UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021
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: 001-33767
Lumber Liquidators Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
27-1310817 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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4901 Bakers Mill Lane Richmond, Virginia |
23230 |
(Address of Principal Executive Offices) |
(Zip Code) |
(804) 463-2000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class: |
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Trading Symbol: |
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Name of exchange on which registered: |
Common Stock, par value $0.001 per share |
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LL |
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New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 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 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 ◻ 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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◻ Large accelerated filer |
⌧ Accelerated filer |
◻ Non-accelerated filer |
☐ Smaller reporting company |
☐ Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 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 Exchange Act). ☐ Yes No
As of April 30, 2021, there are 29,025,638 shares of the registrant’s common stock, par value of $0.001 per share, outstanding.
LUMBER LIQUIDATORS HOLDINGS, INC.
Quarterly Report on Form 10-Q
For the quarter ended March 31, 2021
TABLE OF CONTENTS
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Page |
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2 |
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2 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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31 |
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31 |
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31 |
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34 |
1
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Lumber Liquidators Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
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March 31, |
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December 31, |
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2021 |
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2020 |
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Assets |
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Current Assets: |
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Cash and Cash Equivalents |
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$ |
208,864 |
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$ |
169,941 |
Merchandise Inventories |
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225,404 |
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244,409 |
Prepaid Expenses |
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9,661 |
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9,370 |
Tariff Recovery Receivable |
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1,070 |
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4,078 |
Other Current Assets |
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9,348 |
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10,354 |
Total Current Assets |
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454,347 |
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438,152 |
Property and Equipment, net |
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95,679 |
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97,557 |
Operating Lease Right-of-Use Assets |
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111,775 |
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109,475 |
Goodwill |
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9,693 |
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9,693 |
Deferred Tax Asset |
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11,584 |
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11,611 |
Other Assets |
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8,227 |
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7,860 |
Total Assets |
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$ |
691,305 |
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$ |
674,348 |
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Liabilities and Stockholders’ Equity |
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Current Liabilities: |
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Accounts Payable |
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$ |
75,103 |
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$ |
70,543 |
Customer Deposits and Store Credits |
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68,211 |
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61,389 |
Accrued Compensation |
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8,588 |
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15,347 |
Sales and Income Tax Liabilities |
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6,244 |
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5,793 |
Accrual for Legal Matters and Settlements - Current |
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36,594 |
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30,398 |
Operating Lease Liabilities - Current |
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32,005 |
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33,024 |
Other Current Liabilities |
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26,449 |
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25,761 |
Total Current Liabilities |
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253,194 |
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242,255 |
Other Long-Term Liabilities |
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6,825 |
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13,293 |
Operating Lease Liabilities - Long-Term |
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92,162 |
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90,194 |
Credit Agreement |
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101,000 |
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101,000 |
Total Liabilities |
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453,181 |
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446,742 |
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Stockholders’ Equity: |
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Common Stock ($0.001 par value; 35,000 shares authorized; 30,398 and 30,229 shares issued and 29,025 and 28,911 shares outstanding, respectively) |
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30 |
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30 |
Treasury Stock, at cost (1,373 and 1,318 shares, respectively) |
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(144,352) |
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(142,977) |
Additional Capital |
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223,899 |
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222,628 |
Retained Earnings |
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158,547 |
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147,925 |
Total Stockholders’ Equity |
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238,124 |
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227,606 |
Total Liabilities and Stockholders’ Equity |
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$ |
691,305 |
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$ |
674,348 |
See accompanying notes to condensed consolidated financial statements
2
Lumber Liquidators Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Net Sales |
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Net Merchandise Sales |
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$ |
250,043 |
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$ |
238,782 |
Net Services Sales |
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33,407 |
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28,592 |
Total Net Sales |
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283,450 |
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267,374 |
Cost of Sales |
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Cost of Merchandise Sold |
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142,010 |
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140,745 |
Cost of Services Sold |
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25,848 |
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21,657 |
Total Cost of Sales |
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167,858 |
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162,402 |
Gross Profit |
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115,592 |
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104,972 |
Selling, General and Administrative Expenses |
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102,487 |
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96,207 |
Operating Income |
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13,105 |
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8,765 |
Other (Income) Expense |
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(769) |
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883 |
Income Before Income Taxes |
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13,874 |
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7,882 |
Income Tax Expense (Benefit) |
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3,252 |
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(4,353) |
Net Income |
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$ |
10,622 |
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$ |
12,235 |
Net Income per Common Share—Basic |
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$ |
0.37 |
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$ |
0.43 |
Net Income per Common Share—Diluted |
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$ |
0.36 |
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$ |
0.42 |
Weighted Average Common Shares Outstanding: |
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Basic |
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28,943 |
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28,739 |
Diluted |
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29,547 |
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28,853 |
See accompanying notes to condensed consolidated financial statements
3
Lumber Liquidators Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Net Income |
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$ |
10,622 |
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$ |
12,235 |
Other Comprehensive Income: |
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Foreign Currency Translation Adjustments |
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— |
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45 |
Total Other Comprehensive Income |
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— |
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45 |
Comprehensive Income |
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$ |
10,622 |
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$ |
12,280 |
See accompanying notes to condensed consolidated financial statements
4
Lumber Liquidators Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands)
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Total |
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Common Stock |
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Treasury Stock |
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Additional |
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Retained |
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Stockholders' |
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Shares |
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Value |
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Shares |
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Value |
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Capital |
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Earnings |
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AOCL |
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Equity |
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January 1, 2020 |
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28,714 |
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$ |
30 |
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1,245 |
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$ |
(142,314) |
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$ |
218,616 |
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$ |
86,498 |
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$ |
(1,580) |
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$ |
161,250 |
Stock-Based Compensation Expense |
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— |
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— |
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— |
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— |
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120 |
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— |
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— |
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120 |
Release of Restricted Shares |
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98 |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
Common Stock Repurchased |
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— |
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— |
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48 |
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(316) |
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— |
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— |
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— |
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(316) |
Translation Adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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45 |
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45 |
Net Income |
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— |
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— |
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— |
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— |
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— |
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12,235 |
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— |
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12,235 |
March 31, 2020 |
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28,812 |
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$ |
30 |
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1,293 |
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$ |
(142,630) |
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$ |
218,736 |
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$ |
98,733 |
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$ |
(1,535) |
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$ |
173,334 |
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January 1, 2021 |
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28,911 |
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$ |
30 |
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1,318 |
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$ |
(142,977) |
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$ |
222,628 |
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$ |
147,925 |
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$ |
— |
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$ |
227,606 |
Stock-Based Compensation Expense |
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— |
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— |
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— |
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— |
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1,230 |
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— |
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— |
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1,230 |
Exercise of Stock Options |
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3 |
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— |
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— |
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— |
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41 |
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— |
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— |
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41 |
Release of Restricted Shares |
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111 |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
Common Stock Repurchased |
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— |
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— |
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55 |
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(1,375) |
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— |
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— |
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— |
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(1,375) |
Net Income |
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— |
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— |
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— |
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— |
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— |
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10,622 |
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— |
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10,622 |
March 31, 2021 |
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29,025 |
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$ |
30 |
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1,373 |
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$ |
(144,352) |
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$ |
223,899 |
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$ |
158,547 |
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$ |
— |
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$ |
238,124 |
See accompanying notes to condensed consolidated financial statements
5
Lumber Liquidators Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Cash Flows from Operating Activities: |
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Net Income |
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$ |
10,622 |
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$ |
12,235 |
Adjustments to Reconcile Net Income: |
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Depreciation and Amortization |
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4,664 |
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4,493 |
Deferred Income Taxes Provision |
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27 |
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378 |
Income on Vouchers Redeemed for Legal Settlements |
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(503) |
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— |
Stock-Based Compensation Expense |
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1,230 |
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120 |
Provision for Inventory Obsolescence Reserves |
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26 |
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452 |
Gain on Disposal of Fixed Assets |
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(30) |
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(743) |
Changes in Operating Assets and Liabilities: |
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Merchandise Inventories |
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18,002 |
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16,379 |
Accounts Payable |
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6,042 |
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9,055 |
Accrued Compensation |
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(6,759) |
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(1,805) |
Customer Deposits and Store Credits |
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6,822 |
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(3,735) |
Tariff Recovery Receivable |
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3,008 |
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(132) |
Prepaid Expenses and Other Current Assets |
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1,301 |
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1,998 |
Accrual for Legal Matters and Settlements |
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7,698 |
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— |
Payments for Legal Matters and Settlements |
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(23) |
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(5) |
Other Assets and Liabilities |
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(7,632) |
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(2,725) |
Net Cash Provided by Operating Activities |
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44,495 |
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35,965 |
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Cash Flows from Investing Activities: |
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Purchases of Property and Equipment |
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(4,296) |
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(4,480) |
Other Investing Activities |
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58 |
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306 |
Net Cash Used in Investing Activities |
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(4,238) |
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(4,174) |
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Cash Flows from Financing Activities: |
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Borrowings on Credit Agreement |
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— |
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8,000 |
Payments on Credit Agreement |
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— |
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(26,000) |
Common Stock Repurchased |
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(1,375) |
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(316) |
Other Financing Activities |
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41 |
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— |
Net Cash Used in Financing Activities |
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(1,334) |
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(18,316) |
Effect of Exchange Rates on Cash and Cash Equivalents |
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— |
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(44) |
Net Increase in Cash and Cash Equivalents |
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38,923 |
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13,431 |
Cash and Cash Equivalents, Beginning of Period |
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169,941 |
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8,993 |
Cash and Cash Equivalents, End of Period |
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$ |
208,864 |
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$ |
22,424 |
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Supplemental disclosure of non-cash operating activities: |
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Relief of Inventory for Vouchers Redeemed for Legal Settlements |
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$ |
977 |
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$ |
— |
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Supplemental disclosure of non-cash investing activities: |
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Tenant Improvement Allowance for Leases |
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$ |
(585) |
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$ |
(496) |
See accompanying notes to condensed consolidated financial statements
6
Lumber Liquidators Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except per share amounts)
Note 1. Basis of Presentation
Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries (collectively and, where applicable, individually, the “Company”) engage in business as a multi-channel specialty retailer of hard-surface flooring, and hard-surface flooring enhancements and accessories, operating as a single operating segment. The Company offers an extensive assortment of exotic and domestic hardwood species, engineered hardwood, laminate, resilient vinyl, water-resistant vinyl plank and porcelain tile flooring direct to the consumer. The Company features renewable flooring products, bamboo and cork, and provides a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlayment, adhesives and flooring tools. The Company also provides in-home delivery and installation services to its customers. The Company primarily sells to homeowners or to contractors on behalf of homeowners through a network of store locations in metropolitan areas. As of March 31, 2021, the Company’s stores spanned 47 states in the United States (“U.S.”). In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both its customer relationship center in Richmond, Virginia and its digital platform, LLFlooring.com.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal and recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. However, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2020.
The condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Results of operations for the three months ended March 31, 2021 are not necessarily indicative of future results to be expected for the full year due to a number of factors, including seasonality, tariffs, supply chain, and general economic conditions, as well as the uncertainty and ongoing impact of the COVID-19 pandemic that may impact sales for the remainder of fiscal 2021.
Note 2. Summary of Significant Accounting Policies
Fair Value of Financial Instruments
The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximates fair value because of the short-term nature of these items. The fair value of the Company’s long-term debt was approximately $106 million at March 31, 2021 assuming the current debt levels remain outstanding until maturity. The Company estimates the fair value of its long-term debt using Level 3 inputs which are based upon the current interest rates available to the Company for debt of similar terms and maturities. The carrying amount of obligations under its Credit Agreement approximates fair value due to the variable rate of interest as March 31, 2020.
Merchandise Inventories
The Company values merchandise inventories at the lower of cost or net realizable value. The method by which amounts are removed from inventory is weighted average cost. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form. The Company relies on a select group of international and domestic suppliers to provide imported flooring products that meet the Company’s specifications. The Company is
7
subject to risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, supply chain, delivery or processing, including due to the COVID-19 pandemic. The Company continues to execute contingency plans to minimize anticipated and potential disruptions to supply chain, domestic distribution centers and store operations.
Included in merchandise inventories are tariff-related costs, including Section 301 tariffs on certain products imported from China in recent years. A subset of these imports for certain click vinyl and other engineered products (the “Subset Products”) received an exemption that was made retroactive to the beginning of the Section 301 Tariffs for a period of time. The Company has deployed strategies to mitigate tariffs and improve gross margin, primarily through adjusting its pricing and promotion strategies and alternative country sourcing. The Company continues to monitor market pricing and promotional strategies to inform and guide its decisions. The following chart provides a timeline and tariff levels for the key events related to Section 301 Tariffs.
1 | On November 7, 2019, the U.S. Trade Representative granted a retroactive exclusion to September 2018 on Subset Products as defined in the Section 301 Tariffs section above bringing the rate to 0%. |
As of March 31, 2021, the Company has a $1.1 million receivable related to the retroactive exclusion tariffs in the caption “Tariff Recovery Receivable” on the condensed consolidated balance sheets and expects to receive the remaining payments during 2021.
Recognition of Net Sales
The Company generates revenues primarily by retailing merchandise in the form of hard-surface and porcelain flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install this merchandise for its customers; it considers these services to be separate performance obligations. The separate performance obligations are detailed on the customer’s invoice(s) and the customer often purchases flooring merchandise without purchasing installation or delivery services. Sales occur through a network of 412 stores, which spanned 47 states in the U.S. at March 31, 2021. In addition, both the merchandise and services can be ordered through a call center and from the Company’s digital platform, LLFlooring.com. The Company’s agreements with its customers are of short duration (less than a year) and as such the Company has elected not to disclose revenue for partially satisfied contracts that will be completed in the days following the end of a period as permitted by GAAP. The Company reports its revenues exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, consistent with past practice.
Revenue is based on consideration specified in a contract with a customer and excludes any sales incentives from vendors and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer or performing services for a customer. Revenues from installation and freight services are recognized when the delivery is made or the installation is complete, which approximates the recognition of revenue over time due to the short duration of service provided. The price of the Company’s merchandise and services is specified in the respective contract and detailed on the invoice agreed to with the customer including any discounts. The Company generally requires customers to pay a deposit, equal to
8
approximately half of the retail sales value, when ordering merchandise not regularly carried in a given location or not currently in stock. In addition, the Company generally does not extend credit to its customers with payment due in full at the time the customer takes possession of merchandise or when the service is provided. Customer payments and deposits received in advance of the customer taking possession of the merchandise or receiving the services are recorded as deferred revenues in the accompanying condensed consolidated balance sheet caption “Customer Deposits and Store Credits.”
The following table shows the activity in this account for the periods noted:
Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days, subject to the discretion of the store manager. The amount of revenue recognized for flooring merchandise is adjusted for expected returns, which are estimated based on the Company’s historical data, current sales levels, and forecasted economic trends. The Company uses the expected value method to estimate returns because it has a large number of contracts with similar characteristics. The Company reduces revenue by the amount of expected returns and records it within “Other Current Liabilities” on the condensed consolidated balance sheet. The Company continues to estimate the amount of returns based on historical data. In addition, the Company recognizes a related asset for the right to recover returned merchandise and records it in the “Other Current Assets” caption of the accompanying condensed consolidated balance sheet. This amount was $1.3 million at March 31, 2021. The Company recognizes sales commissions as incurred since the amortization period is less than one year.
In total, the Company offers hundreds of different flooring products; however, no single flooring product represented a significant portion of its sales mix. By major product category, the Company’s sales mix was as follows:
1 Includes engineered vinyl plank, laminate, vinyl and porcelain tile.
Cost of Sales
Cost of sales includes the cost of products sold, including tariffs, the cost of installation services, and transportation costs from vendors to the Company’s distribution centers or store locations. It also includes any applicable finishing costs related to production of the Company’s proprietary brands, transportation costs from distribution centers to store locations, transportation costs for the delivery of products from store locations to customers, certain costs of quality control procedures, warranty and customer satisfaction costs, inventory adjustments including obsolescence and shrinkage, and costs to produce samples, which are net of vendor allowances.
The Company offers a range of limited warranties for the durability of the finish on its prefinished products to its services provided. These limited warranties range from one to 100 years, with lifetime warranties for certain of the Company’s products. Warranty reserves are based primarily on claims experience, sales history and other considerations,
9
including payments made to satisfy customers for claims not directly related to the warranty on the Company’s products. Warranty costs are recorded in cost of sales. This warranty reserve was $1.1 million at March 31, 2021. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.
Vendor allowances primarily consist of volume rebates and are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold. Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales.
Note 3. Stockholders’ Equity
Net Income per Common Share
The following table sets forth the computation of basic and diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
||||
|
|
2021 |
|
2020 |
||
Net Income |
|
$ |
10,622 |
|
$ |
12,235 |
Weighted Average Common Shares Outstanding—Basic |
|
|
28,943 |
|
|
28,739 |
Effect of Dilutive Securities: |
|
|
|
|
|
|
Common Stock Equivalents |
|
|
604 |
|
|
114 |
Weighted Average Common Shares Outstanding—Diluted |
|
|
29,547 |
|
|
28,853 |
Net Income per Common Share—Basic |
|
$ |
0.37 |
|
$ |
0.43 |
Net Income per Common Share—Diluted |
|
$ |
0.36 |
|
$ |
0.42 |
The following shares have been excluded from the computation of Weighted Average Common Shares Outstanding—Diluted because the effect would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
||
|
|
2021 |
|
2020 |
Stock Options |
|
111 |
|
676 |
Restricted Shares |
|
109 |
|
277 |
Note 4. Stock-based Compensation
The following table summarizes share activity related to stock options and restricted stock awards (“RSAs”):
|
|
|
|
|
|
|
|
|
Restricted Stock |
|
|
Stock Options |
|
Awards |
Options Outstanding/Nonvested RSAs, December 31, 2020 |
|
554 |
|
872 |
Granted |
|
105 |
|
233 |
Options Exercised/RSAs Released |
|
(3) |
|
(166) |
Forfeited |
|
(1) |
|
(8) |
Options Outstanding/Nonvested RSAs, March 31, 2021 |
|
655 |
|
931 |
The Company granted a target of 47,768 performance-based RSAs with a grant date fair value of $1.1 million during the three months ended March 31, 2021 and a target of 67,091 performance-based RSAs with a grant date fair value of $0.7 million during the three months ended March 31, 2020. The 2021 performance-based RSAs were awarded
10
to certain members of senior management in connection with the achievement of specific key financial metrics that will be measured over a three-year period and which will vest at the end of the three-year period if the performance conditions are met. The number of 2021 performance-based awards that will ultimately vest is contingent upon the achievement of these key financial metrics by the end of year three. The 2020 performance-based RSAs were awarded to certain members of senior management in connection with the achievement of specific key financial metrics and a relative total shareholder return multiple measured over a three-year period and also vest at the end of a three-year period if the performance conditions are met. The number of 2020 performance-based awards that will ultimately vest is contingent upon the achievement of these key financial metrics and the results of the relative total shareholder return multiple by the end of year three. The Company assesses the probability of achieving these metrics on a quarterly basis. For these awards, the Company recognizes the fair value expense ratably over the performance and vesting period. These awards are included above in RSAs Granted.
Note 5. Credit Agreement
The Company has a credit agreement (the “Credit Agreement”) with Bank of America, N.A. and Wells Fargo Bank, N.A. (the “Lenders”). Under the Credit Agreement, the maximum amount of borrowings under the revolving credit facility (the “Revolving Credit Facility”) was $175 million and there is a first in-last out $25 million term loan (the “FILO Term Loan”) for a total of $200 million, subject to the borrowing bases described below. The Company also has the option to increase the Revolving Credit Facility to a maximum total amount of $225 million, subject to the satisfaction of the conditions to such increase as specified in the Credit Agreement.
As of March 31, 2021, a total of $76 million was outstanding under the Revolving Credit Facility and $25 million was outstanding under the FILO Term Loan. The Company also had $4 million in letters of credit which reduces its remaining availability. As of March 31, 2021, there was $31 million of availability under the Revolving Credit Facility.
The Revolving Credit Facility and the FILO Term Loan are secured by security interests in the Collateral (as defined in the Credit Agreement), which includes substantially all assets of the Company including, among other things, the Company’s inventory and credit card receivables, and the Company’s East Coast distribution center located in Sandston, Virginia. Under the terms of the Credit Agreement, the Company has the ability to release the East Coast distribution center from the Collateral under certain conditions.
Prior to the Second Amendment discussed below, interest on LIBOR Rate loans (as defined in the First Amendment) and fees for standby letters of credit were charged at varying per annum rates computed by applying a margin ranging from (i) 2.5% to 3% over the applicable LIBOR Rate with respect to revolving loans (as defined in the First Amendment) and (ii) 3.75% to 4.5% over the applicable LIBOR Rate with respect to the FILO Term Loan, in each case depending on the Company’s’ average daily excess borrowing availability. Also the unused commitment fee was 0.50% per annum on the average daily unused amount of the Revolving Credit Facility during the most recently completed calendar quarter. As of March 31, 2021, the Company’s Revolving Credit Facility carried an average interest rate of 4.0% and the FILO Term Loan carried an interest rate of 5.5%.
Prior to the Second Amendment discussed below, the Revolving Credit Facility was available to the Company up to the lesser of (1) $175 million or (2) a revolving borrowing base equal to the sum of specified percentages of the Company’s eligible inventory (including eligible in-transit inventory), eligible credit card receivables, and eligible owned real estate, less certain reserves, all of which are defined by the terms of the Credit Agreement (the “Revolving Borrowing Base”). If the outstanding FILO Term Loan exceeds the FILO Borrowing Base (as defined in the Credit Agreement), the amount of such excess reduces availability under the Revolving Borrowing Base. The Company retained an option to increase the Revolving Credit Facility to a maximum total amount of $225 million, subject to the satisfaction of the conditions to such increase as specified in the Credit Agreement.
