commitments.
(39)Subject to Sections 2.02(f), 2.08 and 2.15, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as Borrowers 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 Borrowers 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 Borrowers shall not be entitled to request any Borrowing that, if made, would result in more than ten Eurodollar Borrowings in the aggregate outstanding hereunder at any time (or such greater number of Eurodollar Borrowings as may be acceptable to Agent in its sole discretion). For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings.
(40)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 Agent may designate not later than 1:00 p.m., New York City time, and Agent shall promptly credit the amounts so received to an account designated by the Administrative Loan Party 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.
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(41)Unless Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to Agent such Lender’s portion of such Borrowing, Agent may assume that such Lender has made such portion available to Agent on the date of such Borrowing in accordance with paragraph (c) above and Agent may, in reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to Agent, such Lender and Borrowers severally agree to repay to Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrowers to but excluding the date such amount is repaid to Agent at (i) in the case of Borrowers, 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 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 Agent such corresponding amount, such amount shall constitute such Lender’s Loan as part of such Borrowing for purposes of this Agreement.
(42)Notwithstanding any other provision of this Agreement, Borrowers shall not be entitled to request any Revolving Credit Borrowing if the Interest Period requested with respect thereto would end after the Revolving Credit Maturity Date.
(43)If the Issuing Bank shall not have received from Borrowers the payment required to be made by Section 2.23(e) within the time specified in such Section, such Issuing Bank will promptly notify Agent of the L/C Disbursement and 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 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 p.m., 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 Lender’s 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 4.01(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 Borrowers in respect of such L/C Disbursement shall be discharged and replaced with the resulting ABR Revolving Credit Borrowing 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 (except for purposes of Section 6.11) and shall not relieve Borrowers from their obligation to reimburse such L/C Disbursement), and Agent will promptly pay to such Issuing Bank amounts so received by it from the Revolving Credit Lenders. Agent will promptly pay to such Issuing Bank any amounts received by it from Borrowers pursuant to Section 2.23(e) prior to the time that any Revolving Credit Lender makes any payment pursuant to this paragraph (f), and any such amounts received by Agent from Borrowers thereafter will be promptly remitted by Agent to the Revolving Credit Lenders that shall have made such payments and to such 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 Agent as provided above, such Lender and Borrowers severally agree to pay interest on such amount, for each day from and including the date such amount is required
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to be paid in accordance with this paragraph (f) to but excluding the date such amount is paid, to Agent for the account of such Issuing Bank at (i) in the case of Borrowers, 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.
k.Borrowing Procedure
. In order to request a Borrowing (other than a Swingline Loan, a deemed Borrowing pursuant to Section 2.02(f) or a Mandatory Borrowing pursuant to Section 2.22(e), in each case, as to which this Section 2.03 shall not apply), the Administrative Loan Party shall notify Agent of such request by telephone or email (a) in the case of a Eurodollar Borrowing, not later than 12:00 p.m., 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 p.m., New York City time, one Business Day before a proposed Borrowing. Each telephonic Borrowing Request shall be irrevocable, and shall be confirmed promptly in writing to Agent of a written Borrowing Request and shall specify the following information: (i) whether such 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 Borrowing Request, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such Borrowing Request, then Borrowers shall be deemed to have selected an Interest Period of one month’s duration. Agent shall promptly advise the applicable Lenders of any notice given pursuant to this Section 2.03 (and the contents thereof), and of each Lender’s portion of the requested Borrowing.
l.Evidence of Debt; Repayment of Loans
. Borrowers hereby unconditionally promise to pay (i) to Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Credit Maturity Date and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Revolving Credit Maturity Date and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least two (2) Business Days after such Swingline Loan is made; provided that on each date that a Revolving Credit Borrowing is made, Borrowers shall repay all Swingline Loans owing by Borrowers that were outstanding on the date of such Borrowing was requested.
(44)Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Borrowers 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.
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(45)Agent shall maintain accounts in which it will record (i) the amount of each Loan made (or deemed made) to Borrowers 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 Borrowers to each Lender hereunder and (iii) the amount of any sum received by Agent hereunder from Borrowers and each Lender’s share thereof.
(46)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; provided, however, that the failure of any Lender or Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of Borrowers to repay the Loans in accordance with the terms of this Agreement. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of Agent in respect of such entries, the accounts and records of Agent shall control in the absence of manifest error.
(47)Any Lender may request that Loans made by it hereunder be evidenced by a promissory note. In such event, Borrowers shall execute and deliver to such Lender a promissory note payable to such Lender and its registered assigns and in form and substance reasonably acceptable to Agent and Borrowers. 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.
m.Fees
. Borrowers agree to pay to each Lender (which is not a Defaulting Lender), through Agent, on the last Business Day of March, June, September and December in each year and on each date on which the Revolving Credit Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (a “Commitment Fee”) equal to if the daily unused amount of the Total Revolving Credit Commitments 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 the Revolving Credit Commitment of such Lender shall expire or be terminated) is less than or equal to 50% of the Total Revolving Credit Commitments, 0.375% per annum on the daily unused amount of the Revolving Credit Commitment of such Lender 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 the Revolving Credit Commitment of such Lender shall expire or be terminated); and if the daily unused amount of the Total Revolving Credit Commitment 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 the Revolving Credit Commitment of such Lender shall expire or be terminated) is greater than 50% of the Total Revolving Credit Commitments, 0.50% per annum on the daily unused amount of the Revolving Credit Commitment of such Lender during the preceding quarter (or shorter period commencing with the date hereof or ending with the Revolving Credit Maturity Date or the date
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on which the Revolving Credit Commitment 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. For purposes of calculating Commitment Fees only, no portion of the Revolving Credit Commitments shall be deemed utilized as a result of outstanding Swingline Loans unless and until a Mandatory Borrowing is effected in connection therewith in accordance with Section 2.22(e).
(48)Borrowers agree to pay to Agent, for its own account, the fees payable to Agent in its capacity as such set forth in Agent Fee Letter at the times and in the amounts specified therein (the “Agent Fees”).
(49)Borrowers agree to pay (i) to each Revolving Credit Lender (which is not a Defaulting Lender except to the extent provided in Section 2.26(a)(iii)(B)), through 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 Lender’s 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(b) and (ii) to each Issuing Bank with respect to each Letter of Credit issued by such Issuing Bank, on the last Business Day of March, June, September and December of each year and on the date on which the Revolving Credit Commitments are terminated and no Letters of Credit are outstanding, a fronting fee which shall accrue at a rate equal to 0.25% per annum on the average daily amount of the L/C Exposure of such Issuing Bank (in its capacity as an Issuing Bank) applicable to such Letter of Credit (excluding any portion thereof attributable to unreimbursed L/C Disbursements) during the period from and including the date such Letter of Credit is issued to but excluding the later of the date of termination of the Revolving Credit Commitments and the date on which there ceases to be any L/C Exposure with respect to such Letter of Credit, as well as each Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder (collectively, the “Issuing Bank 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.
(50)All Fees shall be paid on the dates due, in immediately available funds, to Agent for distribution, if and as appropriate, among the Lenders entitled thereto, except that the Issuing Bank Fees shall be paid directly to the applicable Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances, absent manifest error in the calculation of such Fees.
n.Interest on Loans
. Subject to the provisions of Section 2.07, the Loans comprising each ABR Borrowing, including each Swingline Loan, shall bear interest (computed on the basis of the actual number
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of days elapsed over a year of 365 days (or 366 days in the case of a leap year) at all times, 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 in effect from time to time plus the Applicable Margin in effect from time to time.
(51)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 in effect from time to time.
(52)Interest on each Loan shall be payable by Borrowers 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 shall be determined by Agent, and such determination shall be conclusive absent manifest error.
o.Default Interest
. If any Event of Default under Section 7.01(b) or 7.01(c) has occurred and is continuing, the amount of any overdue principal of or interest on any Loan or any overdue fees due hereunder, by acceleration or otherwise, shall bear interest, payable on demand, at the Default Rate.
p.Alternate Rate of Interest
. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing, 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, or that the rates at which such Dollar deposits are being offered will not adequately and fairly reflect the cost to the majority of Lenders of making or maintaining Eurodollar Loans during such Interest Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO Rate, Agent shall, as soon as practicable thereafter, give written notice of such determination to the Administrative Loan Party and the Lenders. In the event of any such determination, until Agent shall have advised the Administrative Loan Party and the Lenders that the circumstances giving rise to such notice no longer exist (and Agent agrees promptly to give notice when Agent determines that such circumstances no longer exist), any request by Borrowers 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 Agent under this Section 2.08 shall be conclusive absent manifest error.
q.Termination and Reduction of Commitments
. The Revolving Credit Commitments, the Swingline Commitment and the L/C Commitment shall automatically terminate on the Revolving Credit Maturity Date.
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(53)Upon at least three Business Days’ prior written notice to Agent, Borrowers may at any time, without premium or penalty, in whole permanently terminate, or from time to time in part permanently reduce, the Revolving Credit Commitments or the Swingline Commitment; provided, however, that (i) each partial reduction of the Revolving Credit Commitments shall be in an integral multiple of $500,000 and in a minimum amount of $1,000,000, (ii) each partial reduction of the Swingline Commitment shall be in an integral multiple of $100,000 and in a minimum amount of $500,000 and (iii) the Total Revolving Credit Commitment shall not be reduced to an amount that is less than the Aggregate Revolving Credit Exposure at the time. Each notice delivered by Borrowers pursuant to this Section 2.09(b) shall be irrevocable; provided that a notice of termination or reduction of the Revolving Credit Commitments delivered by Borrowers may state that such notice is conditioned upon the effectiveness of other credit facilities or the receipt of proceeds from the issuance of other Indebtedness or Equity Interests or the consummation of a Change in Control, in which case such notice may be revoked by Borrowers (by notice to Agent on or prior to the specified effective date) if such condition is not satisfied.
(54)Each reduction in the Revolving Credit Commitments hereunder shall be made ratably among the Lenders in accordance with their respective Commitments. Borrowers shall pay to Agent for the account of the applicable Lenders, on the date of each termination or reduction, the accrued and unpaid 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.
r.Conversion and Continuation of Borrowings
. Borrowers shall have the right at any time upon prior irrevocable written notice to Agent (a) not later than 12:00 p.m., New York City time, one Business Day prior to conversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 12:00 p.m., 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 p.m., 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:
iii.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;
iv.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;
v.each conversion shall be effected by each Lender and Agent by recording for the account of such Lender the new Loan of such Lender resulting from such conversion and
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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 Borrowers at the time of conversion;
vi.if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, Borrowers shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.16;
vii.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;
viii.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; and
ix.upon notice to the Administrative Loan Party from 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 shall be in writing and irrevocable and shall refer to this Agreement and specify (A) the identity and amount of the Borrowing that Borrowers request be converted or continued, (B) whether such Borrowing is to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing, (C) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (D) 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, Borrowers shall be deemed to have selected an Interest Period of one month’s duration. Agent shall advise the Lenders of any notice given pursuant to this Section 2.10 and of each Lender’s portion of any converted or continued Borrowing. If Borrowers 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.
s.Protective Advances and Optional Overadvances
.
(55)Any contrary provision of this Agreement or any other Loan Document notwithstanding (including Sections 2.01 and 2.02), Agent hereby is authorized by Borrowers and the Lenders, from time to time in Agent’s sole discretion, (i) after the occurrence and during the continuance of a Default, or (ii) at any time that any of the other applicable conditions precedent set forth in Section 4.02 are not satisfied, to make Revolving Loans to, or for the benefit of, Borrowers on behalf of the Lenders that Agent, in its discretion deems necessary or
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desirable (A) to preserve or protect the Collateral, or any portion thereof, or (B) to enhance the likelihood of repayment of the Obligations (any of the Revolving Loans described in this Section 2.11(a) shall be referred to as “Protective Advances”) so long as (1) after giving effect to such Revolving Loans, the aggregate outstanding principal amount of all Protective Advances and Overadvances does not exceed an amount equal to 10% of the Total Revolving Credit Commitments, and (2) after giving effect to such Revolving Loans, the outstanding principal amount of the Aggregate Revolving Credit Exposure (including all outstanding Protective Advances and Overadvances) does not exceed an amount equal to the Total Revolving Credit Commitments.
(56)Any contrary provision of this Agreement or any other Loan Document notwithstanding, the Lenders hereby authorize Agent or the Swingline Lender, as applicable, and either Agent or the Swingline Lender, as applicable, may, but is not obligated to, knowingly and intentionally, continue to make Revolving Loans and/or Swingline Loans to Borrowers notwithstanding that, after giving effect thereto or at the time of making thereof, the Aggregate Revolving Credit Exposure exceeds the Borrowing Base (such Revolving Loans being referred to herein as “Overadvances”), so long as (i) after giving effect to such Revolving Loans or Swingline Loans, the aggregate outstanding amount of all Protective Advances and Overadvances does not exceed an amount equal to 10% of the Total Revolving Credit Commitments, and (ii) after giving effect to such Revolving Loans or Swingline Loans, the outstanding principal amount of the Aggregate Revolving Credit Exposure (including all outstanding Protective Advances and Overadvances) does not exceed an amount equal to the Total Revolving Credit Commitments. In the event Agent obtains actual knowledge that the aggregate outstanding amount of the Aggregate Revolving Credit Exposure exceeds the amounts permitted by the immediately foregoing provisions, regardless of the amount of, or reason for, such excess, Agent shall notify the Lenders as soon as practicable (and prior to making any (or any additional) intentional Overadvances (except for and excluding amounts charged to the loan account of Borrowers for interest, fees or expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or its value, in which case Agent may make such Overadvances and provide notice as promptly as practicable thereafter), and the Lenders thereupon shall, together with Agent, jointly determine the terms of arrangements that shall be implemented with Borrowers intended to reduce, within a reasonable time, the outstanding principal amount of the Aggregate Revolving Credit Exposure to an amount permitted by the preceding sentence. In such circumstances, if any Lender objects to the proposed terms of reduction or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination of the Required Lenders. In any event: (A) if any unintentional Overadvance remains outstanding for more than 30 days, unless otherwise agreed to by the Required Lenders, Borrowers shall immediately repay Revolving Loans in an amount sufficient to eliminate all such unintentional Overadvances, and (B) after the date all such Overadvances have been eliminated, there must be at least 30 consecutive days before intentional Overadvances are made. The foregoing provisions are meant for the benefit of the Lenders and Agent and are not meant for the benefit of Borrowers, which shall continue to be bound by the provisions of Section 2.01. Each Lender shall be obligated to settle with Agent in accordance with Agent’s customary procedures for the amount of such Lender’s Pro Rata Share of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances
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made as permitted under this Section 2.11(b), and any Overadvances resulting from the charging to the loan account of Borrowers for interest, fees or expenses.
(57)Each Protective Advance and each Overadvance shall be deemed to be a Revolving Loan hereunder; except, that, no Protective Advance or Overadvance shall be eligible to be a Eurodollar Loan and, prior to settlement therefor, all payments on the Protective Advances shall be payable to Agent solely for its own account. The Protective Advances and Overadvances shall be repayable on demand, secured by the Collateral, constitute Obligations hereunder, and bear interest at the rate applicable from time to time to Revolving Loans that are ABR Revolving Loans. The ability of Agent to make Protective Advances is separate and distinct from its ability to make Overadvances and its ability to make Overadvances is separate and distinct from its ability to make Protective Advances. The provisions of this Section 2.11 are for the exclusive benefit of Agent, the Swingline Lender and the Lenders and are not intended to benefit Borrowers in any way.
t.Voluntary Prepayment
. Borrowers shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days’ prior written notice (or telephone notice promptly confirmed by written notice) in the case of Eurodollar Loans, or written notice (or telephone notice promptly confirmed by written notice) at least one Business Day prior to the date of prepayment in the case of ABR Loans, to Agent before 12:00 p.m., New York City time; provided, however, that (i) each partial prepayment shall be in an amount that is (A) in the case of Eurodollar Loans, an integral multiple of $100,000 and not less than $500,000, and (B) in the case of ABR Loans, an integral multiple of $100,000 and not less than $500,000 and (ii) at Borrowers’ election in connection with any prepayment of Revolving Loans pursuant to this Section 2.12(a), such prepayment shall not, so long as no Event of Default then exists, be applied to any Revolving Loan of a Defaulting Lender.
(58)Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall, unless rescinded as provided below, be irrevocable and shall commit Borrowers to prepay such Borrowing by the amount stated therein on the date stated therein. Notwithstanding anything to the contrary contained in this Agreement, Borrowers may rescind any notice of prepayment under Section 2.12(a) by notice to Agent on the date of prepayment if such prepayment would have resulted from an acquisition, an Asset Sale or other disposition of assets or a refinancing of all or any portion of the applicable Class, which acquisition, Asset Sale, disposition or refinancing shall not be consummated or otherwise shall be delayed. All prepayments under this Section 2.12 shall be subject to any payments required to be made by Borrowers pursuant to Section 2.16, but otherwise may be made without premium or penalty. All prepayments under this Section 2.12 (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.
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(59)Notwithstanding the foregoing, no prior notice or minimum amounts shall apply to any prepayments of any Borrowing during a Cash Dominion Period.
u.Mandatory Prepayments
. In the event of any termination of all the Revolving Credit Commitments, Borrowers shall, on the date of such termination, repay or prepay all outstanding Revolving Credit Borrowings and all outstanding Swingline Loans and replace or cause to be canceled (or make other arrangements reasonably satisfactory to Agent and each Issuing Bank with respect to) all outstanding Letters of Credit issued by such Issuing Bank. 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 Borrowers shall, on the date of such reduction or at such other time, repay or prepay Revolving Credit Borrowings or Swingline Loans (or a combination thereof) and if, after the Revolving Credit Borrowings and Swingline Loans shall have been repaid or prepaid in full, the Aggregate Revolving Credit Exposure continues to exceed the Total Revolving Credit Commitment, then Borrowers shall Cash Collateralize or provide a backstop letter of credit with respect to such excess in accordance with Section 2.13(b).
(60)Upon receipt of notice and upon the request of Agent, if the L/C Exposure shall exceed the L/C Commitment on any date, Borrowers shall (i) Cash Collateralize such excess with an amount in cash equal to 102% of such excess as of such date or (ii) provide a backstop letter of credit in a face amount equal to 102% of such excess as of such date from an issuer and pursuant to arrangements reasonably satisfactory to Agent and each applicable Issuing Bank.
(61)If at any time the Aggregate Revolving Credit Exposure exceeds the Line Cap at such time, the Borrowers, jointly and severally, shall, without notice or demand, immediately first, repay or prepay Swingline Loans, second, repay or prepay Revolving Loans, and third, replace outstanding Letters of Credit or Cash Collateralize outstanding Letters of Credit in accordance with the procedures set forth in Section 2.23(k) in an aggregate amount sufficient to eliminate such excess; except, that, if the Aggregate Revolving Credit Exposure exceeds the Line Cap as a direct result of the establishment of a Reserve and not as a result of any other factor, such excess shall be repaid within five (5) days from the date such excess first exists. Mandatory prepayments of Loans made pursuant to this clause (c) shall not reduce the Total Revolving Credit Commitment.
(62)At any time during the continuance of a Cash Dominion Period, Loan Parties shall repay or prepay the Loans in an amount equal to 100% of the Net Cash Proceeds of any Collateral received from any Asset Sale (or any other disposition of Collateral) by any Loan Party or from any Casualty Event, such repayments to be made promptly but in no event more than three Business Days following receipt of such net cash proceeds, and until the date of payment, such proceeds shall be held in trust for Agent. If an Event of Default exists and is continuing, such repayment or prepayment shall be applied in accordance with Section 7.02. If no Event of Default exists and is continuing, such repayment or prepayment shall be applied against the Obligations as follows: first, to repay or prepay Swingline Loans, second, to repay or
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prepay Revolving Loans, and third, to replace outstanding Letters of Credit or Cash Collateralize outstanding Letters of Credit in accordance with the procedures set forth in Section 2.23(k). Mandatory prepayments of Loans made pursuant to this clause (d) shall not reduce the Total Revolving Credit Commitment.
(63)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, but shall otherwise be made without premium or penalty, 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.
v.Reserve Requirements; Change in Circumstances
.  Notwithstanding any other provision of this Agreement, if any Change in Law shall impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement against assets of, deposits with, or for the account of or credit extended by, any Lender or any Issuing Bank (except any such reserve requirement which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or such Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or increase the cost to any Lender or any Issuing Bank 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 or such Issuing Bank hereunder (whether of principal, interest or otherwise) by an amount deemed by such Lender or such Issuing Bank to be material, then from time to time as specified in paragraph (c) below, Borrowers will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.
(64)If any Lender or any Issuing Bank shall have determined that any Change in Law regarding capital adequacy or liquidity has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Bank’s capital or on the capital of such Lender’s or such Issuing Bank’s 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 such Issuing Bank pursuant hereto to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy) by an amount deemed by such Lender or such Issuing Bank to be material, then from time to time as specified in paragraph (c) below, Borrowers shall pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.
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(65)A certificate of a Lender or an Issuing Bank setting forth in reasonable detail the calculation of the amount or amounts (and the basis thereof) necessary to compensate such Lender or such Issuing Bank or its holding company, as applicable, as specified in paragraph (a) or (b) above shall be delivered to the Administrative Loan Party and shall be conclusive absent manifest error. Borrowers shall pay such Lender or such Issuing Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same.
(66) Failure or delay on the part of any Lender or any Issuing Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation; provided that Borrowers shall not be under any obligation to compensate any Lender or such Issuing Bank under paragraph (a) or (b) above with respect to increased costs or reductions incurred more than 180 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Administrative Loan Party of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or such Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. The protection of this Section 2.14 shall be available to each Lender and each Issuing Bank regardless of any possible contention of the invalidity or inapplicability of the Change in Law that shall have occurred or been imposed.
w.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 Administrative Loan Party and to Agent:
x. 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 for an additional Interest Period or to convert a Eurodollar Loan into an ABR Loan, as the case may be), unless such declaration shall be subsequently withdrawn (and each Lender shall promptly withdraw such declaration when such Lender determines that the circumstances giving rise thereto no longer exist); and
xi. 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.
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In the event any Lender shall exercise its rights under paragraph (a)(i) or (a)(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.
(67)For purposes of this Section 2.15, a notice to the Administrative Loan Party and Agent 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 Administrative Loan Party.
x.Breakage
. Borrowers shall indemnify each Lender against any loss or expense (excluding loss of anticipated profits) that such Lender may sustain or incur as a consequence of any event, other than a default by such Lender in the performance of its obligations hereunder, which results in (a) 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, (b) 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, (c) 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 Borrowers hereunder (whether or not such notice is permitted to be revoked, withdrawn or extended pursuant to the terms of this Agreement) or (d) any Eurodollar Loan to be prepaid by Borrowers not being prepaid after notice of prepayment of such Eurodollar Loan shall have been given by Borrowers hereunder (whether or not such notice is permitted to be revoked, withdrawn or extended pursuant to the terms of this Agreement). A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.16 (and setting forth in reasonable detail the calculations thereof and the basis therefor) shall be delivered to Borrowers and shall be conclusive absent manifest error.
y.Pro Rata Treatment
. Except as provided below in this Section 2.17 with respect to Swingline Loans and subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders, and as required under Section 2.15, 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 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 Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans); it being acknowledged that this Section 2.17 shall not apply to any payment received by any Lender as consideration for the assignment or participation in any Loan to any assignee or
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participant in accordance with this Agreement. For purposes of determining the available Revolving Credit Commitments of the Lenders at any time (other than to the extent provided in Section 2.05(a)), each outstanding Swingline Loan shall be deemed to have utilized the Revolving Credit Commitments of the Lenders (including those Lenders which shall not have made Swingline Loans) pro rata in accordance with such respective Revolving Credit Commitments. Each Lender agrees that in computing such Lender’s portion of any Borrowing to be made hereunder, Agent may, in its discretion, round each Lender’s percentage of such Borrowing to the next higher or lower whole Dollar amount.
z.Sharing of Setoffs
. Each Lender agrees that if it shall, through the exercise of a right of banker’s lien, setoff or counterclaim against Borrowers 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 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 banker’s 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 banker’s lien, setoff or counterclaim or other event; provided, however, that (a) if any such purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchases or adjustments shall be rescinded to the extent of such recovery and the purchase 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 Borrowers pursuant to and in accordance with the express terms of this Agreement or any payment received by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to Borrowers or any of its Affiliates (as to which the provisions of this Section 2.18 shall not apply). Borrowers 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 banker’s lien, setoff or counterclaim with respect to any and all moneys owing by Borrowers to such Lender by reason thereof as fully as if such Lender had made a Loan directly to Borrowers in the amount of such participation.
aa.Payments
. Borrowers 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
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other Loan Document not later than 12:00 p.m., New York City time, on the date when due in immediately available Dollars, without setoff, defense or counterclaim; provided that on the Revolving Credit Maturity Date or such earlier date the Revolving Credit Commitments are terminated pursuant to Section 2.09, the payment of principal, interest, Fees and other amounts owing hereunder shall be made not later than 5:00 p.m., New York City time. Any amounts received after such time on any date may, in the discretion of Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. Each such payment (other than Issuing Bank Fees, which shall be paid directly to the applicable Issuing Bank and principal of and interest on Swingline Loans, which shall be paid directly to the Swingline Lender except as otherwise provided in Section 2.22(d)) shall be made to Agent at its offices at 520 Madison Avenue, New York, NY 10022 (or such other office as Agent may specify in writing from time to time to the Administrative Loan Party and the Lenders). Agent shall promptly distribute to each Lender any payments received by Agent on behalf of such Lender.
(68)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.
ab.Taxes
. Except where required by a Governmental Authority, any and all payments by or on account of any obligation of Borrowers or any other Loan Party hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Taxes. If Agent or any Loan Party determines, in its reasonable discretion exercised in good faith, that it is so required to withhold Taxes, then Agent or such Loan Party or such Subsidiary may so withhold and shall timely pay the full amount of withheld Taxes to the relevant Governmental Authority in accordance with applicable law. If such Taxes are Indemnified Taxes or Other Taxes, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) Agent, each Lender and each Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrowers or such other Loan Party shall make such deductions and (iii) Borrowers or such other Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.
(69)In addition, Borrowers shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(70)Borrowers or applicable Loan Party, as the case may be, shall indemnify Agent, each Lender and each Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes payable or paid by Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of Borrowers or any other Loan Party hereunder or under any other Loan
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Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.20) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate setting forth in reasonable detail the basis for and the calculation of the amount of such payment or liability delivered to the Administrative Loan Party by a Lender or an Issuing Bank, or by Agent on behalf of itself, a Lender or an Issuing Bank, shall be conclusive absent manifest error.
(71)Each Lender shall severally indemnify Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes or Other Taxes attributable to such Lender (but only to the extent that Loan Parties have not already indemnified Agent for such Indemnified Taxes or Other Taxes and without limiting the obligation of Loan Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 9.04(f) 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 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 Agent shall be conclusive absent manifest error. Each Lender hereby authorizes 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 Agent to the Lender from any other source against any amount due to Agent under this paragraph (d).
(72)As soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrowers or any other Loan Party to a Governmental Authority, the Administrative Loan Party shall deliver to 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 Agent.
(73)Agent, each Lender and each Issuing Bank (collectively, “Recipients” and individually, a “Recipient”) that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) and that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which Borrowers are located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement or under any other Loan Document shall deliver to the Administrative Loan Party (with a copy to Agent) and, if required, to any applicable Governmental Authority, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Administrative Loan Party or Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. Without limiting the generality of the foregoing, each Recipient that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall deliver to the Administrative Loan Party and Agent on or prior to the date on which such Recipient becomes a party to this Agreement (and from time to time thereafter upon the expiration or invalidity of the certificate or any of the IRS forms described below, upon the request of the
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Administrative Loan Party or Agent, or as prescribed by applicable law), whichever of the following is applicable:
xii.two duly completed, executed, original copies of IRS Form W-BEN or IRS Form W-8BEN-E (or successor forms), as applicable, establishing eligibility for benefits of an income tax treaty to which the United States is a party or an exemption provided by the Code,
xiii. two duly completed, executed, original copies of IRS Form W-8ECI (or successor forms), establishing that such Recipient is not subject to deduction or withholding of United States Federal income tax,
xiv. in the case of such Recipient claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (A) two duly completed, executed, original copies of IRS Form W-8BEN or IRS Form W-8BEN-E (or successor forms), as applicable, and (B) a certificate certifying that such Recipient is not (1) a “bank” as such term is used in Section 881(c)(3)(A) of the Code, (2) a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of Parent or of a guarantor or (3) a controlled foreign corporation related, directly or indirectly, to Parent within the meaning of Section 864(d)(4) of the Code, or
xv.in the case of such Recipient not being the beneficial owner, two duly completed, executed, original copies of IRS Form W-8IMY, accompanied by IRS Form W8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, a certificate as described in clause (iii)(B) immediately above, and/or IRS Form W-9, as applicable from each beneficial owner.
Notwithstanding any other provisions of this paragraph, a Recipient shall not be required to deliver any form pursuant to this Section 2.20(f) (other than the IRS tax forms and related accompanying documentation described in clauses (i) through (iv) above) that such Recipient is not legally able to deliver.
(74)Each Recipient that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall deliver to the Administrative Loan Party and Agent on or prior to the date on which such Recipient becomes a party to this Agreement (and from time to time thereafter upon the expiration or invalidity of any of the certificates or IRS forms described below, upon the request of the Administrative Loan Party or Agent, or as prescribed by applicable law), two duly completed, executed, original copies of IRS Form W-9 certifying that such Lender or Agent, as applicable, is not subject to backup withholding.
(75)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 Administrative Loan Party and Agent at the time or times prescribed by law and at such time or times reasonably requested by the Administrative Loan Party or Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code)
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and such additional documentation reasonably requested by the Administrative Loan Party or Agent as may be necessary for Borrowers and Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this paragraph (h), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
(76)If Agent, the applicable Issuing Bank or a Lender 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 by Borrowers or with respect to which Borrowers have paid additional amounts pursuant to this Section 2.20, it shall pay over such refund to Borrowers (but only to the extent of indemnity payments made, or additional amounts paid, by Borrowers under this Section 2.20 with respect to the Taxes giving rise to such refund), net of all out of pocket expenses of Agent, such Issuing Bank or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that Borrowers, upon the request of Agent, the applicable Issuing Bank or such Lender, agrees to repay the amount paid over to Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to Agent, such Issuing Bank or such Lender in the event Agent, such Issuing Bank or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (i), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (i) 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 Section 2.20(i) shall not be construed to require Agent, any Issuing Bank or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to Borrowers or any other Person.
ac.Assignment of Commitments Under Certain Circumstances; Duty to Mitigate
. In the event (i) any Lender or any Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or any Issuing Bank delivers a notice described in Section 2.15, (iii) Borrowers are required to pay any additional amount to any Lender or any Issuing Bank or any Governmental Authority on account of any Lender or any Issuing Bank pursuant to Section 2.20, (iv) any Lender refuses to consent to any amendment, waiver or other modification of any Loan Document requested by Borrowers that requires the consent of a greater percentage of the Lenders than the Required Lenders and such amendment, waiver or other modification is consented to by the Required Lenders or (v) any Lender becomes a Defaulting Lender, then, in each case, Borrowers may, at their sole expense and effort (including with respect to the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Lender or such Issuing Bank, as the case may be, and Agent, require such Lender or such 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 to an Eligible Assignee that shall assume such assigned obligations and, with respect
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to clause (iv) above, shall consent to such requested amendment, waiver or other modification of any Loan Documents (which assignee may be another Lender, if a Lender accepts such assignment); provided that (A) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (B) Borrowers shall have received the prior written consent of Agent, each Issuing Bank and the Swingline Lender (unless such Person is the Lender being removed pursuant to this Section), which consents shall not unreasonably be withheld or delayed, and (C) Borrowers or such Eligible Assignee shall have paid to the affected Lender or the affected 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 such Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Lender or such Issuing Bank hereunder with respect thereto (including any amounts under Sections 2.14 and 2.16); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender’s or such Issuing Bank’s 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 such 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 such Issuing Bank pursuant to paragraph (b) below), or if such Lender or such 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 amendment, waiver, consent or other modification, as the case may be, then such Lender or such Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder. Each Lender and such Issuing Bank hereby grants to Agent an irrevocable power of attorney (which power is coupled with an interest) to execute and deliver, on behalf of such Lender or such Issuing Bank, as the case may be, as assignor, any Assignment and Acceptance necessary to effectuate any assignment of such Lender’s or such Issuing Bank’s interests hereunder in the circumstances contemplated by this Section 2.21(a).
(77)If (i) any Lender or any Issuing Bank shall request compensation under Section 2.14, (ii) any Lender or any Issuing Bank delivers a notice described in Section 2.15 or (iii) Borrowers are required to pay any additional amount to any Lender or any Issuing Bank or any Governmental Authority on account of any Lender or any Issuing Bank, pursuant to Section 2.20, then such Lender or such Issuing Bank shall use reasonable efforts (which shall not require such Lender or such 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 Borrowers or (y) if agreed to by Borrowers, 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.
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Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender or any Issuing Bank in connection with any such filing or assignment, delegation and transfer.
ad.Swingline Loans
.
(78)Swingline Commitment. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Swingline Lender agrees to make Swingline Loans to Borrowers at any time and from time to time after the Closing Date and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitments, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of all Swingline Loans to exceed $10,000,000, in the aggregate or (ii) the Aggregate Revolving Credit Exposure, after giving effect to any Swingline Loan, exceeding the Total Revolving Credit Commitment. Each Swingline Loan (i) shall be made and maintained as an ABR Loan and (ii) shall be in a principal amount that is an integral multiple of $100,000 and in a minimum amount of $100,000. The Swingline Commitment may be terminated or reduced from time to time as provided herein. Within the foregoing limits, Borrowers may borrow, pay or prepay and reborrow Swingline Loans hereunder, subject to the terms, conditions and limitations set forth herein. Notwithstanding anything to the contrary contained in this Section 2.22 or elsewhere in this Agreement, (i) the Swingline Lender shall not be obligated to make any Swingline Loan at a time when any Revolving Credit Lender is a Defaulting Lender unless the Swingline Lender has entered into arrangements satisfactory to it and Borrowers to eliminate the Swingline Lender’s risk with respect to any Defaulting Lender’s participation in such Swingline Loans, including by cash collateralizing such Defaulting Lender’s Pro Rata Percentage of the outstanding Swingline Loans, and (ii) the Swingline Lender shall not make any Swingline Loan after it has received written notice from Borrowers, any other Loan Party or the Required Lenders stating that a Default or an Event of Default exists and is continuing until such time as the Swingline Lender shall have received written notice (A) of rescission of all such notices from the party or parties originally delivering such notice or notices or (B) of the waiver of such Default or Event of Default in accordance with Section 9.08(b).
(79)Swingline Loans. The Administrative Loan Party shall notify, by delivery of a Borrowing Request, the Swingline Lender (with a copy to Agent) by email or telephone (promptly confirmed in writing), not later than 11:00 a.m., New York City time, on the day of a proposed Swingline Loan. Such Borrowing Request shall be delivered on a Business Day, shall be irrevocable and shall refer to this Agreement and shall specify the requested date (which shall be a Business Day) and amount of such Swingline Loan and the wire transfer instructions for the account of Borrowers to which the proceeds of the Swingline Loan should be disbursed. The Swingline Lender shall make each Swingline Loan by wire transfer to the account specified in such request.
(80)Prepayment. Borrowers shall have the right at any time and from time to time to prepay any Swingline Loan, in whole or in part, upon giving irrevocable written notice (or telephone notice promptly confirmed by written notice) to the Swingline Lender (with a copy
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to Agent) before 12:00 p.m., New York City time, on the date of prepayment at the Swingline Lender’s address for notices specified on Schedule 9.01.
(81)Participations. The Swingline Lender may by written notice given to Agent not later than 1:00 p.m., New York City time, on any Business Day, in its sole discretion, require the Revolving Credit Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding; provided that such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under paragraph (g) or (h) of Section 7.01 or upon the exercise of any of the remedies provided in the last paragraph of Section 7.01. Such notice shall specify the aggregate amount of Swingline Loans in which Revolving Credit Lenders will participate. Agent will, promptly upon receipt of such notice, give notice to each Revolving Credit Lender, specifying in such notice such Lender’s Pro Rata Percentage of such Swingline Loan or Loans. In furtherance of the foregoing, each Revolving Credit Lender hereby irrevocably, absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to Agent, for the account of the Swingline Lender, such Revolving Credit Lender’s Pro Rata Percentage of such Swingline Loan or Loans. Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Credit Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.02(c) with respect to Loans made by such Lender (and Section 2.02(c) shall apply, mutatis mutandis, to the payment obligations of the Lenders) and Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. Agent shall notify the Administrative Loan Party of any participations in any Swingline Loan acquired pursuant to this paragraph and thereafter payments in respect of such Swingline Loan shall be made to Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from Borrowers (or other Person on behalf of Borrowers) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to Agent and any such amounts received by Agent shall be promptly remitted by Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve Borrowers (or other Person liable for obligations of Borrowers) of any default in the payment thereof.
(82)Mandatory Borrowings. The Swingline Lender may by written notice given to Agent not later than 1:00 p.m., New York City time, on any Business Day, in its sole discretion, require that the Swingline Lender’s outstanding Swingline Loans shall be funded with one or more Borrowings of Revolving Loans; provided that such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under paragraph (g) or (h) of Section 7.01 or upon the exercise of any of the remedies provided in the last paragraph of Section 7.01, in which case one or more Borrowings of Revolving Loans constituting Base Rate Loans (each such Borrowing, a “Mandatory Borrowing”) shall be made on the immediately succeeding Business Day by all Revolving Credit Lenders based on their Pro
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Rata Percentage and the proceeds thereof shall be applied directly by Agent to repay the Swingline Lender for such outstanding Swingline Loans. Each Revolving Credit Lender hereby irrevocably, absolutely and unconditionally, agrees to make Revolving Loans upon one Business Day’s notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Lender. Each Revolving Credit Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.02(c) with respect to Loans made by such Lender (and Section 2.02(c) shall apply, mutatis mutandis, to the payment obligations of the Lenders) and Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. Agent shall notify the Administrative Loan Party of any Mandatory Borrowing made pursuant to this paragraph. Any amounts received by the Swingline Lender from Borrowers (or other Person on behalf of Borrowers) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a Mandatory Borrowing shall be promptly remitted to Agent and any such amounts received by Agent shall be promptly remitted by Agent to the Revolving Credit Lenders that shall have funded their obligations pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The refinancing of a Swingline Loan with a Mandatory Borrowing pursuant to this paragraph shall not relieve Borrowers (or other Person liable for obligations of Borrowers) of any default in the payment of such Mandatory Borrowing. Mandatory Borrowings shall be made upon the notice specified in above, with Borrowers irrevocably agreeing, by the incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as set forth in this Section 2.22(e).
(83)Defaulting Lenders. Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, in the event the Swingline Lender notifies Agent and the Administrative Loan Party that a Lender has not funded its participation pursuant to Section 2.22(d) or its pro rata share of a Mandatory Borrowing pursuant to Section 2.22(e), Borrowers shall, upon demand by the Swingline Lender, pay to Agent for the account of the Swingline Lender an amount equal to such Defaulting Lender’s unfunded participation or Pro Rata Percentage of the Loans required to be made pursuant to such Mandatory Borrowing, as the case may be, which amount shall be applied by Agent solely to reduce the aggregate principal amount of outstanding Swingline Loans; provided that no such payment by Borrowers shall change the status of a Defaulting Lender as such, or otherwise limit, reduce or qualify the obligations of any Lender with respect to its obligations under this Agreement or the other Loan Documents including without limitation to fund its Pro Rata Percentage of participations required by Section 2.22(d) or Loans made pursuant to a Mandatory Borrowing, in each case, after giving effect to any payments made by Borrowers pursuant to the terms of this sentence.
ae.Letters of Credit
. General. Borrowers may request the issuance of a Letter of Credit for its own account or for the account of any Loan Party (in which case Borrowers and such Loan Party shall be co-applicants with respect to such Letter of Credit), in form and substance reasonably acceptable to Agent and the applicable Issuing Bank, at any time and from time to time while the L/C Commitment remains in effect as set forth in Section 2.09(a); provided that all Letters of Credit shall be denominated in Dollars. This Section 2.23 shall not be construed to impose an
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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 2.23 or elsewhere in this Agreement, in the event that a Revolving Credit Lender is a Defaulting Lender, no Issuing Bank shall be required to issue any Letter of Credit unless such Issuing Bank has entered into arrangements satisfactory to it and Borrowers to eliminate the Issuing Bank’s risk with respect to the participation in Letters of Credit by such Defaulting Lender, including by (i) reallocating all or any part of such Defaulting Lender’s participation in Letters of Credit among the Non-Defaulting Lenders in accordance with Section 2.23(j) and/or (ii) Cash Collateralizing such Defaulting Lender’s Pro Rata Percentage of each L/C Disbursement in accordance with Section 2.23(k).
(84)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), Borrowers shall deliver in writing the applicable Issuing Bank and 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 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, Borrowers 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 $10,000,000 and (ii) the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving Credit Commitment.
(85)Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance of such Letter of Credit and the date that is five Business Days prior to the Revolving Credit Maturity Date, unless such Letter of Credit expires by its terms on an earlier date; provided, however, that a Letter of Credit may, upon the request of Borrowers, include a provision whereby such Letter of Credit shall be renewed automatically for additional consecutive periods of 12 months or less (but not beyond the date that is five Business Days prior to the Revolving Credit Maturity Date (unless cash collateralized or backstopped pursuant to arrangements reasonably satisfactory to the applicable Issuing Bank)) unless the applicable 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.
(86)Participations. By the issuance of a Letter of Credit and without any further action on the part of the applicable Issuing Bank or the Lenders, such Issuing Bank hereby grants to each Revolving Credit Lender, and each such Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender’s 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 Agent, for the
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account of the applicable Issuing Bank, such Lender’s Pro Rata Percentage of each L/C Disbursement made by such Issuing Bank and not reimbursed by Borrowers (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(f). Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph (d) 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.
(87)Reimbursement. If any Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, Borrowers shall pay to Agent an amount equal to such L/C Disbursement, not later than 12:00 p.m., New York City time, on the immediately following Business Day.
(88)Obligations Absolute. Borrowers’ obligations 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:
xvi. any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein;
xvii. 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;
xviii. the existence of any claim, setoff, defense or other right that Borrowers, any other Person Guaranteeing, or otherwise obligated with, Borrowers, any Subsidiary or other Affiliate thereof or any other Person may at any time have against the beneficiary under any Letter of Credit, the applicable Issuing Bank, 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;
xix. 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;