The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective only when specified availability under the Revolving Credit Facility falls below the greater of $17.5 million or 10% of the Combined Loan Cap (as defined in the Credit Agreement).
11
On April 30, 2021, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”) with the Lenders. The execution of the Second Amendment, among other things, terminated the FILO Term Loans and converted those commitments to the Revolving Credit Facility. The total size of the Credit Agreement remained at $200 million, and the Company has an option to the increase the Revolving Credit Facility to a maximum total amount of $250 million. The maturity date of the Credit Agreement was extended to April 30, 2026.
The Second Amendment decreased the margin for LIBOR Rate Loans (as defined in the Second Amendment) to a range of 1.25% to 1.75% over the applicable LIBOR Rate with respect to revolving loans (as defined in the Second Amendment) depending on the Company’s’ average daily excess borrowing availability. As previously stated, the FILO Term Loans were terminated by this Second Amendment. The amendment decreased the LIBOR Rate Floor from 1% to 0.25%. The Second Amendment also decreased the unused commitment fee of 0.50% per annum to 0.25% per annum on the average daily unused amount of the Revolving Credit Facility during the most recently completed calendar quarter.
Except as set forth in the Second Amendment, all other terms and conditions of the Credit Agreement remain in place.
Note 6. Income Taxes
The Company calculates its quarterly tax provision pursuant to the guidelines in Accounting Standards Codification ("ASC") 740-270 "Income Taxes." Generally, ASC 740-270 requires companies to estimate the annual effective tax rate for current year ordinary income. The estimated annual effective tax rate represents the best estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision. This process was employed in 2021. Due to disruption related to the COVID-19 pandemic in 2020, the Company applied the actual year-to-date effective tax rate for the first quarter tax provision in 2020.
For the three months ended March 31, 2021, the Company recognized income tax expense of $3.3 million, which represented an effective tax rate of 23.4%. For the three months ended March 31, 2020, the Company recognized an income tax benefit of $4.4 million, which represented an effective tax rate of (55.2)%. The large benefit in the Company’s first-quarter 2020 tax rate reflected the March 27, 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which allowed the Company to carryback certain losses to prior periods and deduct certain capital expenditures from prior periods more quickly giving rise to a $4.7 million Federal tax benefit in the period.
The Company has a valuation allowance recorded against certain of its net deferred tax assets of $5.6 million as of March 31, 2021 because the jurisdiction and nature of the assets makes realization of these deferred tax assets uncertain. The Company intends to maintain this valuation allowance on its deferred tax assets until there is sufficient evidence to support the realizability of those deferred tax assets or time lapses without opportunity to realize those assets.
12
Note 7. Commitments and Contingencies
The following chart shows the activity related to the Balance Sheet “Accrual for Legal Matters and Settlements-Current”. The matters themselves are described in greater detail in the paragraphs that follow the chart.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2021 |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021 |
|
Litigation Matter |
|
|
Accrual for Legal Matters |
|
|
|
|
|
|
|
|
|
|
|
Accrual for Legal Matters |
|
Description |
|
|
and Settlements - Current |
|
|
Accruals |
|
|
Settlement Payments |
|
|
Vouchers Redeemed |
|
|
and Settlements - Current |
|
MDL |
|
$ |
14,000 |
|
$ |
— |
|
$ |
— |
|
$ |
(1,479) |
|
$ |
12,521 |
1 |
Gold |
|
|
16,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
16,000 |
1 |
Mason |
|
|
— |
|
|
7,000 |
|
|
— |
|
|
— |
|
|
7,000 |
|
Other Matters |
|
|
398 |
|
|
698 |
|
|
(23) |
|
|
— |
|
|
1,073 |
|
|
|
$ |
30,398 |
|
$ |
7,698 |
|
$ |
(23) |
|
$ |
(1,479) |
|
$ |
36,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020 |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 |
|
Litigation Matter |
|
|
Accrual for Legal Matters |
|
|
|
|
|
|
|
|
|
|
|
Accrual for Legal Matters |
|
Description |
|
|
and Settlements - Current |
|
|
Accruals |
|
|
Settlement Payments |
|
|
Vouchers Redeemed |
|
|
and Settlements - Current |
|
MDL |
|
$ |
35,500 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
35,500 |
|
Gold |
|
|
27,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
27,000 |
|
Kramer |
|
|
4,750 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,750 |
|
Other Matters |
|
|
221 |
|
|
— |
|
|
(5) |
|
|
— |
|
|
216 |
|
|
|
$ |
67,471 |
|
$ |
— |
|
$ |
(5) |
|
$ |
— |
|
$ |
67,466 |
|
1 | The remaining accrual will be fulfilled by redeeming vouchers as discussed below. |
Employment Cases
Mason Lawsuit
In August 2017, Ashleigh Mason, Dan Morse, Ryan Carroll and Osagie Ehigie filed a purported class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all current and former store managers, store managers in training, and similarly situated current and former employees (collectively, the “Mason Putative Class Employees”) alleging that the Company violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the Mason Putative Class Employees as exempt. The alleged violations include failure to pay for overtime work. The plaintiffs sought certification of the Mason Putative Class Employees for (i) a collective action covering the period beginning three years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for the Mason Putative Class Employees nationwide in connection with FLSA and (ii) a class action covering the period beginning six years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for members of the Mason Putative Class Employees who currently are or were employed in New York in connection with NYLL. The plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the plaintiffs seek class certification, unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.
In November 2018, the plaintiffs filed a motion requesting conditional certification for all store managers and store managers in training who worked within the federal statute of limitations period. In May 2019, the magistrate
13
judge granted plaintiffs’ motion for conditional certification. On January 6, 2021, the magistrate judge ruled in favor of a motion by the Company to exclude from the Mason Putative Class the claims of 55 opt-in plaintiffs who participated in a prior California state class-action settlement that released all claims arising from the same facts on which the Mason matter is based.
In April 2021, the Company entered into a Memorandum of Understanding (“Mason MOU”) with counsel for the lead plaintiffs in the Mason matter. Under the terms of the Mason MOU, the Company will pay up to $7 million to settle the claims asserted in the Mason matter on behalf of all Mason Putative Class Employees who (i) opted-in to the collective action (“Collective Members”) and (ii) are currently or were employed in New York and did not previously file an opt-in notice to participate in the collective action (the “New York Non Opt-Ins”). The New York Non Opt-Ins will have an opportunity to file an opt-in notice to participate in the settlement. To the extent that a New York Non Opt-In does not subsequently file such a notice, then the amount apportioned to that claim shall revert to the Company. In addition, any checks issued to the Collective Members and the New York Non Opt-Ins which are not cashed within one hundred eighty days will revert to the Company. The Mason MOU is subject to certain contingencies, including the execution of a definitive settlement agreement and court approval of the definitive settlement agreement. There can be no assurance that a settlement will be finalized and approved or as to the ultimate outcome of the litigation. If a final, court approved settlement is not reached, the Company will defend the matter vigorously and believes there are meritorious defenses and legal standards that must be met for success on the merits. If the parties are unable to finalize the settlement, the Mason matter could have a material adverse effect on the Company’s financial condition and results of operations. As a result of these developments, the Company determined that a probable loss has been incurred and has accrued within SG&A a $7 million liability during the quarter ended March 31, 2021.
Savidis Lawsuit
On April 9, 2020, Lumber Liquidators was served with a lawsuit filed by Tanya Savidis, on behalf of herself and all others similarly situated (collectively, the “Savidis Plaintiffs”). Ms. Savidis filed a purported class action lawsuit in the Superior Court of California, County of Alameda on March 6, 2020, on behalf of all current and former Lumber Liquidators employees employed as non-exempt employees. The complaint alleges violation of the California Labor Code including, among other items, failure to pay minimum wages and overtime wages, failure to provide meal periods, failure to permit rest breaks, failure to reimburse business expenses, failure to provide accurate wage statements, failure to pay all wages due upon separation within the required time, and engaging in unfair business practices (the “Savidis matter”). On or about May 22, 2020, the Savidis Plaintiffs provided notice to the California Department of Industrial Relations requesting they be permitted to seek penalties under the California Private Attorney General Act for the same substantive alleged violations asserted in the Complaint. The Savidis Plaintiffs seek certification of a class action covering the prior four-year period prior to the filing of the complaint to the date of class certification (the “California Employee Class”), as well as a subclass of class members who separated their employment within three years of the filing of the suit to the date of class certification (the “Waiting Time Subclass”). The Savidis Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, seek statutory penalties, unspecified amounts for unpaid wages, benefits, and penalties, interest, and other damages.
In December 2020, the Company began contacting individuals who constitute the Savidis Plaintiffs and offered individual settlements in satisfaction of their claims. In April 2021, the Company entered into a Memorandum of Understanding (“Savidis MOU”) with counsel for the lead plaintiffs in the Savidis matter. Under the terms of the Savidis MOU, the Company will pay $0.9 million reduced by a credit of $0.1 million for amounts already paid to the individuals who accepted the Company’s prior settlement offer. The Company accrued an additional $675 thousand related to this matter on the March 31, 2021 condensed consolidated balance sheets. The Savidis MOU is subject to certain contingencies, including the execution of a definitive settlement agreement and court approval of the definitive settlement agreement. There can be no assurance that a settlement will be finalized or approved or as to the ultimate outcome of the litigation. If a final, court approved settlement is not reached, the Company will defend the matter vigorously and believes there are meritorious defenses and legal standards that must be met for success on the merits. If the parties are unable to finalize the settlement, the Savidis matter could have a material adverse effect on the Company’s financial condition and results of operations.
14
Visnack Lawsuit
On June 29, 2020, Michael Visnack, on behalf of himself and all others similarly situated (collectively, the “Visnack Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of San Diego, on behalf of all current and former store managers, and others similarly situated. The Complaint alleges violation of the California Labor Code including, among other items, failure to pay wages and overtime, wage statement violations, meal and rest break violations, unpaid reimbursements and waiting time, and engaging in unfair business practices (the “Visnack matter”). The Visnack Plaintiffs seek certification of a class period beginning September 20, 2019, through the date of Notice of Class Certification, if granted. The Visnack Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, they seek unspecified amounts for each of the causes of action such as unpaid wages and overtime wages, failure to provide meal periods and rest breaks, payroll record and wage statement violations, failure to reimburse expenses and waiting time, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.
On December 14, 2020, the court ruled in favor of a motion by the Company to compel arbitration for Michael Visnack under the existing agreement between the Company and Mr. Visnack. The court declined to outright dismiss the putative class claims but stayed the putative class claims and Private Attorneys General Act claims pending arbitration. The court denied plaintiff’s request to conduct discovery. In the first quarter of 2021, the Company received notice that Mr. Visnack has filed an arbitration claim, which the Company intends to defend. Mr. Visnack is a Collective Member of the Mason Putative Class and will have the opportunity to decide whether to participate in the Mason settlement and release his claims against the Company, in which case he would be removed as the lead Plaintiff in the Visnack matter. In December 2020, the Company began contacting individuals who constitute the purported class in the Visnack matter and has offered individual settlements in satisfaction of their claims. To the extent individuals accepted these settlement offers, they have released the Company from the claims and been removed from the purported class. As of March 31, 2021, the Company had reached agreement with a portion of the purported class incurring less than $50 thousand in fees, taxes, and other costs. The Company included those amounts in “Other Matters” in the chart above.
The Company is evaluating the Visnack Putative Class Employees' claims and intends to defend itself vigorously in this matter. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.
Kramer lawsuit
In November 2017, Robert J. Kramer, on behalf of himself and all others similarly situated (collectively, the “Kramer Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of Sacramento on behalf of all current and former store managers, all others with similar job functions and/or titles and all current and former employees classified as non-exempt or incorrectly classified as exempt and who worked for the Company in the State of California alleging violation of the California Labor Code including, among other items, failure to pay wages and overtime and engaging in unfair business practices (the “Kramer matter”). The Company reached settlement for this matter for $4.75 million in the third quarter of 2019 and paid that amount to the settlement administrator in the second quarter of 2020 for distribution to class members.
Antidumping and Countervailing Duties Investigation
In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring (“Petitioners”) filed a petition seeking the imposition of antidumping (“AD”) and countervailing duties (“CVD”) with the United States Department of Commerce (“DOC”) and the United States International Trade Commission (“ITC”) against imports of multilayered wood flooring from China. This ruling applies to companies importing multilayered wood flooring from Chinese suppliers subject to the AD and CVD orders. The Company’s multilayered wood flooring imports from China accounted for approximately 4% and 6% of its flooring purchases in 2020 and 2019, respectively. The Company’s
15
consistent view through the course of this matter has been, and remains, that its imports are neither dumped nor subsidized. As such, it has appealed the original imposition of AD and CVD fees.
As part of its processes in these proceedings, the DOC conducts annual reviews of the AD and CVD rates. In such cases, the DOC will issue preliminary rates that are not binding and are subject to comment by interested parties. After consideration of the comments received, the DOC will issue final rates for the applicable period, which may lag by a year or more. At the time of import, the Company makes deposits at the then prevailing rate, even while the annual review is in process. When rates are declared final by the DOC, the Company accrues a receivable or payable depending on where that final rate compares to the deposits it has made. The Company and/or the domestic manufacturers can appeal the final rate for any period and can place a hold on final settlement by U.S. Customs and Border Protection while the appeals are pending.
In addition to its overall appeal of the imposition of AD and CVD, which is still pending, the Company as well as other involved parties have appealed many of the final rate determinations. Certain of those appeals are pending and, at times, have resulted in delays in settling the shortfalls and refunds shown in the table below. Because of the length of time for finalization of rates as well as appeals, any subsequent adjustment of AD and CVD rates typically flows through a period different from those in which the inventory was originally purchased and/or sold.
Results by period for the Company are shown below. The column labeled ‘March 31, 2021 Receivable/Liability Balance’ represents the amount the Company would receive or pay (net of any collections or payments) as the result of subsequent adjustment to rates whether due to finalization by the DOC or because of action of a court based on appeals by various parties. It does not include any initial amounts paid for AD or CVD in the current period at the in-effect rate at that time.
The Company recorded net interest income related to antidumping of $1.8 million for the three months ended March 31, 2021, with the amount included in other expense on the condensed consolidated statements of operations. The estimated associated interest payable and receivable for each period is not included in the table below but is included in the same financial statement line item on the Company’s condensed consolidated balance sheet as the associated liability and receivable balance for each period.
16
17
1 | In the second quarter of 2018, the Court of International Trade (“CIT”) sustained the DOC’s recommendation to reduce the rate for the first annual review period to 0.73% (from 5.92%). As a result, the Company reversed its $0.8 million liability and recorded a $1.3 million receivable with a corresponding reduction of cost of sales during the year ended December 31, 2018. |
2 | In the second quarter of 2020, the CIT received a recommendation from the DOC to reduce the rate for the second annual review period to 3.92% (from 13.74%). The recommendation was accepted by the CIT in the fourth quarter of 2020, and the Company reversed $3.9 million of its $4.1 million liability, with a corresponding reduction of cost of sales. |
3 | In the third quarter of 2020, the CIT received a recommendation from the DOC to reduce the rate for the third annual review period to 0.0% from 17.37%. The recommendation was accepted by the CIT in the first quarter of 2021, and the Company reversed the entire $4.7 million liability, with a corresponding reduction of cost of sales, and recorded a $1.8 million receivable and favorable adjustment to cost of sales for deposits made at previous preliminary rates. |
4 | In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 42.57% and 0% depending on the vendor. As a result, the Company recorded a liability of $0.8 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. The Company received payments during 2019 for its vendor with a final rate of 0% and the remaining balance of $0.5 million as of March 31, 2021 was included in other current assets on the condensed consolidated balance sheet. The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of March 31, 2021 was included in other long-term liabilities on the condensed consolidated balance sheet. |
5 | In the first quarter of 2020, the DOC issued a preliminary rate of 0.0% for the seventh annual review period. |
6 | In the second quarter of 2018, the DOC issued the final rates for the fifth annual review period at 0.11% and 0.85% depending on the vendor. As a result, in the second quarter of 2018, the Company recorded a receivable of $0.07 million for deposits made at previous preliminary rates, with a corresponding reduction of cost of sales. |
7 | In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 3.1% and 2.96% depending on the vendor. As a result, the Company recorded a liability of $0.4 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. The remaining balance, after payments, was approximately $40 thousand as of March 31, 2021. |
8 | In the fourth quarter of 2020, the DOC issued the final rate 20.75% for the seventh annual review period. As a result, the Company recorded a liability of $1.7 million with a corresponding increase to cost of sales during the year ended December 31, 2020. The Company has appealed this final rate during the first quarter of 2021. |
Litigation Relating to Bamboo Flooring
Dana Gold filed a purported class action lawsuit in the United States District Court for the Northern District of California alleging that the Morning Star bamboo flooring that the Company sells was defective (the “Gold Litigation”). In the third quarter of 2019, the parties finalized a settlement agreement that is consistent with the terms of the Memorandum of Understanding previously disclosed by the Company, to resolve the Gold Litigation on a nationwide basis. Under the terms of the settlement agreement, the Company contributed $14 million in cash (the “Gold Cash Payment”) and provided $16 million in store-credit vouchers, for an aggregate settlement of up to $30 million. The settlement agreement made clear that the settlement does not constitute or include an admission by the Company of any fault or liability and the Company does not admit any fault, wrongdoing or liability. Following the preliminary approval, and pursuant to the terms of the settlement agreement, in December 2019, the Company paid $1 million for settlement administrative costs, which is part of the Gold Cash Payment, to the plaintiff’s settlement escrow account. Notice has been disseminated to class members by the settlement administrator, and final approval was granted by the court on October 22, 2020. The Company has notified its insurance carriers and continues to pursue coverage, but the insurers to date have denied coverage. As the insurance claim is still pending, the Company has not recognized any insurance recovery related to the Gold Litigation.
The Company recognized a charge to earnings of $28 million within selling, general and administrative expense during the fourth quarter of 2018 as its loss became probable and estimable. During the third quarter of 2020, the Company recognized an additional charge to earnings for in-store vouchers of $2 million within selling, general and administrative expense as the Company became aware that a threshold in the settlement agreement was met. The Company paid the remaining $13 million of the Gold Cash Payment in the fourth quarter of 2020. As of March 31, 2021, the remaining accrual related to these matters was $16 million for vouchers, which has been included in the caption “Accrual for Legal Matters and Settlements Current” on its consolidated balance sheet. Based on a current court order, the vouchers are expected to be issued late in the second quarter of 2021.
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In addition, there are a number of individual claims and lawsuits alleging damages involving Strand Bamboo Product (the “Bamboo Flooring Litigation”). While the Company believes that a loss associated with the Bamboo Flooring Litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. The Company disputes the claims in the Bamboo Flooring Litigation and intends to defend such matters vigorously.
Litigation Related to Formaldehyde-Abrasion MDLs
Beginning in 2015, numerous purported class action cases were filed in various United States federal district courts and state courts involving claims of excessive formaldehyde emissions and product claims about durability and abrasion from the Company’s Chinese-manufactured laminate flooring products. The United States Judicial Panel on Multidistrict Litigation transferred and consolidated the federal cases to the United States District Court for the Eastern District of Virginia (the “Virginia Court”) as two cases: Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales, Practices and Products Liability Litigation (the “Formaldehyde MDL”) and Lumber Liquidators Chinese-Manufactured Laminate Flooring Durability Marketing and Sales Practices Litigation (the “Abrasion MDL”).
In 2018, the Company entered into a settlement agreement to jointly settle the Formaldehyde MDL and the Abrasion MDL. Under the terms of the settlement agreement, the Company agreed to fund $22 million (the “MDL Cash Payment”) and provide $14 million in store-credit vouchers for an aggregate settlement amount of $36 million to settle claims brought on behalf of purchasers of Chinese-manufactured laminate flooring sold by the Company between January 1, 2009 and May 31, 2015. The Court approved the settlement in the fourth quarter of, 2018 and the Company paid $21.5 million in cash into the plaintiffs’ settlement escrow account.
Cash and vouchers, which generally have a three-year life, were distributed by the administrator in the fourth quarter of 2020 upon order of the Virginia Court. The Company will monitor and evaluate the redemption of vouchers on a quarterly basis. In order to reach an estimate, the Company will consider redemption velocity and patterns, remaining value – both on individual vouchers as well as collectively – of vouchers, and the passage of time. The Company will also consider consumer behaviors across both the MDL and Gold Settlements. The Company’s current expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended.
The $36 million aggregate settlement amount was accrued in 2017. The Company had held $21.5 million of the Settlement as a deposit pending the appeals and the distribution of cash by the administrator, which occurred in the fourth quarter of 2020. As of March 31, 2021, the remaining accrual related to these matters was $12.5 million for vouchers, which has been included in the caption “Accrual for Legal Matters and Settlements – Current” on its condensed consolidated balance sheet. As $1.5 million of vouchers were redeemed during the first quarter of 2021, the Company relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of $0.5 million was recorded as a reduction in “Selling, General and administrative Expenses” (“SG&A”) on the condensed consolidated statement of operations.
In addition to those purchasers who elected to opt out of the above settlement (the “Opt Outs”), there are a number of individual claims and lawsuits alleging personal injuries, breach of warranty claims or violation of state consumer protection statutes that remain pending (collectively, the “Related Laminate Matters”). Certain of these Related Laminate Matters were settled in 2019. The Company did not have any expense for these matters for the three months ended March 31, 2021, or for the three months ended March 31, 2020. As of March 31, 2021 and 2020, the remaining accrual related to these matters was $0.1 million, which has been included in the caption “Accrual for Legal Matters and Settlements Current” on the condensed consolidated balance sheet. While the Company believes that a further loss associated with the Opt Outs and Related Laminate Matters is possible, the Company is unable to reasonably estimate the amount or range of possible loss beyond what has been provided. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.