xx. payment by the applicable Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not strictly comply with the terms of such Letter of Credit; and
xxi. any other act or omission to act or delay of any kind of the applicable Issuing Bank, the Lenders, 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 2.23, constitute a legal or equitable discharge of Borrowers’ obligations hereunder.
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Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligations of Borrowers hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision) of the applicable Issuing Bank. However, the foregoing shall not be construed to excuse such Issuing Bank from liability to Borrowers to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are waived by Borrowers to the extent permitted by applicable law) suffered by Borrowers that are caused by such Issuing Bank’s (or its Related Parties’) gross negligence, bad faith or willful misconduct as determined in a final and non- appealable judgment by a court of competent jurisdiction when 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 applicable 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 issued by such Issuing Bank, (A) such Issuing Bank’s 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, and whether or not any document 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 (B) 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 such Issuing Bank (unless otherwise determined by a court of competent jurisdiction in a final and non-appealable decision).
(89)Disbursement Procedures. The applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall, as promptly as possible, give telephonic notification (confirmed in writing) to Agent and the Administrative Loan Party of such demand for payment and whether such Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve Borrowers of its obligation to reimburse such Issuing Bank and the Revolving Credit Lenders with respect to any such L/C Disbursement.
(90)Interim Interest. If any Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit issued by such Issuing Bank, then, unless Borrowers shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of such 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 Borrowers or the date on which interest shall commence to accrue thereon as provided in Section 2.02(f), at the rate per annum then applicable to ABR Revolving Loans.
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(91)Resignation or Removal of an Issuing Bank. Any Issuing Bank (other than any Issuing Bank which is also Agent, unless such Issuing Bank is resigning as Agent pursuant to Article VIII) may resign at any time by giving 30 days’ prior written notice to Agent, the Lenders and the Administrative Loan Party. Upon the acceptance of any appointment as an Issuing Bank hereunder by a Lender with the consent of the Administrative Loan Party and Agent (in each case not to be unreasonably withheld or delayed) that shall agree to serve as a successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of such retiring Issuing Bank. At the time such resignation shall become effective, Borrowers shall pay all accrued and unpaid fees pursuant to Section 2.05(c)(ii). The acceptance of any appointment as an Issuing Bank hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a form reasonably satisfactory to the Administrative Loan Party and Agent, and, from and after the effective date of such agreement, (i) such successor Lender shall have all the rights and obligations of such 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 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, but shall not be required to issue additional Letters of Credit.
(92)Reallocation of Participations to Reduce Fronting Exposure. All or any part of any Defaulting Lender’s participation in Letters of Credit shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Pro Rata Percentages (calculated without regard to such Defaulting Lender’s Revolving Credit Commitment) but only to the extent that (i) the conditions set forth in Section 4.01 are satisfied at the time of such reallocation (and, unless Borrowers shall have otherwise notified Agent at such time, Borrowers shall be deemed to have represented and warranted that such conditions are satisfied at such time), and (ii) such reallocation does not cause the aggregate Revolving Credit Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Revolving Credit Commitment. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation. If the reallocation described in this Section 2.23(j) cannot, or can only partially, be effected, Borrowers shall, without prejudice to any right or remedy available to it hereunder or under law, Cash Collateralize each Issuing Bank’s Fronting Exposure in accordance with the procedures set forth in Section 2.23(k).
(93)Cash Collateralization.
xxii.Defaulting Lenders. At any time that there shall exist a Defaulting Lender, within one Business Day following the written request of Agent or any Issuing Bank (with a copy to Agent), Borrowers shall Cash Collateralize each Issuing Bank’s Fronting Exposure with respect to such Defaulting Lender (determined after giving effect to Section
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2.23(j) and any Cash Collateral provided by such Defaulting Lender) in an amount not less than the Minimum Collateral Amount.
xxiii.Event of Default. If any Event of Default shall occur and be continuing, Borrowers shall (subject to the last sentence of clause (v) of this Section 2.23(k)), on the Business Day it receives notice from Agent or the Required Lenders, Cash Collateralize the L/C Exposure in an amount in cash equal to 102% of the L/C Exposure as of such date; provided that the obligation to Cash Collateralize shall become effective immediately, and such Cash Collateral will become immediately payable in immediately available funds, without demand or notice of any kind, upon the occurrence of an Event of Default described in Section 7.01(g) or 7.01(h).
xxiv.Grant of Security Interest. Borrowers hereby grant to Agent, for the benefit of the Issuing Banks and the Lenders, and agree to maintain, a first priority security interest in all such Cash Collateral as security for (A) Borrowers’ obligation to reimburse Agent pursuant to Section 2.23(e) and/or the Defaulting Lenders’ obligation to fund participations in respect of Letters of Credit and/or (B) Borrowers’ other Obligations, in each case to be applied pursuant to clause (iv) below. If at any time Agent determines that Cash Collateral is subject to any right or claim of any Person other than Agent and the Issuing Banks as herein provided, or that the total amount of such Cash Collateral is less than the Minimum Collateral Amount, Borrowers will (subject to the last sentence of clause (v) of this Section 2.23(k)), promptly upon demand by Agent, pay or provide to Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency.
xxv.Application. Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under this Section 2.23 in respect of Letters of Credit shall be applied (A) to the satisfaction of the Defaulting Lender’s obligation to fund participations in respect of Letters of Credit for which the Cash Collateral was so provided and (B) as set forth in clause (ii) above in connection with an Event of Default, in each case, prior to any other application of such property as may otherwise be provided for herein. Other than any interest earned on the investment of Cash Collateral in Permitted Investments, which investments shall be made at the option and sole discretion of Agent, Cash Collateral deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account and shall be treated for all purposes as additional Cash Collateral. Such deposits shall (x) automatically be applied by Agent to reimburse the Issuing Banks for L/C Disbursements for which they have not been reimbursed and (y) if the maturity of the Loans has been accelerated, be applied to satisfy the Obligations.
xxvi.Termination of Requirement. If Borrowers are required to provide Cash Collateral hereunder as a result of a Defaulting Lender, Cash Collateral (or the appropriate portion thereof) provided to reduce any Issuing Bank’s Fronting Exposure shall no longer be required to be held as Cash Collateral pursuant to this Section 2.23(k) following (x) the elimination of the applicable Fronting Exposure (including by the termination of Defaulting Lender status of the applicable Lender), or (y) the determination by Agent and the Issuing Banks that there exists excess Cash Collateral; provided that Borrowers and the Issuing Banks may
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agree that Cash Collateral shall be held to support future anticipated Fronting Exposure or other obligations; provided further that such Cash Collateral shall remain subject to the security interest granted pursuant to the Loan Documents. If Borrowers are required to provide 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 Borrowers within three Business Days after all Events of Default have been cured or waived.
af.Increase in Total Revolving Credit Commitments
.
(94)Subject to Section 2.24(d) below, Administrative Borrower may, at any time, deliver a written request to Agent to increase the Total Revolving Credit Commitments; provided that, any such increase shall be subject to each of the conditions set forth in Section 2.24(c), any such written request shall specify the amount of the increase in the Total Revolving Credit Commitments that Administrative Borrower is requesting; the aggregate amount of any and all such increases in the Total Revolving Credit Commitments shall not exceed $20,000,000 or cause the Total Revolving Credit Commitments to exceed $40,000,000, the amount of each increase in the Total Revolving Credit Commitments shall not be less than $5,000,000, such requests may not be made more than two (2) times during the term of the Agreement, and any such request shall be irrevocable.
(95)Upon the receipt by Agent of any such written request, Agent shall notify each of the Lenders of such request and each Lender (other than Defaulting Lenders) shall have the option (but not the obligation) to increase the amount of its Revolver Commitment by an amount approved by Agent in its sole discretion, after consultation with Administrative Borrower, of the amount of the increase in the Total Revolving Credit Commitments requested by Administrative Borrower as set forth in the notice from Agent to such Lender. Each Lender shall notify Agent within ten (10) days after the receipt of such notice from Agent whether it is willing to so increase its Revolving Credit Commitment, and if so, the amount of such increase; provided that, no Lender shall be obligated to provide such increase in its Revolving Credit Commitment and the determination to increase the Revolving Credit Commitment of a Lender shall be within the sole and absolute discretion of such Lender. If the aggregate amount of the increases in the Total Revolving Credit Commitments received from the Lenders does not equal or exceed the amount of the increase in the Total Revolving Credit Commitments requested by Administrative Borrower, Agent or Administrative Borrower may seek additional increases from Lenders (other than Defaulting Lenders) or Revolving Credit Commitments from such Eligible Assignees as it may determine, after, in the case of Administrative Borrower, consultation with Agent. In the event Lenders (or Lenders and any such Eligible Assignees, as the case may be) have committed in writing to provide increases in their Revolving Credit Commitments or new Revolving Credit Commitments in an aggregate amount in excess of the increase in the Total Revolving Credit Commitments requested by Administrative Borrower or permitted hereunder, Agent shall then have the right to allocate such commitments, first to Lenders and then to Eligible Assignees, in such amounts and manner as Agent may determine, after consultation with Administrative Borrower.
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(96)The Total Revolving Credit Commitments shall be increased by the amount of the increase in Revolving Credit Commitments from Lenders or new Commitments from Eligible Assignees, in each case selected in accordance with Section 2.24(b), for which Agent has received written confirmation in from and substance satisfactory to Agent from such Lenders or Eligible Assignees, as applicable, on the date requested by Administrative Borrower for the increase or such other date as Agent and Administrative Borrower may agree (but subject to the satisfaction of the conditions set forth below), whether or not the aggregate amount of the increase in Revolving Credit Commitments and new Revolving Credit Commitments, as the case may be, equal or exceed the amount of the increase in the Total Revolving Credit Commitments requested by Administrative Borrower in accordance with the terms hereof (but in no event shall the Total Revolving Credit Commitments be increased above the amounts described in Section 2.24(a)), effective on the date that each of the following conditions have been satisfied (such date being the “Total Revolving Credit Commitments Increase Effective Date”):
xxvii.Agent shall have received from each Lender or Eligible Assignee that is providing an additional Revolving Credit Commitment as part of the increase in the Total Revolving Credit Commitments, a written confirmation described above duly executed by such Lender or Eligible Assignee, Agent and Administrative Borrower;
xxviii.the conditions precedent to the making of Advances set forth in Sections 4.01(b) and 4.01(c) shall be satisfied as of the date of the increase in the Total Revolving Credit Commitments, both before and immediately after giving effect to such increase whether or not a Loan is then being made;
xxix.upon the request of Agent, Agent shall have received an opinion of counsel to Loan Parties in form and substance and from counsel reasonably satisfactory to Agent addressing such matters as Agent may reasonably request;
xxx.such increase in the Total Revolving Credit Commitments on the date of the effectiveness thereof shall not violate any term or provisions of any applicable law, regulation or order or decree of any court or other Governmental Authority and shall not be enjoined, temporarily, preliminarily or permanently;
xxxi.there shall have been paid to Agent, for the account of Agent and Lenders (in accordance with any agreement among them) all fees and expenses (including reasonable and documented out-of-pocket fees and expenses of counsel) due and payable pursuant to any of the Loan Documents on or before the effectiveness of such increase to the extent relating to such increase; and
xxxii.Agent shall have received evidence reasonably satisfactory to Agent that such increase in the Total Revolving Credit Commitments shall not violate any of the terms of the Master Lease Facility Documents and that all Obligations at any time arising hereunder, after giving effect to such increase in the Total Revolving Credit Commitments, shall not be prohibited thereunder.
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(97)As of a Total Revolving Credit Commitments Increase Effective Date, each reference to the term Total Revolving Credit Commitments herein, and in any of the other Loan Documents shall be deemed amended to mean the amount of the Total Revolving Credit Commitments specified in the written notice from Agent to Administrative Borrower of the increase in the Total Revolving Credit Commitments.
(98)As of the Closing Date, each Loan Party acknowledges, confirms and agrees that Agent and Lenders do not have credit approval to increase the Total Revolving Credit Commitments as in effect on the Closing Date and the terms and provisions of this Section 2.24 shall not constitute or be deemed to constitute a commitment by Agent or any Lender to increase the Total Revolving Credit Commitments as in effect on the Closing Date.
(99)This Section 2.24 shall supersede any provisions in Section 2.17, 2.18 or 9.08 to the contrary.
ag.Joint and Several Liability of Borrowers
.
(100)Each Borrower is accepting joint and several liability hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Lender Group under this Agreement, for the mutual benefit, directly and indirectly, of each Borrower and in consideration of the undertakings of the other Borrowers to accept joint and several liability for the Obligations.
(101)Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations (including any Obligations arising under this Section 2.25), it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each Borrower without preferences or distinction among them.
(102)If and to the extent that any Borrower shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Borrowers will make such payment with respect to, or perform, such Obligations.
(103)The Obligations of each Borrower under the provisions of this Section 2.25 constitute the absolute and unconditional, full recourse Obligations of each Borrower enforceable against each Borrower to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of the provisions of this Agreement (other than this Section 2.25(d)) or any other circumstances whatsoever.
(104)Except as otherwise expressly provided in this Agreement and the other Loan Documents, each Borrower hereby waives notice of acceptance of its joint and several liability, notice of any Revolving Loans or Letters of Credit issued under or pursuant to this
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Agreement, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Each Borrower hereby waives notice of any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Agent or Lenders at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any Borrower. So long as any of the Obligations hereunder remain unsatisfied, the Obligations of each Borrower under this Section 2.25 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each Borrower under this Section 2.25 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any other Borrower or Agent or Lender.
(105)Each Borrower represents and warrants to Agent and Lenders that such Borrower is currently informed of the financial condition of the other Borrowers and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower further represents and warrants to Agent and Lenders that such Borrower has read and understands the terms and conditions of the Loan Documents. Each Borrower hereby covenants that such Borrower will continue to keep informed of the other Borrowers’ financial condition and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations.
(106)The provisions of this Section 2.25 are made for the benefit of Agent, each member of the Lender Group, each Bank Product Provider, and their respective successors and assigns, and may be enforced by it or them from time to time against any or all Borrowers as often as occasion therefor may arise and without requirement on the part of Agent, any member of the Lender Group, any Bank Product Provider, or any of their respective successors or assigns first to marshal any of its or their claims or to exercise any of its or their rights against any Borrower or to exhaust any remedies available to it or them against any Borrower or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.25 shall remain in effect until all of the Obligations shall have been paid in full, in each case, in accordance with the express terms of this Agreement. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by Agent or any Lender upon the insolvency, bankruptcy or reorganization of any Borrower, or otherwise, the provisions of this Section 2.25 will forthwith be reinstated in effect, as though such payment had not been made.
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(107)Each Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against any other Borrower with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to Agent or Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been paid in full, in each case, in accordance with the terms of this Agreement. Any claim which any Borrower may have against any other Borrower with respect to any payments to Agent or any member of the Lender Group hereunder or under any of the Bank Product Agreements are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor.
(108)Each Borrower hereby agrees that after the occurrence and during the continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Obligations shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Borrower as trustee for Agent, and such Borrower shall deliver any such amounts to Agent for application to the Obligations in accordance with the terms of this Agreement.
(109)Each Borrower hereby agrees that, to the extent any Borrower shall have paid more than its proportionate share of any payment made hereunder, such Borrower shall be entitled to seek and receive contribution from and against any other Borrower hereunder which has not paid its proportionate share of such payment, in an amount not to exceed the highest amount that would be valid and enforceable and not subordinated to the claims of other creditors as determined in any action or proceeding involving any state corporate, limited partnership or limited liability law, or any applicable state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally. Each such Borrower’s right of contribution shall be subject to the terms and conditions of clauses (h) and (i) of this Section 2.25. The provisions of this clause (j) shall in no respect limit the obligations and liabilities of any Borrower to the Agent or any member of the Lender Group, and each Borrower shall remain liable to the Agent and the Lender Group for the full amount such Borrower agreed to repay hereunder.
ah.Defaulting Lenders
.
(110)Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Revolving Credit Lender becomes a Defaulting Lender, then, until such time as such Revolving Credit Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
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xxxiii.Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of “Required Lenders”.
xxxiv.Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by Agent for the account of any Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VII or otherwise) or received by Agent from a Defaulting Lender pursuant to Section 9.06 shall be applied at such time or times as may be determined by Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to Agent hereunder; second, to the payment of any amounts owing by such Defaulting Lender to the Swingline Lender and any Issuing Bank hereunder; third, to Cash Collateralize each Issuing Bank’s Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.23(k); fourth, as the Administrative Loan Party may request (so long as no Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by Agent; fifth, if so determined by Agent and the Administrative Loan Party, to be held in a deposit account and released pro rata in order to (A) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (B) Cash Collateralize each Issuing Bank’s future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.23(k); sixth, to the payment of any amounts owing to the Lenders or the Issuing Banks as a result of any judgment of a court of competent jurisdiction obtained by any Lender or any Issuing Bank against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Event of Default exists, to the payment of any amounts owing to Borrowers as a result of any judgment of a court of competent jurisdiction obtained by Borrowers against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (1) 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 (2) 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 Letters of Credit are held by the Revolving Credit Lenders pro rata in accordance with the Revolving Credit Commitments without giving effect to Section 2.23(j). 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 shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
xxxv. Certain Fees. No Defaulting Lender shall be entitled to receive any Commitment Fee for any period during which that Revolving Credit Lender is a Defaulting Lender (and Borrowers shall not be required to pay any such Commitment Fee that otherwise would have been required to have been paid to that Defaulting Lender).
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a.Each Defaulting Lender shall be entitled to receive L/C Participation Fees for any period during which that Revolving Credit Lender is a Defaulting Lender only to the extent allocable to its Pro Rata Percentage of the stated amount of Letters of Credit for which it has provided Cash Collateral.
b. With respect to any fees not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, Borrowers shall (1) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in Letters of Credit that has been reallocated to such Non-Defaulting Lender pursuant to Section 2.23(j), (2) pay to each applicable Issuing Bank the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such Issuing Bank’s Fronting Exposure to such Defaulting Lender, and (3) not be required to pay the remaining amount of any such fee.
(111)Defaulting Lender Cure. If the Administrative Loan Party, Agent and each Issuing Bank agree in writing that a Revolving Credit Lender is no longer a Defaulting Lender, Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Revolving Credit Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Revolving Credit Lenders or take such other actions as Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit to be held pro rata by the Revolving Credit Lenders in accordance with the Revolving Credit Commitments (without giving effect to Section 2.23(j)), whereupon such Revolving Credit Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to actions taken by the Required Lenders (including approval of amendments, waivers and similar actions) and fees accrued or payments made by or on behalf of Borrowers while that Revolving Credit Lender was a Defaulting Lender; provided further that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Non-Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
ARTICLE III.REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to Agent, each Issuing Bank and each of the Lenders, on the Closing Date (giving effect to the Transactions to occur on such date) and on the date of each Credit Event (giving effect to the use of proceeds of such Credit Event), that:
ai.Organization; Powers
. (a) Each Loan Party and each Subsidiary (other than each Immaterial Subsidiary) is duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (b) each Loan Party and each Subsidiary (other than each Immaterial Subsidiary) has all requisite power and authority and all material requisite
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governmental licenses, authorizations, consents and approvals to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) each Loan Party and each Subsidiary is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect and (d) each Loan Party and each Subsidiary 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 Borrowers, to borrow hereunder.
aj.Authorization
. The Transactions (a) have been duly authorized by all requisite corporate, partnership, limited liability company, and, if required, stockholder, partner or member action, as applicable, of each Loan Party and each Subsidiary, (b) will not (i) violate (A) any provision of law, statute, rule or regulation, (B) any order of or undertaking with any Governmental Authority or (C) any provision of any indenture, agreement or other instrument to which any Loan Party or any Subsidiary is a party or by which any of them or any of their property is bound, except such violation as could not reasonably be expected to have a Material Adverse Effect, (ii) be in 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 indenture, agreement or other instrument, except where the consequences thereof could not reasonably be expected to have a Material Adverse Effect, or (iii) result in the creation or imposition of (or the obligation to create or impose) any Lien upon or with respect to any property or assets now owned or hereafter acquired by any Loan Party or any Subsidiary (other than the Liens created hereunder and under the Security Documents), (c) will not violate any provision of the certificate or articles of incorporation or certificate of formation or other constitutive documents or by-laws, partnership agreement or limited liability company agreement of any Loan Party or any Subsidiary, and (d) will not require the consent of any party to a Material Contract except those consents (i) which have been duly obtained, made or complied with prior to the Closing Date and which are in full force and effect or (ii) which the failure to obtain could not reasonably be expected to have a Material Adverse Effect.
ak.Enforceability
. Each Loan Document has been duly executed and delivered by each Loan Party, and constitutes a legal, valid and binding obligation of each such Loan Party enforceable against each such Loan Party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
al.Governmental Approvals
. The Transactions do not require any consent or approval of, registration or filing with, certificate, certification, permit, license or authorization from, or any other action by any
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Governmental Authority, in each case, except for (a) the filing of Uniform Commercial Code financing statements and filings with the United States Patent and Trademark Office and (if applicable) the United States Copyright Office, (b) any other required filings in respect of any Collateral and (c) such as have been made or obtained and are in full force and effect.
am.Financial Statements; Projections
.
(112)Reference is made to the consolidated balance sheets and related consolidated statements of income, cash flows and stockholder’s equity of Parent and its consolidated Subsidiaries as of and for the fiscal year ended December 31, 2018, and the report thereon of Grant Thornton LLP, and (y) as of and for the fiscal quarters ended March 31, 2019 and June 30, 2019. Such financial statements present fairly in all material respects the consolidated financial condition and results of operations and cash flows of Parent and its consolidated Subsidiaries as of such dates and for such periods. Such balance sheets and the notes thereto disclose all material liabilities, direct or contingent, of Parent and its consolidated Subsidiaries, as of the dates thereof to the extent required to be disclosed by GAAP. Such financial statements were prepared in accordance with GAAP applied on a consistent basis except as otherwise noted therein subject, in the case of unaudited financial statements, to normal year-end audit adjustments and the absence of footnotes.
(113)Reference is made to the forecasts of financial performance of Loan Parties for the fiscal years 2019 through 2023 (the “Projections”) delivered by Loan Parties to Agent. Loan Parties represent that the Projections were prepared in good faith based upon assumptions believed by management of Loan Parties to be reasonable at the time delivered, it being understood and acknowledged that the Projections are as to future events and are not to be viewed as facts, are subject significant uncertainties and contingencies, many of which are beyond Loan Parties’ control, that no assurances can be given that such projected results will be realized and that actual results during the period or periods covered thereby may differ significantly from the projected results and such differences may be material.
an.No Material Adverse Change
. Since December 31, 2018, there has been no change in the business, assets, liabilities, operations or condition (financial or otherwise) of any Loan Party or any Subsidiary that has had, or could reasonably be expected to have, a Material Adverse Effect.
ao.Title to Properties; etc
. Each Loan Party and each Subsidiary has good and valid title to, or valid leasehold interests in, or valid license to use, all its material properties and assets (including all material Real Property but excluding Loan Party Intellectual Property which is addressed in Section 3.24), in each case, except for minor defects that, individually or in the aggregate, do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets
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for their intended purposes. All such material properties and assets are free and clear of all Liens except for Permitted Liens.
ap.Subsidiaries
. Schedule 3.08(a) sets forth, as of the Closing Date, a list of (i) each Loan Party and each Subsidiary and its jurisdiction of incorporation or organization as of the Closing Date and (ii) all Subsidiaries and the direct or indirect percentage ownership interest of Loan Party therein. The shares of capital stock or other ownership interests so indicated on Schedule 3.08(a) are duly and validly issued and fully paid and non-assessable and are owned by Loan Parties or the respective Subsidiary thereof as indicated on such Schedule 3.08(a) (other than with respect to Subsidiaries that have been sold or otherwise disposed of in accordance with Section 6.05), directly or indirectly, free and clear of all Liens (other than (A) Liens created under the Security Documents, (B) in the case of shares of capital stock or other ownership interests constituting Collateral, any Permitted Liens that arise by operation of applicable legal requirements and are not voluntarily granted and (C) in all other cases, any Permitted Liens).
(114)Schedule 3.08(b) sets forth, as of the Closing Date, (i) a list of the Immaterial Subsidiaries and (ii) for each such Immaterial Subsidiary, the total assets and gross revenues of such Immaterial Subsidiary as of, and for the twelve month period ended on, June 30, 2016 and the percentage that such total assets and gross revenues represent in relation to the Consolidated Total Assets and gross revenues of Loan Parties and each Subsidiary as of, and for the twelve month period ended on, such date.
aq.Litigation; Compliance with Laws
. Except as set forth on Schedule 3.09(a), there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or, to the knowledge of Loan Parties, threatened against any Loan Party or any Subsidiary or any business, property or rights of any such Person (i) that involve any Loan Document, or the Transactions or (ii) as to which there is a reasonable possibility of an adverse result that could reasonably be expected to result in a Material Adverse Effect.
(115)No Loan Party or Subsidiary is in violation of any law, rule or regulation (including all applicable Environmental Laws), or is in default with respect to any judgment, writ, injunction, decree or order of or undertaking with any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect.
ar.Agreements
. No Loan Party or Subsidiary is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other 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 could reasonably be expected to result in a Material Adverse Effect.
as.Federal Reserve Regulations
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. No Loan Party or Subsidiary is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying Margin Stock (within the meaning of Regulation U), or extending credit for the purpose of purchasing or carrying Margin Stock and no proceeds of any Borrowings or drawings under 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 Regulation T, U or X. As of the Closing Date, no Loan Party or any Subsidiary owns Margin Stock. If at any time a Loan Party or a Subsidiary owns any Margin Stock, Loan Parties shall promptly notify Agent and, if requested by Agent, Loan Parties will furnish to Agent and each Lender a statement in conformity with the requirements of FR Form G 3 or FR Form U 1, as applicable, referred to in Regulation U. At the time of each Credit Event, not more than 25% of the value of the assets of Loan Parties and their Subsidiaries taken as a whole (including all capital stock of Loan Parties held in treasury) will constitute Margin Stock.
at.Investment Company Act; etc
. No Loan Party or Subsidiary is (a) an “investment company” or a company “controlled” by an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended, or (b) subject to regulation under any requirement of law (other than Regulation X) that limits its ability to incur, create, assume or permit to exist Indebtedness or grant any Guarantee in respect of Indebtedness.
au.Use of Proceeds
. Borrowers will use the proceeds of the Loans and will request the issuance of Letters of Credit only for the purposes specified in Section 5.08.
av.Tax Matters
. Except as could not reasonably be expected to have a Material Adverse Effect, each Loan Party and each Subsidiary has timely filed or caused to be timely filed all Federal, state local and foreign tax returns required to have been filed by it and all such tax returns are true and correct and has duly paid or caused to be duly paid all taxes (whether or not shown on any tax return) due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which such Loan Party or such Subsidiary shall have set aside on its books adequate reserves in accordance with GAAP.
aw.No Material Misstatements
. No written information, report, financial statement, exhibit or schedule furnished by or on behalf of Loan Parties to Agent or any Lender with respect to Loan Parties and Subsidiaries in connection with the negotiation of this Agreement or any other Loan Document or included therein or delivered pursuant thereto (as modified or supplemented by other information so furnished), taken as a whole, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were or are made, not misleading. With respect to projected financial information,
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pro forma financial information, budgets, estimates and other forward- looking information, Loan Parties represent that such information was prepared in good faith based upon assumptions believed by management of Loan Parties to be reasonable at the time delivered, it being understood and acknowledged that such projected financial information, pro forma financial information, budgets, estimates and other forward-looking information are as to future events and are not to be viewed as facts, are subject significant uncertainties and contingencies, many of which are beyond Loan Parties’ control, that no assurances can be given that such projected results will be realized and that actual results during the period or periods covered thereby may differ significantly from the projected results and such differences may be material.
ax.Plans
. Loan Parties, each Subsidiary and each of their respective ERISA Affiliates are in compliance with the applicable provisions of ERISA with respect to all Plans, other than noncompliance which could not reasonably be expected to result in a Material Adverse Effect. Each Plan complies, and is operated and maintained in compliance, with all applicable legal requirements, including all applicable provisions of ERISA and the Code, other than any such noncompliance which could not reasonably be expected to result in a Material Adverse Effect. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination (or, if such Plan uses a prototype or volume submitter plan document has received a favorable opinion or advisory) from the Internal Revenue Service that the form meets the tax qualification requirements and nothing has occurred which could reasonably be expected to prevent, or reasonably be expected to cause the loss of, such qualification.
(116)No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in a Material Adverse Effect. Within the last six years, no Plan has been terminated, whether or not in a “standard termination” as that term is used in Section 4041 of ERISA, nor has any Plan (determined at any time within the last six years) with an Unfunded Pension Liability been transferred outside of the “controlled group” (within the meaning of Section 4001(a)(14) of ERISA) of any Loan Party, each Subsidiary or any of their ERISA Affiliates. Using actuarial assumptions and computation methods consistent with subpart I of subtitle E of Title IV of ERISA, the aggregate liabilities of the any Loan Party, each Subsidiary or any of their ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Multiemployer Plan, have not resulted in, and could not reasonably be expected to result in, a Material Adverse Effect.
ay.Environmental Matters
. Except with respect to any matters that could not reasonably be expected to result in a Material Adverse Effect, no Loan Party or any Subsidiary (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, or (iii) is subject to any pending or threatened (in writing) action, suit, claim, investigation, or other judicial or administrative proceeding by any Person under any Environmental Law.
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az.Insurance
. Schedule 3.18 sets forth a true, complete and correct description of all insurance maintained by Loan Parties and any Subsidiary as of the Closing Date. As of the Closing Date, such insurance is in full force and effect. Loan Parties and Subsidiaries maintain, with financially sound and reputable insurers, such insurance as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as are customary for such Persons.
ba.Security Documents
. The Guarantee and Collateral Agreement, upon execution and delivery thereof by the parties thereto, will create in favor of 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 (i) when the Pledged Collateral (as defined in the Guarantee and Collateral Agreement) is delivered to Agent together with stock, membership interest powers or other appropriate instruments of transfer duly executed in blank, the Lien created under the Guarantee and Collateral Agreement shall constitute a fully perfected first priority Lien on, and security interest in, all right, title and interest of Loan Parties party thereto in such Pledged Collateral, in each case prior and superior in right to any other Person, and subject only to Permitted Liens that arise by operation of applicable legal requirements and are not voluntarily granted, and (ii) when financing statements in appropriate form are filed in the offices specified on Schedule 3.19(a), the Lien created under the Guarantee and Collateral Agreement will constitute a fully perfected Lien on, and security interest in, all of the right, title and interest of Loan Parties party thereto in such Collateral (other than Loan Party Intellectual Property) to the extent a security interest may be perfected by the filing of a financing statement pursuant to the UCC, in each case prior and superior in right to any other Person, and subject only to Permitted Liens.
(117)Upon the recordation of the Guarantee and Collateral Agreement (or a short-form security agreement in form and substance reasonably satisfactory to the Administrative Loan Party and Agent) with, as and if applicable, the United States Patent and Trademark Office and the United States Copyright Office, together with the financing statements or such other filings in appropriate form filed in the offices specified on Schedule 3.19(a), the Lien created under the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all of the right, title and interest of Loan Parties party thereto in Loan Party Intellectual Property to the extent a security interest may be perfected by the filing of a financing statement pursuant to the UCC and/or such recordation in, as applicable, the United States Patent and Trademark Office and the United States Copyright Office, in each case prior and superior in right to any other Person, and subject only to Permitted Liens (it being understood that subsequent filings and recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary with respect to U.S. issued Patents and U.S. Patent applications, U.S. Trademark registrations and U.S. trademark applications and U.S. Copyright registrations acquired by the applicable Loan Parties after the date hereof).
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bb.Locations of Real Property
.
(118)As of the Closing Date, Schedule 3.20 contains a true and complete list of each fee ownership interest of each Loan Party and each Subsidiary in any Real Property and the address (including street address, county and state) of each such parcel of Real Property.
(119)As of the Closing Date, Schedule 3.20 contains a true and complete list of each interest in each applicable Leasehold of each Loan Party and each Subsidiary and the addresses (including street addresses, counties and states) of all applicable leases, subleases, franchises or licenses thereof.
bc.Labor Matters
. Except as could not reasonably be expected to result in a Material Adverse Effect, (a) there are no strikes, lockouts or slowdowns against any Loan Party or any Subsidiary pending or, to the knowledge of Loan Parties, threatened, (b) the hours worked by and payments made to employees of Loan Parties and 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 and (c) all payments due from any Loan Party or any Subsidiary, or for which any claim may be made against the any Loan Party or any 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 the such Loan Party or such Subsidiary. As of the Closing Date, no Loan Party or any Subsidiary is a party to any collective bargaining agreement.
bd.Solvency
. On the Closing Date, after giving effect to the Transactions and the related transactions contemplated by the Loan Documents, Loan Parties and Subsidiaries, on a consolidated basis, are Solvent.
be.Anti-Corruption and Sanctions
. No Loan Party or any Subsidiary nor, to the knowledge of Loan Parties, any of their respective officers or directors is in violation of any applicable Sanctions.
(120)No Loan Party or any Subsidiary nor, to the knowledge of Loan Parties, any director, officer, agent, employee, broker or other agent of any Loan Party or any Subsidiary, is a Sanctioned Person. Borrowers will not directly or indirectly use the proceeds of the Loans or the Letters of Credit or otherwise make available such proceeds (i) to any Sanctioned Person or in any Sanctioned Country, or (ii) in any manner that would cause a violation of Sanctions by any party to this Agreement.
(121)No Loan Party or any Subsidiary and, to the knowledge of Loan Parties, no broker or other agent of any Loan Party or any Subsidiary acting in any capacity in connection with the Loans (i) conducts any business or engages in making or receiving any
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contribution of funds, goods or services to or for the benefit of any Sanctioned Person or in any Sanctioned Country or (ii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the applicable Sanctions.
(122)No Loan Party or any Subsidiary, nor any director or officer thereof, nor to the knowledge of Loan Parties, any agent, employee or other Person acting, directly or indirectly, on behalf of any Loan Party or any Subsidiary, has, in the course of its actions for, or on behalf of, any Loan Party or any Subsidiary, directly or indirectly (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, (ii) made any direct or indirect unlawful offers, payment, promises to pay, or authorizations of the payment or giving of money or anything else of value to any foreign or domestic government official or employee from corporate funds, (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977 or any other applicable anti-corruption laws, or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
(123)No part of the proceeds of the Loans or the Letters of Credit will be used by Borrowers or any other Loan Party, directly or indirectly, for any unlawful or improper offers, payments, promises to pay, or authorizations of the payment or giving of anything else of value to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper or undue advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, or any other applicable anti-corruption laws.
bf.Intellectual Property
. Each Loan Party and each Subsidiary owns or is licensed to use, free and clear of all Liens (other than Permitted Liens), all Intellectual Property used in the conduct of its business (the “Loan Party Intellectual Property”).
(124)No claim has been asserted or is pending by any Person challenging the use by any Loan Party or any Subsidiary of any Loan Party Intellectual Property or the validity or enforceability of any Loan Party Intellectual Property, nor does any Loan Party know of any valid basis for any such claim, other than any such claims that could not reasonably be expected to result in a Material Adverse Effect.
(125)(i) To the knowledge of Loan Parties, no other Person is infringing, misappropriating or violating any right of the any Loan Party or any Subsidiary in any Loan Party Intellectual Property, (ii) no Loan Party or any Subsidiary is infringing upon, violating or misappropriating any Intellectual Property of another person, and (iii) no proceedings have been instituted or are pending against any Loan Party or any Subsidiary or threatened, and no written notice from any other Person has been received by any Loan Party or any Subsidiary, alleging any such infringement violation or misappropriation except (in the case of each of the preceding clauses (i) through (iii)) where the consequences thereof could not reasonably be expected to result in a Material Adverse Effect.
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bg.Eligible Receivables
. As to each Receivable (or portion thereof) that is identified by Borrowers as an Eligible Receivable in the most recent Borrowing Base Certificate submitted to Agent, such Receivable is (a) a bona fide existing payment obligation of the applicable Customer created by the sale and delivery of Inventory or the rendition of services to such Customer in the ordinary course of Borrowers’ business, and (b) not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definition of “Eligible Receivables” (that are not any Agent-discretionary criteria) as in effect at such time.
bh.Eligible Inventory
. As to each item of Inventory that is identified by Borrowers as Eligible Inventory in the most recent Borrowing Base Certificate submitted to the Agent, such Inventory is (a) of good and merchantable quality, free from known defects, and (b) not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definition of “Eligible Inventory” (that are not any Agent-discretionary criteria) as in effect at such time.
bi.Location of Inventory
. Except for (a) Inventory shipped F.O.B. Customer and for which title has not yet transferred and (b) Inventory at, or in transit to, a third-party terminal for purposes of spot sales, all Inventory of Loan Parties is located only at, or in-transit between, the locations identified on Schedule 1.01(d) (as such Schedule may be updated in accordance with the terms of this Agreement).
bj.Inventory Records
. Each Loan Party keeps correct and accurate records itemizing and describing in all material respects the type, quality, and quantity of its and its Subsidiaries’ Inventory and the book value thereof.
ARTICLE IV.CONDITIONS OF LENDING
The obligations of the Lenders to make Loans and of the Issuing Banks to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions:
bk.All Credit Events
. On the date of each Borrowing (other than a conversion or a continuation of a Borrowing under Section 2.10 or a Mandatory Borrowing), including each Borrowing of a Swingline Loan, and on the date of each issuance, amendment, extension or renewal of a Letter of Credit (each such event being called a “Credit Event”):
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(126)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(f)) or, in the case of the issuance, amendment, extension or renewal of a Letter of Credit, the applicable Issuing Bank and Agent shall have received a notice requesting the issuance, amendment, extension or renewal of such Letter of Credit as required by Section 2.23(b) or, in the case of the Borrowing of a Swingline Loan, the Swingline Lender and Agent shall have received a notice requesting such Swingline Loan as required by Section 2.22(b).
(127)The representations and warranties set forth in Article III and in each other Loan Document shall be true and correct in all material respects 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 they shall be true and correct in all material respects as of such earlier date; provided that any representation and warranty that is qualified as to “materiality,” “Material Adverse Effect” or similar language shall be true and correct (after giving effect to any qualification contained therein) in all respects.
(128)At the time of and immediately after such Credit Event (and the use of proceeds thereof), no Default or Event of Default shall have occurred and be continuing.
Each Credit Event after the Closing Date shall be deemed to constitute a representation and warranty by Borrowers on the date of such Credit Event as to the matters specified in paragraphs (b) and (c), as applicable, of this Section 4.01.
bl.First Credit Event
. On the Closing Date:
(129)Agent shall have received, on behalf of itself, the Lenders and the Issuing Banks, a favorable written opinion of each of Alston & Bird LLP and Fox Rothschild LLP, counsel for Loan Parties (i) dated the Closing Date, (ii) addressed to Agent, the Lenders and the Issuing Banks, and (iii) in form and substance reasonably satisfactory to Agent, and Loan Parties hereby request such counsel to deliver such opinion.
(130)Agent shall have received (i) a copy of the certificate or articles of incorporation, certificate of formation or partnership agreement, as applicable, including all amendments thereto, of each Loan Party and each Subsidiary, certified as of a recent date by the Secretary of State of the state of its organization (other than in the case of an unregistered general partnership) and a certificate as to the good standing (in so called “long-form”, if available) of each Loan Party and each Subsidiary as of a recent date from such Secretary of State (or a comparable governmental official) (other than in the case of an unregistered general partnership) and an electronic bring-down good standing certificate of each Loan Party and each Subsidiary by the Corporation Service Company as of the Closing Date, (ii) a certificate of the Secretary or Assistant Secretary of the Administrative Loan Party dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws or limited liability company agreement (if any), as applicable, of each Loan Party and each Subsidiary as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause
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(B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of each Loan Party and each Subsidiary authorizing the execution, delivery and performance of each Loan Party and each Subsidiary’s obligations under the Loan Documents to which such Loan Party or such Subsidiary is a party and, in the case of Borrowers, the incurrence of Loans and the issuance of Letters of Credit 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 certificate of formation, as applicable, of each Loan Party and each Subsidiary has 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 each Loan Party and each Subsidiary, and (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above.
(131)Agent and the Sole Lead Arranger shall have received all Fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced at least two Business Days prior to the Closing Date, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by Borrowers hereunder, under any other Loan Document or under Agent Fee Letter shall have been paid.
(132)This Agreement and the Security Documents 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 and Agent on behalf of the Secured Parties shall have a security interest in the Collateral of the type and priority described in each Security Document.
(133)Agent shall have received all Pledged Securities (as defined in the Guarantee and Collateral Agreement), if any, required to be delivered to Agent on the Closing Date pursuant to the Guarantee and Collateral Agreement, together with duly executed undated blank stock powers, or other equivalent instruments of transfer reasonably acceptable to Agent.
(134)Agent shall have received a Perfection Certificate with respect to Loan Parties dated the Closing Date and duly executed by a Responsible Officer of the Administrative Loan Party , and shall have received the results of a search of the Uniform Commercial Code filings (or equivalent filings), tax lien filings and judgment lien filings made with respect to Loan Parties in the states (or other jurisdictions) of formation of such Persons, jurisdictions in which the chief executive office of each such Person is located and in the other jurisdictions in which such Persons maintain real property, 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 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.
(135)Prior to the initial Borrowing hereunder, all principal, premium, if any, interest, fees and other amounts due or outstanding under the Existing Credit Agreement shall have been paid in full, the commitments thereunder shall have been terminated and all guarantees and security in support thereof shall have been discharged and released, and Agent shall have
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received reasonably satisfactory evidence thereof. Immediately after giving effect to the Transactions and the other transactions contemplated hereby, Loan Parties shall have no outstanding Indebtedness or preferred stock other than (i) Indebtedness outstanding under this Agreement and (ii) the other Indebtedness set forth on Schedule 6.01(a).
(136)The Lenders shall have received the historical financial statements and the Projections referred to in Section 3.05.
(137)Agent shall have received a solvency certificate from a Responsible Officer of the Administrative Loan Party in the form of Exhibit F.
(138)Agent shall have received, at least three Business Days prior to the Closing Date (to the extent requested at least 10 Business Days prior to the Closing Date), all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act.
(139)Agent shall have received fully executed payoff letters (or other evidence of repayment) from all creditors being repaid (in whole or in part) in connection with the making of the initial Loans, along with appropriate Lien releases.
(140) except for any litigation disclosed to Agent prior to May 31, 2019, no litigation, investigation or proceeding before or by any arbitrator or Governmental Authority shall be continuing or threatened in writing against any Loan Party or against the officers or directors of any Loan Party which, in the reasonable opinion of Agent, is deemed material and no injunction, writ, restraining order or other order of any nature materially adverse to any Loan Party or the conduct of its business or inconsistent with the due consummation of the transactions contemplated by this Agreement shall have been issued by any Governmental Authority.
(141)Agent shall have received duly executed Account Control Agreements relating to Loan Parties’ Deposit Account and Securities Accounts with financial institutions granting to Agent a Lien therein, which control agreements shall be consistent with the requirements of Section 3.03(k) of the Guarantee and Collateral Agreement and shall be otherwise in form and substance satisfactory to Agent.
(142)Since June 30, 2019, there shall not have occurred any event, condition or state of facts which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
(143)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, each of which shall be endorsed or otherwise amended to name Agent (i) as an “additional insured party for the benefit of the Secured Parties” in the case of liability insurance policies or (ii) as “lender loss payee for the benefit of the Secured Parties” in the case of casualty and property insurance policies.
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(144)Agent shall have received fully executed copies of the Master Lease Facility Documents, all of which shall be in full force and effect on the Closing Date.