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Canadian Litigation
On or about April 1, 2015, Sarah Steele (“Steele”) filed a purported class action lawsuit in the Ontario, Canada Superior Court of Justice against the Company. In the complaint, Steele’s allegations include strict liability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, fraud by concealment, civil negligence, negligent misrepresentation and breach of implied covenant of good faith and fair dealing relating to the Company’s Chinese-manufactured laminate flooring products. Steele did not quantify any alleged damages in her complaint, but seeks compensatory damages, punitive, exemplary and aggravated damages, statutory remedies, attorneys’ fees and costs. While the Company believes that a further loss associated with the Steele litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss.
Section 301 Tariffs
Since September 2018, pursuant to Section 301 of the Trade Act of 1974, the United States Trade Representative (“USTR”) has imposed tariffs on certain goods imported from China over four tranches or Lists. Products imported by the Company fall within Lists 3 and 4 for which tariffs range from 10% to 25%. On September 10, 2020 several importers of vinyl flooring filed a lawsuit with the CIT challenging the Section 301 tariffs under Lists 3 and 4. The Company has also filed a companion case at the CIT challenging Section 301 tariffs it has paid. The action is in its early stages and the Company is unable to predict the timing or outcome of the ruling by the CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs.
Other Matters
The Company is also, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, its ultimate liability in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements
This report includes statements of the Company’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements. These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. These risks include, without limitation, the impact on us of any of the following:
● | an overall decline in the health of the economy, the hard-surface flooring industry, the housing market and overall consumer spending, including the effects of the COVID-19 pandemic; |
● | impact on sales, ability to obtain and distribute products, and employee safety and retention, including the effects of the COVID-19 pandemic and roll-out of vaccine; |
● | having sufficient inventory for consumer demand; |
● | the outcomes of legal proceedings, and the related impact on liquidity; |
● | reputational harm; |
● | obtaining products from abroad, including the effects of the COVID-19 pandemic and tariffs, delays in shipping, the recent blockage of freight through the Suez Canal as well as the effects of antidumping and countervailing duties; |
● | obligations under various settlement agreements and other compliance matters; |
● | disruptions due to cybersecurity threats, including any impacts from a network security incident; |
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● | inability to open new stores, find suitable locations for our new store concept, and fund other capital expenditures; |
● | inability to execute on our key initiatives or such key initiatives do not yield desired results; |
● | managing growth; |
● | transportation availability and costs; |
● | damage to our assets; |
● | disruption in our ability to distribute our products, including due to disruptions from the impacts of severe weather; |
● | operating an office in China; |
● | managing third-party installers and product delivery companies; |
● | renewing store, warehouse, or other corporate leases; |
● | having sufficient suppliers; |
● | our, and our suppliers’, compliance with complex and evolving rules, regulations, and laws at the federal, state, and local level; |
● | product liability claims, marketing substantiation claims, wage and hour claims, and other labor and employment claims; |
● | availability of suitable hardwood, including due to disruptions from the impacts of severe weather; |
● | sufficient insurance coverage, including cybersecurity insurance; |
● | access to and costs of capital; |
● | the handling of confidential customer information, including the impacts from the California Consumer Privacy Act and other applicable data privacy laws and regulations; |
● | management information systems disruptions; |
● | alternative e-commerce offerings; |
● | our advertising and overall marketing strategy, including anticipating consumer trends; |
● | competition; |
● | impact of changes in accounting guidance, including implementation guidelines and interpretations; |
● | internal controls; |
● | stock price volatility; and |
● | anti-takeover provisions. |
Information regarding risks and uncertainties is contained in the Company’s reports filed with the SEC, including the Item 1A, “Risk Factors,” section of this quarterly report and the Form 10-K for the year ended December 31, 2020.
This management discussion should be read in conjunction with the financial statements and notes included in Part I, Item 1. “Financial Statements” of this quarterly report and the audited financial statements and notes and management discussion included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2020.
Overview
Lumber Liquidators is one of North America's leading specialty retailers of hard-surface flooring with 412 stores as of March 31, 2021. Our Company seeks to offer the best customer experience online and in stores, with more than 400 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. Our online tools also help empower customers to find the right solution for the space they’ve envisioned. Our extensive selection includes vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile, and cork, with a wide range of flooring enhancements and accessories to complement. Our stores are staffed with flooring experts who provide advice, pro partnership services and installation options for all of our products, the majority of which is in stock and ready for delivery.
Our vision is to be the customer’s first choice in hard-surface flooring by providing the best experience, from
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start to finish. We offer a wide selection of high-quality, stocked products and the accessible flooring expertise and service of a local store, with the scale, omni-channel convenience and value of a national chain. We plan to leverage this advantage to differentiate ourselves in the highly fragmented flooring market. We launched our new digital platform, LLFlooring.com, in December 2020. In February 2021, we launched our new mobile app featuring our popular Picture It and Floor Finder tools and making it easy to order installations.
To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP financial measures: (I ) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a percentage of net sales; (v) Adjusted Operating Income; (vi) Adjusted Operating Margin; (vii) Adjusted Other (Income) Expense; (viii) Adjusted Earnings; and (ix) Adjusted Earnings per Diluted Share. These non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.
The non-GAAP financial measures are presented because management uses these non-GAAP financial measures to evaluate our operating performance and to determine incentive compensation. Therefore, we believe that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include store closures, regulatory and legal settlements and associated legal and operating costs, and changes in antidumping and countervailing duties, as such items are outside of our control due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature.
Results of operations for the three months ended March 31, 2021 are not necessarily indicative of future results to be expected for the full year due to a number of factors, including seasonality, tariffs, supply chain, and general economic conditions, as well as the uncertainty and ongoing impact of the COVID-19 pandemic that may impact sales for the remainder of fiscal 2021.
Executive Summary
First quarter 2021 net sales of $283.5 million increased $16.1 million, or 6.0%, from the first quarter of 2020. Comparable store sales for the first quarter of 2021 increased 6.9% from the first quarter of 2020. The Company had one fewer selling day in the first quarter of 2021 relative to the prior-year period due to leap year in 2020. Comparable sales growth in 2021 primarily reflected continued execution on the Company’s transformation initiatives and strong consumer demand for installation and home improvement projects, as well as the impact from the onset of COVID-19 shutdowns in March 2020. Net merchandise sales increased 4.7% while net service sales (install and freight) increased 16.8% over the prior year. During the first quarter of 2021, the Company opened three new stores and closed one store, bringing the total store count to 412 as of March 31, 2021.
Gross profit increased 10.1% in the first quarter of 2021 to $115.6 million from $105.0 million in the comparable period in 2020 and gross margin increased 150 basis points to 40.8% in the first quarter of 2021 from 39.3% in the first quarter of 2020. For the first quarter of 2021, the Company reported a positive $6.6 million impact from anti-dumping duty rate changes compared to 2020. Excluding this item as shown on the table that follows, Adjusted Gross Profit (a non-GAAP measure) increased by $4.1 million and Adjusted Gross Margin (a non-GAAP measure) of 38.5% decreased by 80 basis points. The decrease in adjusted gross margin was due primarily to the reinstatement of tariffs on certain flooring products imported from China (discussed in the “Section 301 Tariffs” section that follows) partially offset by pricing and promotion strategies, and, to a lesser extent, alternative country sourcing efforts.
SG&A expense increased 6.5% to $102.5 million, or 36.2% of sales, up 20 basis points in the first quarter of 2021 from the comparable period in 2020. SG&A in both quarters included certain costs related to legal matters. In April 2021, the Company settled two employment litigation matters and, as a result, accrued within SG&A a $7.7 million liability during the quarter ended March 31, 2021. Please refer to the Item 1, Note 7 for additional information.
Excluding these items as shown in the table that follows, Adjusted SG&A (a non-GAAP measure) decreased 0.8% to $94.7 million. As a percent of sales, adjusted SG&A improved 230 basis points, to 33.4% of sales, compared to
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35.7% for the same period in the prior year. The decrease in adjusted SG&A was primarily driven by lower advertising costs, reflecting the Company’s strategy to shift spend away from traditional channels into more efficient and effective digital channels, and disciplined expense management.
Operating income was $13.1 million for the first quarter of 2021 compared to $8.8 million for the first quarter of 2020. Adjusted Operating Income (a non-GAAP measure) was $14.4 million for the first quarter of 2021, a year-over-year increase of $4.8 million compared to adjusted operating income of $9.6 million for the first quarter of 2020. As a percent of net sales, adjusted operating margin for the first quarter of 2021 was 5.1%, up 150 basis points from the first quarter of 2020.
The Company had other income of $0.8 million for the three months ended March 31, 2021 compared to other expense of $0.9 million for the three months ended March 31, 2020. Both years included interest on borrowings on our Credit Agreement. The interest expense on borrowings in 2021 was offset by a favorable adjustment of $1.8 million, which has been excluded from Adjusted Earnings (a non-GAAP measure), for the reversal of interest expense associated with the $6.6 million anti-dumping duty rate refund recognized during the first quarter.
For the three months ended March 31, 2021, the Company recognized income tax expense of $3.3 million, an effective tax rate of 23.4%, compared to income tax benefit of $4.4 million, an effective tax rate of (55.2)% for the three months ended March 31, 2020. The benefit in 2020 was driven by a $4.7 million benefit related to the provisions of the CARES Act.
Net income for the first quarter of 2021 decreased $1.6 million to $10.6 million compared to $12.2 million for the first quarter of 2020. Adjusted Earnings (a non-GAAP measure) for the first quarter of 2021 were $10.2 million, a year-over-year decrease of $2.6 million compared to adjusted earnings of $12.8 million for the first quarter of 2020, reflecting the income tax benefit in 2020.
Earnings per diluted share was $0.36 for the first quarter of 2021 versus $0.42 in the year ago quarter, and first quarter 2021. Adjusted Earnings Per Diluted Share (a non-GAAP measure) was $0.34 compared to $0.44 for the first quarter of 2020, reflecting the income tax benefit in 2020.
Other Items
Liquidity and Credit Agreement Amendment
As of March 31, 2021, the Company had liquidity of $239.9 million, consisting of excess availability under its Credit Agreement of $31.0 million, and cash and cash equivalents of $208.9 million. This represents an increase in liquidity of $108.9 million from March 31, 2020 and an increase of $30.9 million from December 31, 2020. In addition, the Company’s debt balance as of March 31, 2021 was $101.0 million, unchanged since amending the Credit Agreement on April 17, 2020.
On April 30, 2021, the Company amended its Credit Agreement to provide:
· | An extension in maturity date from March 2024 to April 2026 |
· | Termination of the FILO Term Loans and conversion of those commitments to the Revolving Credit Facility. The total size of the Credit Agreement remains at $200 million. |
· | The margin for LIBOR Rate Loans (as defined in the Second Amendment) decreased by 1.25% over the applicable LIBOR Rate (as defined in the Second Amendment) with respect to Revolving Loans (as defined in the Second Amendment), and reduced the LIBOR floor from 1.00% to 0.25%. The Second Amendment also decreased the unused commitment fee by 0.25% per annum. |
· | Except as set forth in the Second Amendment, all other terms and conditions of the Credit Agreement remain in place. |
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Based on what we know today about the impact of COVID-19, the Company believes that cash flows from operations, together with the liquidity under its Credit Agreement, provides sufficient liquidity to navigate the current environment.