ARTICLE V.AFFIRMATIVE COVENANTS
Loan Parties covenant and agree 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 payable under any Loan Document (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing) shall have been paid in full and all Letters of Credit have been canceled or have expired (or any L/C Exposure has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank) and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing:
bm.Existence; Compliance with Laws; Businesses and Properties
.
(145)Each Loan Party shall (i) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence under the laws of the State of Delaware, any other state of the United States of America or the District of Columbia and (ii) cause each Subsidiary (other than each Immaterial Subsidiary) to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, in each case except as otherwise expressly permitted under Section 6.05.
(146)Except to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect, each Loan Party shall, and shall cause each Subsidiary to, (i) 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, Trademarks and trade names (and all other Intellectual Property) material or necessary to the conduct of its business, (ii) comply with all applicable laws, rules, regulations and decrees and orders of any Governmental Authority whether now in effect or hereafter enacted, and (iii) at all times maintain and preserve all property necessary to the conduct of its business and keep such property in good repair, working order and condition (ordinary wear and tear and damage by casualty and condemnation excepted).
bn.Insurance
. Each Loan Party shall, and shall cause each Subsidiary to:
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(147)Keep its insurable properties adequately insured at all times by financially sound and reputable insurers and maintain such other insurance as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses in similar locations, in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons.
(148)With respect to any new insurance policy obtained after the Closing Date, cause any such insurance policy covering any Collateral to be endorsed or otherwise amended to include a customary lender’s loss payable endorsement, in form and substance reasonably satisfactory to Agent; deliver to Agent a certificate of a Responsible Officer of the Administrative Loan Party attaching copies of all such policies; cause each such policy to provide that neither a Loan Party, Agent, nor any other party shall be a coinsurer (other than with respect to the payment of deductibles); cause each such policy to contain a non-cancellation endorsement reasonably satisfactory to Agent; and deliver to 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 Agent).
bo.Obligations and Taxes
. Each Loan Party shall, and shall cause each Subsidiary to, (a) pay its Indebtedness and other obligations promptly and in accordance with their terms, except where the failure to pay could not reasonably be expected to have a Material Adverse Effect, and (b) 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 (1)(A) the validity or amount thereof shall be contested in good faith by appropriate proceedings, (B) each Loan Party and each Subsidiary shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP, and (C) such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien or (2) the failure to make any such payment or discharge could not reasonably be expected to result in a Material Adverse Effect.
bp.Financial Statements, Reports, etc
. Loan Parties shall furnish to Agent, for distribution to each Lender or to the requesting Lender (as applicable):
(149)Annual Reports. Within 90 days after the end of each fiscal year (commencing with the fiscal year ended December 31, 2019), the consolidated balance sheet and related consolidated statements of income, stockholders’ equity and cash flows showing the financial condition of Parent and Subsidiaries as of the close of such fiscal year and the consolidated results of its operations during such year, together with comparative figures for the immediately preceding fiscal year, audited by Grant Thornton LLP or other independent public
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accountants of recognized national standing and accompanied by an opinion of such accountants (which opinion shall be without any qualification or exception as to the scope of such audit and shall not include an explanatory paragraph expressing substantial doubt about the ability of Parent or any of Subsidiaries to continue as a going concern (other than solely with respect to, or expressly resulting from, an upcoming maturity of the Loans or termination of the Revolving Credit Commitments)) stating that such consolidated financial statements fairly present in all material respects the financial condition and results of operations of Parent and Subsidiaries on a consolidated basis as of the dates and for the periods specified in accordance with GAAP consistently (except as otherwise disclosed therein) applied; provided, however that delivery to the Lenders of a Form 10-K filed by any Loan Party with the SEC that includes the financial statements and auditors report required hereby shall be deemed to satisfy the requirements of this paragraph (a);
(150)Quarterly Reports. Within 45 days after the end of each of the first three fiscal quarters of each fiscal year (commencing with the fiscal quarter ending September 30, 2019), the consolidated balance sheet and related consolidated statements of income, stockholders’ equity and cash flows showing the financial condition of Parent and Subsidiaries as of the close of such fiscal quarter and the consolidated results of Loan Parties’ operations 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, certified by a Responsible Officer of the Administrative Loan Party as fairly presenting in all material respects the financial condition and results of operations of Parent and Subsidiaries on a consolidated basis in accordance with GAAP consistently (except as otherwise disclosed therein) applied, subject to normal year-end audit adjustments and the absence of required footnote disclosures; provided, however, that delivery to the Lenders of a Form 10-Q filed by Parent with the SEC that includes the financial statements required hereby shall be deemed to satisfy the requirements of this paragraph (b);
(151)Financial Officer’s Certificates. (i) Concurrently with any delivery of financial statements under Section 5.04(a) or (b), a duly completed Compliance Certificate;
(152)Borrowing Base Certificates and Notices of Cash Dominion Period and Covenant Compliance Period. (i) No later than 20 days after the end of each month and (ii) at any time during a Cash Dominion Period, within three Business Days after the end of each week, a Borrowing Base Certificate (which shall be calculated as of the last Business Day of the immediately preceding month (in the case of Borrowing Base Certificates delivered pursuant to the preceding clause (i)) or week (in the case of Borrowing Base Certificates delivered pursuant to the preceding clause (ii))). All calculations of the Borrowing Base and Excess Availability in the Borrowing Base Certificate shall originally be made by the Administrative Loan Party and certified by Responsible Officer of the Administrative Loan Party; provided that, Agent may from time to time review and adjust any such calculation, each in its Permitted Discretion to the extent the calculation is not made in accordance with this Agreement or does not accurately reflect, as of the date of the Borrowing Base Certificate most recently delivered to Agent, the Reserves;
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(153)Collateral Reporting. (i) No later than 20 days after the end of each month and (ii) at any time during a Cash Dominion Period within three Business Days after the end of each week, a report in form and detail reasonably satisfactory to Agent (A) summarizing all Receivables of Borrowers as of the last Business Day of the immediately preceding month (in the case of a report delivered pursuant to the preceding clause (i)) or week (in the case of a report delivered pursuant to the preceding clause (ii)), which shall include the amount and age of each such Receivable, showing separately those that are less than 30 days old, and more than 30, 60, 90 and 120 days old and such other information as Agent may reasonably request (together with a reconciliation to the previous month’s aging and the general ledger), (B) inventory summary reports by division (and including the amounts of Inventory and the value thereof at any leased locations and at premises of warehouses, processors or other third parties), (C) summary aging of outstanding accounts payable, and (D) such other schedules, documents, reports and information as to the Collateral and Borrowing Base as Agent shall reasonably request from time to time;
(154)Budgets. Within 60 days after the beginning of each fiscal year of Parent, beginning with the fiscal year starting January 1, 2020, a consolidated budget of Parent and Subsidiaries in form reasonably satisfactory to Agent (including a projected consolidated balance sheet and related statements of projected operations and cash flows and setting forth the assumptions used for purposes of preparing such budget) for each fiscal month of such fiscal year prepared in detail accompanied by a certificate of a Financial Officer of the Administrative Loan Party stating that such budget has been prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed by such Financial Officer to be reasonable at the time such budget was furnished, it being understood that such budget is not to be viewed as fact or as a guarantee of performance or achievement of any particular results and that actual results may vary from such budget and that such variations may be material and that no assurance can be given that the projected results will be realized;
(155)Certification of Public Information. Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by any Loan Party or Subsidiary with the SEC, or with any national securities exchange, or distributed to its shareholders generally, as the case may be;
(156)KYC/USA PATRIOT Act. 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;
(157)Notices re: Equity Holders and Master Lease Facility Documents. Promptly furnish to Agent (A) with copies of such financial statements, reports and returns as each Loan Party and their Subsidiaries shall send to its equity holders generally and (B) copies of all material notices or reports sent or received by any Loan Party or any Subsidiary in connection with, along with all amendments, modifications and new documents with respect to, the Master Lease Facility Documents;
(158)Other Information. Promptly, from time to time, such other information regarding the operations, business affairs or financial condition of any Loan Party or any
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Subsidiary, or compliance with the terms of any Loan Document, as Agent may reasonably request; and
(159)Intellectual Property. A list of all material Copyrights owned by Loan Parties which is the subject of an issuance, registration or pending application in any intellectual property registry, which has been acquired, filed or issued since the previous update was provided to Agent, such updates to be provided within thirty (30) days of acquisition, filing or issuance for such Copyrights, and at such other times as may be reasonably requested by Agent.
bq.Litigation and Other Notices
. Loan Parties shall furnish to Agent, for distribution to each Lender, prompt written notice when any Responsible Officer of any Loan Party has obtained knowledge of any of the following:
(160)the occurrence of a Default or an Event of Default, specifying the nature and extent thereof and the steps (if any) taken or proposed to be taken with respect thereto;
(161)the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, (i) against any Loan Party or any Subsidiary that could reasonably be expected to result in a Material Adverse Effect or (ii) with respect to any Loan Document;
(162)the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;
(163)the occurrence of a default or an event of default under, or the early termination of, any Material Contract; and
(164)any other development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect.
br.Certain Information Regarding Loan Parties
. Loan Parties shall furnish to Agent 10 days prior written notice (or such shorter period as may be satisfactory to Agent in its sole discretion) of any change (a) in the corporate name of any Loan Party, (b) in the jurisdiction of organization or formation of any Loan Party, (c) in the identity or corporate structure of any Loan Party or (d) in the Federal Taxpayer Identification Number of any Loan Party.
bs.Maintaining Records; Access to Properties and Inspections; Quarterly Conference Calls
.
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(165)Loan Parties shall, and shall cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries in conformity in all material respects with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities. Loan Parties shall permit any representatives designated by Agent or any Lender to, upon written notice to the Administrative Loan Party, visit and inspect the financial records and the properties of any Loan Party or any Subsidiary at reasonable times and to make extracts from and copies of such financial records, and permit any representatives designated by Agent or any Lender to discuss the affairs, finances and condition of such Person with the officers thereof and (provided that a representative of Loan Parties is given the opportunity to be present) independent accountants therefor; provided that, any such visit and inspection by Agent in excess of one per calendar year (other than visits and inspections conducted while an Event of Default is continuing) shall be at the expense of Agent and any such visit and inspection by a Lender shall be at the expense of such Lender.
(166)At the request of the Required Lenders, Loan Parties shall, within 60 days after the end of each of the first three fiscal quarters of each fiscal year, host a conference call (the cost of which conference call to be paid by Loan Parties), with representatives of Agent and the Lenders who choose to attend upon reasonable prior notice to be held at such time as reasonably designated by the Administrative Loan Party (in consultation with Agent and the Lenders), at which conference call shall be discussed the financial results of the previous fiscal quarter and the year-to-date financial condition of Loan Parties and Subsidiaries; provided, however, that Parent’s regular quarterly earnings call with its shareholders shall be deemed to satisfy the requirements of this clause (b).
bt.Use of Proceeds
. Each Loan Party will not, and will not permit any of its Subsidiaries to, use the proceeds of any Loan made hereunder for any purpose other than (a) on the Closing Date, (i) to repay, in full, the outstanding principal, accrued interest, and accrued fees and expenses owing under or in connection with the Existing Credit Facility, and (ii) to pay the fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for their lawful and permitted purposes; provided that (x) no part of the proceeds of the Loans will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors, (y) no part of the proceeds of any Loan or Letter of Credit will be used, directly or indirectly, to make any payments to a Sanctioned Entity or a Sanctioned Person, to fund any investments, loans or contributions in, or otherwise make such proceeds available to, a Sanctioned Entity or a Sanctioned Person, to fund any operations, activities or business of a Sanctioned Entity or a Sanctioned Person, or in any other manner that would result in a violation of Sanctions by any Person, and (z) that no part of the proceeds of any Loan or Letter of Credit will be used, directly or indirectly, in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Sanctions, Anti-Corruption Laws or Anti-Money Laundering Laws.
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bu.Locations of Inventory/Designated Subleased Equipment
.
(167)Except for (i) Inventory shipped F.O.B. Customer and for which title has not yet transferred and (ii) Inventory at, or in transit to, a third-party terminal for purposes of spot sales, each Loan Party will keep its Eligible Inventory and its books and records only at the locations identified on Schedule 1.01(d); provided that Loan Parties may amend Schedule 1.01(d) so long as such amendment occurs by written notice to Agent not less than ten days (or such later date as permitted by Agent in its sole discretion) prior to the date on which such Inventory is moved to such new location and, with respect to any leased location or warehouse location, so long as each Loan Party uses commercially reasonable efforts to provide Agent a Collateral Access Agreement with respect thereto from the landlord or warehouseman of such location, if any.
(168)As of the Closing Date, all Designated Subleased Equipment and each Designated Subleased Equipment Lease is set forth on Schedule 1.01(b). Loan Parties agree to provide Agent with a new Schedule 1.01(b) on a quarterly basis which schedule shall replace Schedule 1.01(b) to this Agreement and shall set forth a list of all Designated Subleased Equipment and each Designated Subleased Equipment Lease as of the last day of such quarter. Each such schedule shall be delivered to as part of the Compliance Certificate required to be delivered in connection with the delivery of the quarterly financial statements under Section 5.04(b).
bv.Compliance with Environmental Laws
. Except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect, each Loan Party shall, and shall cause each Subsidiary to, (a) comply, and use commercially reasonable efforts to cause all lessees and other Persons occupying its properties to comply, with all Environmental Laws applicable to its operations and properties, (b) obtain and renew all environmental permits necessary for its operations and properties, and (c) conduct any investigation, study, sampling, monitoring, testing or remedial action in connection with any Hazardous Materials in accordance with Environmental Law; provided, however, that no Loan Party or Subsidiary shall be required to undertake any such action required by 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.
bw.Notifications Regarding Environmental Matters
. Loan Parties shall provide prompt written notice to Agent, for distribution to each Lender: (a) upon receipt of any written claim alleging that any Loan Party or any Subsidiary is subject to an Environmental Liability that could reasonably be expected to result in a Material Adverse Effect; (b) upon receipt of a written request for information or other written notice that any Loan Party or any Subsidiary is subject to investigation with respect to a potential Environmental Liability where such matter could reasonably be expected to result in a Material
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Adverse Effect; (c) upon discovery of a Release of Hazardous Materials at or from any location where such Release could reasonably be expected to result in a Material Adverse Effect; and (d) upon discovery of a violation of an applicable Environmental Law where such violation could reasonably be expected to result in a Material Adverse Effect. At any time after a Release of Hazardous Materials has occurred at any Real Property of a Loan Party or any Subsidiary, at the request of Agent, Administrative Loan Party shall provide to Agent within 60 days after such request an environmental assessment report regarding any such Real Property where such Release has occurred and the estimated cost of any compliance or response to address any Environmental Liability with respect to such Real Property, prepared at Loan Parties’ expense by an environmental consulting firm reasonably acceptable to Agent. If such report is not timely provided, Agent may retain an environmental consulting firm to prepare such report at the expense of Loan Parties, and Agent and its agents and representatives are hereby granted an irrevocable non-exclusive license, subject to the rights of tenants, to enter onto the applicable Real Property to undertake such an assessment.
bx.Further Assurances; Additional Guarantors and Borrowers; Additional Collateral
. 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 and obtaining legal opinions, lien searches, or other items that the Required Lenders or Agent may otherwise reasonably request in order to effectuate the transactions contemplated by the Loan Documents (including the transactions contemplated by this Section 5.12) 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); provided, however, that (i) the foregoing provision shall not require, and the Loan Documents shall not contain any requirements as to, (A) notices to be sent to account debtors or other contractual third-parties except following the occurrence and during the continuance of an Event of Default, (B) landlord waivers and other third-party access or statutory lien subordinations or waivers, (C) the perfection of security interests in (1) motor vehicles and other assets subject to certificates of title statutes to the extent a Lien thereon cannot be perfected by the filing of a Uniform Commercial Code financing statement (or the equivalent), and (2)(x) letters of credit and letter of credit rights which (I) do not constitute supporting obligations and (II) are not in excess of $1,000,000 individually, or $2,500,000 in the aggregate for all such letters of credit and letter of credit rights of Loan Parties and (y) commercial tort claims which (I) require any additional action by any Loan Party to grant or perfect a security interest in such commercial tort claim and (II) are not in excess of $2,500,000, in each case, other than the filing of a Uniform Commercial Code financing statement (or the equivalent) and (D) the perfection of pledges or security interests granted to Agent in particular assets if and for so long as the cost of perfecting such pledges or security interests in such assets are excessive in relation to the practical benefits to be obtained by the Secured Parties therefrom, as reasonably determined by Agent in consultation with the Administrative Loan Party and (ii) the Liens required to be granted from time to time shall be subject to exceptions and limitations set forth in this Agreement and the Security Documents.
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(169)With respect to any person that becomes a Subsidiary of a Loan Party after the Closing Date (other than any Immaterial Subsidiary or any Excluded Subsidiary), promptly (and in any event within 60 days (or such longer time period as Agent shall approve in its sole discretion) after such person becomes a Subsidiary) (i) deliver to Agent the certificates, if any, representing all of the Equity Interests of such Subsidiary owned by a Loan Party (except to the extent constituting Excluded Assets (as defined in the Security Agreement) and except to the extent being held by any other secured party as bailee for perfection purposes in accordance with any intercreditor agreement), together with undated stock powers or other appropriate instruments of transfer executed and delivered in blank by a duly authorized officer of the holder(s) of such Equity Interests, and all intercompany notes owing from such Subsidiary to any Loan Party together with instruments of transfer executed and delivered in blank by a duly authorized officer of such Loan Party or such Subsidiary and (ii) in the case such Subsidiary is a Domestic Subsidiary (other than an Excluded Subsidiary), cause such new Domestic Subsidiary to (A) execute a Joinder Agreement to become a Subsidiary Guarantor (or, to the extent such Subsidiary is not an Immaterial Subsidiary and if requested by the Administrative Loan Party and approved by Agent in its Permitted Discretion, a Borrower), (B) deliver to Agent an opinion or opinions of counsel to such Domestic Subsidiary in form and substance, and from counsel, reasonably satisfactory to Agent, and (C) take all actions necessary or advisable in the opinion of Agent to cause the Lien created by the applicable Security Document to be duly perfected to the extent required by such Security Document in accordance with all applicable Legal Requirements, including the filing of financing statements (or equivalent registrations) in such jurisdictions as may be reasonably requested by Agent.
(170)From time to time, Loan Parties, at their cost and expense, promptly secure the applicable Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its assets and properties included in the Collateral (excluding, for the avoidance of doubt, any property that is excluded as Collateral under the Guarantee and Collateral Agreement (including any Excluded Assets (as such term is defined in the Guarantee and Collateral Agreement)) and subject to any limitations set forth therein or herein on obtaining or perfecting security interests in certain types of Collateral). Such security interests and Liens will be created under and as required by the Security Documents and other security agreements and other instruments and documents in form and substance reasonably satisfactory to Agent and the applicable Loan Party, and the applicable Loan Party shall deliver or cause to be delivered to Agent all such instruments and documents (including, to the extent applicable, legal opinions, lien searches, and other documents of the type required by Sections 4.02(a), 4.02(b), 4.02(d), 4.02(e) and 4.02(f)) as Agent shall reasonably request to evidence compliance with this Section 5.12(c). Notwithstanding the foregoing, no Loan Party shall be required to provide a mortgage, deed of trust, deed to secured debt or other Security Document to create a Lien on or with respect to any Real Property (or any interest in Real Property, other than fixtures to the extent included as Collateral under the Guarantee and Collateral Agreement).
(171)If, as of the last day of the most recently ended period for which financial statements have been delivered pursuant to Section 5.04(a) or 5.04(b), as the case may be, either (i) the total assets of all Immaterial Subsidiaries in the aggregate shall exceed 5% of the
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Consolidated Total Assets or (ii) the gross revenues of all Immaterial Subsidiaries in the aggregate shall exceed 5% of the consolidated gross revenues of Loan Parties (collectively, the “Immaterial Subsidiary Thresholds”), Loan Parties shall, effective as of the date of the delivery of such financial statements, designate one or more Subsidiaries (other than an Excluded Subsidiary) that is an Immaterial Subsidiary as a Subsidiary that shall be deemed not to be an Immaterial Subsidiary (each a “Designated Subsidiary”) such that, after giving effect to such designation, neither of the Immaterial Subsidiary Thresholds are exceeded as of the last day of such most recently ended period.
by.Collateral Field Examinations/Appraisals
.
(172)Borrowers agree that Agent (and their respective agents, representatives and consultants) shall be permitted to conduct from time to time collateral field examinations with respect to the assets included in the Borrowing Base (and related assets); provided that, (i) each collateral field examination shall be conducted concurrently (and not separately) by Agent, (ii) Agent shall only be permitted to conduct one collateral field examinations in the aggregate at Borrowers’ expense in any 12 month period; provided further that (A) if during any 30 day period in such 12 month period, Borrowers have Excess Availability of less than 15.0% of the Line Cap for 3 days, there may be one additional field examination during such12 month period at the expense of Borrowers, and (B) during the existence and continuance of an Event of Default, there shall be no limit on the number of additional collateral field examinations at Borrowers’ expense. Neither Agent nor any Lender shall have any duty to any Loan Party to make any inspection, nor to share any results of any inspection or report with any Loan Party. Each Loan Party acknowledges that all inspections and reports are prepared by Agent and the Lenders for their purposes and Borrowers shall not be entitled to rely upon them. Any field examinations conducted in connection with a Permitted Acquisition shall be in addition to any field examinations under this Section 5.13(a).
(173)Upon Agent’s request, Borrowers shall, at their expense, deliver or cause to be delivered to Agent an Inventory Appraisal, but so long as no Event of Default shall exist or have occurred and be continuing, no more than one such Inventory Appraisals shall be at the cost and expense of Borrowers during any 12 month period; except, that, if during any 30 day period in such 12 month period, Borrowers have Excess Availability of less than 15.0% of the Line Cap for 3 days, one additional Inventory Appraisal may be conducted during such 12 month period at the expense of Borrowers. During the existence and continuance of an Event of Default, there shall be no limit on the number of additional Inventory Appraisals at Borrowers’ expense. Any Inventory Appraisal conducted in connection with a Permitted Acquisition shall be in addition to any Inventory appraisal under this Section 5.13(b).
ARTICLE VI.NEGATIVE COVENANTS
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Loan Parties covenant and agree 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 payable under any Loan Document (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing) shall have been paid in full and all Letters of Credit have been canceled or have expired (or any L/C Exposure has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank) and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing
bz.Indebtedness
. Loan Parties shall not, and shall not permit any Subsidiary to, incur, create, assume or permit to exist, directly or indirectly, any Indebtedness, except:
(174)Indebtedness existing on the date hereof and set forth on Schedule 6.01(a) and Permitted Refinancing Indebtedness in respect thereof;
(175)Indebtedness created hereunder and under the other Loan Documents;
(176)intercompany Indebtedness of Loan Parties and the Subsidiaries to the extent permitted by Section 6.04(c);
(177)Indebtedness of any Loan Party or any Subsidiary incurred to finance the acquisition, construction, improvement or repair of any fixed or capital assets, and any Permitted Refinancing Indebtedness in respect thereof; provided that the outstanding aggregate principal amount of Indebtedness permitted by this Section 6.01(d), when combined with the aggregate principal amount of all Capital Lease Obligations incurred pursuant to Section 6.01(e), shall not exceed at any time $20,000,000;
(178)Capital Lease Obligations in an outstanding aggregate principal amount, when combined with the aggregate principal amount of all Indebtedness incurred pursuant to Section 6.01(d), not in excess of at any time $20,000,000;
(179)Indebtedness under performance bonds, bid bonds, appeal bonds, surety bonds, restoration bonds, performance and completion guarantees and similar obligations (other than in respect of other Indebtedness) or with respect to workers’ compensation claims, or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case incurred in the ordinary course of business and reimbursement obligations in respect of any of the foregoing;
(180)[intentionally omitted];
(181)Indebtedness of any Person that becomes a Subsidiary after the date hereof or Indebtedness secured by an asset prior to the acquisition of such asset by any Loan Party or any Subsidiary after the date hereof and any Permitted Refinancing Indebtedness in respect
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thereof; provided that (i) such Indebtedness initially exists at the time such Person becomes a Subsidiary or such asset is acquired and is not created in contemplation of or in connection with such Person becoming a Subsidiary or such asset being acquired, and (ii) the aggregate principal amount of Indebtedness permitted by this Section 6.01(h) shall not exceed at any time outstanding the greater of (x) $10,000,000 and (y) 5.0% of Consolidated Total Assets;
(182)Indebtedness under Hedging Obligations under Permitted Hedging Agreements, in each case entered into in the ordinary course of business and not for speculative purposes or taking a “market view”; provided that, if such Hedging Obligations relate to interest rates, (i) such Hedging Obligations relate to payment obligations on Indebtedness otherwise permitted to be incurred by the Loan Documents and (ii) the notional principal amount of such Hedging Obligations at the time incurred does not exceed the principal amount of the Indebtedness to which such Hedging Obligations relate;
(183)[intentionally omitted];
(184)Guarantees by (i) any Loan Party of Indebtedness of any other Loan Party and (ii) any Subsidiary of any Loan Party of Indebtedness of any Loan Party or any other Subsidiary, in each case, of Indebtedness otherwise permitted to be incurred pursuant to this Section 6.01 (other than paragraphs (a), (h) and (l) of this Section 6.01); provided that (A) Guarantees by any Loan Party of Indebtedness of any Subsidiary which is not a Loan Party shall be subject to compliance with Sections 6.04(a) and 6.04(c), (B) if a Subsidiary which is not a Loan Party provides a Guarantee of Indebtedness of a Loan Party in accordance with this paragraph (k), then Loan Parties will cause such Subsidiary to Guarantee the Obligations on terms substantially similar to those set forth in Article IV of the Guarantee and Collateral Agreement, and (C) if the Indebtedness to be Guaranteed is subordinated to the Obligations, then the Guarantees permitted under this paragraph (k) shall be subordinated to the Obligations of Loan Parties to the same extent and on the same terms as the Indebtedness so Guaranteed is subordinated to the Obligations;
(185)Indebtedness consisting of promissory notes issued by Loan Parties or any Subsidiary (or contractual obligations of Loan Parties pursuant to a shareholders or similar incentive or benefits agreement of Loan Parties) to employees, officers or directors (or former employees, officers or directors) of Loan Parties or any Subsidiary, or any family member of, or trust or other entity for the benefit of, any of the foregoing persons (including any voting trust or limited partnership pursuant to which such Equity Interests have been transferred solely for the benefit of the foregoing persons and their heirs), to (i) purchase or redeem Equity Interests owned by or (ii) make payments to, such employees, officers or directors or any family member of, or trust or other entity for the benefit of, any of the foregoing persons, pursuant to and in accordance with an option, appreciation right or similar equity incentive, equity based incentive or management incentive plan, in each case, approved by the Board of Directors of the applicable Loan Party or Subsidiary, or in connection with the death or disability of such employees, officers or directors; provided that the aggregate principal amount of such promissory notes (or contractual obligations of Loan Parties pursuant to a shareholders or similar incentive or benefits agreement of Loan Parties) shall not exceed $500,000 at any time outstanding;
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(186)Indebtedness in respect of netting services, automatic clearinghouse arrangements, employee credit card or purchase card programs, controlled disbursement, return items, interstate depository network services, dealer incentive, supplier finance or similar programs, Society for Worldwide Interbank Financial Telecommunication transfers, cash pooling and operational foreign exchange management, and, in each case, in the ordinary course of business and arrangements otherwise in connection with cash management and deposit accounts and similar arrangements in the ordinary course of business and any Guarantees thereof or the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, so long as such Indebtedness is extinguished within 10 Business Days of its incurrence;
(187)Indebtedness arising in connection with endorsement of instruments for deposit in the ordinary course of business;
(188)Indebtedness of any Loan Party or any Subsidiary that may be deemed to exist in connection with agreements providing for indemnification, purchase price adjustments, earn-outs and similar obligations in connection with acquisitions or sales of assets and/or businesses permitted under this Agreement;
(189)reimbursement obligations in respect of letters of credit, bank guarantees, bankers’ acceptances, warehouse receipts or similar instruments issued or created for the account of any Loan Party in the ordinary course of business in an aggregate amount not to exceed $5,000,000;
(190)Guarantees by (i) any Loan Party or any Subsidiary of obligations of any other Loan Party in respect of operating lease agreements and of the obligations of suppliers, customers, franchisees and licensees of any Loan Party in the ordinary course of business, and (ii) any Subsidiary which is not a Loan Party of obligations of any other Subsidiary which is not a Loan Party in respect of operating lease agreements and of the obligations of suppliers, customers, franchisees and licensees of any Subsidiary which is not a Loan Party in the ordinary course of business;
(191)Indebtedness consisting of the financing of insurance premiums so long as the aggregate amount of such Indebtedness is not in excess of the amount of the unpaid cost of, and shall be incurred only to defer the cost of, such insurance for the year in which such Indebtedness is incurred and such Indebtedness is outstanding only during such year and is incurred in the ordinary course of business;
(192)to the extent constituting Indebtedness, take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business;
(193)to the extent constituting Indebtedness, deferred compensation, severance, pension, and health and welfare retirement benefits or the equivalent to current and former employees of Loan Parties or any Subsidiary existing on the date hereof or thereafter incurred in the ordinary course of business;
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(194)subject to the terms and conditions of the Master Lease Facility Intercreditor Agreement, Indebtedness of any Loan Party under the Master Lease Facility Documents in an aggregate principal amount not to exceed the amount permitted under the Master Lease Facility Intercreditor Agreement;
(195)Subordinated Indebtedness (including any Qualified Equity Cure Subordinated Debt); and
(196)other unsecured Indebtedness of the Loan Parties in an aggregate principal amount not to exceed $22,500,000 at any time outstanding.
ca.Liens
. Loan Parties shall not, and shall not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or assets now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except:
(197)Liens on property or assets of Loan Parties or any Subsidiary existing on the date hereof and set forth in Schedule 6.02(a); provided that such Liens shall secure only those obligations which they secure on the date hereof and modifications, replacements, renewals, restructurings, refinancings or extensions thereof permitted hereunder;
(198)any Lien created under the Loan Documents;
(199)any Lien existing on any property or asset prior to the acquisition thereof by any Loan Party or any Subsidiary or existing on any property or assets of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a 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 Subsidiary, (ii) such Lien does not extend to any other property or assets of any Loan Party or any Subsidiary (other than the proceeds, products and accessions thereof and, other than after-acquired property (provided that such Person has not merged with or into any other Loan Party) of such Person subjected to a Lien securing Indebtedness and other obligations incurred prior to such time and which Indebtedness and other obligations are permitted hereunder that require, pursuant to their terms at such time, a pledge of such after-acquired property) and (iii) such Lien secures only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and modifications, replacements, renewals, restructurings, refinancings or extensions thereof permitted by Section 6.01;
(200)inchoate Liens for Taxes not yet due and payable or Liens for Taxes which are being contested in compliance with Section 5.03;
(201)carriers’, warehousemen’s, mechanics’, materialmen’s, contractor’s, repairmen’s or other like Liens imposed by law and arising in the ordinary course of business and securing obligations (other than Indebtedness for borrowed money) that are not due and payable or which are being contested in compliance with Section 5.03;
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(202)pledges and deposits made in the ordinary course of business in compliance with workmen’s compensation, unemployment insurance and other social security laws or regulations or in connection with performance bonds, bid bonds, appeal bonds, surety bonds, restoration bonds, performance and completion guarantees and similar obligations or statutory obligations incurred in the ordinary course of business;
(203)deposits to secure the performance of bids, trade contracts (other than for Indebtedness), utilities, government contracts, payment of premiums to insurance carriers, leases (other than Capital Lease Obligations), appeal bonds and other obligations of a like nature (including those to secure health, safety and environmental obligations) incurred in the ordinary course of business;
(204)(i) covenants, conditions, easements, rights-of-way, building codes, restrictions (including zoning restrictions), encroachments, licenses, protrusions and other similar encumbrances and minor title defects, in each case affecting Real Property and that do not in the aggregate materially interfere with the ordinary conduct of the business of Loan Parties or Subsidiaries, taken as a whole, and (ii) ground leases in respect of Real Property on which facilities owned or leased by any Loan Party or any Subsidiary is located;
(205)Liens (including purchase money security interests) on real property, improvements thereto or equipment acquired (or, in the case of improvements, constructed) by any Loan Party or any Subsidiary after the date hereof; provided that such Liens secure Indebtedness permitted hereby;
(206)Liens in favor of a Designated Subleased Equipment Lessor so long as such Liens are limited to (i) Liens on Designated Subleased Equipment and the sublease described in clause (b) of the definition of Designated Subleased Equipment, and (ii) Liens on any amounts on deposit in the Designated Subleased Equipment Designated Account representing remittances made to a Loan Party under the applicable Designated Subleased Equipment Lease; it being understood and agreed that (A) any Liens granted in favor of a Person on Equipment which is not the subject of a Designated Subleased Equipment Lease shall not be permitted under this clause (j), and (B) any Lien granted in favor of any Designated Subleased Equipment Lessor shall not attach to any amounts or funds which are not on deposit in the Designated Subleased Equipment Designated Account;
(207)Liens (i) securing judgments, orders or awards for the payment of money not constituting an Event of Default under Section 7.01, (ii) arising out of judgments or awards against any Loan Party or any Subsidiary with respect to which an appeal or other proceeding for review is then being pursued and for which adequate reserves have been made with respect thereto on the books of the applicable Person in accordance with GAAP and (iii) notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings for which adequate reserves have been made with respect thereto on the books of the applicable Person in accordance with GAAP;
(208)Liens in connection with Indebtedness permitted by Section 6.01(e) so long as such Liens do not at any time encumber any property other than the property financed by
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such Indebtedness (except for replacements, additions, accessions and proceeds of such property);
(209)Liens (i) of a collection bank arising under Section 4-208 of the Uniform Commercial Code on items in the course of collection, (ii) attaching to commodity trading accounts or other commodities brokerage accounts incurred in the ordinary course of business, (iii) in favor of a banking or other financial institution arising as a matter of law or under customary general terms and conditions encumbering deposits or other funds maintained with a financial institution (including the right of set-off) and that are within the general parameters customary in the banking industry or arising pursuant to such banking institution’s general terms and conditions, (iv) that are contractual rights of setoff or rights of pledge relating to (A) purchase orders and other agreements entered into with customers of any Loan Party or any Subsidiary in the ordinary course of business or (B) pooled deposit or sweep accounts of any Loan Party or any Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of any Loan Party or any Subsidiary, and (v) including holdbacks on amounts deposited to secure obligations for charge-backs in respect of credit card and other payment processing services in the ordinary course of business;
(210)Liens representing any interest or title of a licensor, lessor or sublicensor or sublessor under any lease or license permitted by this Agreement;
(211)Liens that are rights of setoff, bankers liens or similar non-consensual liens relating to deposit or securities accounts in favor of banks, other depositary institutions and securities intermediaries arising in the ordinary course of business;
(212)Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business;
(213)Liens arising from precautionary UCC filing statements regarding operating leases or consignments;
(214)(i) deposits of cash with the owner or lessor of premises leased and operated by any Loan Party or any Subsidiary to secure the performance of such Loan Party or such Subsidiary’s obligations under the terms of the lease for such premises in an aggregate amount not to exceed $10,000,000, (ii) contractual or statutory Liens of landlords, to the extent relating to the property and assets relating to any lease agreements with such landlord (so long as the rent payable under any such lease agreement is not more than 30 days past due, unless being contested in good faith and for which reserves have been established in accordance with GAAP), and (iii) contractual Liens of suppliers (including sellers of goods) to the extent limited to property or assets relating to such contract and Liens arising by operation of law under Article 2 of the UCC in favor of a reclaiming seller of goods or buyer of goods;
(215)leases (or subleases) of the tangible properties (including real property) of any Loan Party or any Subsidiary, so long as such leases (or subleases) do not, individually or in the aggregate, interfere in any material respect with the ordinary conduct of the business of such Loan Party or such Subsidiary;
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(216)non-exclusive licenses (or sublicenses) of the Intellectual Property of any Loan Party or any Subsidiary entered into in the ordinary course of business of such Loan Party or such Subsidiary, so long as such licenses (or sublicenses) do not, individually or in the aggregate, interfere in any material respect with the ordinary conduct of the business of such Loan Party or such Subsidiary;
(217)Liens (i) in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods and (ii) on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances or letters of credit issued or created for the account of such person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business;
(218)Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto and pledges and deposits in the ordinary course of business securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to any Loan Party or any Subsidiary;
(219)Liens securing Indebtedness permitted by Section 6.01(u);
(220)Liens securing Indebtedness or other obligations of any Loan Party under the Master Lease Facility Documents so long as such Liens are subject in all respect to the Master Lease Facility Intercreditor Agreement; and
(221)Liens with respect to property or assets of any Loan Party or any Subsidiary (other than ABL Priority Collateral (as defined in the Master Lease Facility Intercreditor Agreement) unless such Liens are subject to an intercreditor agreement in form and substance reasonably satisfactory to Agent) securing obligations in an aggregate principal amount outstanding at any time not to exceed the greater of (x) $18,500,000 and (y) 5.0% of Consolidated Total Assets, in each case determined as of the date of incurrence.
Any reference in any of the Loan Documents to a Permitted Lien is not intended to and shall not be interpreted as subordinating or postponing, or as any agreement to subordinate or postpone (except as expressly provided hereunder or under the applicable Security Document), any Lien created by any of the Loan Documents to any Permitted Lien.
cb.Sale and Lease-Back Transactions
. Loan Parties shall not, and shall not permit any Subsidiary to, 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 (a) the sale or transfer of such property is permitted by Section 6.05 and (b) any Capital Lease Obligations or
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Liens arising in connection therewith are permitted by Sections 6.01 and 6.02, as the case may be.
cc.Investments, Loans and Advances
. Loan Parties shall not, and shall not permit any Subsidiary to, purchase, hold or acquire any Equity Interests, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment (including by way of a Guarantee or otherwise) or any other interest in, any other Person, except:
(222)(i) investments by Loan Parties or any Subsidiary existing on the date hereof in the Equity Interests of other Loan Parties or Subsidiaries, (ii) other investments, loans or advances of Loan Parties or any Subsidiary existing on the date hereof and set forth on Schedule 6.04(a) and (iii) additional investments by Loan Parties or any Subsidiary in the Equity Interests of other Loan Parties or any Subsidiary; provided that:
c.any such Equity Interests held by a Loan Party shall be pledged pursuant to the applicable Security Document (subject to the limitations applicable to Equity Interests and other assets of a Foreign Subsidiary referred to therein);
d.the aggregate amount of investments made (without duplication) after the Closing Date by Loan Parties in, and loans and advances made pursuant to Section 6.04(c) after the Closing Date by Loan Parties to, Subsidiaries that are not Loan Parties shall not exceed at any time outstanding the greater of (1) $10,000,000 and (2) 5.0% of Consolidated Total Assets; and
e.no investments by Loan Parties to Subsidiaries that are not Loan Parties may be made at any time that an Event of Default exists or would exist immediately prior to and immediately after giving effect to such investment;
(223)Permitted Investments;
(224)loans or advances made by (i) a Loan Party to another Loan Party, (ii) a Subsidiary of a Loan Party that is not a Loan Party to another Subsidiary of a Loan Party that is not a Loan Party, (iii) a Subsidiary of a Loan Party that is not a Loan Party to a Loan Party, so long as the parties thereto are party to the Intercompany Note, and (iv) a Loan Party to a Subsidiary of a Loan Party that is not a Loan Party so long as (A) the aggregate amount of all such loans (by type, not by the borrower) does not exceed the limitation set forth in clause (B) to the proviso to Section 6.04(a) at any one time, and (B) at the time of the making of such loan, no Event of Default exists or would exist immediately prior to and immediately after giving effect to such loan or advance;
(225)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;
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(226)loans and advances to their respective employees, officers and directors in the ordinary course of business or to facilitate their purchase of stock or options or other equity ownership interests of Borrowers so long as the aggregate principal amount thereof at any time outstanding shall not exceed $500,000;
(227)payroll, travel and similar advances made to directors, officers and employees to cover matters that are expected at the time of such advances ultimately to be treated as expenses of any Loan Party or any Subsidiary for accounting purposes and that are made in the ordinary course of business;
(228)investments of any Person existing at the time such Person becomes a Subsidiary or consolidates or merges with any Loan Party or any Subsidiary (including in connection with an acquisition that constitutes a Specified Transaction) so long as such investments were not made in contemplation of such Person becoming a Subsidiary or of such consolidation or merger;
(229)investments resulting from pledges or deposits described in paragraph (f) or (g) of Section 6.02;
(230)investments received in connection with the disposition of any asset permitted by Section 6.05;
(231)Hedging Obligations permitted pursuant to Section 6.01(i);
(232)the acquisition (whether by purchase, merger or otherwise) of all or substantially all the assets of a Person or line of business, unit or division of such Person, or not less than 100% of the Equity Interests (other than directors’ qualifying shares and, in the case of a Foreign Subsidiary, nominal amounts of shares required by applicable law to be held by local nationals) (an “Acquisition”) of a Person (referred to herein as the “Acquired Entity”); provided that:
xxxvi.such Acquisition was not preceded by an unsolicited tender offer for such Equity Interests by, or proxy contest initiated by, any Loan Party or any Subsidiary;
xxxvii.the Acquired Entity shall be engaged in a Permitted Business;
xxxviii.such Acquisition and all transactions related thereto are in all material respects consummated in accordance with applicable laws;
xxxix.subject, in the case of a Limited Condition Transaction, to Section 1.07, (A) immediately prior to the signing by the parties thereto of the applicable purchase agreement or acquisition agreement, and immediately after giving effect to such signing by the parties thereto, no Event of Default shall have occurred and be continuing and (B) immediately prior to and immediately after the consummation of such acquisition, no Event of Default under Section 7.01(b), 7.01(c), 7.01(g) or 7.01(h) shall have occurred and be continuing; and
xl.at the time of such transaction:
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f.the Payment Conditions (other than the requirements set forth in clause (a) of the definition thereof) are satisfied with respect thereto; and
g.if the total consideration paid in connection with such acquisition exceeds $10,000,000, Loan Parties shall have delivered to Agent a certificate of a Financial Officer, certifying as to clause (iv) above and the foregoing clause (A) and containing reasonably detailed calculations in support thereof; and
h.(1) in the case of an Acquisition of all or substantially all of the property of any Person, (x) the Person making such acquisition is a Loan Party, and (y) to the extent required under the Loan Documents, including Section 5.12, the Person being so acquired becomes a Borrower or a Guarantor within the time frames required under Section 5.12, (2) in the case of an acquisition of the Equity Interests of any Person, (x) the Person making such acquisition is a Loan Party, (y) no less than 100% of the Equity Interests of the target Person shall be acquired by the Person making such acquisition, and (z) to the extent required under the Loan Documents, including Section 5.12, the Person the Equity Interests of which are being so acquired becomes a Borrower or a Guarantor within the time frames required under Section 5.12, and (3) in the case of a merger or consolidation or any other combination with any Person, the Person surviving such merger, consolidation or other combination (x) is a Loan Party or (y) to the extent required under the Loan Documents, including Section 5.12, becomes a Borrower or a Guarantor within the time frames required under Section 5.12; it being understood and agreed that (I) notwithstanding anything to the contrary contained herein, none of the Receivables or Inventory of an Acquired Entity shall constitute Eligible Receivables or Eligible Inventory, until such time as Agent shall have received a collateral field examination and/or appraisal (conducted at Borrowers’ sole cost and expense) with respect to such Receivables and/or Inventory, reasonably satisfactory to Agent (which field examination and appraisal may be conducted prior to or following the consummation of such Permitted Acquisition), and (II) any such collateral field examination or appraisal shall be in addition to any collateral field examination or appraisal performed at Borrowers’ expense pursuant to Section 5.13;
(233)investments by Loan Parties or any Subsidiary consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;
(234)Guarantees permitted by Section 6.01; provided that any Guarantee by a Loan Party of the obligations of a Subsidiary that is not a Loan Party shall be subject to, and included as an investment in the basket provided for, in clause (B) of the proviso to Section 6.04(a)(iii);
(235)investments in the ordinary course of business consisting of UCC Article 3 endorsements for collection or deposit and UCC Article 4 customary trade arrangements with customers consistent with past practices;
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(236)investments consisting of purchases and acquisitions of inventory, supplies, materials and equipment or purchases of contract rights or licenses or leases of Intellectual Property, in each case in the ordinary course of business;
(237)investments made in the ordinary course of business in connection with obtaining, maintaining or renewing client contracts and loans or advances made to distributors and suppliers in the ordinary course of business;
(238)so long as no Event of Default exists or would exist immediately prior to and immediately after giving effect to such investment, investments in Permitted Joint Ventures; provided that at the time any such investment is made pursuant to this paragraph (q), the aggregate Fair Market Value of the outstanding amount of such investment, when taken together with all other investments made pursuant to this paragraph (q) that are at the time outstanding, does not exceed the greater of (i) $10,000,000 and (ii) 5.0% of Consolidated Total Assets; and
(239)so long as no Event of Default exists or would exist immediately prior to and immediately after giving effect to such investment, advance or loan, other investments, advances and loans made by Loan Parties and Subsidiaries in an aggregate amount not to exceed at any time outstanding the greater of (i) $10,000,000 and (ii) 4.0% of Consolidated Total Assets.
In addition to investments permitted by paragraphs (a) through (r) above, additional investments (other than an Acquisition), loans and advances by Loan Parties or their Subsidiaries so long as the Payment Conditions are satisfied with resect thereto.
For purposes of this Section 6.04, the “outstanding” amount of any investment, loan or advance shall be deemed to be the aggregate amount invested, loaned or advanced (determined without regard to any non-cash adjustments for increases or decreases in value or write-ups, write-downs or write-offs of such investments, loans and advances), minus the amount of cash and cash equivalents returned or repaid with respect to such investments, loans and advances.
To the extent an investment, loan or advance is permitted to be made by a Loan Party directly in any Subsidiary or any other Person who is not a Loan Party (each such person, a “Target Person”) under any provision of this Section 6.04, such investment, loan or advance may be made by investment, loan or advance by a Loan Party to a Subsidiary, and further advanced or contributed to another Subsidiary or other Person for purposes of making the relevant investment, loan or advance in the Target Person without constituting a separate investment, loan or advance for purposes of this Section 6.04 (it being understood that such investment, loan or advance must satisfy the requirements of, and shall count towards any thresholds in, a provision of this Section 6.04 as if made by the applicable Loan Party directly to the Target Person).
cd.Mergers, Consolidations, Sales of Assets and Acquisitions
.
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(240)Loan Parties shall not, and shall not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, 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 Loan Parties and Subsidiaries or less than all the Equity Interests of any Loan Party or Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or substantially all of the assets of any other Person or line of business, unit or division of such Person, except that:
xli.any Subsidiary of a Borrower may be merged or consolidated with or into such Borrower (provided that such Borrower shall be the continuing or surviving entity unless such merger or consolidation would otherwise be permitted pursuant to the proviso in clause (a)(iii) below) or with or into any other Loan Party (provided that a Loan Party shall be the continuing or surviving entity unless such merger or consolidation would otherwise be permitted pursuant to the proviso in clause (a)(iii) below);
xlii.any Subsidiary that is not a Loan Party may be merged or consolidated with or into another Subsidiary that is not a Loan Party;
xliii.any Subsidiary may liquidate, dissolve or merge into or consolidate with any Loan Party or any other Subsidiary in a transaction in which the surviving entity is a Loan Party or a Subsidiary and no Person other than a Loan Party 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);
xliv.any Subsidiary that is not a Loan Party may liquidate or dissolve if Loan Parties determine in good faith that such liquidation or dissolution is in the best interests of Loan Parties,
xlv.(A) any Loan Party that is not a Borrower may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to any other Loan Party and (B) any Subsidiary that is not a Loan Party may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to any Loan Party (provided that, any such sales, transfers, leases or other dispositions shall be made in compliance with Section 6.07);
xlvi.any Loan Party may make any acquisition permitted by Section 6.04 (including by means of the merger or consolidation of any Subsidiary with any other Person in order to effect such acquisition); and
xlvii.any Loan Party or Subsidiary may make (A) any sale, lease or other disposition of assets excluded from the definition of “Asset Sale” and (B) any Asset Sale permitted by Section 6.05(b).
(241)Loan Parties shall not, and shall not permit any Subsidiary to, make any Asset Sale, except for:
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xlviii.sales, transfers, leases and other dispositions (including the issuance or sale of Equity Interests of a Subsidiary) to any Loan Party;
xlix.leases or licenses of the properties of any Loan Party or any Subsidiary made in accordance with Sections 6.02(s) and 6.02(t);
l.dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of any Loan Party or any Subsidiary;
li.sales, transfers and other dispositions of any assets, divisions or lines of business or other business unit acquired pursuant to an acquisition that constitutes a Specified Transaction, which assets, divisions or lines of business or other business unit in the reasonable judgment of Loan Parties at the time of acquisition of such acquisition are not useful in the conduct of the business of Loan Parties, taken as a whole; provided that (1) any such assets, divisions or lines of business or other business unit are sold (or a definitive agreement or a binding commitment to dispose of such assets, divisions or lines of business or other business unit has been entered into) in no event later than one year after the date the applicable acquisition is consummated, (2) at the time of such Asset Sale (other than any such Asset Sale made pursuant to a legally binding commitment entered into at a time when immediately prior to the signing of the definitive agreement providing for such Asset Sale, and immediately after giving effect to such signing, no Default or Event of Default then exists or would immediately result therefrom; provided that the amount of time between the date of any such commitment and the consummation of any such Asset Sale shall not exceed ninety (90) calendar days) no Default or Event of Default then exists or would immediately result therefrom, (3) all Asset Sales permitted by this clause (iv) shall be made for Fair Market Value and (4) with respect to any Asset Sale pursuant to this clause (iv) for a purchase price in excess of $5,000,000, at least 75% of the consideration payable in respect of each such Asset Sale is in the form of cash or Permitted Investments and is paid at the time of the closing of any such Asset Sale;
lii.other sales, transfers and other dispositions of assets (including Equity Interests other than Equity Interests in a Subsidiary unless all Equity Interests in such Subsidiary are sold) by any Loan Party or any Subsidiary that are not permitted by any other clause of this Section 6.05; provided that all Asset Sales permitted by this clause (v) shall be made for Fair Market Value and at least 75% of the consideration payable in respect of each such Asset Sale is in the form of cash or Permitted Investments and is paid at the time of the closing of any such Asset Sale; provided that if any assets included in the Borrowing Base are part of such sale, transfer or other disposition, on or prior to the date that is three (3) Business Days (or such shorter period of time determined by Agent in its discretion) prior to such sale, transfer or other disposition, Agent shall have received a pro forma Borrowing Base Certificate giving effect to such sale, transfer or other disposition and confirming that, after giving effect to such sale, transfer or other disposition and the repayment of any Loans in connection therewith, an Overadvance does not exist; and
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liii.dispositions of Investments in Permitted Joint Ventures to the extent required by, or made pursuant to, customary buy/sell arrangements between, the joint venture parties set forth in joint venture arrangements and similar binding arrangements.
For the purposes of clauses (i) and (iv) above, any liabilities (as shown on the most recent balance sheet provided hereunder or in the footnotes thereto) of the applicable Loan Party or Subsidiary, other than liabilities that are by their terms subordinated to the payment in cash of the Obligations, that are assumed by the transferee with respect to the applicable sale, transfer or other disposition and for which Loan Parties and applicable Subsidiaries shall have been validly released by all applicable creditors in writing shall be deemed to be cash.
ce.Restricted Payments; Restrictive Agreements
. (a) Loan Parties shall not, and shall not permit any Subsidiary to, declare or make, or agree to declare or make, directly or indirectly, any Restricted Payment (including pursuant to any Synthetic Purchase Agreement), or incur any obligation (contingent or otherwise) to do so; provided, however, that
liv.any Subsidiary may declare and pay dividends or make other distributions ratably to its equity holders;
lv.so long as, in each instance, no Default or Event of Default exists or would exist immediately prior to and immediately after giving effect to such repurchase or payment, Parent may (A) repurchase its Equity Interests owned by or (B) make payments to, employees, officers or directors (or former employees, officers or directors) of a Loan Party or any Subsidiary or any family member of, or trust or other entity for the benefit of, any of the foregoing persons (including any voting trust or limited partnership pursuant to which such Equity Interests have been transferred solely for the benefit of the foregoing persons and their heirs), pursuant to and in accordance with an option, appreciation right or similar equity incentive or equity based incentive or management incentive plan, in each case, approved by the applicable Loan Party’s or Subsidiary’s Board of Directors, or in connection with the death or disability of such employees, officers or directors, (1) in an aggregate amount, when combined with the aggregate amount of distributions, payments, redemptions, repurchases, retirements or other acquisitions for value of Indebtedness made in such fiscal year in accordance with Section 6.09(c), not to exceed the greater of (x) $3,000,000 and (y) 2.5% of Consolidated Total Assets in any fiscal year (plus, starting with the 2019 fiscal year, up to 100% of the portion of such amount not utilized in the immediately preceding year pursuant to this Section 6.06(a)(ii) and Section 6.09(c) may be used in such current fiscal year (but not any fiscal year thereafter)), or (2) pursuant to the issuance of promissory notes or the incurrence of other obligations pursuant to Section 6.01(l) during such fiscal year (provided that any payments in respect of such promissory notes or other obligations shall only be permitted if allowed under preceding sub-clause (1) or Section 6.09(c));
lvi.Loan Parties may purchase, repurchase, defease, acquire or retire for value Equity Interests of any Loan Party or options, warrants or other rights to acquire such Equity Interests solely in exchange for, or out of the proceeds of the substantially concurrent sale of
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Qualified Capital Stock of any Loan Party or options, warrants or other rights to acquire such Qualified Capital Stock;
lvii.Loan Parties may make cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests of any Loan Party;
lviii.Loan Parties may make repurchases of capital stock of any Loan Party deemed to occur upon the exercise of options, warrants or other rights to acquire capital stock of any Loan Party solely to the extent that shares of such capital stock represent a portion of the exercise price of such options, warrants or such rights;
lix.so long as, in each instance, no Default or Event of Default exists or would exist immediately prior to and immediately after giving effect to such Restricted Payment, Parent may make Restricted Payments in an aggregate amount not to exceed the sum of (A) the greater of (1) $5,000,000 and (2) 4.0% of Consolidated Total Assets at the time of the making of such Restricted Payment as of the most recently completed Test Period plus (B) amounts funded with the proceeds of the sale of Equity Interests of any Loan Party;
lx.Loan Parties may make Restricted Payments in connection with the redemption of any Loan Party’ preferred Equity Interests with the proceeds from Equity Issuances made by any Loan Party after the Closing Date;
lxi.Parent may make additional Restricted Payments to the extent the Distribution Conditions are satisfied with respect thereto; and
lxii.Parent may pay dividends and distributions within 60 days after the date of declaration thereof, if at the date of declaration of such payment, such payment would have complied with another provision of this Section 6.06.
(242)Loan Parties shall not, and shall not permit any Subsidiary to, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (i) the ability of any Loan Party to create, incur or permit to exist any Lien upon any of its property or assets, or (ii) the ability of any Subsidiary to pay dividends or other distributions with respect to any of its Equity Interests or to make or repay loans or advances to any Loan Party or to Guarantee Indebtedness of any Loan Party; provided that (A) such restrictions shall not apply to restrictions and conditions imposed by law or regulation of any Governmental Authority or by any Loan Document, (B) such restrictions shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Loan Party pending such sale, provided such restrictions and conditions apply only to Loan Party that is to be sold and such sale is permitted hereunder, (C) clause (i) above 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) above shall not apply to customary provisions in leases, licenses (including licenses of Intellectual Property granted to or obtained by any Loan Party) and other contracts restricting the sale, licensing or other assignment thereof, (E) such restrictions shall not
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apply to customary restrictions on cash or other deposits or net worth required by customers under contracts entered into in the ordinary course of business and joint venture agreements or other similar arrangements if such provisions apply only to the Person (and the equity interests in such Person) that is the subject thereof, (F) such restrictions shall not apply to customary restrictions and conditions contained in any agreement relating to any Asset Sale (or any other disposition of assets) permitted under this Agreement pending the consummation of such Asset Sale (or any other disposition of assets), (G) such restrictions shall not apply to any agreement in effect at the time a Person becomes a Loan Party, so long as such agreement was not entered into in connection with or in contemplation of such Person becoming a Loan Party, which encumbrance or restriction is not applicable to the properties or assets of any Loan Party, other than Loan Party or the property or assets of Loan Party, so acquired, (H) such restrictions shall not apply to any restrictions and conditions imposed by the documents evidencing any Subordinated Indebtedness, (I) to the extent not permitted pursuant to the preceding clauses (A) through (H), such restrictions shall not apply in connection with customary restrictions that arise in connection with any Lien permitted pursuant to Sections 6.02(c), 6.02(g), 6.02(m) and 6.02(y) so long as such restrictions apply only to the property subject to such Liens and (J) such restrictions shall not apply to customary provisions in joint venture agreements and other similar agreements applicable to Permitted Joint Ventures and applicable solely to such Permitted Joint Venture and its equity entered into in the ordinary course of business.
cf.Transactions with Affiliates
. Except for transactions between or among Loan Parties (or any entity that becomes a Loan Party as a result of such transaction), Loan Parties shall not, and shall not permit any Subsidiary to, 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, except that any Loan Party may engage in any such transaction at prices and on terms and conditions, taken as a whole, not materially less favorable to such Loan Party or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties; provided that, notwithstanding the foregoing, the following shall be permitted:
lxiii.transactions between or among Subsidiaries that are not Loan Parties not involving any other Affiliate;
lxiv.investments, loans or advances permitted by Section 6.04 and Restricted Payments permitted by Section 6.06;
lxv.any employment agreement, incentive agreement, severance agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by any Loan Party in the ordinary course of business and payments pursuant thereto;
lxvi.the payment of reasonable compensation and fees, reimbursement of expenses, and the provision of customary benefits or indemnities, to current or former officers, directors or employees of any Loan Party who are not otherwise Affiliates of Loan Parties;
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lxvii.any Indebtedness to the extent permitted by Section 6.01(a), 6.01(c), 6.01(l), 6.01(q) or 6.01(s) (to the extent representing intercompany Indebtedness between or among Loan Parties) and any Restricted Payments to the extent permitted by Section 6.06(a);
lxviii.the issuance and sale by Loan Parties of Qualified Capital Stock to its Affiliates (other than a Subsidiary);
lxix.transactions with a Person (other than a Subsidiary or a Permitted Joint Venture) that is an Affiliate of Loan Parties solely because Loan Parties own, directly or indirectly through a Subsidiary, an Equity Interest in, or controls, such Person;
lxx.transactions with a Permitted Joint Venture so long as the terms of any such transactions are no less favorable, taken as a whole, to Loan Parties or Subsidiary participating in such Permitted Joint Venture than they are to the other joint venture partners; and
lxxi.any transaction effected pursuant to agreements in effect on the Closing Date and set forth (together with a reasonably detailed description thereof) on Schedule 6.07 and any amendment, modification or replacement of such agreement (so long as such amendment, modification or replacement is not disadvantageous to the Lenders in any in any material respect as compared to the applicable agreement as in effect on the Closing Date).
cg.Business of Loan Parties and Subsidiaries
. Loan Parties shall not, and shall not permit any Subsidiary to, engage at any time in any business or business activity other than the business currently conducted by it on the Closing Date or business activities reasonably related, complementary, similar, ancillary or incidental thereto, synergistic therewith, or reasonable extensions thereof.
ch.Other Indebtedness and Agreements
(243). (a) Loan Parties shall not, and shall not permit any Subsidiary to, permit any (i) waiver, supplement, modification, amendment, termination or release of any document related to any Subordinated Indebtedness if the effect of such waiver, supplement, modification, amendment, termination or release would materially increase the obligations of the obligor or confer additional material rights on the holder of such Indebtedness in a manner adverse to Loan Parties, any Subsidiary or the Lenders in any material respect, and, if such Subordinated Indebtedness is subject to a Subordination Agreement, such amendment, modification or waiver is permitted under such Subordination Agreement, (ii) amendment, modification or waiver of any term or provision of any Master Lease Facility Documents, unless such amendment, modification or waiver is permitted by the Master Lease Facility Intercreditor Agreement, or (iii) waiver, supplement, modification or amendment of its certificate of incorporation, certificate of formation, by-laws, operating, management or partnership agreement or other organizational documents, to the extent any such waiver, supplement, modification or amendment would be materially adverse to the Lenders.
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(244)Loan Parties shall not, and shall not permit any Subsidiary to, directly or indirectly, make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption, repurchase or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of (including by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due), any Subordinated Indebtedness, except:
lxxii.Loan Parties may pay, prepay, redeem, repurchase or acquire for value any then outstanding Subordinated Indebtedness with the Net Cash Proceeds received from any new issuance or incurrence by Loan Parties of Subordinated Indebtedness or out of the proceeds of the substantially concurrent sale by Parent of Qualified Capital Stock or options, warrants or other rights to acquire such Qualified Capital Stock, so long as, in each instance, no Event of Default shall have occurred and be continuing or would immediately result from any such payment, prepayment, redemption, repurchase or acquisition; and
lxxiii.Loan Parties may pay, prepay, redeem, repurchase or acquire for value any then outstanding Subordinated Indebtedness so long as the Payment Conditions are satisfied with respect thereto.
Notwithstanding anything to the contrary contained above in this Section 6.09(b), in no event shall any Loan Party or any Subsidiary make any payment of any kind or character on account of any Subordinated Indebtedness (whether in respect of principal, interest or otherwise) to the extent that such payment would be prohibited by the applicable subordination provisions of such Subordinated Indebtedness or, if such Subordinated Indebtedness is the subject to a Subordination Agreement, such payment is not otherwise permitted under such Subordination Agreement.
(245)Loan Parties shall not, and shall not permit any Subsidiary to, make any distribution, whether in cash, property, securities or a combination thereof, in respect of, or pay (whether in respect of principal, interest or other amounts), or directly or indirectly (including pursuant to any Synthetic Purchase Agreement) redeem, repurchase, retire or otherwise acquire for consideration any Indebtedness incurred pursuant to Section 6.01(l) in excess of, when combined with all payments and repurchases made pursuant to Section 6.06(a)(ii) in any fiscal year, the greater of (i) $3,000,000 and (ii) 2.5% of Consolidated Total Assets during any fiscal year (plus, starting with the 2019 fiscal year, the portion of such amount not utilized in the immediately preceding year pursuant to this Section 6.09(c) and Section 6.06(a)(ii)) so long as, in each instance, no Default or Event of Default exists or would exist immediately prior to and immediately after giving effect to such distribution or payment.
ci.[Intentionally Omitted]
.
cj.Financial Covenant
.
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(246)Minimum Fixed Charge Coverage Ratio. Loan Parties shall, during each Covenant Compliance Period have a Fixed Charge Coverage Ratio of at least 1.00 to 1.00, tested for the most recent Test Period ending prior to the commencement of such Covenant Compliance Period and as of the end of each Test Period for which financial statements are required to be delivered pursuant to Section 5.04(a) or 5.04(b), as the case may be, during such Covenant Compliance Period.
(247)Delivery of Covenant Compliance Certificate. Within three Business Days after the beginning of a Covenant Compliance Period, the Administrative Loan Party shall provide to Agent a Compliance Certificate (whether or not a Covenant Compliance Period is in effect on the date such Compliance Certificate was otherwise required to be delivered) calculating the Fixed Charge Coverage Ratio for the Test Period for which financial statements are required to be delivered ended immediately prior to the beginning of such Covenant Compliance Period based on the most recent financial statements required to be delivered pursuant to Section 5.04(a) or 5.04(b), as the case may be.
(248)Equity Cure Rights. Notwithstanding anything to the contrary contained in Section 6.11(a), in the event that Loan Parties fail to comply with Section 6.11(a), for any applicable period set forth therein (each such period, a “Equity Cure Testing Period”), so long as not later than 10 days (the “Cure Standstill Period”) after Agent has received (or if earlier, the date Agent is required to have received) the Compliance Certificate required pursuant to Section 6.11(b) for any applicable Equity Cure Testing Period with respect to the first Test Period to be tested during a Covenant Compliance Period, or Section 5.04(c) for any subsequent Test Period to be tested during any Covenant Compliance Period (the “Non-compliant Equity Cure Testing Period”), Administrative Loan Party shall have delivered evidence, reasonably satisfactory to Agent, that (i) Parent has received additional cash equity contributions or Qualified Equity Cure Subordinated Debt (which has immediately been contributed in full in cash upon receipt thereof to the Borrowers in the form of equity capital or Subordinated Indebtedness, as applicable) (the “Cure Right”) of not less than a dollar amount specified in such notice (the “Cure Amount”) and (ii) Administrative Loan Party has in fact received such additional cash contributions in an aggregate amount of not less than the Cure Amount, then the financial covenant contained in Section 6.11(a) shall be recalculated for the Non-compliant Equity Cure Testing Period and for each Equity Cure Testing Period that occurs during the twelve (12) months immediately following the first (1st) day of the Non-compliant Testing Period (collectively, together with the Non-compliant Equity Cure Testing Period, the “Affected Equity Cure Testing Periods”) by giving effect to the following pro forma adjustments:
(A) EBITDA shall be increased on a dollar-for-dollar basis by the Cure Amount for each of the Affected Equity Cure Testing Periods solely for the purpose of measuring compliance with Section 6.11(a), with respect to each of the Affected Equity Cure Testing Periods and not for any other purpose under this Agreement; and
(B) if, after giving effect to the recalculation of EBITDA provided for in clause (A) immediately above, Loan Parties shall then be in compliance with Section 6.11(a) for the Non-compliant Equity Cure Testing Period, then Loan Parties shall be deemed to have fully
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complied with Section 6.11(a) for the Non-compliant Equity Cure Testing Period with the same effect as though such non-compliance with respect to the Non-compliant Equity Cure Testing Period had not occurred, and such non-compliance shall be deemed cured for the purposes of this Agreement (the “Equity Cure”).
Notwithstanding the foregoing, (1) Loan Parties shall not be entitled to exercise the Cure Right (x) on more than five (5) occasions during the Term or (y) on more than two (2) occasions during any twelve (12) month period and (2) prior to the occurrence of an Equity Cure permitted hereunder with respect to any Non-compliant Equity Cure Testing Period, Loan Parties’ non-compliance with Section 6.11(a) shall in all events constitute an Event of Default hereunder; provided, however, that before the expiration of the Cure Standstill Period, neither Agent nor any Lender may exercise any rights or remedies under the Loan Documents on the basis of any such Default or Event of Default, it being understood that during such period, notwithstanding anything to the contrary contained herein, the Lenders shall not be required to make any Loans and/or the Issuing Banks shall not be required to issue any Letters of Credit hereunder without the consent of Agent or the Required Lenders.
ck.Fiscal Year
. Loan Parties shall not change their fiscal year-end to a date other than December 31, except as may be required by GAAP.
cl.Sanctions
. Loan Parties shall not, and shall not permit any Subsidiary to, directly or indirectly (a) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Sanctioned Person or in any Sanctioned Country or (b) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate applicable Sanctions (and Loan Parties shall deliver to the Lenders any certification or other evidence requested from time to time by any Lender in its reasonable discretion, confirming Loan Parties’ and Subsidiaries’ compliance with this Section 6.13).
cm.Sanctioned Person
. Loan Parties shall not, and shall not permit any Subsidiary to, cause or permit any of the funds or properties of Loan Parties that are used to repay the Loans or other Credit Events to constitute property of, or be beneficially owned directly or indirectly by any Sanctioned Person, with the result that the investment in Loan Parties (whether directly or indirectly) is prohibited by applicable law, rule or regulation, or the Loans or other Credit Events made by the Lenders and the Issuing Banks would be in violation of any law, rule or regulation.
ARTICLE VII.EVENTS OF DEFAULT
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cn.Events of Default
. Upon the occurrence and during the continuance of any of the following events (“Events of Default”):
(249)any representation or warranty made or deemed made by or on behalf of Borrowers or any other Loan Party in or in connection with any Loan Document or the Borrowings or the issuances of a Letter of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished by or on behalf of Borrowers or any other Loan Party in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;
(250)Borrowers shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;
(251)Borrowers shall fail to pay any interest on any Loan or any Fee or L/C Disbursement or any other amount (other than an amount referred to in paragraph (b) above) due under any Loan Document or fail to reimburse any L/C Disbursement, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five Business Days;
(252)any Loan Party or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 5.01(a) (as it relates to a Loan Party), 5.05(a) or 5.08 or in Article VI;
(253)any Loan Party or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in paragraph (b), (c) or (d) above) to which it is a party and such default shall continue unremedied for a period of 30 days after written notice thereof from the Required Lenders or Agent to Borrowers;
(254)(i) any Loan Party or any Subsidiary shall fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness, when and as the same shall become due and payable, or (ii) any event or condition occurs or exists that results in any 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 Indebtedness or any trustee or agent on its or their behalf to cause any Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that (A) it shall not constitute an Event of Default pursuant to this paragraph (f) unless the aggregate amount of all such Indebtedness referred to in preceding clauses (i) and (ii) equals or exceeds $20,000,000 at any time outstanding and (B) this clause (ii) shall not apply to (1) secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness, or (2) any Indebtedness if (x) the sole remedy of the holder thereof in the event of the non-payment of such Indebtedness or the non-payment or
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non-performance of obligations related thereto is to elect to convert such Indebtedness into Qualified Capital Stock (or cash in lieu of fractional shares) and (y) in the case of Indebtedness which the holder thereof may elect to convert into Qualified Capital Stock, such Indebtedness from and after the date, if any, on which such conversion has been effected;
(255)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 a Loan Party or a Subsidiary (other than an Immaterial Subsidiary), or of a substantial part of the property or assets of the a Loan Party or a Subsidiary (other than an Immaterial Subsidiary), under the Bankruptcy 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 a Loan Party or a Subsidiary (other than an Immaterial Subsidiary) or for a substantial part of the property or assets of Borrowers or a Subsidiary (other than an Immaterial Subsidiary) or (iii) the winding-up or liquidation of a Loan Party or a Subsidiary (other than an Immaterial 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;
(256)a Loan Party or a Subsidiary (other than an Immaterial Subsidiary) shall (i) voluntarily commence any proceeding or file any petition seeking relief under the Bankruptcy 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 paragraph (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for a Loan Party or a Subsidiary (other than an Immaterial Subsidiary) or for a substantial part of the property or assets of a Loan Party or a Subsidiary (other than an Immaterial Subsidiary), (iv) file an answer admitting the material allegations of a petition filed against it in any proceeding described in paragraph (g) above, (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 corporate (or similar) action for the purpose of effecting any of the foregoing;
(257)one or more judgments shall be rendered against a Loan Party or a Subsidiary or any combination thereof and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of a Loan Party or a Subsidiary to enforce any such judgment and such judgment either (i) is for the payment of money in an aggregate amount of $20,000,000 or more (to the extent that such payment is not covered by either (A) insurance from an unaffiliated insurance company with an A.M. Best financial strength rating of at least A- at the time of the judgment, it being understood that even if such amounts are covered by insurance from such an insurance company, such amounts shall count against such basket if responsibility for such amounts has been denied by such insurance company or such insurance company has not been promptly notified of such amounts or (B) another creditworthy (as reasonably determined by Agent) indemnitor) or (ii) is for injunctive relief and could reasonably be expected to result in a Material Adverse Effect;
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(258)an ERISA Event shall have occurred that, when taken together with all other such ERISA Events, could reasonably be expected to result in a Material Adverse Effect;
(259)any material provision of any Loan Document or any 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 a Loan Party shall deny in writing that it has any further liability under the Guarantee and Collateral Agreement to which it is a party (other than as a result of the discharge of such Loan Party in accordance with the terms of the Loan Documents);
(260)any security interest purported to be created by any Security Document shall cease to be or shall be asserted by Borrowers or any other Loan Party not to be, a valid, enforceable, perfected, first priority (except as otherwise expressly provided or permitted in this Agreement or such Security Document) security interest in Collateral covered thereby (other than with respect to any Collateral, in the aggregate, with a Fair Market Value not in excess of $20,000,000), except (i) as a result of the release of a Loan Party or the sale or other disposition of the applicable Collateral in a transaction permitted under the Loan Documents, (ii) as a result of Agent’s failure (A) to maintain possession of any stock certificates, promissory notes or other instruments delivered to it under the Guarantee and Collateral Agreement or (B) to file Uniform Commercial Code continuation statements and any other filings required to maintain such perfection or (iii) any such loss of perfection or priority that results from the failure of Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Guarantee and Collateral Agreement or failure to file Uniform Commercial Code continuation statements and any other filings required to maintain such perfection or priority;
(261)there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to a Loan Party described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, Agent may, and at the request of the Required Lenders shall, by notice to the Administrative Loan Party, take one or more of the following actions, at the same or different times: (i) terminate forthwith the Commitments; (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of Borrowers accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrowers, anything contained herein or in any other Loan Document to the contrary notwithstanding; and (iii) exercise (and/or direct Agent to exercise) any and all of its (or Agent’s) other rights and remedies hereunder, under the other Loan Documents and/or under applicable law; and in any event with respect to Borrowers 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 Borrowers accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or
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any other notice of any kind, all of which are hereby expressly waived by Borrowers, anything contained herein or in any other Loan Document to the contrary notwithstanding.
co.Application of Proceeds
.
(262)Agent shall apply (i) the proceeds of any collection, sale, foreclosure or other realization upon any Collateral, including any Collateral consisting of cash, and (ii) any amounts received in respect of the Obligations following the termination of the Commitments and any of the Loans becoming due and payable pursuant to Section 7.01, in each case as follows:
lxxiv.First, to the payment in full in cash of all reasonable and documented out-of-pocket costs and expenses, fees, commissions and taxes of such sale, collection or other realization (including compensation to Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by Agent in connection therewith and all amounts for which Agent is entitled to indemnification pursuant to the provisions of any Loan Document), together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full;
lxxv.Second, to the payment in full in cash of all other reasonable costs and expenses of such sale, collection or other realization (including compensation to the other Secured Parties and their agents and counsel and all costs, liabilities and advances made or incurred by the other Secured Parties in connection therewith), together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full;
lxxvi.Third, to the payment in full in cash, pro rata, of interest in respect of all Protective Advances and Overadvances;
lxxvii.Fourth, to the payment in full in cash, pro rata, of the principal amount of all Protective Advances and Overadvances;
lxxviii.Fifth, without duplication of amounts applied pursuant to clauses (i) through (iv) above, to the payment in full in cash, pro rata, of interest and other amounts constituting Secured Obligations (other than principal, reimbursement obligations in respect of Letters of Credit and obligations to Cash Collateralize Letters of Credit, Bank Product Obligations and Obligations owed to Defaulting Lenders), in each case, equally and ratably in accordance with the respective amounts thereof then due and owing (it being agreed that, for purposes of applying this clause (a)(v), all interest and all other amounts described herein will be deemed payable in accordance with this Agreement regardless of whether such claims are allowed in any proceeding described in Section 7.01(g) or 7.01(h));
lxxix.Sixth, to the payment in full in cash, pro rata, of the principal amount of the Secured Obligations (including reimbursement obligations in respect of Letters of Credit,
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obligations to Cash Collateralize Letters of Credit and Obligations owed to Defaulting Lenders) other than Bank Product Obligations;
lxxx.Seventh, to pay any other Secured Obligations other than Obligations owed to Defaulting Lenders (including being paid, ratably, to the Bank Product Providers on account of all amounts then due and payable in respect of Bank Product Obligations, with any balance to be paid to Agent, to be held by Agent, for the ratable benefit of the Bank Product Providers, as cash collateral);
lxxxi.Eighth, ratably to pay any Secured Obligations owed to Defaulting Lenders; and
lxxxii.Ninth, the balance, if any, to the person lawfully entitled thereto (including the applicable Loan Party or its successors or assigns) or as a court of competent jurisdiction may direct.
In the event that any such proceeds are insufficient to pay in full the items described in clauses (i) through (ix) of this Section 7.02(a), Loan Parties shall remain liable, jointly and severally, for any deficiency.