Section 301 Tariffs
The Company’s financial statements have been impacted by Section 301 tariffs on certain products imported from China in recent years. A subset of these imports for certain click vinyl and other engineered products (the “Subset Products”) received an exemption that was made retroactive to the beginning of the Section 301 Tariffs for a period of time but were reinstated in August 2020. The tariffs flow through the income statement as the product is sold. The Company has deployed strategies to mitigate tariffs and improve gross margin, primarily through adjusting its pricing and promotion strategies and alternative country sourcing. The following chart provides a timeline of tariff levels for the key events related to Section 301 Tariffs.
1 | On November 7, 2019, the U.S. Trade Representative granted a retroactive exclusion to September 2018 on Subset Products as defined in the Section 301 Tariffs section above bringing the rate to 0%. |
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Results of Operations
We believe the selected sales data, the percentage relationship between net sales and major categories in the condensed consolidated statements of operations and the percentage change in the dollar amounts of each of the items presented below are important in evaluating the performance of our business operations.
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% Increase (Decrease) |
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% of Net Sales |
in Dollar Amounts |
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Three Months Ended March 31, |
2021 |
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2021 |
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2020 |
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vs. 2020 |
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||
Net Sales |
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|
|
Net Merchandise Sales |
|
|
88.2 |
% |
|
89.3 |
% |
4.7 |
% |
Net Services Sales |
|
|
11.8 |
% |
|
10.7 |
% |
16.8 |
% |
Total Net Sales |
|
|
100.0 |
% |
|
100.0 |
% |
6.0 |
% |
Gross Profit |
|
|
40.8 |
% |
|
39.3 |
% |
10.1 |
% |
Selling, General, and Administrative Expenses |
|
|
36.2 |
% |
|
36.0 |
% |
6.5 |
% |
Operating Income |
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|
4.6 |
% |
|
3.3 |
% |
49.5 |
% |
Other (Income) Expense |
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|
(0.3) |
% |
|
0.3 |
% |
(187.1) |
% |
Income Before Income Taxes |
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|
4.9 |
% |
|
2.9 |
% |
76.0 |
% |
Income Tax Expense (Benefit) |
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|
1.1 |
% |
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(1.6) |
% |
(174.7) |
% |
Net Income |
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3.8 |
% |
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4.6 |
% |
(13.2) |
% |
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SELECTED SALES DATA |
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Average Sale1 |
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$ |
1,415 |
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$ |
1,355 |
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4.4 |
% |
Average Retail Price per Unit Sold Increase2 |
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|
4.7 |
% |
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2.5 |
% |
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Comparable Store Sales Increase (Decrease)3 |
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|
6.9 |
% |
|
(0.9) |
% |
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|
Customers Invoiced Increase (Decrease)4 |
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|
2.5 |
% |
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(4.9) |
% |
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Number of Stores Open, end of period |
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412 |
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420 |
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Number of Stores Opened in Period, net |
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2 |
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1 |
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Number of Stores Relocated in Period5 |
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— |
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1 |
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|
1 | Average sale is defined as the average invoiced sales order, measured quarterly, excluding returns as well as transactions under $100 (which are generally sample orders or add-on/accessories to existing orders). |
2 | Average retail price per unit (square feet for flooring and other units of measures for moldings and accessories) sold is calculated on a total company basis and excludes non-merchandise revenue. |
3 | A store is generally considered comparable on the first day of the thirteenth full calendar month after opening. |
4 | Change in number of customers invoiced is calculated by applying the average sale, described above, to total net sales at comparable stores. |
5 | A relocated store remains a comparable store as long as it is relocated within the primary trade area. |
NM Not meaningful.
Net Sales
First quarter 2021 net sales of $283.5 million increased $16.1 million, or 6.0%, from the first quarter of 2020. Comparable store sales for the first quarter of 2021 increased 6.9% from the first quarter of 2020. The Company had one fewer selling day in the first quarter of 2021 relative to the prior-year period due to leap year in 2020. Comparable
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sales growth in 2021 primarily reflected continued execution on the Company’s transformation initiatives and strong consumer demand for installation and home improvement projects, as well as the impact from the onset of COVID-19 shutdowns in March 2020. Average ticket increased 4.4% and average retail unit price per unit sold also increased 4.7% during the same time period. Net merchandise sales increased 4.7% while net service sales (install and freight) increased 16.8% over the prior year. During the first quarter of 2021, the Company opened three new stores and closed one store, bringing the total store count to 412 as of March 31, 2021.
Gross Profit
Gross profit increased 10.1% in the first quarter of 2021 to $115.6 million from $105.0 million in the comparable period in 2020 and gross margin increased 150 basis points to 40.8% in the first quarter of 2021 from 39.3% in the first quarter of 2020. For the first quarter of 2021, the Company reported a positive $6.6 million impact from anti-dumping duty rate changes compared to 2020. Excluding this item as shown on the table that follows, Adjusted Gross Profit (a non-GAAP measure) increased by $4.1 million and Adjusted Gross Margin (a non-GAAP measure) of 38.5% decreased by 80 basis points. The decrease in adjusted gross margin was due primarily to the reinstatement of tariffs on certain flooring products imported from China (discussed in the “Section 301 Tariffs” section that follows) partially offset by pricing and promotion strategies, and, to a lesser extent, alternative country sourcing efforts.
We believe that the following item set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
1 | Amounts may not sum due to rounding. |
2 | Represents antidumping expense associated with applicable prior-year shipments of engineered hardwood from China. |
Selling, General and Administrative Expenses
SG&A expense increased 6.5% to $102.5 million, or 36.2% of sales, up 20 basis points in the first quarter of 2021 from the comparable period in 2020. SG&A in both quarters included certain costs related to legal matters. In April 2021, the Company settled two employment litigation matters and, as a result, accrued within SG&A a $7.7 million liability during the quarter ended March 31, 2021. Please refer to the Item 1, Note 7 for additional information. Excluding these items as shown in the table that follows, Adjusted SG&A (a non-GAAP measure) decreased 0.8% to $94.7 million. As a percent of sales, adjusted SG&A improved 230 basis points, to 33.4% of sales, compared to 35.7% for the same period in the prior year. The decrease in adjusted SG&A was primarily driven by lower advertising costs, reflecting the Company’s strategy to shift spend away from traditional channels into more efficient and effective digital channels, and disciplined expense management. The Company redeemed $1.5 million of vouchers during the first quarter of 2021 and relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of $0.5 million was recorded as a reduction in SG&A expense.
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We believe that the following item set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
3 | Amounts may not sum due to rounding. |
4 | This amount represents the charge to earnings for the Mason and Savidis matters, which are described more fully in Item 1, Note 7 to the condensed consolidated financial statements. |
5 | Represents charges to earnings related to our defense of certain significant legal actions during the period. This does not include all legal costs incurred by the Company. |
Operating Income and Operating Margin
Operating income was $13.1 million for the first quarter of 2021 compared to $8.8 million for the first quarter of 2020. Adjusted Operating Income (a non-GAAP measure) was $14.4 million for the first quarter of 2021, a year-over-year increase of $4.8 million compared to adjusted operating income of $9.6 million for the first quarter of 2020. As a percent of net sales, adjusted operating margin for the first quarter of 2021 was 5.1%, up 150 basis points from the first quarter of 2020. The higher operating income and margin reflect good progress on our profit improvement initiatives, with our merchant and sourcing teams implementing strategies to mitigate tariffs, our marketing teams deploying more efficient and effective digital marketing spend, and our overall organization driving disciplined expense management.
We believe that the following items set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
1,2,3,4,5 See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.
27
Other (Income) Expense
The Company had other income of $0.8 million for the three months ended March 31, 2021 compared to other expense of $0.9 million for the three months ended March 31, 2020. Both years included interest on borrowings on our Credit Agreement. The interest expense on borrowings in 2021 was offset by a favorable adjustment of $1.8 million for the reversal of interest expense associated with the $6.6 million anti-dumping duty rate refund recognized during the first quarter. Adjusted Other Expense (a non-GAAP measure) was $1.1 million for the first quarter of 2021, which is an increase of $190 thousand compared to the first quarter of 2020 driven by a higher level of borrowings under our debt agreement.
We believe that the following item set forth in the table below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
6 | Amounts may not sum due to rounding. |
7 | Represents the interest income impact of certain antidumping adjustments related to applicable prior-year shipments of engineered hardwood from China. |
Provision for Income Taxes
The Company calculates its quarterly tax provision pursuant to the guidelines in Accounting Standards Codification ("ASC") 740-270 "Income Taxes." Generally, ASC 740-270 requires companies to estimate the annual effective tax rate for current year ordinary income. The estimated annual effective tax rate represents the best estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision. This process was employed in 2021. Due to disruption related to the COVID-19 pandemic in 2020, the Company applied the actual year-to-date effective tax rate for the first quarter tax provision in 2020.
For the three months ended March 31, 2021, the Company recognized income tax expense of $3.3 million, which represented an effective tax rate of 23.4%. For the three months ended March 31, 2020, the Company recognized an income tax benefit of $4.4 million, which represented an effective tax rate of (55.2)%. The large benefit in the Company’s first-quarter 2020 tax rate reflected the March 27, 2020 CARES Act which allowed the Company to carryback certain losses to prior periods and deduct certain capital expenditures from prior periods more quickly giving rise to a $4.7 million Federal tax benefit in the period.
The Company has a valuation allowance recorded against certain of its net deferred tax assets of $5.6 million as of March 31, 2021 because the jurisdiction and nature of the assets makes realization of these deferred tax assets uncertain. The Company intends to maintain this valuation allowance on its deferred tax assets until there is sufficient evidence to support the realizability of those deferred tax assets or time lapses without opportunity to realize those assets.
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Diluted Earnings per Share
Earnings per diluted share was $0.36 for the first quarter of 2021 versus $0.42 in the year ago quarter, and first quarter 2021 Adjusted Earnings Per Diluted Share (a non-GAAP measure) was $0.34 compared to $0.44 for the first quarter of 2020, reflecting the income tax benefit in 2020.
We believe that each of the items below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.
1,2,3,4,5,6,7 See the Gross Profit, SG&A and Other (Income) Expense sections above for more detailed explanations of these individual items. These items have been tax affected at the Company’s federal incremental rate of 26.1%.
Seasonality
Our net sales fluctuate slightly as a result of seasonal factors, and we adjust merchandise inventories in anticipation of those factors, causing variations in our build of merchandise inventories. Generally, we experience higher-than-average net sales in the spring and fall, when more home remodeling activities are taking place, and lower-than-average net sales in the winter months and during the hottest summer months. These seasonal fluctuations, however, are minimized to some extent by our national presence, as markets experience different seasonal characteristics. Those historical trends have been affected by the COVID-19 pandemic.