(263)Agent shall have absolute discretion as to the time of application of any such proceeds, moneys, balances or amounts in accordance with this Agreement and the other Loan Documents. Upon any sale of Collateral by Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to Agent or such officer or be answerable in any way for the misapplication thereof.
ARTICLE VIII.THE AGENT
cp.Appointment
.
Each Lender and each Issuing Bank hereby irrevocably appoints (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to irrevocably designate and appoint) Jefferies Finance LLC, as its Agent and each Issuing Bank and each other Secured Party hereby irrevocably appoints Jefferies Finance LLC as its Agent, and Jefferies Finance LLC hereby accepts such appointment. Each Lender, each Issuing Bank and each other Secured Party hereby authorizes (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to irrevocably authorize) Agent to take such actions on its behalf and to exercise such powers as are delegated to Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article VIII are
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solely for the benefit of Agent, the Lenders, the Issuing Bank and the Bank Product Providers, and no Loan Party shall have rights as a third party beneficiary of any such provisions. Without limiting the generality of the foregoing, Agent is hereby expressly authorized to (a) execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Security Documents, (b) negotiate, enforce or settle any claim, action or proceeding affecting the Lenders in their capacity as such, at the direction of the Required Lenders, which negotiation, enforcement or settlement will be binding upon each Lender and (c) in the event of a foreclosure by Agent on any of the Collateral pursuant to a public or private sale or a sale of any of the Collateral pursuant to Section 363 of the Bankruptcy Code, Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Agent, as agent for and representative of the Lenders (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, with the consent or at the direction of the Required Lenders, 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 Agent at such sale. 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 Agent 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. Each Lender irrevocably appoints each other Lender as its agent and bailee for the purpose of perfecting Liens (whether pursuant to Section 8-301(a)(2) of the UCC or otherwise), for the benefit of the Secured Parties, in assets in which, in accordance with the UCC or any other applicable Legal Requirement, a security interest can be perfected by possession or control. Should any Lender (other than Agent) obtain possession or control of any such Collateral, such Lender shall notify Agent thereof, and, promptly following Agent’s request therefor, shall deliver such Collateral to Agent or otherwise deal with such Collateral in accordance with Agent’s instructions. The Lenders hereby acknowledge and agree (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge and authorize) that Agent may act as the collateral agent for the Secured Parties
cq.Agent in its Individual Capacity
.
The institution serving as 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 Agent, and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as Agent hereunder in its individual capacity. Such bank and its Affiliates may accept deposits from, lend money to, act as financial advisor or in any other advisory capacity for, and generally engage in any kind of business with Loan Parties or any Subsidiary or other Affiliate thereof as if it were not Agent hereunder.
cr.Exculpatory Provisions.
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Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, (a) Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that Agent is instructed in writing to exercise by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.08); provided that Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose 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 (c) except as expressly set forth in the Loan Documents, Agent shall not have any duty to disclose, nor shall it be liable for the failure to disclose, any information relating to Borrowers or any of Subsidiaries that is communicated to or obtained by the Person serving as Agent or any of its Affiliates in any capacity. Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.08) or in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by a final and nonappealable judgment. Agent shall not be deemed to have knowledge of any Default unless and until written notice thereof is given to Agent by the Administrative Loan Party or a Lender, and Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to Agent. Each party to this Agreement acknowledges and agrees that Agent may from time to time use one or more outside service providers for the tracking of all UCC financing statements (and/or other collateral related filings and registrations from time to time) required to be filed or recorded pursuant to the Loan Documents and the notification to Agent, of, among other things, the upcoming lapse or expiration thereof. Neither Agent nor any of its officers, partners, directors, employees or agents shall be liable to the Lenders for any action taken or omitted by Agent under or in connection with any of the Loan Documents.
cs.Reliance by Agent
.
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
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be genuine and to have been signed or sent by the proper Person. Agent may also 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 the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an Issuing Bank, Agent may presume that such condition is satisfactory to such Lender or such Issuing Bank unless Agent shall have received written notice to the contrary from such Lender or such Issuing Bank prior to the making of such Loan or the issuance of such Letter of Credit. Agent may consult with legal counsel (who may be counsel for Loan Parties), 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. Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of Agent’s Lien thereon, or any certificate prepared by Loan Parties in connection therewith, nor shall Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
ct.Delegation of Duties
.
Agent may perform any and all its duties and exercise its rights and powers under this Agreement or under any other Loan Document by or through any one or more sub-agents appointed by it. Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory, indemnification and other provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of 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 Agent. Agent shall not be responsible for the negligence or misconduct of any sub-agent except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that Agent acted with gross negligence or willful misconduct in the selection of such sub-agent.
cu.Successor Agent
.
(264)Subject to the elapsing of the 30-day period for the appointment and acceptance of a successor Agent as provided below, Agent may resign at any time by notifying the Lenders, the Issuing Banks and the Administrative Loan Party and without notice to the Bank Product Providers. Upon any such resignation, or, at any time Agent is a Lender whose Commitments are being assigned at the election of the Administrative Loan Party pursuant to Section 2.21, the Required Lenders shall have the right, with, so long as no Event of Default shall have occurred and be continuing, the approval of the Administrative Loan Party (such approval not to be unreasonably withheld or delayed), to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment
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within 30 days after the retiring Agent gives notice of its resignation, then the retiring or removed Agent may, with, so long as no Event of Default shall have occurred and be continuing, the approval of the Administrative Loan Party (such approval not to be unreasonably withheld or delayed), on behalf of the Lenders and the Issuing Banks, appoint a successor Agent which shall be a bank or other financial institution with an office in New York, New York, or an Affiliate of any such bank or other financial institution. If no successor Agent has been appointed pursuant to the immediately preceding sentence by the 30th day after the date such notice of resignation was given by Agent, Agent’s resignation or removal shall become effective and the Required Lenders shall thereafter perform all the duties of Agent hereunder and/or under any other Loan Document until such time, if any, as the Required Lenders appoint, with the approval of the Administrative Loan Party (such approval not to be unreasonably withheld or delayed), a successor Agent.
(265)Any such resignation or removal by Agent hereunder shall also constitute its resignation as an Issuing Bank and the Swingline Lender, in which case the resigning Agent (i) shall not be required to issue any further Letters of Credit or make any additional Swingline Loans hereunder and (ii) shall maintain all of its rights as Issuing Bank or Swingline Lender, as the case may be, with respect to any Letters of Credit issued by it, or Swingline Loans made by it, prior to the date of such resignation.
(266)Upon the acceptance of its appointment as Agent hereunder by a successor, (i) such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent (and in the case of the resignation or removal of Agent, the retiring Issuing Bank and Swingline Lender), (ii) the retiring or removed Agent (and in the case of Agent, Issuing Bank and Swingline Lender) shall be discharged from its duties and obligations hereunder, and (iii) the successor Issuing Bank shall issue letters of credit in substitution for the Letters of Credit issued by the retiring Issuing Bank, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring Issuing Bank to effectively assume the obligations of the retiring Issuing Bank with respect to such Letters of Credit. The fees payable by Borrowers to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between Borrowers and such successor. After Agent’s resignation or removal hereunder, 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 acting as Agent.
(267)Agent, the successor Agent, the Lenders and Loan Parties shall execute all documents and take all other actions necessary or in the opinion of successor Agent reasonably desirable in connection with the substitution by successor Agent of Agent as holder of the security under the Loan Documents, all in accordance with applicable law.
cv.Bankruptcy Related Matters
.
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In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relating to the Loan Documents relative to a Loan Party or a Subsidiary, Agent (irrespective of whether the principal of any Loan or Letter of Credit shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Agent shall have made any demand on Borrowers) 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, Letters of Credit 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 Banks and Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuing Banks and Agent and their respective agents and counsel and all other amounts due the Lenders, the Issuing Banks and 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. Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender, each Issuing Bank and Agent to make such payments to Agent and, in the event that Agent shall consent to the making of such payments directly to the Lenders, the Issuing Banks and Agent, to pay to Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agent and its agents and counsel, and any other amounts due Agent under Sections 2.05 and 9.05.
cw.Non-Reliance on Agent and Other Lenders
.
Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender 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 or any other Loan Document, any related agreement or any document furnished hereunder or thereunder.
cx.Name Agents
.
Notwithstanding any other provision of this Agreement or any provision of any other Loan Document, the Lead Arranger is named as such for recognition purposes only, and in its capacity as such shall have no duties, responsibilities or liabilities with respect to this Agreement or any other Loan Document; it being understood and agreed that the Lead Arranger shall be entitled to all indemnification and reimbursement rights in favor of Agent provided herein and in the other Loan Documents. Without limitation of the foregoing, the Lead Arranger in its capacity as such shall not, by reason of this Agreement or any other Loan Document, have any fiduciary relationship in respect of any Lender, Loan Party or any other Person.
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cy.Intercreditor Agreements/Subordination Agreements
.
The Lenders, Issuing Banks and any other holder of any Obligations acknowledge that the Indebtedness under the Master Lease Facility Documents are secured by Liens on the Collateral and that the exercise of certain of the rights and remedies of Agent under the Loan Documents may be subject to the provisions of the Master Lease Facility Intercreditor Agreement and any other subordination or intercreditor agreement pertaining to any Subordinated Debt. Each Lender and Issuing Bank irrevocably (a) consents to the terms and conditions of the Master Lease Facility Intercreditor Agreement and any other subordination or intercreditor agreement pertaining to any Subordinated Debt, (b) authorizes and directs Agent to execute and deliver the Master Lease Facility Intercreditor Agreement, any documents relating thereto and any other subordination or intercreditor agreement pertaining to any other Subordinated Debt, in each case, on behalf of such Lender or such Issuing Bank and to take all actions (and execute all documents) required (or deemed advisable) by it in accordance with the terms of the Interecreditor Agreement and any other subordination or intercreditor agreement pertaining to any other Subordinated Debt, in each case, and without any further consent, authorization or other action by such Lender or Issuing Bank, (c) agrees that, upon the execution and delivery thereof, such Lender and Issuing Bank will be bound by the provisions of the Master Lease Facility Intercreditor Agreement and any other subordination or intercreditor agreement pertaining to any other Subordinated Debt as if it were a signatory thereto and will take no actions contrary to the provisions of the Master Lease Facility Intercreditor Agreement and any other subordination or intercreditor agreement pertaining to any other Subordinated Debt, and (d) agrees that no Lender or Issuing Bank shall have any right of action whatsoever against Agent as a result of any action taken by Agent pursuant to this Section or in accordance with the terms of the Master Lease Facility Intercreditor Agreement and any other subordination or intercreditor agreement pertaining to any other Subordinated Debt and (e) acknowledges (or is deemed to acknowledge) that a copy of the Master Lease Facility Intercreditor Agreement has been delivered, or made available, to such Lender and Issuing Bank. Each Lender hereby further irrevocably authorizes and directs Agent to enter into such amendments, supplements or other modifications to the Master Lease Facility Intercreditor Agreement and any other subordination or intercreditor agreement pertaining to any other Subordinated Debt as are approved by Agent and the Required Lenders (except as to any amendment that expressly requires the approval of all Lenders as set forth in Section 9.08); provided that Agent may execute and deliver such amendments, supplements and modifications thereto as are contemplated by the Master Lease Facility Intercreditor Agreement and any other subordination or intercreditor agreement pertaining to any other Subordinated Debt in connection with any extension, renewal, refinancing or replacement of this Agreement or any refinancing of the Obligations, in each case, on behalf of such Lender and Issuing Bank and without any further consent, authorization or other action by any Lender or Issuing Bank. Agent shall have the benefit of each of the provisions of Article VIII with respect to all actions taken by it pursuant to this Section 8.10 or in accordance with the terms of the Master Lease Facility Intercreditor Agreement and any other subordination or intercreditor agreement pertaining to any other Subordinated Debt to the full extent thereof.
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ARTICLE IX.MISCELLANEOUS
cz.Notices; Electronic Communications
. Notices and other communications (other than with respect to ordinary course notices delivered pursuant to Article II) 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 email or fax (to the extent a fax number is provided below), as follows:
(268)if to Borrowers, the other Loan Parties, Agent, any Issuing Bank or the Swingline Lender, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 9.01; and
(269)if to a Lender, to it at its address (or fax number) set forth on Schedule 1.01(a) or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto.
(270)All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt (or, if such day is not a Business Day, on the first Business Day after receipt) if delivered by hand or overnight courier service or sent by fax or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01. As agreed to among the Administrative Loan Party, Agent and the applicable Lenders from time to time, notices and other communications may also be delivered by e-mail to the e-mail address of a representative of the applicable Person provided from time to time by such Person.
(271)Each Loan Party hereby agrees, unless directed otherwise by Agent or unless the electronic mail address referred to below has not been provided by Agent to such Loan Party, that it will, or will cause Subsidiaries to, provide to Agent all information, documents and other materials that it is obligated to furnish to Agent pursuant to the Loan Documents or to the Lenders under Article V, including all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) is or relates to a Borrowing Request, a notice pursuant to Section 2.10 or a notice requesting the issuance, amendment, extension or renewal of a Letter of Credit pursuant to Section 2.23, (ii) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (iii) provides notice of any Default or Event of Default under this Agreement or any other Loan Document or (iv) is required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any Borrowing or other extension of credit hereunder (all such non-excluded communications being referred to herein collectively as “Communications”), by transmitting the Communications in an electronic/soft medium that is properly identified in a format acceptable to Agent to an electronic mail address
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as directed by Agent, which delivery shall satisfy the delivery requirements with respect to such Communications under the applicable Loan Document, unless otherwise notified by Agent.
(272)Loan Parties hereby acknowledge that (i) Agent will make available to the Lenders and each Issuing Bank materials and/or information provided by or on behalf of Borrowers hereunder (collectively, the “Borrower Materials”) by posting the Borrower Materials on Intralinks or another similar electronic system (the “Platform”) and (ii) 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 Loan Parties or their securities) (each, a “Public Lender”). Each Loan Party hereby agrees that (A) 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, (B) by marking Borrower Materials “PUBLIC,” each Loan Party shall be deemed to have authorized Agent and the Lenders to treat the Borrower Materials as not containing any material non-public information with respect to each Loan Party or its securities for purposes of United States Federal and state securities laws (provided, however, that to the extent the Borrower Materials constitute Information, they shall be treated by the recipient as set forth in Section 9.16), (C) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated as “Public Investor,” and (D) Agent shall be entitled to treat the 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 marked “PUBLIC”, unless the Administrative Loan Party notifies Agent promptly that any such document contains material non-public information: (1) the Loan Documents and (2) notification of changes in the terms of this Agreement or the Credit Facilities.
(273)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 Lender’s 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 each Loan Party or its securities for purposes of United States Federal or state securities laws.
(274)THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE”. NEITHER 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 AGENT OR ANY OF ITS RELATED PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL AGENT OR ANY OF
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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 PARTY’S OR AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF ANY SUCH PERSON IS FOUND IN A FINAL AND NON-APPEALABLE DECISION BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED PRIMARILY FROM SUCH PERSON’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(275)Agent agrees that the receipt of the Communications by Agent at its e-mail address set forth above shall constitute effective delivery of the Communications to 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 Lender for purposes of the Loan Documents. Each Lender agrees to notify Agent in writing (including by electronic communication) from time to time of such Lender’s 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. Nothing herein shall prejudice the right of Loan Parties, 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.
da.Survival of Agreement
. All covenants, agreements, representations and warranties made by Loan Parties 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 Banks and shall survive the making by the Lenders of the Loans and the issuance of Letters of Credit by the Issuing Banks, regardless of any investigation made by the Lenders or the Issuing Banks 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 then 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, 9.05, 9.16 (for a period of one year after the termination of this Agreement) and 9.19 shall remain operative and in full force and effect regardless of any termination 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 Agent, any Lender or any Issuing Bank.
db.Binding Effect
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. This Agreement shall become effective when it shall have been executed by Loan Parties and Agent and when Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto.
dc.Successors and Assigns
. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of Loan Parties, Agent, the Issuing Banks or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective permitted successors and assigns.
(276)Each Lender may assign to one or more Eligible Assignees all or a portion of its interests, 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 Agent (not to be unreasonably withheld, delayed or conditioned) (provided that the consent of Agent shall not be required to any such assignment made to another Lender or an Affiliate or Related Fund of a Lender); provided, however, that (i) the Administrative Loan Party must also give its prior written consent to such assignment (which consent shall not be unreasonably withheld, delayed or conditioned and shall be deemed to have been given by the Administrative Loan Party if the Administrative Loan Party has not otherwise rejected such assignment within 10 Business Days of a written request for such consent) (provided that the consent of the Administrative Loan Party shall not be required to any such assignment made (x) to another Lender or an Affiliate or Related Fund of a Lender or (y) after the occurrence and during the continuance of any Event of Default), (ii) the Swingline Lender and each Issuing Bank must also give its prior written consent to such assignment (which consent shall not be unreasonably withheld, delayed or conditioned), (iii) 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 Agent) shall be in an integral multiple of, and not less than, $5,000,000 (or, if less, the entire remaining amount of such Lender’s Commitment and Loans); provided that simultaneous assignments by two or more Related Funds of a Lender shall be combined for purposes of determining whether the minimum assignment requirement is met, (iv) the parties to each assignment shall (A) execute and deliver to Agent an Assignment and Acceptance via an electronic settlement system acceptable to Agent or (B) if previously agreed with Agent, manually execute and deliver to Agent an Assignment and Acceptance, and, in each case, shall pay to Agent a processing and recordation fee of $3,500 (which fee may be waived or reduced in the sole discretion of Agent), and (v) the assignee, if it shall not be a Lender, shall deliver to 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 Loan Parties and their respective Related Parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws) and all applicable tax documentation. 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
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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 Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid); provided, however, notwithstanding any assignment by a Lender of all of its rights and obligations under this Agreement, such Lender shall continue to be bound by the provisions of Section 9.16 for a period of one year following any such assignment.
(277)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 Revolving Credit Commitment and the outstanding balances of its Revolving Loans, 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 a Loan Party or a Subsidiary or the performance or observance by a Loan Party or a Subsidiary 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 legally authorized to enter into such Assignment and Acceptance; (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 3.05(a) 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 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 Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to Agent, respectively, by the terms hereof, 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.
(278)Agent, acting for this purpose as an agent of Loan Parties, 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 any stated interest on) the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the
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Register shall be conclusive absent manifest error and Loan Parties, Agent, the Issuing Banks 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 Borrowers, any Issuing Bank, Agent and any Lender (with respect to such Lender’s own interest only), at any reasonable time and from time to time upon reasonable prior notice.
(279)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 Agent and, if required, the Administrative Loan Party, the Swingline Lender, and each Issuing Bank to such assignment and any applicable tax documentation, Agent shall (i) accept such Assignment and Acceptance and (ii) promptly 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).
(280)Each Lender may without the consent of Loan Parties, any Issuing Bank, the Swingline Lender or Agent sell participations to one or more banks or other entities (other than any Disqualified Institution) 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 Lender’s obligations under this Agreement and the other Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other Persons shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.16 and 2.20 (it being understood that the documentation required under Section 2.20 shall be delivered to the participating bank) to the same extent as if they were Lenders (but no participant shall be entitled to any greater payment thereunder than that to which the Lender that sold the participation to such participant would have been entitled had it not sold the participation) and (iv) Loan Parties, Agent, the Issuing Banks and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the other Loan Documents, and such Lender shall retain the sole right to enforce the obligations of Loan Parties relating to the Loans or L/C Disbursements and to approve any amendment, modification or waiver of any provision of this Agreement, the other Loan Documents (provided that any Lender and any participating bank or other Person of such Lender may agree that such Lender shall be required to seek consent from such participating bank or other Person with respect to any amendments, modifications or waivers decreasing any fees payable to such participating bank or Person hereunder or the amount of principal of or the rate at which interest is payable on the Loans in which such participating bank or Person has an interest, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans in which such participating bank or Person has an interest, increasing or extending the Commitments in which such participating bank or Person has an interest or releasing one or more Guarantors (other than in connection with the sale of any Guarantor in a transaction permitted by Section 6.05) that represent all or substantially all of the value of the Guarantees of the Obligations pursuant to the Loan Documents or all or substantially all of the Collateral (it
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being understood and agreed, however, that any amendment or modification to the financial definitions in this Agreement or to Section 1.02 or 1.03 shall not constitute a reduction in the rate of interest or fees for purposes of this clause (iv))). Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of Loan Parties, maintain a register on which it enters the name and address of each participant and the principal amounts (and stated interest) of each participant’s interest in the Loans or other obligations under this Agreement (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any participating bank or any information relating to a participating bank’s interest in any Commitments, Loans or its other obligations under any Loan Document) except to the extent that the relevant parties, acting reasonably and in good faith, determine that such disclosure is necessary to establish that such Commitment, Loan or other obligation is in registered form under Section 5f.103 1(c) of the United States Treasury Regulations and within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code. 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 or interest in the Loan, as applicable, for all purposes of this Agreement notwithstanding any notice to the contrary. To the extent permitted by law, each participating bank or other Person also shall be entitled to the benefits of Section 9.06 as though it were a Lender; provided such participating bank or other Person agrees to be subject to Section 2.18 as though it were a Lender.
(281)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 Loan Parties furnished to such Lender by or on behalf of Loan Parties; provided that, prior to any such disclosure of information designated by Loan Parties as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.16.
(282)Any Lender may at any time assign all or any portion of its rights under this Agreement to an Eligible Assignee to secure extensions of credit to such Lender or in support of obligations owed by such Lender; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto.
(283)Each Loan Party shall not assign or delegate any of its rights or duties hereunder without the prior written consent of Agent, each Issuing Bank and each Lender, and any attempted assignment without such consent shall be null and void.
dd.Expenses; Indemnity
. Borrowers agree to pay within 30 days following receipt by the Administrative Loan Party of an invoice setting forth reasonable detail:
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lxxxiii.all reasonable and documented out-of-pocket costs and expenses incurred by the Lead Arranger, Agent, the Issuing Banks and the Swingline Lender, including the reasonable and documented fees, charges and disbursements of Advisors for the Lead Arranger, Agent, the Issuing Banks and the Swingline Lender, in connection with the preparation, negotiation, execution and delivery of the Loan Documents, the administration of the Credit Events and Commitments (including with respect to the establishment and maintenance of a Platform and the charges of IntraLinks, SyndTrak or a similar service), the perfection and maintenance of the Liens securing the Collateral and any actual or proposed amendment, supplement or waiver of any of the Loan Documents (whether or not the transactions contemplated hereby or thereby shall be consummated); and
lxxxiv.all reasonable and documented out-of-pocket costs and expenses incurred by the Lead Arranger, Agent, the Issuing Banks, the Swingline Lender and any Lender, including the reasonable and documented fees, charges and disbursements of Advisors for any of the foregoing, incurred in connection with the enforcement or protection of its rights under the Loan Documents, including its rights under this Section 9.05(a), or in connection with the Loans made or Letters of Credit issued hereunder and the collection of the Obligations, including all such costs and expenses incurred during any workout, restructuring or negotiations in respect of the Obligations;
provided that, with respect to clauses (i) and (ii) above, in the case of charges of outside counsel, such payment shall be limited to the fees, disbursements and other charges of (A) one primary counsel for Agent and the Lenders (taken as a group), (B) one local counsel in each relevant jurisdiction for Agent and the Lenders (taken as a group) and (C) one regulatory counsel in each relevant jurisdiction for Agent and the Lenders (taken as a group) (and, in each case, in the case of an actual or a potential conflict of interest, (1) one additional counsel for each affected Person (or group of similarly affected Persons) and (2) one local and/or regulatory counsel for each affected Person (or group of similarly affected Persons) in any relevant jurisdiction).
(284)Each Loan Party agrees to indemnify Agent, the Lead Arranger, each Lender, each Issuing Bank, the Swingline Lender 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, including reasonable Advisor fees, charges and disbursements incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or the consummation of the Transactions and the other transactions contemplated hereby or 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 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 any Loan Party or any of their respective Affiliates) or (iv) any actual or alleged presence or Release of Hazardous Materials on any property currently owned or operated by Loan Parties or any of Subsidiaries, or any Environmental Liability related in any way to Loan Parties or
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Subsidiaries; 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 (A) determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the bad faith, gross negligence or willful misconduct of such Indemnitee (or any of its Related Parties) or that are addressed in paragraph (a) of this Section 9.05, (B) in respect of any settlement entered into by any Indemnitee without the prior written consent of the Administrative Loan Party (which consent will not be unreasonably withheld, delayed or conditioned), (C) in respect of (1) a material breach of the Loan Documents by such Indemnitee or one of its Affiliates or (2) any dispute solely among Indemnitees (other than any dispute involving claims against Agent or the Lead Arranger, in its capacity as such) and other than any claims arising out of any act or omission of any Loan Party or any of its Subsidiaries or (3) attributable to Taxes (other than any Taxes that represent losses, claims, damages, liabilities or related expenses arising from any non-Tax claim), which shall be governed solely by Section 2.20.
(285)To the extent that any Loan Party fails to pay any amount required to be paid by it to Agent, any Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section 9.05, each Lender severally agrees to pay to Agent, such Issuing Bank or the Swingline Lender, as the case may be, such Lender’s 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 Agent, such Issuing Bank or the Swingline Lender in its capacity as such. For purposes hereof, a Lender’s “pro rata share” shall be determined based upon its share of the sum of the Aggregate Revolving Credit Exposure and unused Commitments at the time (in each case, determined as if no Lender were a Defaulting Lender).
(286)To the extent permitted by applicable law, Loan Parties shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. To the extent permitted by applicable law, no Indemnitee shall assert, and each Indemnitee hereby waives, any claim against any Loan Party or any Subsidiary, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof; provided that nothing contained in this sentence shall limit any Loan Party’s indemnification obligations above to the extent such special, indirect, consequential and punitive damages are included in any third party claim in connection with which any Indemnitee is entitled to indemnification hereunder.
(287)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
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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 Agent, the Swingline Lender, any Lender or any Issuing Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor.
(288)No Indemnitee referred to above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
de.Right of Setoff
. If an Event of Default shall have occurred and be continuing, each Lender may, with the consent of Agent (provided that no such consent shall be required if an Event of Default shall have occurred and be continuing pursuant to Section 7.01(g) or 7.01(h)), at any time and from time to time, except to the extent prohibited by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of a Loan Party, against any of and all the Obligations of Borrowers or other Loan Parties, now or hereafter existing under this Agreement and the other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured; provided, in the event that any Defaulting Lender shall exercise any such right of setoff, (a) all amounts so set off shall be paid over immediately to Agent for further application in accordance with the provisions of Section 2.26 (to the extent applicable) and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of Agent, the Issuing Banks and the Lenders, and (b) the Defaulting Lender shall provide promptly to Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The applicable Lender shall endeavor to notify the Administrative Loan Party and Agent of such setoff; provided that the failure to provide such notice shall not affect the validity of such setoff or application under this Section 9.06. The rights of each Lender under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
df.Applicable Law
. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT OR AS OTHERWISE EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS 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
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OF COMMERCE (THE “UNIFORM CUSTOMS”) AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
dg.Waivers; Amendment
. No failure or delay of Agent, any Lender or any 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 Agent, the Issuing Banks 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 Borrowers 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. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether any Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default or Event of Default at the time. No notice or demand on Loan Parties in any case shall entitle Loan Parties to any other or further notice or demand in similar or other circumstances.
(289)Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Borrowers and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by Agent and Loan Party or Loan Parties that are parties thereto, in each case with the written consent of the Required Lenders; provided, however, that no such agreement shall:
lxxxv.decrease the principal amount of, or extend the maturity of or any scheduled principal payment date of, or date for the payment of any interest on or any fees, but excluding any interest payable pursuant to Section 2.07) payable with respect to, 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 or reduce any fees, but excluding any interest payable pursuant to Section 2.07) payable with respect to any Loan or L/C Disbursement, without the prior written consent of each Lender directly adversely affected thereby (it being understood and agreed that any amendment or modification to the financial definitions in this Agreement or to Section 1.02 or 1.03 shall not constitute a reduction in the rate of interest or fees for purposes of this clause (i));
lxxxvi.increase or extend the Commitment or decrease or extend the date for payment of any fees of any Lender without the prior written consent of such Lender (it being understood that no amendment, modification, termination, waiver or consent with respect to any condition precedent, covenant, Default or Event of Default (or any definition used, respectively,
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therein) shall constitute an increase in the Commitment of any Lender for purposes of this clause (ii));
lxxxvii. amend or modify Section 2.17 or 7.02 or the definition of “Pro Rata Percentage” in a manner that would alter the order of or the pro rata sharing of payments or setoffs required thereby without the prior written consent of each Lender directly affected thereby (except for any such amendment or modification to reflect the addition of one or more Classes of Loans in a manner consistent with the treatment of Obligations under Section 7.02 immediately prior to such amendment or modification) or change the provisions of any Loan Document in a manner that by its terms adversely affects the rights in respect of payments due to Lenders holding Loans of 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;
lxxxviii.amend or modify the provisions of Section 9.04(i) or the provisions of this Section 9.08 or release one or more Guarantor (other than in connection with the sale of such Guarantor in a transaction permitted by Section 6.05 or as otherwise expressly provided in this Agreement or any Security Document) that represent all or substantially all of the value of the Guarantees of the Obligations pursuant to the Loan Documents or release all or substantially all of the Collateral from the Liens of the Security Documents or alter the relative priorities of the Obligations entitled to the Liens of the Security Documents (except in connection with securing additional Obligations equally and ratably with the other Obligations), in each case without the prior written consent of each Lender;
lxxxix.change any provision of this Section 9.08 or the percentage contained in the definition of “Required Lenders” or any other provision specifying the number of Lenders or portions of Loans or Commitments required to take any action under the Loan Documents, without the prior written consent of each Lender directly affected thereby (it being understood that with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Lenders on substantially the same basis as the Revolving Credit Commitments on the date hereof);
xc. change Section 9.04(b) in a manner which further restricts assignments thereunder with the prior written consent of each Lender directly adversely affected thereby; or
xci.amend, modify or otherwise affect the rights or duties of Agent, the Swingline Lender or any Issuing Bank hereunder or under any other Loan Document without the prior written consent of such Person.
For the avoidance of doubt, Letters of Credit and the provisions thereof may be waived, amended or modified solely in accordance with Section 2.23.
(290)Notwithstanding anything in paragraph (b) above or otherwise herein to the contrary, (i) any amendment or modification that would extend the Revolving Credit Commitments of any Lender or the Revolving Credit Maturity Date of the Revolving Loans of any Lender and increase the rate of interest and fees payable on the Revolving Credit
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Commitments or Revolving Loans of such Lender shall not require the prior written consent of each Lender, so long as such extension is offered to all Revolving Credit Lenders on a pro rata basis based on the aggregate principal amount of such Revolving Credit Commitments or Revolving Loans then outstanding pursuant to procedures approved by Agent, (ii) the payment in full of any Loans on the Revolving Credit Maturity Date and the payment of interest and fees made on account of the Commitments or Loans of any Lender as required under this Agreement after giving effect to an amendment or other modification described in the preceding clause (i), shall not be deemed to violate Section 2.17 or be an event that would require the purchase of participations pursuant to Section 2.18; provided that, except as expressly set forth in the preceding clause (i), no such amendment or modification shall alter the pro rata requirements of Section 2.17, and (iii) Agent, Borrowers and the applicable Guarantor may amend, supplement or otherwise modify any Security Document so long as such amendment, supplement or other modification is not adverse to any Secured Party and such amendment shall become effective without any further consent of any other party to such Security Document. For the avoidance of doubt, any amendment or modification of the type described in the preceding clause (i) will require an agreement or agreements in writing entered into by Borrowers and the Required Lenders.
(291)Agent is hereby authorized on behalf of all of the Lenders, without the necessity of any notice to or further consent from any Lender, from time to time prior to the occurrence and continuance of an Event of Default, to take any action with respect to any Collateral or Security Documents which may be necessary to create, perfect and maintain perfected security interests in and liens upon the Collateral granted pursuant to the Security Documents. Each of the Lenders irrevocably authorizes Agent, at its option, and in its sole discretion: (i) to enter into and sign for and on behalf of the Lenders as Secured Parties the Security Documents for the benefit of the Lenders and the other Secured Parties; (ii) to automatically release any Lien on any property granted to or held by Agent under any Loan Document (A) upon termination of the Commitments and payment in full of all Obligations (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations as to which no claim has been asserted) and the expiration or termination of all Letters of Credit (unless the L/C Exposure related thereto has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, reasonably acceptable to the applicable Issuing Bank), (B) at the time any Collateral is to be sold as part of any Asset Sale (or other disposition of assets) to any Person other than Loan Parties or any of Subsidiaries permitted under Section 6.05 (and the Administrative Loan Party shall deliver to Agent a certificate to the effect that such Asset Sale (or any other disposition of assets) and the disposition of the proceeds thereof will comply with the terms of this Agreement), (C) subject to Section 9.08(b), if the release of such Lien is approved, authorized or ratified in writing by the Required Lenders or (D) if the property subject to such Lien is owned by a Guarantor, upon release of such Guarantor from its obligations under the Guaranty and Collateral Agreement pursuant to clause (iv) below; (iii) to subordinate any Lien on any property granted to or held by Agent under any Loan Document to another Lien permitted (A) to exist on such property and (B) to be senior to the Liens of the Secured Parties under this Agreement, including Liens permitted by Section 6.02(i), 6.02(j) or 6.02(l)), (and Borrowers and shall deliver to Agent a certificate to the effect that the incurrence of such other Lien on the Collateral will comply with the terms of
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this Agreement); and (iv) to release (A) any Guarantor from its obligations under the Guarantee and Collateral Agreement if such Person ceases to be a Guarantor (including if such Person becomes an Excluded Subsidiary) or (B) any item of Collateral from the Lien granted in favor of Agent if such property becomes an Excluded Asset (as such term is defined in the Guarantee and Collateral Agreement), in each case, as a result of a transaction or designation permitted hereunder; provided that no such release shall occur if such Guarantor continues to be a guarantor, or such Collateral continues to be collateral, as the case may be, in respect of any Subordinated Indebtedness or any Permitted Refinancing Indebtedness in respect thereof.
Upon request by Agent at any time, the Required Lenders will confirm in writing Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guarantee and Collateral Agreement pursuant to this Section. In each case as specified in this Section, Agent will (and each Lender irrevocably authorizes Agent to), at Borrowers’ expense, execute and deliver to the applicable Loan Party such documents as such Loan Party or such Subsidiary may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Security Documents or to subordinate its interest in such item, or to evidence the release of such Subsidiary Guarantor from its obligations under the Guarantee and Collateral Agreement, in each case in accordance with the terms of the Loan Documents and this Section.
(292)Agent and Borrowers may amend any Loan Document to correct any errors, mistakes, omissions, defects or inconsistencies, or 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.
dh.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 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.
di.Entire Agreement
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. This Agreement and the other Loan Documents 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 any Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of Agent, the Issuing Banks and the Lenders) any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents.
dj.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.
dk.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.
dl.Counterparts
. 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 customary means of electronic transmission, including by PDF file, shall be as effective as delivery of a manually signed counterpart of this Agreement.
dm.Headings
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. 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.
dn.Jurisdiction; Consent to Service of Process
. (a) Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in the Borough of Manhattan, 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 may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court sitting in the Borough of Manhattan, and any appellate court from any thereof. 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 shall affect any right that Agent, Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against a Loan Party or its properties in the courts of any jurisdiction.
(1)Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court sitting in the Borough of Manhattan, and any appellate court from any thereof. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(2)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
do.Confidentiality
. (a) Each of Agent, the Lead Arranger, the Swingline Lender, each Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to its and its Affiliates’ and Related Funds’ directors, officers, employees, agents, Advisors and other representatives, 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 pursuant to the terms hereof), (ii) to the extent requested by any regulatory authority or any quasi-regulatory authority (such as the National Association of Insurance Commissioners), (iii) to the extent required by applicable law or regulation or by any subpoena or similar legal process or in connection with any pledge or assignment made pursuant to Section 9.04(h), (iv) to any other party to this Agreement, (v) in connection with the exercise of
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any remedies under the Loan Documents or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section 9.16, to (A) any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement, (B) any actual or prospective counterparty (or its Advisors) to any swap or derivative transaction relating to any Loan Party and its obligations, or (C) any rating agency for the purpose of obtaining a credit rating applicable to any Loan or Loan Party, (vii) with the consent of the Administrative Loan Party, (viii) to an investor or prospective investor in securities issued by a Related Fund of any Lender that also agrees that Information shall be used solely for the purpose of evaluating an investment in such securities issued by a Related Fund of any Lender or to a trustee, collateral manager, servicer, backup servicer, noteholder or secured party in securities issued by a Related Fund of any Lender in connection with the administration, servicing and reporting on the assets serving as collateral for securities issued by such Related Fund (it being agreed 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 pursuant to the terms hereof), (ix) to the extent such Information (A) is publicly available at the time of disclosure or becomes publicly available other than as a result of a breach of this Section 9.16 or (B) becomes available to Agent, the Lead Arranger, the Swingline Lender, any Issuing Bank or any Lender on a non-confidential basis from a source other than a Loan Party or a Subsidiary or (x) to the extent that such Information has been independently developed by the Lead Arranger, Agent, the Swingline Lender, any Issuing Bank, any Lender or any Affiliate of any of the foregoing. In addition, Agent, the Lead Arranger, the Issuing Banks, the Swingline Lender and the Lenders may disclose the existence of this Agreement and the information about this Agreement to the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the Loans, market data collectors, similar service providers to the lending industry, and service providers to Agent, the Lead Arranger, the Swingline Lender, the Issuing Banks and the Lenders in connection with the administrative and management of this Agreement and the other Loan Documents. For the purposes of this Section 9.16, “Information” shall mean all information received from a Loan Party, any Subsidiary or any of their respective officers, directors, employees, agents or advisors relating to a Loan Party or any of Subsidiaries or their business, other than any such information that is available to Agent, the Lead Arranger, the Swingline Lender, any Issuing Bank or any Lender on a non-confidential basis prior to disclosure by any such Person. 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.
(1)Neither Agent nor any Lender may publish any press release, tombstone, advertising or other promotional material (including via any electronic transmission) relating to the transactions contemplated by this Agreement without the prior written consent of Loan Parties (such consent not to be unreasonably withheld, conditioned or delayed). Agent or such Lender shall provide a draft of any such press release, advertising or other promotional material to the Administrative Loan Party for review, comment and approval prior to the publication thereof, and Agent or such Lender, as applicable, shall not make such publication prior receiving
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such approval in writing. If such approval is provided for any of the foregoing, all such publications shall be at the sole expense of such Lender or Agent, as applicable.
dp.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 a Loan Party or a Subsidiary or any other obligor under any of the Loan Documents (including the exercise of any right of setoff, rights on account of any banker’s 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 or such Subsidiary, unless expressly provided for herein or in any other Loan Document, without the prior written consent of 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, a Loan Party or a Subsidiary.
dq.USA PATRIOT Act Notice
. Each Lender and Agent (for itself and not on behalf of any Lender) hereby notifies Loan Parties that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or Agent, as applicable, to identify th each Loan Party in accordance with the USA PATRIOT Act.
dr.Release of Liens
. If any of the Collateral shall be sold, transferred or otherwise disposed of by any Loan Party in a transaction permitted by this Agreement (including by way of merger, consolidation or in connection with the sale of a Subsidiary permitted hereunder) other than to a Loan Party or any of Subsidiaries or the release of any Collateral is otherwise expressly authorized or permitted under this Agreement, then the Liens created by any of the Security Documents on such property shall be automatically released (without need for further action by any person) and in connection therewith, upon receipt by Agent of a certificate of the Administrative Loan Party to the effect that such transaction and the disposition of the proceeds thereof has compiled or will comply with the terms of this Agreement (with such supporting detail as Agent may reasonably request), Agent, at the request and sole expense of Loan Parties, shall execute and deliver without recourse, representation or warranty all releases or other documents necessary or desirable to evidence the release of the Liens created by any of the Security Documents on such Collateral.
ds.No Advisory or Fiduciary Responsibility
. Each of Agent, Issuing Bank, Swingline Lender, Lender and their Affiliates (collectively, solely for purposes of this paragraph, the “Lenders”), may have economic interests that conflict with those of Loan Parties, their stockholders and/or their Affiliates. Each Loan Party agrees that nothing in the Loan Documents or otherwise will be deemed to create an advisory, fiduciary or agency relationship or fiduciary or other implied duty between any Lender, on the one hand, and such Loan Party or such Subsidiary, its stockholders or its Affiliates, on the
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other. Loan Parties acknowledge and agree that (i) the Transactions contemplated by the Loan Documents (including the exercise of rights and remedies hereunder and thereunder) are arm’s-length commercial transactions between the Lenders, on the one hand, and Loan Parties, on the other, and (ii) in connection therewith and with the process leading thereto, (A) no Lender has assumed an advisory or fiduciary responsibility in favor of a Loan Party or a Subsidiary, its stockholders or its Affiliates with respect to the Transactions contemplated hereby (or the exercise of rights or remedies with respect thereto) or the process leading thereto (irrespective of whether any Lender has advised, is currently advising or will advise a Loan Party or a Subsidiary, its stockholders or its Affiliates on other matters) or any other obligation to a Loan Party or a Subsidiary except the obligations expressly set forth in the Loan Documents and (B) each Lender is acting solely as principal and not as the agent or fiduciary of a Loan Party or a Subsidiary, its management, stockholders, creditors or any other Person. Each Loan Party acknowledges and agrees that it has consulted its own legal and financial advisors to the extent it deemed appropriate and that it is responsible for making its own independent judgment with respect to such transactions and the process leading thereto. Each Loan Party agrees that it will not claim that any Lender has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to such Loan Party or such Subsidiary, in connection with such transaction or the process leading thereto
dt.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:
(2)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
(3)the effects of any Bail-In Action on any such liability, including, if applicable:
xcii.a reduction in full or in part or cancellation of any such liability;
xciii.a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
xciv. the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.
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For purposes of this Section:
“Bail-In Action” shall mean the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“Bail-In Legislation” shall mean, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“EEA Financial Institution” shall mean (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clause (a) or (b) of this definition and is subject to consolidated supervision with its parent;
“EEA Member Country” shall mean any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” shall mean any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“EU Bail-In Legislation Schedule” shall mean the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Write-Down and Conversion Powers” shall mean, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
du.Smart Sand as Administrative Loan Party
. Each Loan Party hereby irrevocably appoints Smart Sand as the borrowing agent and attorney-in-fact for all Loan Parties (the “Administrative Loan Party”) which appointment shall remain in full force and effect unless and until Agent shall have received prior written notice signed by each Loan Party that such appointment has been revoked and that Borrower has been appointed Administrative Loan Party. Each Loan Party hereby irrevocably appoints and authorizes the Administrative Loan Party to provide Agent with all notices with respect to any Revolving Loan and all other notices and instructions under this Agreement and to take such action as the Administrative Loan Party deems appropriate on its behalf to obtain Revolving Loans and to exercise such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement. It is understood that the handling of the Loan Account and
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Collateral of Loan Parties in a combined fashion, as more fully set forth herein, is done solely as an accommodation to Borrowers and the other Loan Parties in order to utilize the collective borrowing powers of each Borrower in the most efficient and economical manner and at their request, and that Agent and the Lenders shall not incur liability to any Loan Party as a result hereof. Each Loan Party expects to derive benefit, directly or indirectly, from the handling of the Loan Account and the Collateral in a combined fashion since the successful operation of each Loan Party is dependent on the continued successful performance of the integrated group. To induce Agent and the Lenders to do so, and in consideration thereof, each Loan Party hereby jointly and severally agrees to indemnify Agent and each Lender and hold Agent and each Lender harmless against any and all liability, expense, loss or claim of damage or injury, made against Agent or any Lender by any Loan Party or by any third party whosoever, arising from or incurred by reason of the handling of the Loan Account and Collateral of Loan Parties as herein provided, Agent' and the Lenders' relying on any instructions of the Administrative Loan Party, or any other action taken by Agent and the Lenders hereunder or under the other Loan Documents, except that Loan Parties will have no liability to Agent or Lender under this Section 9.22 with respect to any liability that has been finally determined by a court of competent jurisdiction to have resulted solely from the gross negligence or willful misconduct of Agent or Lenders, as the case may be.
dv.Bank Product Providers
.
Each Bank Product Provider shall be deemed a third party beneficiary hereof and of the provisions of the other Loan Documents for purposes of any reference in a Loan Document to the parties for whom Agent is acting. Agent hereby agrees to act as agent for such Bank Product Providers and, by virtue of entering into a Bank Product Agreement, the applicable Bank Product Provider shall be automatically deemed to have appointed Agent as its agent and to have accepted the benefits of the Loan Documents; it being understood and agreed that the rights and benefits of each Bank Product Provider under the Loan Documents consist exclusively of such Bank Product Provider’s being a beneficiary of the Liens and security interests (and, if applicable, guarantees) granted to Agent and the right to share in payments and collections out of the Collateral as more fully set forth herein. In addition, each Bank Product Provider, by virtue of entering into a Bank Product Agreement, shall be automatically deemed to have agreed that Agent shall have the right, but shall have no obligation, to establish, maintain, relax, or release reserves in respect of the Bank Product Obligations and that if reserves are established there is no obligation on the part of Agent to determine or insure whether the amount of any such reserve is appropriate or not. In connection with any such distribution of payments or proceeds of Collateral, Agent shall be entitled to assume no amounts are due or owing to any Bank Product Provider unless such Bank Product Provider has provided a written certification (setting forth a reasonably detailed calculation) to Agent as to the amounts that are due and owing to it and such written certification is received by Agent a reasonable period of time prior to the making of such distribution. Agent shall have no obligation to calculate the amount due and payable with respect to any Bank Products, but may rely upon the written certification of the amount due and payable from the relevant Bank Product Provider. In the absence of an updated certification,
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Agent shall be entitled to assume that the amount due and payable to the relevant Bank Product Provider is the amount last certified to Agent by such Bank Product Provider as being due and payable (less any distributions made to such Bank Product Provider on account thereof). Borrowers may obtain Bank Products from any Bank Product Provider, although Borrowers are not required to do so. Borrowers acknowledge and agrees that no Bank Product Provider has committed to provide any Bank Products and that the providing of Bank Products by any Bank Product Provider is in the sole and absolute discretion of such Bank Product Provider. Notwithstanding anything to the contrary in this Agreement or any other Loan Document, no provider or holder of any Bank Product shall have any voting or approval rights hereunder (or be deemed a Lender) solely by virtue of its status as the provider or holder of such agreements or products or the Obligations owing thereunder, nor shall the consent of any such provider or holder be required (other than in their capacities as Lenders, to the extent applicable) for any matter hereunder or under any of the other Loan Documents, including as to any matter relating to the Collateral or the release of Collateral or Guarantors.
[Remainder of page intentionally left blank]


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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

SMART SAND, INC.,as Parent, a Borrower andAdministrative Loan Party

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


SMART SAND OAKDALE LLC,as a Borrower

By: SMART SAND, INC.,its sole Member

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


QUICKTHREE TECHNOLOGY, LLC,as a Borrower

By: SMART SAND, INC.,its sole Member

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


SSI BAKKEN I, LLC,as a Borrower

By: SMART SAND, INC.,its sole Member

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


Signature Page to Smart Sand Credit Agreement
155657.01206/121720408v.9


SMART SAND HIXTON LLC,as a Subsidiary Guarantor

By: SMART SAND, INC.,its sole Member

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer

FAIRVIEW CRANBERRY COMPANY, LLC.,as a Subsidiary Guarantor

By: SMART SAND, INC.,its Manager

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


WILL LOGISTICS, LLC.,as a Subsidiary Guarantor

By: SMART SAND, INC.,its Manager

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer





        Signature Page to Smart Sand Credit Agreement  
155657.01206/121720408v.9

JEFFERIES FINANCE LLC,as a Lender, as Swingline Lender,
as an Issuing Bank and as Agent


By:  /s/ J.R. Young     
        Name: J.R. Young
        Title: Managing Director



LEGAL02/39164944v8

Schedule 1.01(a)
Lenders and Revolving Credit Commitments

Lender

Commitment Percentage
Jefferies Finance LLC $20,000,000 100%

Total:

$20,000,000

100%

155657.01206/121720408v.9

Schedule 9.01
Certain Addresses for Notices

Loan Parties:

C/O Smart Sand, Inc.
1725 Hughes Landing Boulevard, Suite 800
The Woodlands, Texas 77380
Attention: Lee E. Beckelman, Chief Financial Officer
Telephone: (281) 231-2658
Email: lbeckelman@smartsand.com
Facsimile: (832) 791-5795

with a copy to (such copy not to constitute notice):

Alston & Bird LLP
333 South Hope Street, Sixteenth Floor
Los Angeles, California 90071
Attention: Matthew J. Wrysinski, Esq.
Telephone: (213) 576-1192
Email: matthew.wrysinski@alston.com
Facsimile: (213) 576-2892


Agent, Lender, Swingline Bank and Issuing Lender:

C/O Jefferies Finance LLC
520 Madison AvenueNew York, NY 10022
Attention: J.R. Young
Telephone: (212) 284-8191
Email: jyoung@jefferies.com
Facsimile: (212) 284-3444

with a copy to (such copy not to constitute notice):

Blank Rome LLP
1271 Avenue of the Americas
New York, NY 10020
Attention: Mitchell M. Brand, Esq.
Telephone: (212) 885-5235
Email: mbrand@blankrome.com
155657.01206/121720408v.9

Facsimile: (917) 332-3768


        C-2-2

LEGAL02/39164944v8
155657.01206/121720408v.9


GUARANTEE AND COLLATERAL AGREEMENT
dated as of
December 13, 2019
among
SMART SAND, INC.,
as Administrative Loan Party and a Grantor
and
THE OTHER GRANTORS IDENTIFIED HEREIN
and
JEFFERIES FINANCE LLC,
as Agent




TABLE OF CONTENTS
Page
ARTICLE I Definitions
1
SECTION 1.01 Credit Agreement.
1
SECTION 1.02 Other Defined Terms
1
ARTICLE II Pledge of Securities
8
SECTION 2.01 Pledge
8
SECTION 2.02 Delivery of the Pledged Securities.
9
SECTION 2.03 Representations, Warranties and Covenants
10
SECTION 2.04 Certification of Limited Liability Company and Limited Partnership Interests
11
SECTION 2.05 Registration in Nominee Name; Denominations
12
SECTION 2.06 Voting Rights; Dividends and Interest.
12
ARTICLE III Security Interests in Personal Property
14
SECTION 3.01 Security Interest.
14
SECTION 3.02 Representations and Warranties
16
SECTION 3.03 Covenants.
18
ARTICLE IV Guarantee
22
SECTION 4.01 The Guarantee
22
SECTION 4.02 Obligations Unconditional
23
SECTION 4.03 Reinstatement
24
SECTION 4.04 Subrogation; Subordination
24
SECTION 4.05 Remedies
25
SECTION 4.06 Continuing Guarantee
25
SECTION 4.07 General Limitation on Guarantee Obligations
25
SECTION 4.08 Release of Guarantors
25
SECTION 4.09 Right of Contribution
26
SECTION 4.10 Keepwell
26
ARTICLE V Remedies
26
SECTION 5.01 Remedies Upon Default
26
SECTION 5.02 Application of Proceeds
28
SECTION 5.03 Grant of License to Use Intellectual Property
28
SECTION 5.04 Effect of Securities Laws
29
SECTION 5.05 Deficiency
29
ARTICLE VI Subordination
29
SECTION 6.01 Subordination.
29
ARTICLE VII Miscellaneous
30
SECTION 7.01 Notices
30
SECTION 7.02 Waivers; Amendment.
30
SECTION 7.03 Agent’s Fees and Expenses; Indemnification.
31
        1
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SECTION 7.04 Successors and Assigns
31
SECTION 7.05 Survival of Agreement
31
SECTION 7.06 Counterparts; Effectiveness; Several Agreement
31
SECTION 7.07 Severability
32
SECTION 7.08 Governing Law; Jurisdiction; Venue; Waiver of Jury Trial; Consent to Service of Process.
32
SECTION 7.09 Headings
32
SECTION 7.10 Security Interest Absolute
32
SECTION 7.11 Termination, Release or Subordination.
32
SECTION 7.12 Additional Grantors
33
SECTION 7.13 Agent Appointed Attorney-in-Fact
33
SECTION 7.14 General Authority of the Agent
35
SECTION 7.15 Reasonable Care
35
SECTION 7.16 Delegation; Limitation
35
SECTION 7.17 Reinstatement
35
SECTION 7.18 Miscellaneous
35
SECTION 7.19 Collateral and Guarantee Requirement
35
SECTION 7.20 Intercreditor Agreement
36
Schedules
Schedule I Pledged Equity and Pledged Debt
Schedule II Locations of Equipment and Inventory
Schedule III Commercial Tort Claims
Exhibits
Exhibit A Form of Supplement
Exhibit B Form of Perfection Certificate
Exhibit C Form of Patent Security Agreement
Exhibit D Form of Trademark Security Agreement
Exhibit E Form of Copyright Security Agreement
Exhibit F Form of Agreement Regarding Uncertificated Securities

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GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT dated as of December 13, 2019 (as amended, restated, supplemented and/or otherwise modified from time to time, this “Agreement”), by and among SMART SAND, INC., a Delaware corporation, as Administrative Loan Party (the “Administrative Loan Party”), and its Subsidiaries party hereto on the date hereof or otherwise party hereto from time to time by execution of a Joinder Agreement (the Administrative Loan Party and such Subsidiaries, collectively, the “Grantors” and each, a “Grantor”), and JEFFERIES FINANCE LLC, as Agent for the Secured Parties (in such capacity, and together with its successors and permitted assigns in such capacity, the “Agent”).
Reference is made to the ABL Credit Agreement dated as of the date hereof (as amended, restated, supplemented and/or otherwise modified from time to time, the “Credit Agreement”), by and among the Administrative Loan Party and the other Borrowers party thereto (collectively, with Administrative Loan Party, the “Borrowers” and each, a “Borrower”), the Guarantors party thereto, Jefferies Finance LLC, as Agent, each Issuing Bank and each lender from time to time party thereto (collectively, the “Lenders”). The Lenders and the Issuing Banks have agreed to extend credit to Borrowers subject to the terms and conditions set forth in the Credit Agreement. The obligations of the Lenders and the Issuing Banks to extend such credit are conditioned upon, among other things, the execution and delivery of this Agreement. The Guarantors will derive substantial benefits from the extension of credit to Borrowers pursuant to the Credit Agreement, and are willing to execute and deliver this Agreement or Supplements, as the case may be, in order to induce the Lenders to extend such credit. Accordingly, the parties hereto agree as follows:
ARTICLE I.Definitions
SECTION i.Credit Agreement.
(1)Capitalized terms used in this Agreement and not otherwise defined herein have the meanings specified in the Credit Agreement. All terms defined in the UCC (as defined herein) and not defined in this Agreement have the meanings specified therein; the term “instrument” shall have the meaning specified in Article 9 of the UCC.
(2)The rules of construction specified in Article I of the Credit Agreement (including Sections 1.02 through Section 1.07) also apply to this Agreement.
SECTION ii.Other Defined Terms
. As used in this Agreement, the following terms have the meanings specified below:

“Account Control Agreement” has the meaning assigned to such term in Section 3.03(k).


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“Account Debtor” means any Person who is or who may become obligated to any Grantor under, with respect to or on account of an Account.
“Accounts” has the meaning specified in Article 9 of the UCC.
“Accounts Receivable” means all Accounts and all right, title and interest in any returned goods, together with all rights, titles, securities, and Guarantees with respect thereto, including any rights to stoppage, in transit, replevin, reclamation and resales, and all related security interests, liens and pledges, whether voluntary or involuntary, in each case whether now owned or hereafter arising or acquired.
“Agent” has the meaning assigned to such term in the preliminary statement of this Agreement.
“Article 9 Collateral” has the meaning assigned to such term in Section 3.01(a).
“Borrower” and “Borrowers” have the meaning assigned to such terms in the preliminary statement of this Agreement.
“Collateral” means the Article 9 Collateral and the Pledged Collateral.
“Commercial Tort Claims” has the meaning specified in Article 9 of the UCC.
“Copyright License” means any written agreement, now or hereafter in effect, granting any right to any third party under any Copyright now or hereafter owned by any Grantor or that such Grantor otherwise has the right to license, or granting any right to any Grantor under any Copyright now or hereafter owned by any third party, and all rights of such Grantor under any such agreement.
“Copyrights” means all of the following now owned or hereafter owned or acquired by any Grantor: (a) all copyright rights in any work subject to copyright laws, whether as author, assignee, transferee or otherwise, and (b) all registrations and applications for registration of any such copyright, including registrations, recordings, supplemental registrations and pending applications for registration in the USCO.
“Credit Agreement” has the meaning assigned to such term in the preliminary statement of this Agreement.
“Deposit Account” has the meaning specified in Article 9 of the UCC.
“Domain Names” means all Internet domain names and associated uniform resource locator addresses.
“Excluded Accounts” means (a) any accounts maintained solely for payroll, tax and employee benefit obligations, (b) any trust account whereby all funds on deposit therein are held in trust by a Loan Party for the benefit of a third party not a Loan Party or a Subsidiary of a Loan Party, and (c) any Deposit Account or Securities Account the maximum daily balance of which
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does not exceed $1,000,000 in the aggregate for all Deposit Accounts and Securities Accounts excluded pursuant to this clause (c).
“Excluded Assets” means:
(a)  any Real Property (whether fee or Leasehold) and Fixtures,
(b)  any lease, license or other agreement or any property subject to a purchase money security interest, capital lease obligation or similar arrangements, in each case to the extent permitted under the Loan Documents, to the extent that, and only for as long as, a grant of a security interest therein would violate or invalidate such lease, license or agreement, purchase money, capital lease or a similar arrangement or create a right of termination in favor of any other party thereto (other than a Loan Party or a Subsidiary of a Loan Party) and whose waiver or consent to the grant of such security interest has not been obtained, in each case, after giving effect to the applicable anti-assignment provisions of the UCC, other applicable law and principles of equity, but excluding the proceeds and receivables thereof, the assignment of which is expressly deemed effective under applicable law notwithstanding such prohibition; provided that the limitations on pledges or security interests in this clause (b) shall only apply to the extent that such limitation is otherwise permitted under Section 6.06 of the Credit Agreement; provided further, however, that the Collateral shall include (and such security interest shall attach) at such time as the legal or contractual prohibition shall no longer be applicable and, to the extent severable, shall attach to any portion of such property not subject to prohibitions in this clause (b),
(c)  any acquired property or assets (including property or assets acquired through the acquisition of or merger with another Person, proceeds, products and accessions thereof and after-acquired property subjected to a Lien securing Indebtedness and other obligations incurred prior to such time and which Indebtedness and other obligations are permitted under Section 6.01 and Section 6.02 of the Credit Agreement) if at the time of acquisition or merger the granting of a security interest therein or the pledge thereof is prohibited by any contractual obligation (so long as (i) such contractual obligation is not incurred in contemplation of such acquisition or merger and (ii) such contractual obligation is not rendered ineffective pursuant to the UCC) to the extent of and for so long as such contractual obligation prohibits such security interest or pledge, provided that the limitations on pledges or security interests in this clause (c) shall only apply to the extent that such limitation is otherwise permitted under Section 6.06 of the Credit Agreement,
(d)  pledges and security interests prohibited by applicable law or which would require governmental (including regulatory) consent, approval, license or authorization, unless such consent, approval, license or authorization has been obtained or to the extent such prohibition is rendered ineffective under the UCC or other applicable law notwithstanding such prohibition,
(e)  any interest in any contracts, permits, licenses, accounts receivable, general intangibles (other than any equity interests), payment intangibles, chattel paper, letter-of-credit rights and notes if the grant of a security interest or lien therein is prohibited as a matter of law or under the terms of such contracts, permits, licenses, accounts receivable, general intangibles,
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payment intangibles, chattel paper, letter-of-credit rights and notes, in each case after giving effect to Article 9 of the applicable Uniform Commercial Code, other applicable law and principles of equity; provided that the limitations on pledges or security interests in this clause (e) shall only apply to the extent that such limitation is otherwise permitted under Section 6.06 of the Credit Agreement,
(f)  to the extent not permitted by the terms of such Person’s organizational or joint venture documents (so long as such restriction is not incurred in contemplation of being pledged pursuant to the Loan Documents or other secured indebtedness), Equity Interests in any minority-owned Subsidiaries or joint ventures,
(g) any voting Equity Interests in excess of 65% of the issued and outstanding voting Equity Interests of any Excluded Domestic Holdco or Foreign Subsidiary,
(h)  cash deposits securing letters of credit, Swap Obligations and similar obligations to the extent such Liens on such cash deposits are permitted under Section 6.02 of the Credit Agreement,
(i)  any intent-to-use trademark application prior to the filing of a “Statement of Use” or “Amendment to Allege Use” with respect thereto, to the extent, if any, that, and solely during the period, if any, in which the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark application under applicable federal law,
(j)  particular assets if and for so long as, if reasonably determined by the Agent in consultation with the Administrative Loan Party, the cost of creating such pledges or security interests in such assets are excessive in relation to the practical benefits to be obtained by the Secured Parties therefrom,
(k)  any (i) Excluded Accounts and (ii) funds in the Designated Subleased Equipment Designated Account which represent proceeds of a Designated Subleased Equipment Lease,
(l)  motor vehicles and other goods subject to certificates of title to the extent a security interest therein cannot be perfected by the filing of a UCC-1 financing statement,
(m) any letter-of-credit rights (to the extent a security interest therein cannot be perfected by the filing of a UCC-1 financing statement) having a face amount of $1,000,000 or less individually or $2,500,000 or less in the aggregate for all such letter-of-credit rights under this clause (m),
(n) any Commercial Tort Claims seeking damages of $2,500,000 or less, and
(o)  any asset or property of any Loan Party that has been sold or otherwise disposed of to a Person that is not a Loan Party in compliance with Section 6.05 of the Credit Agreement, and any asset or property owned by any Person which has been released from its obligations as a Guarantor hereunder in accordance with Section 4.08;
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provided, however, that Excluded Assets shall not include any Proceeds, substitutions or replacements of any Excluded Assets referred to in clauses (a) through (o) above (unless such Proceeds, substitutions or replacements would independently constitute Excluded Assets referred to in clauses (a) through (o) above).
“Excluded Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act (a “Swap Obligation”), if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal or unlawful under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Guarantor or the grant of such security interest would otherwise have become effective with respect to such related Swap Obligation but for such Guarantor’s failure to constitute an “eligible contract participant” at such time. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.
“General Intangibles” has the meaning specified in Article 9 of the UCC.
“Grantor” and “Grantors” have the meaning assigned to such terms in the preliminary statement of this Agreement.
“Guaranteed Obligations” has the meaning set forth in Section 4.01.
“Guaranty” means, collectively, the guaranty of the Guaranteed Obligations by the Guarantors pursuant to Article IV.
“Intellectual Property” means all intellectual property of every kind and nature now owned or hereafter owned or acquired by any Grantor, including inventions, designs, Patents, Copyrights, Licenses, Trademarks, Trade Secrets, Domain Names, the intellectual property rights in Software and databases and related documentation and all additions and improvements to any of the foregoing, renewals and extensions thereof, rights to sue or otherwise recover for infringements or other violations thereof, and all rights corresponding thereto throughout the world.
“Intellectual Property Security Agreements” means the short-form Patent Security Agreement, short-form Trademark Security Agreement, and short-form Copyright Security Agreement, each substantially in the form attached hereto as Exhibits C, D and E, respectively.
“Intercreditor Agreement” means the Master Lease Facility Intercreditor Agreement or any other intercreditor agreement entered into after the Closing Date between the Agent and any provider of Indebtedness which is to be secured by a Lien on the Collateral.
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“Lenders” has the meaning assigned to such term in the preliminary statement of this Agreement.
“License” means any Patent License, Trademark License, Copyright License or other Intellectual Property license or sublicense agreement to which any Grantor is a party, together with any and all (i) renewals, extensions, supplements and continuations thereof, (ii) income, fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder or with respect thereto including damages and payments for past, present or future infringements or violations thereof, and (iii) rights to sue for past, present and future violations thereof.
“Limited Liability Company Interests” means the entire limited liability company membership interest at any time owned by any Grantor in any limited liability company.
“Partnership Interest” means the entire general partnership interest or limited partnership interest at any time owned by any general partnership or limited partnership.
“Patent License” means any written agreement, now or hereafter in effect, granting to any third party any right to make, use or sell any invention on which a Patent, now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, is in existence, or granting to any Grantor any right to make, use or sell any invention on which a Patent, now or hereafter owned by any third party, is in existence, and all rights of any Grantor under any such agreement.
“Patents” means all of the following now owned or hereafter owned or acquired by any Grantor: (a) all letters patent in or to which any Grantor now or hereafter owns any right, title or interest therein, all registrations and recordings thereof, and all applications for letters patent, including registrations, recordings and pending applications in the USPTO; and (b) all reissues, continuations, divisions, continuations-in-part, renewals, improvements or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein.
“Perfection Certificate” means a certificate substantially in the form of Exhibit B, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Responsible Officer of the Administrative Loan Party on behalf of itself and each other Grantor.
“Pledged Collateral” has the meaning assigned to such term in Section 2.01.
“Pledged Debt” has the meaning assigned to such term in Section 2.01(b).
“Pledged Equity” has the meaning assigned to such term in Section 2.01(a).
“Pledged Securities” means the Pledged Equity and Pledged Debt.
“Proceeds” means all “proceeds” as such term is defined in the UCC.
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“Qualified ECP Guarantor” means, in respect of any Swap Obligations, each Loan Party that has total assets exceeding $10,000,000 at the time the relevant Guarantee or grant of the relevant security interest becomes effective with respect to such Swap Obligation or such other person as constitutes an “eligible contract participant” under the Commodity Exchange Act or any regulations promulgated thereunder and can cause another person to qualify as an “eligible contract participant” at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
“Registered Intellectual Property Collateral” means the Collateral consisting of (a) United States Patents and United States Trademarks registered with the USPTO and, in each case, applications therefor and (b) United States Copyrights registered with the USCO.
“Secured Obligations” means, collectively, the Obligations and the Secured Bank Product Obligations.
“Secured Parties” means, collectively, the Agent, the Lenders, each Issuing Bank, each Bank Product Provider party to a Bank Product Agreement evidencing Secured Bank Product Obligations and each co-agent or sub-agent appointed by the Agent from time to time pursuant to Article VIII of the Credit Agreement.
“Securities Account” has the meaning specified in Article 9 of the UCC.
“Securities Act” means the Securities Act of 1933, as amended.
“Security Interest” has the meaning assigned to such term in Section 3.01(a).
“Securities Intermediary” has the meaning specified in Article 8 of the UCC.
“Software” means any and all (a) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, including, without limitation, “software” as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York and computer programs that may be construed as included in the definition of “goods” in the Uniform Commercial Code as in effect on the date hereof in the State of New York, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, (d) all outsourced computing and information technology arrangements, including cloud computing and SaaS offerings, and (e) all documentation, including user manuals and other training documentation, related to any of the foregoing, and all media that may contain Software or recorded data of any kind.
“Supplement” means an instrument substantially in the form of Exhibit A.
“Swap Obligation” has the meaning set forth in the definition of “Excluded Swap Obligation.”
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“Term Loan Priority Collateral” has the meaning set forth in the Intercreditor Agreement.
“Trademark License” means any written agreement, now or hereafter in effect, granting to any third party any right to use any Trademark now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, or granting to any Grantor any right to use any Trademark now or hereafter owned by any third party, and all rights of any Grantor under any such agreement.
“Trademarks” means all of the following now owned or hereafter owned or acquired by any Grantor: (a) all trademarks, service marks, trade names, corporate names, trade dress, logos, designs, fictitious business names other source or business identifiers, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations and registration applications in the USPTO or any similar offices in any State of the United States or any political subdivision thereof, and all extensions or renewals thereof, as well as any unregistered trademarks and service marks used by a Grantor; and (b) all goodwill connected with the use of and symbolized thereby.
“Trade Secrets” means any trade secrets or other proprietary and confidential information, including unpatented inventions, invention disclosures, engineering or other technical data, financial data, procedures, know-how, designs personal information, supplier lists, customer lists, business, production or marketing plans, formulae, methods (whether or not patentable), processes, compositions, schematics, ideas, algorithms, techniques, analyses, proposals, source code, object code and data collections.
“UCC” means the Uniform Commercial Code as from time to time in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
“Uncertificated Security” has the meaning specified in Article 8 of the UCC.
“USCO” means the United States Copyright Office.
“USPTO” means the United States Patent and Trademark Office.
ARTICLE II.Pledge of Securities
SECTION i.Pledge
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. Each Grantor, as security for the payment and performance in full of the Secured Obligations of such Grantor (including, if such Grantor is a Guarantor, the Secured Obligations of such Grantor arising under the Guaranty), hereby pledges to the Agent, for the benefit of the Secured Parties, and hereby grants to the Agent, for the benefit of the Secured Parties, a security interest in all of such Grantor’s right, title and interest in, to and under any and all of the following assets and properties now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest:

(1)all Equity Interests held by it, including without limitation, the Equity Interests which are listed on Schedule I, and any other Equity Interests obtained in the future by such Grantor and the certificates (if any) representing all such Equity Interests (the “Pledged Equity”);
(2)(i) all debt securities and instruments owned by it, including without limitation, the debt securities and instruments which are listed opposite the name of such Grantor on Schedule I, and (ii) any debt securities and instruments obtained in the future by such Grantor (the “Pledged Debt”);
(3)all other property that may be delivered to and held by the Agent pursuant to the terms of this Section 2.01;
(4)subject to Section 2.06, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of, and all other Proceeds received in respect of, the securities and other property referred to in clauses (a), (b) and (c) above;
(5)subject to Section 2.06, all rights and privileges of such Grantor with respect to the securities and other property referred to in clauses (a), (b), (c) and (d) above; and
(6)all Proceeds of any of the foregoing
(the items referred to in clauses (a) through (f) above being collectively referred to as the “Pledged Collateral”); provided, however, that neither “Pledged Collateral” nor any defined term used therein shall include (nor shall any pledge or security interest attach to) any Excluded Assets; provided, further, that any Proceeds, substitutions or replacements of any Excluded Assets shall be included in “Pledged Collateral” and any defined term used therein, unless such Proceeds, substitutions or replacements would independently constitute Excluded Assets.
TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Agent, for the benefit of the Secured Parties, forever, subject, however, to the terms, covenants and conditions hereinafter set forth.
SECTION ii.Delivery of the Pledged Securities.
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(1)As of the Closing Date, each Grantor has delivered or caused to be delivered to the Agent, for the benefit of the Secured Parties, any and all Pledged Equity evidenced by a certificate and, to the extent required to be delivered pursuant to Section 2.02(b), any and all Pledged Debt evidenced by a promissory note or other instrument. Each Grantor agrees promptly (but in any event within 10 Business Days after receipt by such Grantor or such longer period as the Agent may agree in its reasonable discretion) to deliver or cause to be delivered to the Agent, for the benefit of the Secured Parties, any and all Pledged Equity acquired after the Closing Date that is evidenced by a certificate and, to the extent required to be delivered pursuant to Section 2.02(b), any and all Pledged Debt acquired after the Closing Date that is evidenced by a promissory note or other instrument.
(2)Each Grantor will cause any promissory note or other instrument having a principal amount in excess of $500,000 individually, or $1,000,000 in the aggregate for all such promissory notes and other instruments held by the Grantors, to be pledged and delivered to the Agent, for the benefit of the Secured Parties, pursuant to the terms hereof.
(3)Upon delivery to the Agent, any Pledged Securities shall be accompanied by stock or security powers, endorsements or allonges duly executed in blank or other instruments of transfer reasonably satisfactory to the Agent. Each delivery of Pledged Securities shall be accompanied by a schedule describing the Pledged Securities, which schedule shall be deemed to supplement Schedule I and made a part hereof; provided that failure to supplement Schedule I shall not affect the validity of such pledge of such Pledged Securities. Each schedule so delivered shall supplement any prior schedules so delivered.
(4)With respect to any Uncertificated Security that constitutes Pledged Equity (other than an Uncertificated Security credited on the books of a Clearing Corporation or Securities Intermediary), each Grantor shall cause the issuer of such Uncertificated Security to duly authorize, execute, and deliver to the Agent, an agreement for the benefit of the Agent and the other Secured Parties substantially in the form of Exhibit F (appropriately completed to the satisfaction of the Agent and with such modifications, if any, as shall be reasonably satisfactory to the Agent) pursuant to which such issuer agrees to comply with any and all instructions originated by the Agent (to the extent required hereunder) without further consent by the registered owner and not to comply with instructions regarding such Uncertificated Security (and any Limited Liability Company Interest or Partnership Interest issued by such issuer) originated by any other Person other than a court of competent jurisdiction.
SECTION iii.Representations, Warranties and Covenants
. Each Grantor represents, warrants and covenants to and with the Agent, for the benefit of the Secured Parties, that:

(1)as of the Closing Date, Schedule I includes all Equity Interests, debt securities, promissory notes and instruments required to be pledged by such Grantor hereunder;
(2)the Pledged Equity issued by each Subsidiary has been duly and validly authorized and issued by the issuers thereof and are fully paid and non-assessable (if applicable);
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(3)except for the security interests granted hereunder, such Grantor (i) is, subject to any transfers made in compliance with the Credit Agreement, the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule I, (ii) holds the same free and clear of all Liens, other than (A) Permitted Liens that are non-consensual and (B) Liens created by the Security Documents, and (iii) if requested by the Agent, will take commercially reasonable actions necessary to defend its title or interest thereto or therein against any and all Liens (other than, Permitted Liens that are non-consensual), however arising, of all Persons whomsoever;
(4)as of the Closing Date, except for (i) restrictions and limitations imposed or permitted by the Loan Documents or securities laws generally and (ii) in the case of Pledged Equity of Persons that are minority-owned Subsidiaries or joint ventures, transfer restrictions that exist at the time of acquisition of Equity Interests in such Persons (but not entered into in contemplation of such acquisition), the Pledged Collateral is freely transferable and assignable, and none of the Pledged Collateral is subject to any option, right of first refusal, shareholders agreement, charter or bylaw provisions or contractual restriction of any nature that could reasonably be expected to prohibit, impair, delay or otherwise affect, in each case, in any manner material and adverse to the Secured Parties the pledge of such Pledged Collateral hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Agent of rights and remedies hereunder;
(5)the execution and performance by the Grantors of this Agreement are within each Grantor’s corporate or limited liability company powers and have been duly authorized by all necessary corporate action or other organizational action;
(6)no material consent or approval of any Governmental Authority or any Person is required under any applicable law or the organizational documents of any issuer of Pledged Collateral to ensure the validity of the pledge effected hereby, except for (i) approvals, consents, exemptions, authorizations or other actions by, or notices to, or filings and registrations necessary to perfect the Liens on the Collateral granted by the Loan Parties to the Agent, for the benefit of the Secured Parties, that pursuant to the express terms of the Loan Documents are not required to have been completed, obtained or made as at each time of this representation, (ii) the approvals, consents, exemptions, authorizations, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect, and (iii) any approvals, consents, exemptions, authorizations or other actions, notices or filings;
(7)by virtue of the execution and delivery by each Grantor of this Agreement, and delivery of the Pledged Equity consisting of certificated securities to, and continued possession thereof by, the Agent in any state in the United States, the Agent (for the benefit of the Secured Parties) has a valid and perfected first-priority lien upon and security interest in such Pledged Equity as security for the payment and performance of the Secured Obligations to the extent such perfection is governed by the UCC, subject only to Permitted Liens which are non-consensual;
(8)by virtue of (i) the filing of Uniform Commercial Code financing statements or other appropriate filings, recordings or registrations prepared by the Agent based
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upon the information provided to the Agent in the Perfection Certificate for filing in the applicable filing office, in each case, as required by Section 5.12 of the Credit Agreement and (ii) delivery of the Pledged Debt consisting of promissory notes or other instruments to the Agent, the Agent (for the benefit of the Secured Parties) has a valid and perfected first-priority security interest in respect of all Collateral in which the Security Interest in the Pledged Debt may be perfected under Article 9 of the UCC by the filing of a financing statement in such applicable filing office or by possession of the Pledged Debt consisting of promissory notes or other instruments; and
(9)the pledge effected hereby is effective to vest in the Agent, for the benefit of the Secured Parties, the rights set forth herein of the Agent in the Pledged Collateral.
Subject to the terms of this Agreement, each Grantor hereby agrees that upon the occurrence and during the continuance of an Event of Default, it will comply with instructions of the Agent with respect to the Equity Interests in such Grantor that constitute Pledged Equity hereunder without further consent by the applicable owner or holder of such Equity Interests.
SECTION iv.Certification of Limited Liability Company and Limited Partnership Interests
. No Limited Liability Company Interest or Partnership Interest that constitutes Pledged Equity is, or shall be, represented by a certificate unless (a) the limited liability company agreement or partnership agreement expressly provides that such interests shall be a “security” within the meaning of Article 8 of the UCC of the applicable jurisdiction or (b) regardless of whether such Pledged Equity is a “security” within the meaning of Article 8 of the UCC, any and all certificates evidencing such Pledged Equity are delivered to the Agent in accordance with Section 2.02. If any limited liability company or limited partnership controlled by any Grantor that constitutes Pledged Equity includes in its limited liability company agreement or partnership agreement that any interests in such limited liability company or such limited partnership are a “security” as defined under Article 8 of the UCC, the applicable Grantor shall promptly certificate any Equity Interests in any such limited liability company or such limited partnership. To the extent an interest in any limited liability company or limited partnership controlled by any Grantor and pledged under Section 2.01 is certificated or becomes certificated, (i) each such certificate shall be delivered to the Agent, pursuant to Section 2.02(a) and (ii) such Grantor shall fulfill all other requirements under Section 2.02 applicable in respect thereof. Such Grantor hereby agrees that if any of the Pledged Collateral is at any time not evidenced by certificates of ownership, then each applicable Grantor shall, to the extent permitted by applicable law, if necessary or, upon the reasonable request of the Agent, desirable to perfect a security interest in such Pledged Collateral, cause such pledge to be recorded on the equity holder register or the books of the issuer, execute any customary pledge forms or other documents necessary or appropriate to complete the pledge and give the Agent the right to transfer such Pledged Collateral under the terms hereof.

SECTION v.Registration in Nominee Name; Denominations
. If any Event of Default shall have occurred and be continuing, and the Agent shall have given the Administrative Loan Party written notice of such Event of Default, (a) the Agent, on behalf
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of the Secured Parties, shall have the right to hold the Pledged Equity in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of the applicable Grantor, endorsed or assigned in blank or in favor of the Agent and each Grantor will promptly give to the Agent copies of any written notices or other written communications received by it with respect to Pledged Equity registered in the name of such Grantor and (b) the Agent shall have the right to exchange the certificates representing Pledged Equity for certificates of smaller or larger denominations for any purpose consistent with this Agreement, to the extent permitted by the documentation governing such Pledged Securities.