Liquidity, Capital Resources and Cash Flows
Our strong balance sheet and liquidity provide us with the financial flexibility to fund our growth initiatives and position LL Flooring for long-term success. We had cash and cash equivalents of $208.9 million as of March 31, 2021 and the same $101 million of borrowings that we had on April 17, 2020, when we entered into the temporary expansion of our Credit Agreement.
Our principal sources of liquidity at March 31, 2021 were cash from our ongoing operations, $208.9 million of cash and cash equivalents on our balance sheet and $31.0 million of availability under our Revolving Loan. As of March 31, 2021, the outstanding balance of the revolving loan was $76.0 million, and it carried an average interest rate of 4.0%.
29
Our cash flows from operating activities was $44.5 million during the first quarter of 2021 which was primarily the result of sell through of inventory ($18.0 million), our net income in the quarter ($10.6 million), growth in customer deposits ($6.8 million), increase in accounts payable ($6 million), offset in part by decrease in accrued compensation ($6.7 million).
Through the three months ended March 31, 2021, net cash flows used in investing activities included $4.3 million in capital expenditures including store rebranding, opening 3 new stores and investments in digital. For 2021 we currently expect capital expenditure investments of up to $24 million to $28 million as our business results support the opening of 12 to 15 new stores and the continuation of the investing activities described above for the first quarter 2021. We also plan to increase our inventories as supply chain disruptions abate.
Through the three months ended March 31, 2021, we had net cash used in financing activities of $1.3 million, compared to $18.3 million used in financing activities in the three months ended March 31, 2020. This activity in the current three-month period was primarily due to repurchasing shares of our common stock in connection with the vesting of employee equity compensation. The comparable 2020 three-month period was primarily due to net repayments of $18.0 million on our Credit Agreement.
Additionally, on April 30, 2021 we entered into a Second Amendment to the Credit Agreement to extend the maturity date to April 30, 2026, convert the FILO Term Loan into the Revolving Credit Facility, decrease the margin for LIBOR Rate Loans, and reduce the LIBOR floor, which is described more fully in Item 1, Note 5 to the condensed consolidated financial statements.
Our focus on liquidity over the past year has allowed us to build a strong position to navigate the ongoing COVID-19 environment, and our business is generating solid cash flow. We are monitoring the current macro-economic conditions and the impact of COVID-19, especially as vaccine administration continues, and are considering the timing of repayment of some or all of debt balance, perhaps as soon as the end of the second quarter 2021. We believe that cash flows from operations, together with the liquidity under our Credit Agreement will be sufficient to meet our obligations, fund our settlements, operations, and anticipated capital expenditures for the next 12 months. We prepare our forecasted cash flow and liquidity estimates based on assumptions that we believe to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.
Merchandise Inventories
Merchandise inventories at March 31, 2021 decreased $19 million from December 31, 2020 primarily due to supply chain constraints on replenishment and strong first quarter sales. We consider merchandise inventories either “available for sale” or “inbound in-transit,” based on whether we have physically received and inspected the products at an individual store location, in our distribution centers or in another facility where we control and monitor inspection.
Merchandise inventories and available inventory per store in operation were as follows:
Available inventory per store at March 31, 2021 was lower than at December 31, 2020 and significantly lower than March 31, 2020. The decrease in available inventory compared to March 31, 2020 was primarily driven by supply chain constraints on replenishment and strong sales that continues to keep inventory below our targeted levels.
30
Inbound in-transit inventory generally varies due to the timing of certain international shipments and certain seasonal factors, including international holidays, rainy seasons, and specific merchandise category planning.
Critical Accounting Policies and Estimates
Critical accounting policies are those that we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. We have had no significant changes in our Critical Accounting Policies and Estimates since our annual report on Form 10-K for the year ended December 31, 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk.
We are exposed to interest rate risk through the investment of our cash and cash equivalents. Our policy is to invest our cash in short-term investments with maturities of three months or less. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. Borrowings under our Credit Agreement are exposed to interest rate risk due to the variable rate of the facility, and the expected transition from the LIBOR reference rate in 2021. As of March 31, 2021, we had $101 million outstanding under our Credit Agreement. If the interest rate had varied by 1% in either direction during 2020, interest expense would have fluctuated by $1 million.
We currently do not engage in any interest rate hedging activity. However, in the future, in an effort to mitigate losses associated with interest rate risks, we may at times enter into derivative financial instruments, although we have not historically done so. We do not, and do not intend to, engage in the practice of trading derivative securities for profit.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarter ended March 31, 2021. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2021.
Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Information with respect to this item may be found in Note 7, “Commitments and Contingencies”, to the condensed consolidated financial statements in Item 1 of Part I, which is incorporated herein by reference.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our annual report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition or future results.
31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table presents our share repurchase activity for the quarter ended March 31, 2021 (in thousands, except per share amounts):
1 | We repurchased 55,050 shares of our common stock, at an average price of $24.95, in connection with the net settlement of shares issued as a result of the vesting of restricted shares during the quarter ended March 31, 2021. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
As described in Part I, Item 1, Note 5 to this Form 10-Q, on April 30, 2021, the Company amended its Credit Agreement to extend the maturity date to April 30, 2026, convert the FILO Term Loan into the Revolving Credit Facility, decrease the margin for LIBOR Rate Loans, and reduce the LIBOR floor. The agreement itself has been filed herewith.
Item 6. Exhibits.
The exhibits listed in the following exhibit index are furnished as part of this report.
32
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
10.1 |
|
|
|
|
|
10.2 |
|
Form of Performance-Based Stock Unit Award Agreement, effective February 24, 2021 (filed herewith) |
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
101 |
|
The following financial statements from the Company’s Form 10-Q for the quarter ended March 31, 2021, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
LUMBER LIQUIDATORS HOLDINGS, INC. |
|
|
(Registrant) |
|
|
|
Date: May 4, 2021 |
By: |
/s/ Nancy A. Walsh |
|
|
Nancy A. Walsh |
|
|
Chief Financial Officer (Principal Financial Officer) |
|
|
|
34
Exhibit 10.1
EXECUTION VERSION
SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) dated as of April 30, 2021 by and among
LUMBER LIQUIDATORS, INC. a Delaware corporation (the “Lead Borrower”),
the other Borrowers party hereto (together with the Lead Borrower, the “Borrowers”),
the Guarantors party hereto (together with the Borrowers, the “Loan Parties”),
the Lenders party hereto, and
BANK OF AMERICA, N.A., as Agent;
in consideration of the mutual covenants herein contained and benefits to be derived herefrom.
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders, and the Agent, among others, have entered into a certain Fourth Amended and Restated Credit Agreement dated as of March 29, 2019 (as amended by that First Amendment to Fourth Amended and Restated Credit Agreement as of April 17, 2020, and as further amended, restated, supplemented or otherwise modified from time to time prior to the effectiveness of this Amendment, the “Existing Credit Agreement”);
WHEREAS, the Borrowers have requested, among other things, that the Agent and the Lenders agree to (a) the Borrowers repaying the FILO Term Loans (as defined in the Existing Credit Agreement) with cash on hand, (b) increasing the Aggregate Revolving Loan Commitments to $200,000,000 as of the Second Amendment Effective Date (as defined below), and (c) amending certain other provisions of the Existing Credit Agreement, in each case, subject to the terms and conditions set forth herein; and
WHEREAS, the Borrowers, the Lenders and the Agent have agreed, subject to the terms and conditions set forth herein, to (a) the Borrowers repaying the FILO Term Loans with cash on hand, (b) increasing the Aggregate Revolving Loan Commitments to $200,000,000 as of the Second Amendment Effective Date, and (c) amending certain other provisions of the Existing Credit Agreement.
NOW THEREFORE, in consideration of the mutual promises and agreements herein contained, the parties hereto hereby agree as follows:
1. | Incorporation of Terms and Conditions of Existing Credit Agreement. All of the terms and conditions of the Existing Credit Agreement (including, without limitation, all definitions set forth therein) are specifically incorporated herein by reference. All capitalized terms not otherwise defined herein shall have the same meaning as in the Existing Credit Agreement, as amended by this Amendment (the “Amended Credit Agreement”). |
2. | Representations and Warranties. Each Loan Party hereby represents and warrants that after giving effect to this Amendment, (i) no Default or Event of Default exists under the Amended Credit Agreement or under any other Loan Document, and (ii) all representations and warranties contained in the Amended Credit Agreement and in the other Loan Documents are true and correct in all material respects (except in the case of any representation and warranty qualified by “materiality” or “Material Adverse Effect”, which is true and correct in all respects) as of the date hereof, except |
to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (except in the case of any representation and warranty qualified by “materiality” or “Material Adverse Effect”, which is true and correct in all respects) as of such earlier date. |
3. | Amendments to Existing Credit Agreement. |
a. | Credit Agreement. The Existing Credit Agreement is hereby amended to delete the bold, stricken text (indicated textually in the same manner as the following example: stricken text) and to add the bold, double-underlined text (indicated textually in the same manner as the following example: double-underlined text) as set forth in the pages of the Credit Agreement attached as Annex A hereto. |
b. | Schedules to Credit Agreement. Each of the schedules to the Existing Credit Agreement is hereby deleted in its entirety and substituted in its stead is each of the updated schedules attached hereto as Annex B. |
c. | Exhibits to Credit Agreement. Exhibit B-2 (Form of FILO Term Loan Note) is hereby deleted in its entirety. Exhibit A-1 (Form of Committed Loan Notice), Exhibit C (Form of Compliance Certificate), Exhibit D (Form of Borrowing Base Certificate), and Exhibit E (Form of Assignment and Assumption) are hereby deleted in their entirety and a new Exhibit A-1, Exhibit C, Exhibit D, and Exhibit E are substituted in their stead, each attached hereto as Annex C . |
4. | Conditions to Effectiveness. This Amendment shall become effective on the date (the “Second Amendment Effective Date”) when each of the following conditions precedent has been fulfilled to the reasonable satisfaction of the Agent: |
a. | Amendment. This Amendment shall have been duly executed and delivered by the Loan Parties, the Agent, and the Lenders. |
b. | Corporate Action. All action on the part of the Loan Parties necessary for the valid execution, delivery and performance by the Loan Parties of this Amendment shall have been duly and effectively taken. The Agent shall have received such customary corporate resolutions, certificates and other customary corporate documents as the Agent shall reasonably request. |
c. | No Default. After giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing. |
d. | No Material Adverse Effect. No event shall have occurred after December 31, 2020 that could reasonably be expected to have a Material Adverse Effect on the Loan Parties, taken as a whole. |
e. | Borrowing Base Certificate; Availability. The Agent shall have received a Borrowing Base Certificate dated the Second Amendment Effective Date, executed by a Responsible Officer of the Lead Borrower. The Excess Availability under the Amended Credit Agreement on the Second Amendment Effective Date, after giving effect to any funding under the Amended Credit Agreement, shall be equal to or greater than $25,000,000 based on a Borrowing Base Certificate dated as of the Second Amendment Effective Date. |
-2-
f. | Fees and Expenses. (i) The Agent and the Lenders shall have received all applicable fees and other amounts due and payable on or prior to the Second Amendment Effective Date, including without limitation, reasonable and documented attorneys’ fees of one counsel, in connection with or relating to this Amendment shall have been reimbursed or paid, and (ii) all fees payable pursuant to the Second Amendment Fee Letter that are due and payable on the date hereof shall have been paid in full by the Borrowers in accordance with the terms thereof. |
g. | Supplement to Information Certificate. To the extent any changes to the Information Certificate dated as of March 29, 2019 are not reflected in the updated schedules provided pursuant to Section 3(b), the Agent shall have received such updated information and/or schedules attached hereto as Annex D. |
h. | Legal Opinion. The Agent shall have received a favorable opinion from Troutman Pepper Hamilton Sanders LLP, counsel to the Loan Parties, addressed to the Agent and each Lender, in form and substance reasonably satisfactory to the Agent. |
i. | Real Estate Appraisal and Environmental Diligence. The Agent shall have received at the expense of the Loan Parties (x) an appraisal and (y) a Phase I environmental site assessment of the Loan Party’s Eligible Real Estate, each in form satisfactory to the Agent. |
j. | KYC and Beneficial Ownership Certification. The Agent and the Lenders shall have received (x) all documentation and other information reasonably requested by them that is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the USA Patriot Act and (y) at least five (5) Business Days prior to the Second Amendment Effective Date, any Borrower that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation shall deliver, to each Lender that so requests in writing to the Lead Borrower at least five (5) Business Days prior to the Second Amendment Effective Date, a Beneficial Ownership Certification in relation to such Borrower. |
k. | Documents. The Agent shall have received the following executed Loan Documents: |
1. | a Note, or amended and restated Note, as applicable, executed by the Borrowers in favor of each Revolving Loan Lender requesting a Note and reflecting the Revolving Loan Commitment of such Revolving Loan Lender after giving effect to this Amendment; |
2. | the Second Amendment Fee Letter, duly executed by the Lead Borrower and the Agent; and |
3. | such other documents, agreements or items as the Agent may reasonably request in order to effectuate, or in connection with, the transactions contemplated hereby. |
Without limiting the generality of the provisions of Section 9.04 of the Amended Credit Agreement, for purposes of determining compliance with the conditions specified in this Section 4 each Lender that has signed this Amendment shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Agent shall have received notice from such Lender prior to the proposed Second Amendment Effective Date specifying its objection thereto.