SECTION vi.Voting Rights; Dividends and Interest.
(1)Unless and until any Event of Default shall have occurred and be continuing and the Agent shall have given the Administrative Loan Party one (1) Business Day’s prior written notice that the rights of the Grantors under this Section 2.06 are being suspended:
(a)Each Grantor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part thereof and each Grantor agrees that it shall not exercise such rights in violation of this Agreement, the Credit Agreement and the other Loan Documents.
(b)The Agent shall promptly (after reasonable advance notice) execute and deliver to each Grantor, or cause to be executed and delivered to such Grantor, all such proxies, powers of attorney and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to clause (i) above.
(c)Each Grantor shall be entitled to receive and retain any and all dividends, interest, principal and other distributions paid on or distributed in respect of the Pledged Securities to the extent and only to the extent that such dividends, interest, principal and other distributions are permitted by, and otherwise paid or distributed in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable laws; provided that any noncash dividends, interest, principal or other distributions that would constitute Pledged Equity or Pledged Debt, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Securities or received in exchange for Pledged Securities or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be commingled by such Grantor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Agent and the Secured Parties and, in the case of Pledged Equity, shall be promptly (and in any event within 10 Business Days or such longer period as the Agent may agree in its reasonable discretion) delivered to the Agent in the same form as so received (with any endorsement reasonably requested by the Agent). So long as no Event of Default has occurred and is continuing, the Agent shall promptly deliver to each Grantor any Pledged Securities in its possession if requested to be delivered to the issuer thereof in connection with any exchange
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or redemption of such Pledged Securities permitted by the Credit Agreement in accordance with this Section 2.06(a)(iii).
(2)Upon the occurrence and during the continuance of any Event of Default, after the Agent shall have notified the Administrative Loan Party of the suspension of the Grantors’ rights under this Section 2.06, then, all rights of any Grantor to dividends, interest, principal or other distributions that such Grantor is authorized to receive pursuant to paragraph (a)(iii) of this Section 2.06 shall cease, and all such rights shall thereupon become vested in the Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends, interest, principal or other distributions. All dividends, interest, principal or other distributions received by any Grantor contrary to the provisions of this Section 2.06 shall be held in trust for the benefit of the Agent, shall be segregated from other property or funds of such Grantor and shall be promptly (and in any event within 10 Business Days or such longer period as the Agent may agree in its reasonable discretion) delivered to the Agent upon demand in the same form as so received (with any endorsement reasonably requested by the Agent). Any and all money and other property paid over to or received by the Agent pursuant to the provisions of this paragraph (b) shall be retained by the Agent in an account to be established by the Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 5.02. Once no Event of Default is continuing, the Agent shall promptly repay to each Grantor (without interest) all dividends, interest, principal or other distributions that such Grantor would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 2.06 and that remain in such account (if any) to the extent not otherwise applied in accordance with the provisions of the Loan Documents.
(3)Upon the occurrence and during the continuance of any Event of Default, after the Agent shall have provided the Administrative Loan Party with notice of the suspension of its rights under this Section 2.06, all rights of any Grantor to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 2.06, and the obligations of the Agent under paragraph (a)(ii) of this Section 2.06, shall cease, and all such rights shall thereupon become vested in the Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that, unless otherwise directed by the Required Lenders, the Agent shall have the right from time to time following and during the continuance of an Event of Default to permit the Grantors to exercise such rights. Once no Event of Default is continuing, each Grantor shall have the right to exercise the voting and/or consensual rights and powers that such Grantor would otherwise be entitled to exercise in respect of any Pledged Securities or any part thereof in which such Grantor retains an ownership interest (if any) pursuant to the terms of paragraph (a)(i) above, and the obligations of the Agent under paragraph (a)(ii) of this Section 2.06 shall be reinstated with respect thereto.
(4)In order to permit the Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder, each Grantor hereby grants to the Agent an irrevocable proxy to vote all or any part of the Pledged Collateral held by such Grantor and to exercise all other rights, powers, privileges and remedies to which a holder of such
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Pledged Collateral would be entitled (including giving or withholding written consents of shareholders, partners or members, as the case may be, calling special meetings of shareholders, partners or members, as the case may be, and voting at such meetings), which proxy shall only be effective following the occurrence and during the continuance of any Event of Default; provided that during such time, such proxy shall be effective automatically and without the necessity of any action (including any transfer of such Pledged Collateral on the record books of the issuer thereof) by any other Person (including the issuer of such Pledged Collateral or any officer or agent thereof). Each Grantor acknowledges and agrees that the irrevocable proxy granted to the Agent by such Grantor pursuant to the preceding sentence with respect to the Pledged Collateral held by such Grantor is coupled with an interest and shall be exercisable by the Agent only after any Event of Default has occurred and is continuing. Each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to the Agent all proxies, dividend payment orders and other instruments as the Agent may from time to time reasonably request, but in any event solely after an Event of Default has occurred and is continuing, and each Grantor acknowledges that the Agent may utilize the power of attorney set forth in Section 7.13 in accordance with the terms thereof.
(5)In the case of each Grantor which is an issuer of Pledged Collateral, such Grantor agrees to (i) comply with instructions originated by the Agent with respect to such Pledged Collateral after the occurrence and during the continuance of any Event of Default without further consent by the registered owner of such Pledged Collateral, and (ii) pay any dividends or other payments with respect to the Pledged Collateral directly to the Agent after the occurrence and during the continuance of any Event of Default.
(6)Any notice given by the Agent to the Administrative Loan Party under Section 2.06 (i) shall be given in writing, (ii) may be given with respect to one or more Grantors at the same or different times and (iii) may suspend some of the rights of the Grantors under this Section 2.06 in part without suspending all such rights (as specified by the Agent in its sole and absolute discretion) and without waiving or otherwise affecting the Agent’s rights to give additional notices from time to time suspending other rights so long as an Event of Default has occurred and is continuing.
ARTICLE III.Security Interests in Personal Property
SECTION i.Security Interest.
(1)Each Grantor, as security for the payment and performance in full of the Secured Obligations of such Grantor (including, if such Grantor is a Guarantor, the Secured Obligations of such Grantor arising under the Guaranty), hereby pledges to the Agent, for the benefit of the Secured Parties, and hereby grants to the Agent, for the benefit of the Secured Parties, a security interest (the “Security Interest”) in, all right, title or interest in or to any and all of the following assets and properties now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Article 9 Collateral”):
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(a)all Accounts;
(b)all Chattel Paper;
(c)all Deposit Accounts;
(d)all Documents;
(e)all Equipment;
(f)all General Intangibles;
(g)all Goods;
(h)all Instruments;
(i)all Inventory;
(j)all Investment Property;
(k)all books and records pertaining to the Article 9 Collateral;
(l) all Intellectual Property;
(m) all Commercial Tort Claims listed on Schedule III and on any supplement thereto received by the Agent pursuant to Section 3.03(h);
(n) all letter-of-credit rights;
(o) all Money, cash, cash equivalents, Deposit Accounts, Securities Accounts and Commodities Accounts; and
(p) to the extent not otherwise included, all Proceeds, products, accessions, rents and profits of any and all of the foregoing and all Supporting Obligations, collateral security and guarantees given by any Person with respect to any of the foregoing;
provided that, notwithstanding anything to the contrary in this Agreement, (A) this Agreement shall not constitute a grant of a security interest in (nor shall any pledge, grant or Security Interest attach to) any Excluded Assets and (B) the Article 9 Collateral (and any defined term therein) shall not include any Excluded Assets; provided, further, that this Agreement shall constitute a grant of a security interest in any Proceeds, substitutions or replacements of any Excluded Assets, and any Proceeds, substitutions or replacements of any Excluded Assets shall be included in “Article 9 Collateral” (and any defined term used therein), unless such Proceeds, substitutions or replacements would independently constitute Excluded Assets.
(2)Each Grantor hereby irrevocably authorizes the Agent for the benefit of the Secured Parties at any time and from time to time to file in any relevant jurisdiction any financing statements with respect to the Collateral or any part thereof and amendments thereto
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and continuations thereof that (i) indicate the Collateral as “all assets of the debtor, whether now existing or hereafter arising” or words of similar effect as being of an equal or lesser scope or with greater detail and (ii) contain the information required by Article 9 of the Uniform Commercial Code or the analogous legislation of each applicable jurisdiction for the filing of any financing statement or amendment, including whether such Grantor is an organization, the type of organization and, if required, any organizational identification number issued to such Grantor. Each Grantor agrees to provide such information to the Agent promptly upon any reasonable request.
(3)The Security Interest is granted as security only and shall not subject the Agent or any other Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Collateral; provided that the foregoing will not limit or otherwise affect the obligations and liabilities of the Grantors to the extent set forth herein and in the other Loan Documents.
(4)In the case of any Registered Intellectual Property Collateral, each Grantor shall execute and deliver to the Agent Intellectual Property Security Agreements covering all such Registered Intellectual Property Collateral owned by such Grantor on the Closing Date or hereafter acquired.
(5)Upon notice to the Administrative Loan Party, the Agent is authorized to file with the USPTO or the USCO (or any successor office) such Intellectual Property Security Agreements (or supplements thereto) and such other documents as may be necessary for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest in Registered Intellectual Property Collateral of each Grantor in which a security interest has been granted by each Grantor, without the signature of any Grantor, and naming any Grantor or the Grantor as debtors and the Agent as secured party.
SECTION ii.Representations and Warranties
. Each Grantor represents and warrants to the Agent for the benefit of the Secured Parties that:

(1)Each Grantor has good and valid rights in and title (except as otherwise permitted by the Loan Documents, including pursuant to Section 5.01 of the Credit Agreement) to the Article 9 Collateral with respect to which it has purported to grant a Security Interest hereunder and has full organizational power and authority to grant to the Agent the Security Interest in such Article 9 Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any Person other than (i) any consent or approval that has been obtained or (ii) any consent or approval which if not obtained would not reasonably be expected to cause a Material Adverse Effect.
(2)The Perfection Certificate has been duly executed and the information set forth therein is correct and complete in all material respects (except the information therein with respect to the exact legal name of each Grantor shall be correct and complete in all respects) as of the Closing Date. The Uniform Commercial Code financing statements or other appropriate
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filings, recordings or registrations prepared by the Agent based upon the information provided to the Agent in the Perfection Certificate for filing in the applicable filing office (or specified by notice from the Administrative Loan Party to the Agent after the Closing Date in the case of filings, recordings or registrations, in each case, as required by Section 5.12 of the Credit Agreement (other than filings required to be made in the USPTO and the USCO in order to perfect the Security Interests of the Agent in the Registered Intellectual Property Collateral)), are all the filings, recordings and registrations that are necessary to establish a valid and perfected first-priority security interest in favor of the Agent (for the benefit of the Secured Parties) in respect of all Collateral in which the Security Interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code, subject, in priority only, to Permitted Liens.
(3)With respect to Intellectual Property, each Grantor represents and warrants that: (i) such Grantor owns or is licensed to use all Intellectual Property used in the conduct of its business (the “Company Intellectual Property”); (ii) no claim has been asserted, or is pending, by any Person challenging the use by such Grantor of any Company Intellectual Property or the validity or enforceability of any Company Intellectual Property, nor does such Grantor know of any valid basis for any such claim, other than any such claims that could not reasonably be expected to result in a Material Adverse Effect; and (iii) to the knowledge of such Grantor, (A) no other Person is infringing, misappropriating or otherwise violating any right of such Grantor in any Company Intellectual Property, (B) such Grantor is not infringing, misappropriating or otherwise violating any Intellectual Property of another Person, and (C) no proceedings have been instituted or are pending against such Grantor, or threatened, and no written notice from any other Person has been received by such Grantor alleging any such infringement, violation, or misappropriation except (in the case of each of the preceding clauses (A) through (C)) where the consequences thereof could not reasonably be expected to result in a Material Adverse Effect.
(4)Each Grantor represents and warrants that the Intellectual Property Security Agreements containing a description of all Article 9 Collateral consisting of Registered Intellectual Property Collateral, have been delivered to the Agent for recording by the USPTO and the USCO pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C. § 205 and the regulations thereunder, as applicable, (for the benefit of the Secured Parties) in respect of all Article 9 Collateral consisting of Registered Intellectual Property Collateral to the extent required by this Agreement or the Credit Agreement. To the extent a security interest may be perfected by (i) filing UCC financing statements in the applicable filing office (or specified by notice from the Administrative Loan Party to the Agent after the Closing Date in the case of filings, recordings or registrations, in each case, as required by Section 5.12 of the Credit Agreement) and (ii) filing, recording or registration in USPTO or USCO, then no further or subsequent filing, re-filing, recording, rerecording, registration or reregistration is necessary to establish a valid and perfected first-priority security interest in favor of the Agent (for the benefit of the Secured Parties) in respect of the Registered Intellectual Property Collateral.
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(5)The Security Interest constitutes (i) a valid security interest in all the Article 9 Collateral securing the payment and performance of the Secured Obligations and (ii) subject to the filings described in Section 3.02(b), a perfected security interest in all Article 9 Collateral in which a security interest may be perfected by filing, recording or registering a financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code. The Security Interest is and shall be prior to any other Lien on any of the Article 9 Collateral, subject, in priority only, to Permitted Liens.
(6)The Article 9 Collateral is owned by the Grantors free and clear of any Lien, except for Permitted Liens. None of the Grantors has filed or consented to the filing of (i) any financing statement or analogous document under the Uniform Commercial Code or any other applicable laws covering any Article 9 Collateral, (ii) any assignment in which any Grantor assigns any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with the USPTO or the USCO or (iii) any assignment in which any Grantor assigns any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, for Permitted Liens and financing statements, assignments and other filings expressly permitted by the Credit Agreement.
(7)As of the Closing Date, Schedule II lists the locations at which Equipment having a Fair Market Value of more than $1,000,000 (per location) (other than (i) mobile goods, (ii) Equipment in transit or out for repair or refurbishment, and (iii) Equipment in the possession of employees or customers of the Grantors in the ordinary course of business) of the Grantors are kept.
(8)Schedule III (as supplemented pursuant to Section 3.03(h) from time to time) lists each Commercial Tort Claim of any Grantor in an amount (taking the greater of the aggregate claimed damages thereunder or the reasonably estimated value thereof) reasonably estimated by such Grantor to exceed $2,500,000.
(9)With respect to such Grantor’s Deposit Accounts and Securities Accounts (other than Excluded Accounts), each such Grantor is the sole customer of such Deposit Account or the sole entitlement holder of such Securities Account, as applicable, and no such Grantor has agreed to or is otherwise aware of any Person having “control” (within the meanings of Section 9104 of the New York UCC) over, or any other interest in, such Deposit Accounts or Securities Accounts in which any such Grantor has an interest credited thereto.
SECTION iii.Covenants.
(1)Administrative Loan Party agrees to notify the Agent in writing (i) at least 10 calendar days prior to (or such shorter period in advance of such change as the Agent may agree in its reasonable discretion), any change in (A) the legal name of any Grantor, (B) the identity or type of organization or corporate structure of any Grantor, or (C) the jurisdiction of organization of any Grantor, and (ii) promptly, but at any event within 10 Business Days (or such
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longer period as the Agent may agree in its reasonable discretion) after any change in (A) the chief executive office of any Grantor or (B) the organizational identification number of such Grantor, if any.
(2)Subject to Section 5.12 of the Credit Agreement, each Grantor shall, at its own expense, upon the reasonable request of the Agent, take any and all commercially reasonable actions necessary to defend title to the Article 9 Collateral against all Persons and to defend the Security Interest of the Agent in the Article 9 Collateral and the first priority thereof against any Lien not expressly permitted pursuant to Section 6.02 of the Credit Agreement; provided that, nothing in this Agreement shall prevent any Grantor from discontinuing the operation or maintenance of any of its assets or properties if such discontinuance is (i) determined by such Grantor to be desirable in its reasonable business judgment and (ii) permitted by the Credit Agreement.
(3)Subject to Section 5.12 of the Credit Agreement, each Grantor agrees, at its own expense, to execute, acknowledge, deliver and cause to be filed all such further instruments and documents and take all such actions as the Agent may from time to time reasonably request to better assure, preserve, protect and perfect the Security Interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement, the granting of the Security Interest and the filing of any financing statements or other documents in connection herewith or therewith.
(4)At its option after the occurrence and during the continuance of any Event of Default, the Agent may discharge past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Collateral that are not Permitted Liens, and may pay for the maintenance and preservation of the Collateral to the extent any Grantor fails to do so as required by the Credit Agreement or any other Loan Document (subject, in the case of Intellectual Property, to Section 3.03(g)(iii)) and within a reasonable period of time after the Agent has requested that it do so, and each Grantor jointly and severally agrees to reimburse the Agent pursuant to the terms of the Credit Agreement. Nothing in this paragraph shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Agent or any Secured Party to cure or perform, any covenants or other promises of any Grantor with respect to taxes, assessments, charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents.
(5)If at any time any Grantor shall take a security interest in any property of an Account Debtor or any other Person, the Fair Market Value of which is in excess of $500,000 individually, or $1,000,000 in the aggregate for all such property subject to security interests in favor of the Grantors, to secure payment and performance of an Account, such Grantor shall promptly grant a security interest to the Agent for the benefit of the Secured Parties therein. Such grant need not be filed of public record unless necessary to continue the perfected status of the security interest against creditors of and transferees from the Account Debtor or other Person granting the security interest.
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(6)If at any time any amounts payable under or in connection with any Collateral owned by any Grantor shall be or become evidenced by an instrument or tangible chattel paper, the Fair Market Value of which is in excess of $500,000 individually, or $1,000,000 in the aggregate for all such instruments and tangible chattel paper of the Grantors, and, in the case of any such instrument or tangible chattel paper, such Grantor shall comply with the covenants in Section 2.02(b). If any amount payable under or in connection with any Collateral owned by any Grantor shall be or become evidenced by electronic chattel paper in excess of $500,000 individually, or $1,000,000 in the aggregate for all such electronic chattel paper of the Grantors, such Grantor shall provide prompt notice to the Agent thereof and, at the request and option of the Agent, take all steps necessary to grant Agent control of all such electronic chattel paper for the purposes of Section 9-105 of the UCC (or any similar Section under any equivalent UCC) and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.
(7)Intellectual Property Covenants.
(a)Other than to the extent not prohibited herein or in the Credit Agreement or, with respect to registrations and applications no longer used or useful in the applicable Grantor’s business operations, except to the extent failure to act would not, as deemed by the applicable Grantor in its reasonable business judgment, reasonably be expected to have a Material Adverse Effect, each Grantor agrees to (A) take, at its expense, all reasonable steps permitted by any applicable law to pursue the registration and maintenance of each Patent, Trademark, or Copyright registration or application now or hereafter included in the Collateral of such Grantor that are not Excluded Assets, (B) take all reasonable steps permitted by any applicable law to prevent any of the Intellectual Property included in the Collateral, from lapsing, being terminated, or becoming invalid or unenforceable or placed in the public domain (or in the case of a trade secret, become publicly known) and (C) take all reasonable steps permitted by any applicable law to preserve and protect each item of its Intellectual Property, including, without limitation, maintaining the quality of any and all products or services used or provided in connection with any of the Trademarks, at a level equal to or better than the quality of the products and services as of the Closing Date, and taking reasonable steps necessary to ensure that all licensed users of any of the Trademarks abide by the applicable license’s terms with respect to standards of quality.
(b)Administrative Loan Party shall provide (A) on each date on which a Compliance Certificate is delivered to the Agent pursuant to Section 5.04(c) of the Credit Agreement, a list of any Registered Intellectual Property Collateral not covered by the filings required under Section 3.02(c), together with supplemental Intellectual Property Security Agreements substantially in the form of Exhibits C, D and E, as applicable, covering all such Registered Intellectual Property Collateral, and (B) within thirty (30) days of the acquisition, filing or issuance of any material Copyrights owned by a Grantor which are the subject of an issuance, registration or pending application in any intellectual property registry, and at such other times as may be reasonably requested by the Agent, a list of such material Copyrights,
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together with supplemental Intellectual Property Security Agreements substantially in the form of Exhibit E covering all such material Copyrights.
(c)Notwithstanding any other provision of this Agreement, nothing in this Agreement or any other Loan Document prevents or shall be deemed to prevent any Grantor from disposing of, discontinuing the use or maintenance of, failing to pursue, or otherwise allowing to lapse, terminate or be put into the public domain, any of its Intellectual Property to the extent permitted by the Credit Agreement if such Grantor determines in its reasonable business judgment that such discontinuance is desirable in the conduct of its business.
(8)Commercial Tort Claims. If any Grantor shall at any time hold or acquire a Commercial Tort Claim in an amount (taking the greater of the aggregate claimed damages thereunder or the reasonably estimated value thereof) reasonably estimated by such Grantor to exceed $2,500,000 for which this clause has not been satisfied and for which such Grantor has asserted a claim, such Grantor shall (i) so long as no Event of Default shall have occurred and be continuing, on the date on which a Compliance Certificate is delivered to the Agent pursuant to Section 5.04(c) of the Credit Agreement for the fiscal quarter in which such Grantor has acquired such Commercial Tort Claim, or (ii) if an Event of Default shall have occurred and be continuing, promptly after such Grantor has acquired such Commercial Tort Claim, notify the Agent thereof in a writing signed by such Grantor that supplements Schedule III (including a summary description of such claim) and grant to the Agent, for the benefit of the Secured Parties, in such writing a valid security interest therein and in the proceeds thereof, all upon the terms of this Agreement.
(9)Letter of Credit Rights. If any Grantor is or becomes the beneficiary of a letter of credit that is (i) not a supporting obligation of any Collateral and (ii) in excess of $1,000,000 individually, or $2,500,000 in the aggregate for all such letters of credit of the Grantors, such Grantor shall (A) so long as no Event of Default shall have occurred and be continuing, on the date on which a Compliance Certificate is delivered to the Agent pursuant to Section 5.04(c) of the Credit Agreement for the fiscal quarter in which such Grantor becomes a beneficiary thereof, or (B) if an Event of Default shall have occurred and be continuing, promptly after such Grantor becomes a beneficiary thereof, notify the Agent thereof and, at the request of the Agent, enter into a Contractual Obligation with the Agent, the issuer of such letter of credit or any nominated person with respect to the letter-of-credit rights under such letter of credit. Such Contractual Obligation shall collaterally assign such letter-of-credit rights to the Agent and such assignment shall be sufficient to grant control to the Agent for the purposes of Section 9-107 of the UCC (or any similar Section under any equivalent UCC), and shall be in form and substance reasonably satisfactory to Agent.
(10)Accounts Receivable. Other than in the ordinary course of business, each Grantor shall not amend, modify, terminate or waive any provision of any Accounts Receivable in any manner which could reasonably be expected to have a material adverse effect on the value of such Accounts Receivable. After the occurrence and during the continuance of any Event of Default (i) each Grantor shall not (A) grant any extension or renewal of the time of payment of
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any Accounts Receivable, (B) compromise or settle any dispute, claim or legal proceeding with respect to any Accounts Receivable for less than the total unpaid balance thereof, (C) release, wholly or partially, any Person liable for the payment thereof, or (D) allow any credit or discount thereon, in each case of clauses (A), (B), (C) and (D), other than in the ordinary course of business and (ii) the Agent shall have the right to enforce, at the expense of such Grantor, collection of any such Accounts Receivable and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done.
(11)Deposit and Securities Accounts.
(a)Subject to Sections 5.12 and 5.14 of the Credit Agreement, each Grantor shall maintain all Deposit Accounts and Securities Accounts (excluding any Excluded Accounts) only with financial institutions that have executed an agreement (in form and substance reasonably acceptable to the Agent) (an “Account Control Agreement”) with such Grantor and the Agent, agreeing to comply with instructions issued or originated by the Agent directing the disposition of funds from time to time credited to such Deposit Account or Securities Account without further consent of any Grantor or any other Person; provided that (A) for any such Deposit Accounts and Securities Accounts not in existence on the Closing Date, the applicable Grantor shall cause such an Account Control Agreement to be in place within 90 days (or such longer period of time as the Agent may approve in its sole discretion) of the opening of (or acquisition of) such accounts, and (B) the provisions of this paragraph shall not apply to any Deposit Account for which any Grantor, the depositary bank and the Agent have entered into a cash collateral agreement specially negotiated among such Grantor, the depositary bank and the Agent for the specific purpose set forth therein. The Agent agrees that (x) it shall have no right to provide any such instructions unless a Cash Dominion Period is in effect, and (y) if such instructions have been delivered by the Agent to a financial institution and no Cash Dominion Period is continuing, the Agent and such Grantor agree to promptly amend the applicable Account Control Agreement with the applicable financial institution or enter into a new Account Control Agreement with such financial institution (or rescind any such instructions), as and to the extent required by such financial institutions, to reestablish the right of such Grantor to provide written instructions from time to time to such financial institution for the disposition of funds in the applicable Deposit Account or Securities Account, unless and until a new Cash Dominion Period has commenced. Any funds received by Agent pursuant to an Account Control Agreement shall be applied in accordance with Section 2.13(d) of the Credit Agreement or Section 7.02 of the Credit Agreement, as applicable.
(b)On each date on which a Compliance Certificate is delivered to the Agent pursuant to Section 5.04(c) of the Credit Agreement, the Administrative Loan Party shall provide a list of any Deposit Accounts and Securities Accounts which are not subject to an Account Control Agreement, together with an indication of which such accounts are Excluded Accounts; it being understood and agreed that no Account Control Agreement shall be required to be delivered in connection with the Designated Subleased Equipment Designated Account.
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(c)Each Grantor represents, warrants and covenants that no amounts shall be deposited into the Designated Subleased Equipment Designated Account other than payments from customers pursuant to a Designated Subleased Equipment Lease.
ARTICLE IV.Guarantee
SECTION i.The Guarantee
. Each Guarantor hereby jointly and severally with the other Guarantors guarantees, as a primary obligor and not merely as a surety to each Secured Party and their respective permitted successors and assigns, the prompt payment in full when due (whether at stated maturity, by required prepayment, declaration, demand, by acceleration or otherwise) of the principal of and interest (including any interest, fees, costs or charges that would accrue but for the provisions of (a) the Title 11 of the United States Code after any bankruptcy or insolvency petition under Title 11 of the United States Code and (b) any other Debtor Relief Laws) on the Loans made by the Lenders to, and any promissory notes evidencing the Indebtedness of Borrowers to the Lender held by each Lender of, Borrowers, and all other Secured Obligations from time to time owing to the Secured Parties by any Loan Party under any Loan Document or any Bank Product Agreement evidencing a Secured Bank Product Obligation, in each case strictly in accordance with the terms thereof (such obligations, including any future increases in the amount thereof, being herein collectively called the “Guaranteed Obligations”); provided, however, that Guaranteed Obligations shall exclude all Excluded Swap Obligations. The Guarantors hereby jointly and severally agree that if Borrowers or other Guarantor(s) shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantors will promptly pay the same in cash, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.

SECTION ii.Obligations Unconditional
. The obligations of the Guarantors under Section 4.01 shall constitute a guaranty of payment when due and not of collection and to the fullest extent permitted by applicable law, are absolute, irrevocable and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the Guaranteed Obligations of Borrowers under this Agreement, the Credit Agreement, any promissory notes evidencing the Indebtedness of Borrowers to the Lender or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or Guarantor (except for payment in full), including any defense of setoff, counterclaim, recoupment or termination. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not
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alter or impair the liability of the Guarantors hereunder which shall remain absolute, irrevocable and unconditional under any and all circumstances as described above:

(a)at any time or from time to time, without notice to the Guarantors, to the extent permitted by law, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be amended or waived;
(b)any of the acts mentioned in any of the provisions of this Agreement or any promissory notes evidencing the Indebtedness of Borrowers to the Lender or any other agreement or instrument referred to herein or therein shall be done or omitted;
(c)the maturity of any of the Guaranteed Obligations shall be accelerated, extended or renewed or any of the Guaranteed Obligations shall be amended in any respect, or any right under the Loan Documents or any other agreement or instrument referred to herein or therein shall be amended or waived in any respect or any other guarantee of any of the Guaranteed Obligations or except as permitted pursuant to Section 4.08, any security therefor shall be released or exchanged in whole or in part or otherwise dealt with;
(d)any Lien or security interest granted to, or in favor of the Agent as security for any of the Guaranteed Obligations shall fail to be or remain perfected or the existence of any intervening Lien or security interest; or
(e)the release of any other Guarantor pursuant to Section 4.08.
Each Guarantor hereby expressly waives (to the fullest extent permitted by law) diligence, presentment, demand of payment, protest and, to the extent permitted by law, all notices whatsoever, and any requirement that any Secured Party exhaust any right, power or remedy or proceed against Borrowers under this Agreement, the Credit Agreement or any promissory notes evidencing the Indebtedness of Borrowers to the Lender or any other agreement or instrument referred to herein or therein, or against any other person under any other guarantee of, or security for, any of the Guaranteed Obligations. Each Guarantor waives any rights and defenses that are or may become available to it by reason of §§ 2787 to 2855, inclusive, and §§ 2899 and 3433 of the California Civil Code; the foregoing waivers and the provisions hereinafter set forth which pertain to California law are included solely out of an abundance of caution, and shall not be construed to mean that any of the above-referenced provisions of California law are in any way applicable to this Guaranty or the Secured Obligations. Each Guarantor waives, to the extent permitted by law, any and all notice of the creation, renewal, extension, waiver, termination or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by any Secured Party upon this Guarantee or acceptance of this Guarantee, and the Guaranteed Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guarantee, and all dealings among Borrowers and the Secured Parties shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guarantee. This Guarantee shall be construed as a continuing, absolute, irrevocable and unconditional guarantee of payment without regard to any right of offset with respect to the Guaranteed Obligations at any time or from time to time held
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by Secured Parties, and the obligations and liabilities of the Guarantors hereunder shall not be conditioned or contingent upon the pursuit by the Secured Parties or any other person at any time of any right or remedy against Borrowers or against any other person which may be or become liable in respect of all or any part of the Guaranteed Obligations or against any collateral security or guarantee therefor or right of offset with respect thereto. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantors and the successors and assigns thereof, and shall inure to the benefit of the Lenders, and their respective successors and assigns, notwithstanding that from time to time during the term of this Agreement there may be no Guaranteed Obligations outstanding.
SECTION iii.Reinstatement
. The obligations of the Guarantors under this Article IV shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of Borrowers or any other Loan Party in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise.

SECTION iv.Subrogation; Subordination
. Each Guarantor hereby agrees that until the payment in full and satisfaction in full of all Guaranteed Obligations (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing, and L/C Exposure that has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank) and the expiration and termination of the Commitments of the Lenders under this Agreement it shall subordinate any claim and shall not exercise any right or remedy, direct or indirect, arising by reason of any performance by it of its guarantee in Section 4.01, whether by subrogation, contribution or otherwise, against Borrowers or any other Guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations.

SECTION v.Remedies
. The Guarantors jointly and severally agree that, as between the Guarantors and the Lenders, the obligations of Borrowers under this Agreement, the Credit Agreement and any promissory notes evidencing the Indebtedness of Borrowers to the Lender may be declared to be forthwith due and payable as provided in Section 7.01 of the Credit Agreement (and shall be deemed to have become automatically due and payable in the circumstances provided in such Section ) for purposes of Section 4.01, notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against Borrowers and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by Borrowers) shall forthwith become due and payable by the Guarantors for purposes of Section 4.01.

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SECTION vi.Continuing Guarantee
. The Guarantee in this Article IV is a continuing guarantee of payment, and shall apply to all Guaranteed Obligations whenever arising.

SECTION vii.General Limitation on Guarantee Obligations
. In any action or proceeding involving any state corporate limited partnership or limited liability company law, or any applicable state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under Section 4.01 would otherwise be held or determined to be void, voidable, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under Section 4.01, then, notwithstanding any other provision to the contrary, the amount of such liability shall, without any further action by such Guarantor, any Loan Party or any other Person, be automatically limited and reduced to the highest amount (after giving effect to the liability under this Guaranty and the right of contribution established in Section 4.09, but before giving effect to any other guarantee) that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding.

SECTION viii.Release of Guarantors
. If, in compliance with the terms and provisions of the Loan Documents, (a) all or substantially all of the Equity Interests of any Guarantor are sold or otherwise transferred to a Person or Persons none of which is a Loan Party in a transaction permitted hereunder or (b) any Guarantor becomes an Excluded Subsidiary (any such Guarantor, and any Guarantor referred to in clause (a), a “Transferred Guarantor”), such Transferred Guarantor shall, upon the consummation of such sale or transfer or other transaction, be automatically released from its obligations under this Agreement and the other Loan Documents, including its obligations to pledge and grant any Collateral owned by it pursuant to any Security Document and, in the case of a sale of all or substantially all of the Equity Interests of the Transferred Guarantor, the pledge of such Equity Interests to the Agent pursuant to the Security Documents shall be automatically released, and, so long as the Administrative Loan Party shall have provided the Agent such certifications or documents as the Agent shall reasonably request, the Agent shall take such actions as are necessary to effect each release described in this Section 4.08 in accordance with the relevant provisions of the Security Documents.

When all Commitments hereunder have terminated, and all Loans or other Obligations hereunder which are accrued and payable have been paid or satisfied (other in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing), and no Letter of Credit remains outstanding (or any L/C Exposure has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank), this Agreement and the Guarantees made herein shall terminate with respect to all Obligations, except with respect to Obligations that expressly survive such repayment pursuant to the terms of this Agreement.

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SECTION ix.Right of Contribution
. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 4.04. The provisions of this Section 4.09 shall in no respect limit the obligations and liabilities of any Guarantor to the Agent, each Issuing Bank and the Lenders and each Guarantor shall remain liable to the Agent, each Issuing Bank and the Lenders for the full amount guaranteed by such Guarantor hereunder.

SECTION x.Keepwell
. Each Qualified ECP Guarantor hereby jointly and severally absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each other Loan Party to honor all of its obligations under this Guaranty in respect of Swap Obligations (provided, however, that each Qualified ECP Guarantor shall only be liable under this Section 4.10 for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 4.10, or otherwise under this Guarantee, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations of each Qualified ECP Guarantor under this Section 4.10 shall remain in full force and effect until all Commitments hereunder have terminated, and all Loans or other Obligations hereunder which are accrued and payable have been paid or satisfied (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing), and no Letter of Credit remains outstanding (or any L/C Exposure has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank). Each Qualified ECP Guarantor intends that this Section 4.10 constitute, and this Section 4.10 shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each other Loan Party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

ARTICLE V.Remedies
SECTION i.Remedies Upon Default
. Upon the occurrence and during the continuance of any Event of Default, it is agreed that the Agent shall have the right to exercise any and all rights afforded to a secured party with respect to the Secured Obligations, under the Uniform Commercial Code or other applicable law or in equity and also may (i) require each Grantor to, and each Grantor agrees that it will at its expense and upon request of the Agent, promptly assemble all or part of the Collateral as directed by the Agent and make it available to the Agent at a place and time to be designated by the Agent that is reasonably convenient to both parties; (ii) occupy any premises owned or, to the extent lawful
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and permitted, leased by any of the Grantors where the Collateral or any part thereof is assembled or located for a reasonable period in order to effectuate its rights and remedies hereunder or under applicable law, without obligation to pay rent or otherwise to such Grantor or any other Person in respect of such occupation; provided that the Agent shall provide the applicable Grantor with notice thereof prior to or promptly after such occupancy; (iii) exercise any and all rights and remedies of any of the Grantors under or in connection with the Collateral, or otherwise in respect of the Collateral; and (iv) subject to the mandatory requirements of applicable law and the notice requirements described below, sell or otherwise dispose of all or any part of the Collateral securing the Secured Obligations at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Agent shall deem appropriate. The Agent shall be authorized at any such sale of securities (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any sale of Collateral shall hold the property sold absolutely, free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and appraisal which such Grantor now has or may at any time in the future have under any applicable law now existing or hereafter enacted.

The Agent shall give the applicable Grantor(s) 10 calendar days’ written notice (which each Grantor agrees is commercially reasonable notice within the meaning of Section 9611 of the UCC or its equivalent in other jurisdictions) of the Agent’s intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Agent may (in its sole and absolute discretion) determine. The Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Agent until the sale price is paid by the purchaser or purchasers thereof, but the Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public (or, to the extent permitted by applicable law, private) sale made pursuant to this Agreement, any Secured Party may bid for or purchase, free (to the extent permitted by applicable law) from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released to the extent permitted
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by applicable law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Grantor therefor. The Agent may sell any Collateral in accordance with the provisions of this Agreement and the other Loan Documents and applicable law without giving any warranties as to such Collateral. The Agent may specifically disclaim or modify any warranties of title or the like. The Agent shall have no obligation to marshal any of the Collateral. For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof, the Agent shall be free to carry out such sale pursuant to such agreement and no Grantor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Secured Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section 5.01 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the UCC or its equivalent in other jurisdictions.

SECTION ii.Application of Proceeds
. The proceeds of any collection or sale of Collateral, including any Collateral consisting of cash, shall be applied in accordance with Section 7.02 of the Credit Agreement.

The Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of Collateral by the Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Agent or such officer or be answerable in any way for the misapplication thereof.

The Agent shall have no liability to any of the Secured Parties for actions taken in reliance on information supplied to it as to the amounts of unpaid principal and interest and other amounts outstanding with respect to the Secured Obligations; provided that nothing in this sentence shall prevent any Grantor from contesting any amounts claimed by any Secured Party in any information so supplied. All distributions made by the Agent pursuant to this Section 5.02 shall be final (absent manifest error).

SECTION iii.Grant of License to Use Intellectual Property
. For the exclusive purpose of enabling the Agent to exercise rights and remedies under this Agreement at and during the continuance of such time as the Agent shall be lawfully entitled to exercise such rights and remedies at any time after and during the continuance of any Event of
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Default, each Grantor hereby grants to the Agent a nonexclusive, royalty-free, limited license to use, license or sublicense any of the Intellectual Property now owned or hereafter acquired by such Grantor, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software used for the compilation or printout thereof; provided, however, that all of the foregoing rights of the Agent to use such licenses, sublicenses and other rights, and (to the extent permitted by the terms of such licenses and sublicenses) all licenses and sublicenses granted thereunder, shall expire immediately upon the termination or cure of all Events of Default and shall be exercised by the Agent solely during the continuance of any Event of Default and upon written notice to the applicable Grantor of any Event of Default, and nothing in this Section 5.03 shall require Grantors to grant any license that is prohibited by any rule of law, statute or regulation, unreasonably prejudices the value of any Intellectual Property, or is prohibited by, or constitutes a breach or default under or results in the termination of any contract, license, agreement, instrument or other document evidencing, giving rise to or theretofore granted; provided, further, that any such license and any such license granted by the Agent to a third party shall include reasonable and customary terms and conditions necessary to preserve the existence, validity and value of the affected Intellectual Property, including provisions requiring (as applicable) the continuing confidential handling of trade secrets, requiring the use of appropriate notices and prohibiting the use of false notices, quality control and inurement provisions with regard to Trademarks, patent designation provisions with regard to Patents, copyright notices and restrictions on decompilation and reverse engineering of copyrighted software (it being understood and agreed that, without limiting any other rights and remedies of the Agent under this Agreement, any other Loan Document or applicable law, nothing in the foregoing license grant shall be construed as granting the Agent rights in and to such Intellectual Property above and beyond the extent to which such Grantor has the right to grant a sublicense to such Intellectual Property). Upon the occurrence and during the continuance of any Event of Default, the Agent may also exercise the rights afforded under Section 5.01 with respect to Intellectual Property contained in the Article 9 Collateral.

SECTION iv.Effect of Securities Laws
. Each Grantor recognizes that the Agent may be unable to effect a public sale of any or all of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the applicable issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such issuer would agree to do so.

SECTION v.Deficiency
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. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Secured Obligations and, to the extent set forth herein and in the other Loan Documents, the fees and disbursements of any attorneys employed by any Secured Party to collect such deficiency.

ARTICLE VI.Subordination
SECTION i.Subordination.
(1) Notwithstanding any provision of this Agreement to the contrary, all rights of the Grantors to indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the payment in full of the Secured Obligations (other than (i) in respect of Secured Bank Product Obligations, (ii) contingent indemnification obligations not yet due and owing and (iii) any L/C Exposure which has been cash collateralized, back-stopped by a letter of credit or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank). No failure on the part of Borrowers or any other Grantor to make the payments required under applicable law or otherwise shall in any respect limit the obligations and liabilities of any Grantor with respect to its obligations hereunder, and each Grantor shall remain liable for the full amount of the obligations of such Grantor hereunder.
(2)Each Grantor hereby agrees that all Indebtedness owed to it by any other Grantor shall be fully subordinated to the payment in full of the Secured Obligations (other than (i) in respect of Secured Bank Product Obligations, (ii) contingent indemnification obligations not yet due and owing and (iii) any L/C Exposure which has been cash collateralized, back-stopped by a letter of credit or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank).
ARTICLE VII.Miscellaneous
a.Notices
. All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to Borrowers or any other Grantor shall be given to it in care of the Administrative Loan Party as provided in Section 9.01 of the Credit Agreement.

b.Waivers; Amendment.
(3)No failure or delay by any Secured Party in exercising any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege
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hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges of the Secured Parties herein provided, and provided under each other Loan Document, are cumulative and are not exclusive of any rights, remedies, powers and privileges provided by applicable law. No waiver of any provision of this Agreement or consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 7.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or the issuance of a Letter of Credit or the provision of services under any Bank Product Agreement evidencing Secured Bank Product Obligations shall not be construed as a waiver of any Default or Event of Default, regardless of whether any Secured Party may have had notice or knowledge of such Default or Event of Default at the time.
(4)Subject to the terms of the Intercreditor Agreement, neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Agent and the Grantor or Grantors with respect to which such waiver, amendment or modification is to apply, subject to Section 5.12 of the Credit Agreement and any consent required in accordance with Section 9.08 of the Credit Agreement.
c.Agent’s Fees and Expenses; Indemnification.
(5)The parties hereto agree that the Agent shall be entitled to reimbursement of its reasonable and documented out-of-pocket expenses incurred hereunder and indemnity for its actions in connection herewith as provided in Section 9.05 of the Credit Agreement.
(6)Any such amounts payable as provided hereunder shall be additional Secured Obligations secured hereby and by the other Security Documents. The provisions of this Section 7.03 shall remain operative and in full force and effect regardless of the termination of this Agreement or any other Loan Document, the consummation of the transactions contemplated hereby, the repayment of any of the Secured Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, any resignation of the Agent or any investigation made by or on behalf of the Agent or any other Secured Party. All amounts due under this Section 7.03 shall be payable within 30 days of written demand therefor (including documentation reasonably supporting such request).
d.Successors and Assigns
. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

e.Survival of Agreement
. All covenants, agreements, representations and warranties made by the Grantors hereunder and in the other Loan Documents and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by
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the Secured Parties and shall survive the execution and delivery of the Loan Documents, the making of any Loans and issuance of any Letters of Credit and the provision of services under any Bank Product Agreement evidencing Secured Bank Product Obligations, regardless of any investigation made by any Secured Party or on its behalf and notwithstanding that any Secured Party may have had notice or knowledge of any Default or Event of Default at the time any credit is extended under the Credit Agreement, and shall continue in full force and effect as long as this Agreement has not been terminated or released pursuant to Section 7.11.

f.Counterparts; Effectiveness; Several Agreement
. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery by facsimile or other electronic communication of an executed counterpart of a signature page to this Agreement shall be effective as delivery of an original executed counterpart of this Agreement. This Agreement shall become effective as to any Grantor when a counterpart hereof executed on behalf of such Grantor shall have been delivered to the Agent and a counterpart hereof shall have been executed on behalf of the Agent, and thereafter shall be binding upon such Grantor and the Agent and their respective permitted successors and assigns, and shall inure to the benefit of such Grantor, the Agent and the other Secured Parties and their respective permitted successors and assigns, except that no Grantor shall have the right to assign or transfer its rights or obligations hereunder or any interest herein (and any such assignment or transfer shall be void) without the prior written consent of the Agent, except to the extent permitted by the Credit Agreement. This Agreement shall be construed as a separate agreement with respect to each Grantor and may be amended, restated, modified, supplemented, waived or released with respect to any Grantor without the approval of any other Grantor and without affecting the obligations of any other Grantor hereunder.

g.Severability
. If any provision of this Agreement is held to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

h.Governing Law; Jurisdiction; Venue; Waiver of Jury Trial; Consent to Service of Process.
(7)The terms of Sections 9.07, 9.11 and 9.15 of the Credit Agreement with respect to governing law, submission of jurisdiction, venue and waiver of jury trial are incorporated herein by reference, mutatis mutandis, and the parties hereto agree to such terms.
(8)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 7.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by applicable law.
i.Headings
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. 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.

j.Security Interest Absolute
. To the extent permitted by applicable law, all rights of the Agent hereunder, the Security Interest, the grant of a security interest in the Pledged Collateral and all obligations of each Grantor hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Secured Obligations or (d) any other circumstance that might otherwise constitute a defense (other than defense of payment or performance) available to, or a discharge of, any Grantor in respect of the Secured Obligations or this Agreement.

k.Termination, Release or Subordination.
(9)This Agreement (other than with respect to provisions hereof that expressly survive termination), the Security Interest and all other security interests granted hereby shall terminate with respect to all Secured Obligations and any Liens arising therefrom shall be automatically released upon the termination of all Commitments, the payment in full of all Secured Obligations (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing) and the expiration or termination of all Letters of Credit (or any L/C Exposure has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank).
(10)A Guarantor shall automatically be released from its obligations hereunder and the Security Interest and any Liens granted herein to the Agent in the Collateral of such Guarantor shall be automatically released upon the consummation of any transaction permitted by and in accordance with the terms of the Credit Agreement as a result of which such Guarantor ceases to be a Subsidiary of Administrative Loan Party or becomes an Excluded Subsidiary.
(11)Upon any disposition by any Grantor of any Collateral that is permitted under and in accordance with the terms of the Credit Agreement (other than a sale or transfer to another Loan Party), or upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 9.08 of the Credit Agreement, the security interest in such Collateral shall be automatically released.
(12)In connection with any termination or release pursuant to paragraph (a), (b) or (c) of this Section 7.11, the Agent shall execute and deliver to any Grantor, at such
        -35-
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Grantor’s expense, all documents that such Grantor shall reasonably request to evidence such termination or release and shall perform such other actions reasonably requested by such Grantor to effect such release, including delivery of certificates, securities and instruments. Any execution and delivery of documents pursuant to this Section 7.11 shall be without recourse to or warranty by the Agent.
l.Additional Grantors
. Pursuant to Section 5.12 of the Credit Agreement, certain additional Subsidiaries of the Grantors may be required to enter in this Agreement as Grantors. Upon execution and delivery by the Agent and a Subsidiary of a Supplement, such Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any such instrument shall not require the consent of any other Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement.

m.Agent Appointed Attorney-in-Fact
. Each Grantor hereby appoints the Agent the attorney-in-fact of such Grantor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that the Agent may deem necessary or advisable to accomplish the purposes hereof at any time after the occurrence and during the continuance of any Event of Default, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, the Agent shall have the right, after the occurrence and during the continuance of any Event of Default and with full power of substitution either in the Agent’s name or in the name of such Grantor:

(13)to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral or any part thereof;
(14)to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral;
(15)to sign the name of any Grantor on any invoice or bill of lading relating to any of the Collateral;
(16)upon prior written notice to the Administrative Loan Party (unless an Event of Default under Section 7.01(g) or Section 7.01(h) of the Credit Agreement has occurred and is continuing, in which case no such notice shall be required), (i) to send verifications of Accounts Receivable to any Account Debtor, (ii) to notify, or to require Borrowers or any other Grantor to notify, Account Debtors to make payment directly to the Agent, (iii) to otherwise communicate with any Account Debtor, (iv) to make, settle and adjust claims in respect of Collateral under policies of insurance, endorse the name of such Grantor on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance, (v) to make all determinations and decisions with respect to policies of insurance and (vi) to obtain or
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maintain the policies of insurance required by Section 5.02 of the Credit Agreement or to pay any premium in whole or in part relating thereto;
(17)to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral;
(18)to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Collateral; and
(19)to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Agent were the absolute owner of the Collateral for all purposes;
provided that nothing herein contained shall be construed as requiring or obligating the Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Agent, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence, bad faith or willful misconduct or that of any of their Affiliates, directors, officers, employees, partners, advisors, counsel, agents, attorneys-in-fact or other representatives (in the case of agents and representatives, only to the extent such persons are acting at the direction of the Agent or such other Secured Parties), in each case, as determined by a final non- appealable judgment of a court of competent jurisdiction. All sums disbursed by the Agent in connection with this paragraph shall be payable in accordance with Section 7.02 of the Credit Agreement.

n.General Authority of the Agent
. By acceptance of the benefits of this Agreement and any other Security Documents, each Secured Party (whether or not a signatory hereto) shall be deemed irrevocably (a) to consent to the appointment of the Agent as its agent hereunder and under such other Security Documents, (b) to confirm that the Agent shall have the authority to act as the exclusive agent of such Secured Party for the enforcement of any provisions of this Agreement and such other Security Documents against any Grantor, the exercise of remedies hereunder or thereunder and the giving or withholding of any consent or approval hereunder or thereunder relating to any Collateral or any Grantor’s obligations with respect thereto, (c) to agree that it shall not take any action to enforce any provisions of this Agreement or any other Security Document against any Grantor, to exercise any remedy hereunder or thereunder or to give any consents or approvals hereunder or thereunder except as expressly provided in this Agreement or any other Security Document and (d) to agree to be bound by the terms of this Agreement and any other Security Documents.

o.Reasonable Care
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. The Agent is required to use reasonable care in the custody and preservation of any of the Collateral in its possession; provided, the Agent shall be deemed to have used reasonable care in the custody and preservation of any of the Collateral, if such Collateral is accorded treatment substantially similar to that which the Agent accords its own property.

p.Delegation; Limitation
. The Agent may execute any of the powers granted under this Agreement and perform any duty hereunder either directly or by or through agents or attorneys-in-fact, and shall not be responsible for the gross negligence, bad faith or willful misconduct of any agents or attorneys-in-fact selected by it with reasonable care and without gross negligence, bad faith or willful misconduct.

q.Reinstatement
. The obligations of the Grantors under this Agreement shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of Borrower or other Loan Party in respect of the Secured Obligations is rescinded or must be otherwise restored by any holder of any of the Secured Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise.

r.Miscellaneous
. The Agent shall not be deemed to have actual, constructive, direct or indirect notice or knowledge of the occurrence of any Event of Default unless and until the Agent shall have received a notice of Event of Default or a notice from the Grantor or the Secured Parties to the Agent in its capacity as Agent indicating that an Event of Default has occurred.

s.Collateral and Guarantee Requirement
. Notwithstanding anything to the contrary in this Agreement, to the extent any provision of this Agreement or the Credit Agreement (including, without limitation, Section 5.12 of the Credit Agreement) excludes any assets from the scope of the Collateral or from any requirement to take any action to perfect any security interest in favor of the Agent in the Collateral, the representations, warranties and covenants made by any relevant Grantor in this Agreement with respect to the creation, perfection or priority (as applicable) of the security interest granted in favor of the Agent (including, without limitation, Sections 2.03 and 3.03) shall be deemed not to apply to such excluded assets solely to the extent required by the applicable provisions of this Agreement or the Credit Agreement.

t.Intercreditor Agreement
. Notwithstanding anything herein to the contrary, the liens and security interests granted to the Agent pursuant to this Agreement in any Term Loan Priority Collateral and the exercise of any right or remedy by the Agent with respect to any Term Loan Priority Collateral hereunder are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the
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terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.

[Signature Pages Follow]


        -39-
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

SMART SAND, INC.,as Administrative Loan Party and as a Grantor


By:   /s/ Lee E Beckelman 
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


QUICKTHREE TECHNOLOGY, LLC,as a Grantor

By: SMART SAND, INC.,its sole Member

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


SMART SAND HIXTON LLC,as a Grantor
By: SMART SAND, INC.,its sole Member

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


SSI BAKKEN I, LLC,as a Grantor

By: SMART SAND, INC.,its sole Member

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


[Signature Page to Guarantee and Collateral Agreement]
155657.01206/121709896v.5


SMART SAND OAKDALE LLC, as a Grantor

By: SMART SAND, INC.,its sole Member

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


FAIRVIEW CRANBERRY COMPANY, LLC., as a Grantor

By: SMART SAND, INC.,its Manager

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer


WILL LOGISTICS, LLC., as a Grantor

By: SMART SAND, INC.,its Manager

By:  /s/ Lee E Beckelman  
        Name: Lee E. Beckelman
        Title: Chief Financial Officer



[Signature Page to Guarantee and Collateral Agreement]
155657.01206/121709896v.5

JEFFERIES FINANCE LLC, as Agent


By:  /s/ J.R. Young    
Name:   J.R. Young    
Title:   Managing Director    


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Schedule IPledged Equity and Pledged Debt

Pledged Equity
Grantor Issuer Class of Shares # of Shares Owned Total Shares Outstanding % of Interest Pledged Certificate No.























Pledged Debt
Grantor Issuer Principal Amount Maturity Date









Schedule I
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Schedule II
Locations of Equipment and Inventory

Grantor Address/City/State/Zip Code County Description of Assets and Value









Schedule II
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Schedule III
Commercial Tort Claims



Schedule III
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EXHIBIT A TOGUARANTEE AND COLLATERAL AGREEMENT
SUPPLEMENT, dated as of [____________], 201[_] (this “Supplement”), made by [_____], a [_______] (the “Additional Grantor”), in favor of JEFFERIES FINANCE LLC, as Agent for the Secured Parties (in such capacity and together with its successors and permitted assigns, the “Agent”). Capitalized terms not defined herein shall have the meaning assigned to such terms in the Guarantee and Collateral Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, Smart Sand, Inc., a Delaware corporation (the “Administrative Loan Party”) and the other Borrowers from time to time party thereto (collectively, the “Borrowers” and each, a “Borrower”), the Guarantors from time to time party thereto, each lender from time to time party thereto (collectively, the “Lenders”), each Issuing Bank and Agent have entered into that certain Credit Agreement, dated as of December 13, 2019 (as amended, restated, supplemented and/or otherwise modified from time to time, the “Credit Agreement”);
WHEREAS, in connection with the Credit Agreement, Borrowers and Guarantors have entered into that certain Guarantee and Collateral Agreement, dated as of December 13, 2019 (as amended, restated, supplemented and/or otherwise modified from time to time, the “Guarantee and Collateral Agreement”), in favor of the Agent for the Secured Parties;
WHEREAS, the Credit Agreement requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and
WHEREAS, the Additional Grantor has agreed to execute and deliver this Supplement in order to become a party to the Guarantee and Collateral Agreement;
NOW, THEREFORE, IT IS AGREED:
1. SECURITY AGREEMENT. By executing and delivering this Supplement, the Additional Grantor, as provided in Section 7.12 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. As security for the payment and performance in full of the Secured Obligations of the Additional Grantor (including, if such Additional Grantor is a Guarantor, the Secured Obligations of such Additional Grantor arising under the Guaranty), hereby pledges to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in (a) all right, title and interest in, to and under any and all of Pledged Collateral now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest and (b) all right, title or interest in or to any and all of the Article 9 Collateral now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title
Exhibit A-1
155657.01206/121709896v.5

or interest. The information set forth in Annex 1-A is hereby added to the information set forth in Schedules [_____]0F1 to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in Sections 2.03 and 3.02 of the Guarantee and Collateral Agreement is true and correct in all material respects on and as the date hereof (after giving effect to this Supplement) as if made on and as of such date, except to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date; provided that any representation and warranty that is qualified as to “materiality”, “Material Adverse Effect” or similar language shall be true and correct (after giving effect to any qualification therein) in all respects on such date or such earlier date, as the case may be.
2. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be duly executed and delivered by its authorized officer as of the date first above written.
[NAME OF GRANTOR]


By:      
        Name:
        Title:




11 Refer to each Schedule which needs to be supplemented
        Exhibit A-2
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EXHIBIT BTO GUARANTEE AND COLLATERAL AGREEMENT
PERFECTION CERTIFICATE
[Attached]


Exhibit B-1
155657.01206/121709896v.5

EXHIBIT CTO GUARANTEE AND COLLATERAL AGREEMENT
FORM OF PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT, dated as of [__________], 201[_] (as amended, restated, supplemented and/or otherwise modified from time to time, this “Patent Security Agreement”), is made by the entities identified as grantors on the signature pages hereto (individually, a “Grantor” and collectively, the “Grantors”) in favor of Jefferies Finance LLC, as Agent for the Secured Parties (in such capacity and together with its successors and permitted assigns, the “Agent”).
WHEREAS, the Grantor is party to a Guarantee and Collateral Agreement, dated as of December 13, 2019 (as amended, restated, supplemented and/or otherwise modified from time to time, the “Guarantee and Collateral Agreement”), between each of the Grantors, the other grantors party thereto and the Agent, pursuant to which the Grantor granted a security interest to the Agent in the Patent Collateral (as defined below) and are required to execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Grantor hereby agrees with the Agent as follows:
SECTION 1. DEFINED TERMS
Unless otherwise defined herein, terms defined in the Guarantee and Collateral Agreement and used herein have the meaning given to them in the Guarantee and Collateral Agreement.
SECTION 2. GRANT OF SECURITY INTEREST
The Grantor, as security for the payment and performance in full of the Secured Obligations of the Grantor (including, if the Grantor is a Guarantor, the Secured Obligations of the Grantor arising under the Guaranty), hereby pledges to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in all right, title or interest in or to any and all of the following assets and properties now owned or at any time hereafter acquired by the Grantor or in which the Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Patent Collateral”):
(i) all letters patent of the United States in or to which any Grantor now or hereafter owns any right, title or interest therein, all registrations and recordings thereof, and all applications for letters patent of the United States, including registrations, recordings and pending applications in the United States Patent and Trademark Office (“USPTO”), including any of the foregoing listed in Schedule A hereto, and all reissues, continuations, divisions, continuations-in-part, renewals, improvements or extensions thereof, and the inventions
Exhibit C-1
155657.01206/121709896v.5

disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein,
(ii) all additions and improvements to the foregoing, renewals and extensions thereof, rights to sue or otherwise recover for infringements or other violations thereof,
(iii) all rights corresponding to the foregoing throughout the world, and
(iv) to the extent not otherwise included, all Proceeds, products, accessions, rents and profits of any and all of the foregoing.
SECTION 3. SECURITY AGREEMENT
The security interest granted pursuant to this Agreement is granted in conjunction with the security interest granted to the Agent for the Secured Parties pursuant to the Guarantee and Collateral Agreement, and the Grantor hereby acknowledges and affirms that the rights and remedies of the Agent with respect to the security interest in the Patent Collateral made and granted hereby are more fully set forth in the Guarantee and Collateral Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. In the event that any provision of this Agreement is deemed to conflict with the Guarantee and Collateral Agreement, the provisions of the Guarantee and Collateral Agreement shall control.
SECTION 4. RECORDATION
The Grantor hereby authorizes and requests that the USPTO record this Patent Security Agreement.
SECTION 5. TERMINATION
This Patent Security Agreement shall terminate and the lien on and security interest in the Patent Collateral shall be released upon the termination of the Commitments, the payment in full of all Secured Obligations (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing) and the expiration or termination of all Letters of Credit (or any L/C Exposure has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank).
SECTION 6. GOVERNING LAW
THIS PATENT SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 7. COUNTERPARTS
This Patent Security Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered
        Exhibit C-2
155657.01206/121709896v.5

shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
[Remainder of page intentionally left blank]

        Exhibit C-3
155657.01206/121709896v.5

IN WITNESS WHEREOF, the Grantor has caused this Patent Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.
[GRANTOR]


By:  /s/ Lee E Beckelman 
        Name:
        Title:


155657.01206/121709896v.5

JEFFERIES FINANCE LLC,as Agent


By:      
        Name:
        Title:


155657.01206/121709896v.5

SCHEDULE Ato
PATENT SECURITY AGREEMENT

PATENTS AND PATENT APPLICATIONS

Grantor Title Application No. Filing Date Patent No. Issue Date








155657.01206/121709896v.5

EXHIBIT DTO GUARANTEE AND COLLATERAL AGREEMENT

FORM OF TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT, dated as of [_________], 201 [_] (as amended, restated, supplemented and/or otherwise modified from time to time, this “Trademark Security Agreement”), is made by the entities identified as grantors on the signature pages hereto (individually, a “Grantor” and collectively, the “Grantors”) in favor of Jefferies Finance LLC, as Agent for the Secured Parties (in such capacity and together with its successors and permitted assigns, the “Agent”).
WHEREAS, the Grantors are party to a Guarantee and Collateral Agreement, dated as of December 13, 2019 (as amended, restated, supplemented and/or otherwise modified from time to time, the “Guarantee and Collateral Agreement”) between each of the Grantors, the other grantors party thereto and the Agent, pursuant to which the Grantors granted a security interest to the Agent in the Trademark Collateral (as defined below) and are required to execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Grantors hereby agree with the Agent as follows:
SECTION 1. DEFINED TERMS
Unless otherwise defined herein, terms defined in the Guarantee and Collateral Agreement and used herein have the meaning given to them in the Guarantee and Collateral Agreement.
SECTION 2. GRANT OF SECURITY INTEREST
Each Grantor, as security for the payment and performance in full of the Secured Obligations of such Grantor (including, if such Grantor is a Guarantor, the Secured Obligations of such Grantor arising under the Guaranty), hereby pledges to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in all right, title or interest in or to any and all of the following assets and properties now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Trademark Collateral”):
(i) all trademarks, service marks, trade names, corporate names, trade dress, logos, designs, fictitious business names other source or business identifiers, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office (“USPTO”), including the registrations and registrations applications listed in Schedule A hereto, or any similar offices in
Exhibit D-1
155657.01206/121709896v.5

any State of the United States or any political subdivision thereof, and all extensions or renewals thereof, as well as any unregistered trademarks and service marks used by a Grantor; and all goodwill connected with the use thereof and symbolized thereby,
(ii) all additions and improvements to the foregoing, renewals and extensions thereof, rights to sue or otherwise recover for infringements or other violations thereof,
(iii) all rights corresponding to the foregoing throughout the world, and
(iv) to the extent not otherwise included, all Proceeds, products, accessions, rents and profits of any and all of the foregoing;
provided that, notwithstanding anything to the contrary in this Trademark Security Agreement,
this Trademark Security Agreement shall not constitute a grant of a security interest in (nor shall any pledge, grant or Security Interest attach to) any Excluded Assets, and (ii) the Trademark Collateral (and any defined term therein) shall not include any Excluded Assets; provided, further, that this Trademark Security Agreement shall constitute a grant of a security interest in any Proceeds, substitutions or replacements of any Excluded Assets, and any Proceeds, substitutions or replacements of any Excluded Assets shall be included in the Trademark Collateral (and any defined term used therein), unless such Proceeds, substitutions or replacements would independently constitute Excluded Assets.
SECTION 3. SECURITY AGREEMENT
The security interest granted pursuant to this Trademark Security Agreement is granted in conjunction with the security interest granted to the Agent for the Secured Parties pursuant to the Guarantee and Collateral Agreement, and the Grantors hereby acknowledge and affirm that the rights and remedies of the Agent with respect to the security interest in the Trademark Collateral made and granted hereby are more fully set forth in the Guarantee and Collateral Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. In the event that any provision of this Agreement is deemed to conflict with the Security Agreement, the provisions of the Guarantee and Collateral Agreement shall control.
SECTION 4. RECORDATION
Each Grantor hereby authorizes and requests that the USPTO record this Trademark Security Agreement.
SECTION 5. TERMINATION
This Trademark Security Agreement shall terminate and the lien on and security interest in the Trademark Collateral shall be released upon the termination of the Commitments, the payment in full of all Secured Obligations (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing) and the expiration or termination of all Letters of Credit (or any L/C Exposure has been cash
        Exhibit D-2
155657.01206/121709896v.5

collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank).
SECTION 6. GOVERNING LAW
THIS TRADEMARK SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 7. COUNTERPARTS
This Trademark Security Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
[Remainder of page intentionally left blank]



        Exhibit D-3
155657.01206/121709896v.5

IN WITNESS WHEREOF, each Grantor has caused this Trademark Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.
[GRANTOR]


By:      
        Name:
        Title:


155657.01206/121709896v.5

JEFFERIES FINANCE LLC,
as Agent


By:      
        Name:
        Title:


155657.01206/121709896v.5

SCHEDULE Ato
TRADEMARK SECURITY AGREEMENT
TRADEMARK REGISTRATIONS AND APPLICATIONS
Grantor Mark Serial No. Filing Date Registration No. Registration Date









155657.01206/121709896v.5

EXHIBIT ETO GUARANTEE AND COLLATERAL AGREEMENT
FORM OF COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT, dated as of [__________], 201 [_] (as amended, restated, supplemented and/or otherwise modified from time to time, this “Copyright Security Agreement”), is made by the entities identified as grantors on the signature pages hereto (individually, a “Grantor”, and collectively, the “Grantors”) in favor of Jefferies Finance LLC, as Agent for the Secured Parties (in such capacity and together with its successors and permitted assigns, the “Agent”).
WHEREAS, the Grantor is party to a Guarantee and Collateral Agreement, dated as of December 13, 2019 (as it amended, restated, supplemented and/or otherwise modified from time to time, the “Guarantee and Collateral Agreement”), between the Grantor, the other grantors party thereto and the Agent pursuant to which the Grantor granted a security interest to the Agent in the Copyright Collateral (as defined below) and are required to execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Grantor hereby agrees with the Agent as follows:
SECTION 1. DEFINED TERMS
Unless otherwise defined herein, terms defined in the Guarantee and Collateral Agreement and used herein have the meaning given to them in the Guarantee and Collateral Agreement.
SECTION 2. GRANT OF SECURITY INTEREST
The Grantor, as security for the payment and performance in full of the Secured Obligations of the Grantor (including, if the Grantor is a Guarantor, the Secured Obligations of the Grantor arising under the Guaranty), hereby pledges to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in all right, title or interest in or to any and all of the following assets and properties now owned or at any time hereafter acquired by the Grantor or in which the Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Copyright Collateral”):
(i) all copyright rights in any work subject to the copyright laws of the United States, whether as author, assignee, transferee or otherwise, and all registrations and applications for registration of any such copyright in the United States, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office (“USCO”), including those listed on Schedule A hereto,
Exhibit E-1
155657.01206/121709896v.5

(ii) all additions and improvements to the foregoing, renewals and extensions thereof, rights to sue or otherwise recover for infringements or other violations thereof,
(iii) all rights corresponding to the foregoing throughout the world, and
(iv) to the extent not otherwise included, all Proceeds, products, accessions, rents and profits of any and all of the foregoing.
SECTION 3. SECURITY AGREEMENT
The security interest granted pursuant to this Copyright Security Agreement is granted in conjunction with the security interest granted to the Agent for the Secured Parties pursuant to the Guarantee and Collateral Agreement, and the Grantor hereby acknowledges and affirms that the rights and remedies of the Agent with respect to the security interest in the Copyright Collateral made and granted hereby are more fully set forth in the Guarantee and Collateral Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. In the event that any provision of this Copyright Security Agreement is deemed to conflict with the Guarantee and Collateral Agreement, the provisions of the Guarantee and Collateral Agreement shall control.
SECTION 4. RECORDATION
The Grantor hereby authorizes and requests that the USCO record this Copyright Security Agreement.
SECTION 5. TERMINATION
This Copyright Security Agreement shall terminate and the lien on and security interest in the Copyright Collateral shall be released upon the termination of the Commitments, the payment in full of all Secured Obligations (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing) and the expiration or termination of all Letters of Credit (or any L/C Exposure has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank).
SECTION 6. GOVERNING LAW
THIS COPYRIGHT SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 7. COUNTERPARTS
This Copyright Security Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
        Exhibit E-2

155657.01206/121709896v.5

[Remainder of page intentionally left blank]

        Exhibit E-3

155657.01206/121709896v.5

IN WITNESS WHEREOF, the Grantor has caused this Copyright Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.
[GRANTOR]


Name:     
Title:



155657.01206/121709896v.5

JEFFERIES FINANCE LLC,as Agent


By:      
        Name:
        Title:


Exhibit E-5

155657.01206/121709896v.5

SCHEDULE AtoCOPYRIGHT SECURITY AGREEMENT
COPYRIGHT REGISTRATIONS
Grantor Title Registration No. Registration Date







155657.01206/121709896v.5

EXHIBIT FTO GUARANTEE AND COLLATERAL AGREEMENT
FORM OF AGREEMENT REGARDING UNCERTIFICATED SECURITIES
THIS AGREEMENT (as amended, restated, supplemented and/or otherwise modified from time to time, this “Agreement”), dated as of [__________ __, 20__], by and among the undersigned pledgor (the “Pledgor”), Jefferies Finance LLC, not in its individual capacity but solely as Agent (the “Pledgee”), and [_______], as the issuer of the Uncertificated Securities (each as defined below) (the “Issuer”).
W I T N E S S E T H:
WHEREAS, the Pledgor, certain of its affiliates and the Pledgee have entered into a Guarantee and Collateral Agreement, dated as of December 13, 2019 (as amended, restated, supplemented and/or otherwise modified from time to time, the “Guarantee and Collateral Agreement”), under which, among other things, in order to secure the payment of the Secured Obligations (as defined in the Guarantee and Collateral Agreement), the Pledgor has pledged to the Pledgee for the benefit of the Secured Parties (as defined in the Guarantee and Collateral Agreement), and grant a security interest in favor of the Pledgee for the benefit of the Secured Parties in, all of the right, title and interest of the Pledgor in and to any and all “uncertificated securities” (as defined in Section 8-102(a)(18) of the Uniform Commercial Code, as adopted in the State of New York) (“Uncertificated Securities”) (including Partnership Interests (as defined in the Guarantee and Collateral Agreement) and Limited Liability Company Interests (as defined in the Guarantee and Collateral Agreement)), from time to time issued by the Issuer, whether now existing or hereafter from time to time acquired by the Pledgor (with all of such Uncertificated Securities being herein collectively called the “Issuer Pledged Interests”); and
WHEREAS, the Pledgor desires the Issuer to enter into this Agreement in order to vest in the Pledgee control of the Issuer Pledged Interests and to provide for the rights of the parties under this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. The Pledgor hereby irrevocably authorizes and directs the Issuer, and the Issuer hereby agrees, to comply with any and all instructions and orders originated by the Pledgee (and its successors and assigns) regarding any and all of the Issuer Pledged Interests without the further consent by the registered owner (including the Pledgor), and, following its receipt of a notice from the Pledgee stating that the Pledgee is exercising exclusive control of the Issuer Pledged Interests, to the extent required by the Guarantee and Collateral Agreement, not to comply with any instructions or orders regarding any or all of the Issuer Pledged Interests originated by any person or entity other than the Pledgee (and its successors and assigns) or a court of competent jurisdiction.
F-1

155657.01206/121709896v.5

2. The Issuer hereby certifies that (a) no notice of any security interest, lien or other encumbrance or claim affecting the Issuer Pledged Interests (other than the security interest of the Pledgee) has been received by it, and (b) the security interest of the Pledgee in the Issuer Pledged Interests has been registered in the books and records of the Issuer.
3. The Issuer hereby represents and warrants that (a) the pledge by the Pledgor of, and the granting by the Pledgor of a security interest in, the Issuer Pledged Interests to the Pledgee, for the benefit of the Secured Parties, does not violate the charter, by-laws, partnership agreement, membership agreement or any other agreement governing the Issuer or the Issuer Pledged Interests, and (b) the Issuer Pledged Interests consisting of capital stock of a corporation are fully paid and nonassessable.
4. All notices, statements of accounts, reports, prospectuses, financial statements and other communications to be sent to the Pledgor by the Issuer in respect of the Issuer will also be sent to the Pledgee at the following address:
Jefferies Finance LLC520 Madison AvenueNew York, New York 10022Attention: Account Officer - Smart Sand, Inc.Email: Jfin.Admin@Jefferies.comFax No.: 212-284-3444
5. Following its receipt of a notice from the Pledgee stating that the Pledgee is exercising exclusive control of the Issuer Pledged Interests and until (a) such notice is rescinded in accordance with the Guarantee and Collateral Agreement or (b) the Pledgee shall have delivered written notice to the Issuer that all of the Secured Obligations have been paid in full (other than in respect of Secured Bank Product Obligations and contingent indemnification obligations not yet due and owing, and L/C Exposure that has been cash collateralized, backstopped or deemed reissued under another agreement, in each case, in a manner reasonably satisfactory to the applicable Issuing Bank) and this Agreement is terminated, the Issuer will send any and all redemptions, distributions, interest or other payments in respect of the Issuer Pledged Interests from the Issuer for the account of the Pledgee only by wire transfers to such account as the Pledgee shall instruct.
6. All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to Pledgor or Issuer shall be given to it in care of the Administrative Loan Party as provided in Section 9.01 of the Credit Agreement.
7. This Agreement shall be binding upon the successors and assigns of the Pledgor and the Issuer and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. In the event that any provision of this Agreement shall prove to be invalid or unenforceable, such provision shall be deemed to be severable from the other provisions of this Agreement which shall remain binding
        Exhibit F-2
155657.01206/121709896v.5

on all parties hereto. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever except in writing signed by the Pledgee, the Issuer and the Pledgor.
8. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
[remainder of page intentionally left blank]

        Exhibit F-3
155657.01206/121709896v.5

IN WITNESS WHEREOF, the Pledgor, the Pledgee and the Issuer have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written.
[___________________],
as Pledgor


By      
        Name:
        Title:


JEFFERIES FINANCE LLC,as Agent and Pledgee


By      
        Name:
        Title:


[___________________],
as the Issuer


By      
        Name:
        Title:



        Exhibit F-4
155657.01206/121709896v.5

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE NOT MATERIAL AND WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED. SUCH TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***)


December 12, 2019
Liberty Oilfield Services, LLC
950 17th Street, Suite 2000
Denver, Colorado 80202

Re: Master Product Purchase Agreement and Ancillary Agreements

Dear Sir or Madam:

This letter agreement is in regards to: (i) that certain Master Product Purchase Agreement, by and between Smart Sand, Inc. (“Smart Sand”) and Liberty Oilfield Services, LLC (“Liberty”), dated March 8, 2017, as amended by that certain First Amendment to Master Product Purchase Agreement, dated effective as of May 1, 2017, and those certain letter agreements entered into by the parties from time to time (as amended, the “PPA”); (ii) that certain Railcar Usage Agreement, dated March 8, 2017, as amended by that certain First Amendment to Railcar Usage Agreement, dated effective as of May 1, 2017 (as amended, the “RUA”); and (iii) that certain Transportation and Transloading Services Agreement, dated August 7, 2018, by and between Smart Sand, SSI Bakken I, LLC, and Liberty (as amended, the “Transloading Agreement”). All capitalized terms contained in this letter agreement and not otherwise defined shall have the meanings ascribed to such terms in the PPA, RUA and Transloading Agreement, as applicable.
Per our discussion, Smart Sand and Liberty each hereby agrees to the following:

1.During the period commencing on the date on which this letter agreement is executed by all parties and ending on September 30, 2020 (the “Credit Period”), Liberty shall be eligible for a credit equal to *** for each ton of *** Products purchased during the Credit Period, *** for each ton of *** Products purchased during the Credit Period, and *** for each ton of *** Products purchased during the Credit Period. Notwithstanding the foregoing, if the Average Cushing Oklahoma WTI Spot Prices per barrel for the preceding calendar quarter is less than ***, then the credit for *** Products, *** Products and *** Products shall be ***, *** and ***, respectively. Liberty shall also be eligible for a credit equal to *** towards the *** transloading charge for each ton of Products shipped on the Union Pacific Railroad, as described in Section 2.1 of the PPA. During the Credit Period: (i) the prices payable for Services under the Transloading Agreement shall be ***, which is inclusive of amounts due for Products under the PPA; and (ii) the *** railcar usage fee set forth in Section 1.A. of the RUA shall be waived.

2.If Liberty purchases less than *** tons of Products in a calendar month (the “Minimum Benchmark”) during the period commencing on *** and ending on *** (the “2019 Adjustment Period”), then Liberty shall pay to Smart Sand an amount (the “Monthly Shortfall Payment”) equal to the product of *** multiplied by the difference between the Minimum Benchmark and the tons of Products purchased in such month (such difference, the “Monthly Shortfall Amount”) (i.e. (i) Monthly Shortfall Payment = *** Monthly Shortfall Amount; and (ii) Monthly Shortfall Amount = Minimum Benchmark – Products purchased).

3.During the period commencing on *** and ending on ***, so long as Liberty has paid all Monthly Shortfall Payments in full, all monthly purchases of Products in excess of the Minimum Benchmark shall be credited by *** (the “Make-Up Credit”). By way of example, if the total


Monthly Shortfall Amount during the 2019 Adjustment Period is *** and Liberty purchases *** in ***, then the price payable for *** tons in each such month shall be reduced by *** and Liberty shall not be entitled to any further Make-Up Credits after February 2020. Any excess tons for which Liberty receives the *** credit hereunder shall not be deemed Prior Excess under the PPA. For the avoidance of doubt, Liberty shall not be entitled to any Make-Up Credit after ***.

4.The deferral rights set forth in Section 1.5 of the PPA shall be suspended during the 2019 Adjustment Period, and the Monthly Shortfall Amount, if any, shall not be deemed to be Deferred Tons under the PPA. As of ***, Liberty has *** Deferred Tons outstanding under the PPA and such amount shall remain unchanged during the 2019 Adjustment Period. Solely for purposes of calculating the Quarterly Shortfall Payment under the PPA, if any, payable for the quarter ending January 31, 2020, the month of January 2020 shall be deemed to be the entire quarter, and the Minimum Tons per Quarter for such quarter shall be deemed to be ***.

5.The reference to *** in Section 2.3 of the PPA shall be changed to ***.

6.Liberty shall lease from Smart Sand, pursuant to a Master Storage Lease Agreement to be entered into contemporaneously herewith by Smart Sand and Liberty (the “Master Storage Agreement”): (i) commencing on ***, *** fleets of Smart Sand’s SmartDepot™ storage silos (consisting of *** silos per fleet) at a monthly rent of *** per individual silo (i.e. *** per fleet); and (ii) commencing on ***, *** additional fleet of Smart Sand’s SmartDepot™ storage silos (consisting of *** silos per fleet) at a monthly rent of *** per individual silo (i.e. *** per fleet). The silos shall be delivered to Smart Sand’s Van Hook, ND rail terminal and the Master Storage Agreement shall terminate no earlier than ***. In connection with leasing the foregoing SmartDepot™ storage silos, Liberty has the option to lease *** rapid deployment trailer at a monthly rent of ***.

7.The obligations of Smart Sand under this letter agreement (including providing the credits set forth herein) are conditioned upon Liberty’s execution of the Master Storage Agreement, and Liberty’s performance of all obligations under the PPA, RUA, Transloading Agreement, and the Master Storage Agreement (including the equipment schedules thereto).

8.Except as expressly set forth in this letter agreement, all of the terms and conditions of the PPA, RUA and Transloading Agreement shall remain unchanged and in full force and effect.

[signature page follows]





Please indicate your agreement to the terms of this letter agreement by signing in the space provided below and returning it to me. This letter agreement may be executed in counterparts and delivered via facsimile or other electronic transmission, each of which shall be deemed to be an original and both of which together shall constitute one and the same agreement.

SMART SAND, INC.


By: _/s/ John Young_1-2-20_____________
John Young, Chief Operating Officer

SSI BAKKEN I, LLC


By: _/s/ John Young 1-2-20__________________
John Young, Chief Operating Officer

Confirmed, acknowledged and agreed to this 12th day of December, 2019:

LIBERTY OILFIELD SERVICES, LLC


By: _/s/ Ronald Gusek_______________________
Name: Ronald Gusek
Title President


Smart Sand, Inc. and Subsidiaries
List of Subsidiaries as of December 31, 2019

Subsidiaries State of Organization
Fairview Cranberry, LLC Wisconsin
Will Logistics, LLC Pennsylvania
Smart Sand Live Oak LLC Delaware
Smart Sand Fayette County LLC Delaware
Smart Sand Hixton LLC Delaware
Smart Sand Reagan County LLC Delaware
Smart Sand Tom Green County LLC Delaware
Smart Sand Oakdale LLC Delaware
SSI Logistics LLC Delaware
SSI Permian I, LLC Delaware
SSI Permian II, LLC Delaware
Smart Sand Holdings, LLC Delaware
SSI Bakken I, LLC Delaware
Quickthree Technology, LLC Delaware
SSI Marcellus, I, LLC Delaware
Bakken Silo Servicing, LLC Delaware






Exhibit 23.1



CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated February 26, 2020, with respect to the consolidated financial statements included in the Annual Report of Smart Sand, Inc. on Form 10-K for the year ended December 31, 2019. We consent to the incorporation by reference of the said report in the Registration Statements of Smart Sand, Inc. on Form S-3 (File No. 333-221994) and on Forms S-8 (File No. 333-214699 and File No. 333-214700).

/s/ GRANT THORNTON LLP

New York, New York
February 26, 2020




Exhibit 31.1
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
I, Charles E. Young, certify that:
1. I have reviewed this Annual Report on Form 10-K of Smart Sand, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a). All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: February 26, 2020
 
 /s/ Charles E. Young
Charles E. Young, Chief Executive Officer
(Principal Executive Officer)
 



Exhibit 31.2
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
I, Lee E. Beckelman, certify that:
1. I have reviewed this Annual Report on Form 10-K of Smart Sand, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: February 26, 2020
 
 /s/ Lee E. Beckelman
Lee E. Beckelman, Chief Financial Officer
(Principal Financial Officer)
 



Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Smart Sand, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles E. Young, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: February 26, 2020
 /s/ Charles E. Young
Charles E. Young, Chief Executive Officer
(Principal Executive Officer)



Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Smart Sand, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lee E. Beckelman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: February 26, 2020
 /s/ Lee E. Beckelman
Lee E. Beckelman, Chief Financial Officer
(Principal Financial Officer)


 



Exhibit 95.1
MINE SAFETY DISCLOSURES
The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K, which requires certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).
Mine Safety Information
Whenever the Federal Mine Safety and Health Administration (“MSHA”) believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator must abate the alleged violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, may be reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspector(s) assigned.
Mine Safety Data
The following provides additional information about references used in the table below to describe the categories of violations, orders or citations issued by MSHA under the Mine Act:
•Section 104 S&S Citations: Citations received from MSHA under section 104 of the Mine Act for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard.
•Section 104(b) Orders: Orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.
•Section 104(d) Citations and Orders: Citations and orders issued by MSHA under section 104(d) of the Mine Act for an unwarrantable failure to comply with mandatory health or safety standards.
•Section 110(b)(2) Violations: Flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act.
•Section 107(a) Orders: Orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an “imminent danger” (as defined by MSHA) existed.
Pattern or Potential Pattern of Violations
The following provides additional information about references used in the table below to describe elevated pattern of violation enforcement actions taken by MSHA under the Mine Act:
•Pattern of Violations: A pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under section 104(e) of the Mine Act.
•Potential Pattern of Violations: The potential to have a pattern of violations under section 104(e).




Pending Legal Actions
The following provides additional information of the types of proceedings brought before the Federal Mine Safety and Health Review Commission (FMSHRC):
•Contest Proceedings: A contest proceeding may be filed by an operator to challenge the issuance of a citation or order issued by MSHA.
•Civil Penalty Proceedings: A civil penalty proceeding may be filed by an operator to challenge a civil penalty MSHA has proposed for a violation contained in a citation or order. The Partnership does not institute civil penalty proceedings based solely on the assessment amount of proposed penalties. Any initiated adjudications address substantive matters of law and policy instituted on conditions that are alleged to be in violation of mandatory standards of the Mine Act.
•Discrimination Proceedings: Involves a miner’s allegation that he or she has suffered adverse employment action because he or she engaged in activity protected under the Mine Act, such as making a safety complaint. Also includes temporary reinstatement proceedings involving cases in which a miner has filed a complaint with MSHA stating that he or she has suffered discrimination and the miner has lost his or her position.
•Compensation Proceedings: A compensation proceeding may be filed by miners entitled to compensation when a mine is closed by certain closure orders issued by MSHA. The purpose of the proceeding is to determine the amount of compensation, if any, due to miners idled by the orders.
•Temporary Relief: Applications for temporary relief are applications filed under section 105(b)(2) of the Mine Act for temporary relief from any modification or termination of any order.
•Appeals: An appeal may be filed by an operator to challenge judges’ decisions or orders to the Commission, including petitions for discretionary review and review by the Commission on its own motion.


For the Year Ended December 31, 2019:
Mine (1)
  Oakdale, WI
Section 104 citations for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard (#)   
1(2)
Section 104(b) orders (#)     0
Section 104(d) citations and orders (#)     0
Section 110(b)(2) violations (#)     0
Section 107(a) orders (#)     0
Proposed assessments under MSHA (3)
   3403
Mining-related fatalities (#)   0
Section 104(e) notice    No
Notice of the potential for a pattern of violations under Section 104(e)    No
Legal actions before the Federal Mine Safety and Health Review Commission (“FMSHRC”) initiated (#)    2
Legal actions before the FMSHRC resolved (#)    1
Legal actions pending before the FMSHRC, end of period:    
Contests of citations and orders referenced in Subpart B of 29 CFR Part 2700 (#)    0
Contests of proposed penalties referenced in Subpart C of 29 CFR Part 2700 (#)    1
Complaints for compensation referenced in Subpart D of 29 CFR Part 2700 (#)    0
Complaints of discharge, discrimination or interference referenced in Subpart E of 29 CFR Part 2700 (#)    0
Applications for temporary relief referenced in Subpart F of 29 CFR Part 2700 (#)    0
Appeals of judges’ decisions or orders referenced in Subpart H of 29 CFR Part 2700 (#)    0
Total pending legal actions (#)    1
(1) The definition of mine under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools and minerals preparation facilities. Unless otherwise indicated, any of these other items associated with a single mine have been aggregated in the totals for that mine. MSHA assigns an identification number to each mine and may or may not assign separate identification numbers to related facilities such as preparation facilities. We are providing the information in the table by mine rather than MSHA identification number because that is how we manage and operate our mining business and we believe this presentation will be more useful to investors than providing information based on MSHA identification numbers.
(2) 104(a) Citation Nos. 8957962, 9386529 and 9391793 were issued in the three months ending March 31, 2019. In subsequent informal and formal contest of the citations, the three citations were modified from Significant and Substantial (“S&S”) to Non-Significant and Substantial (“Non-S&S”) by the Mine Safety and Health Administration “(MSHA”). The modifications occurred after filing of Exhibit 95.1 for the quarter ending March 31, 2019. For this reason, the Significant & Substantial citation total reported in the Q1 exhibit, four (4) Significant & Substantial citations received at the mine, no longer accurately reflects the total Significant & Substantial citation total received by the mine in 2019.
(3) Represents the total dollar value of the proposed assessment from MSHA under the Mine Act, for the year ended December 31, 2019, for all citations/orders assessed, not just those disclosed in the rows preceding such dollar value.