-3-
5. | Ratification and Reaffirmation. Each of the Loan Parties hereby ratifies and confirms all of its Obligations to the Agent, the L/C Issuer and the Lenders under the Amended Credit Agreement, including, without limitation, the Revolving Loans, Swing Line Loans and other Credit Extensions, and each of the Loan Parties hereby affirms its absolute and unconditional promise to pay to the Lenders, the L/C Issuer, and the Agent, as applicable, the Revolving Loans, the Swing Line Loans, other Credit Extensions, reimbursement obligations and all other amounts due or to become due and payable to the Lenders, the L/C Issuer and the Agent, as applicable, under the Amended Credit Agreement and it is the intent of the parties hereto that nothing contained herein shall constitute a novation or accord and satisfaction. Except as expressly amended hereby, the Existing Credit Agreement shall continue in full force and effect. |
6. | Binding Effect; Integration, Etc. The terms and provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their heirs, representatives, successors and assigns. This Amendment and the Amended Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Existing Credit Agreement, any other Loan Document or any agreement or instrument related to the Existing Credit Agreement shall hereafter refer to the Amended Credit Agreement. This Amendment shall constitute a Loan Document. |
7. | Multiple Counterparts. This Amendment may be executed in multiple counterparts, each of which shall constitute an original and together which shall constitute but one and the same instrument. Delivery of any executed counterpart of a signature page of this Amendment by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Amendment. |
8. | Governing Law; Waiver of Jury Trial. EACH PARTY HERETO HEREBY AGREES THAT THE PROVISIONS OF SECTION 10.14 AND SECTION 10.15 OF THE EXISTING CREDIT AGREEMENT SHALL APPLY TO THIS AMENDMENT. |
[Signature Pages Follow]
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IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by each of the parties hereto as of the date first above written.
BORROWERS:
LUMBER LIQUIDATORS, INC., as Lead Borrower and as a Borrower
By: /s/ Nancy Walsh
Name: Nancy Walsh
Title: Chief Financial Officer
LUMBER LIQUIDATORS SERVICES, LLC, as a Borrower
By:LUMBER LIQUIDATORS, INC., its Manager
By: /s/ Nancy Walsh
Name: Nancy Walsh
Title: Chief Financial Officer
[Lumber Liquidators – Signature Page to Second Amendment]
GUARANTORS:
LUMBER LIQUIDATORS HOLDINGS, INC., as Parent and as a Guarantor
By: /s/ Nancy Walsh
Name: Nancy Walsh
Title: Chief Financial Officer
LUMBER LIQUIDATORS LEASING, LLC, as a Guarantor
By:LUMBER LIQUIDATORS, INC., its Manager
By: /s/ Nancy Walsh
Name: Nancy Walsh
Title: Chief Financial Officer
LUMBER LIQUIDATORS PRODUCTION, LLC, as a Guarantor
By:LUMBER LIQUIDATORS SERVICES, LLC, its Manager
By:LUMBER LIQUIDATORS, INC., its Manager
By: /s/ Nancy Walsh
Name: Nancy Walsh
Title: Chief Financial Officer
[Lumber Liquidators – Signature Page to Second Amendment]
GUARANTORS (CONT’D):
Lumber Liquidators Foreign Holdings, LLC, as a Guarantor
By:LUMBER LIQUIDATORS HOLDINGS, INC., its Manager
By: /s/ Nancy Walsh
Name: Nancy Walsh
Title: Chief Financial Officer
LUMBER LIQUIDATORS FOREIGN OPERATIONS, LLC, as a Guarantor
By:LUMBER LIQUIDATORS FOREIGN HOLDINGS, LLC, its Manager
By:LUMBER LIQUIDATORS HOLDINGS, INC., its Manager
By: /s/ Nancy Walsh
Name: Nancy Walsh
[Lumber Liquidators – Signature Page to Second Amendment]
BANK OF AMERICA, N.A.,
as Agent, a Lender, and L/C Issuer
By: /s/ Matthew Potter
Name:Matthew Potter
Title:Senior Vice President
[Lumber Liquidators – Signature Page to Second Amendment]
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
By: /s/ Daniel Hurley
Name:Daniel Hurley
Title:Assistant Vice President
[Lumber Liquidators – Signature Page to Second Amendment]
Annex A
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 29, 2019,
as amended as of April 17, 2020,
as amended as of April 30, 2021
among
LUMBER LIQUIDATORS, INC.,
as the Lead Borrower
For
The Borrowers Named Herein
The Guarantors Named Herein
BANK OF AMERICA, N.A.,
as Agent
and
The Lenders Party Hereto
BANK OF AMERICA, N.A.
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
As Joint Lead Arrangers and Joint Bookrunners
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Syndication Agent
TABLE OF CONTENTS
SectionPage
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS1
1.01Defined Terms1
1.02Other Interpretive Provisions51
1.03Accounting Terms52
1.04Rounding53
1.05Times of Day53
1.06Letter of Credit Amounts.53
1.07Divisions..53
1.08UCC Terms..53
ARTICLE II THE REVOLVING LOAN COMMITMENTS AND CREDIT EXTENSIONS54
2.01Committed Revolving Loans54
2.02Borrowings, Conversions and Continuations of Committed Revolving Loans.54
2.03Letters of Credit.56
2.04Swing Line Loans.65
2.05Prepayments.68
2.06Termination or Reduction of Revolving Loan Commitments.69
2.07Repayment of Obligations..70
2.08Interest.70
2.09Fees71
2.10Computation of Interest and Fees71
2.11Evidence of Debt.71
2.12Payments Generally; Agent’s Clawback.72
2.13Sharing of Payments by Lenders74
2.14Settlement Amongst Lenders.74
2.15Increase in Revolving Loan Commitments.75
2.16Defaulting Lenders.76
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY; APPOINTMENT OF LEAD BORROWER78
3.01Taxes.79
3.02Illegality83
3.03Inability to Determine Rates83
3.04Increased Costs; Reserves on LIBOR Rate Loans.86
3.05Compensation for Losses87
3.06Mitigation Obligations; Replacement of Lenders.88
3.07Survival88
3.08Designation of Lead Borrower as Borrowers’ Agent.88
(i)
ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS89
4.01Conditions of Initial Credit Extension89
4.02Conditions to all Credit Extensions92
ARTICLE V REPRESENTATIONS AND WARRANTIES93
5.01Existence, Qualification and Power93
5.02Authorization; No Contravention93
5.03Governmental Authorization; Other Consents93
5.04Binding Effect93
5.05Financial Statements; No Material Adverse Effect.93
5.06Litigation94
5.07No Default94
5.08Ownership of Property; Liens.94
5.09Environmental Compliance.95
5.10Insurance96
5.11Taxes96
5.12ERISA Compliance.96
5.13Subsidiaries; Equity Interests97
5.14Margin Regulations; Investment Company Act.97
5.15Disclosure97
5.16Compliance with Laws98
5.17Intellectual Property; Licenses, Etc.98
5.18Labor Matters.98
5.19Security Documents.98
5.20Solvency..99
5.21Deposit Accounts; Credit Card Arrangements.99
5.22Brokers100
5.23Customer and Trade Relations100
5.24Material Contracts100
5.25Casualty100
5.26Affected Financial Institution100
5.28Sanctions Concerns and Anti-Corruption Laws.100
ARTICLE VI AFFIRMATIVE COVENANTS100
6.01Financial Statements100
6.02Certificates; Other Information101
6.03Notices103
6.04Payment of Obligations103
6.05Preservation of Existence, Etc.104
6.06Maintenance of Properties104
6.07Maintenance of Insurance104
6.08Compliance with Laws105
6.09Books and Records; Accountants105
6.10Inspection Rights.105
(ii)
6.11Additional Loan Parties107
6.12Cash Management.107
6.13Information Regarding the Collateral.109
6.14Reserved.109
6.15Environmental Laws.109
6.16Further Assurances.110
6.17Compliance with Terms of Leaseholds.110
6.18Material Contracts110
ARTICLE VII NEGATIVE COVENANTS110
7.01Liens111
7.02Investments111
7.03Indebtedness; Disqualified Stock.111
7.04Fundamental Changes111
7.05Dispositions112
7.06Restricted Payments112
7.07Prepayments of Indebtedness113
7.08Change in Nature of Business.113
7.09Transactions with Affiliates113
7.10Burdensome Agreements114
7.11Use of Proceeds114
7.12Amendment of Material Documents.114
7.13Fiscal Year..115
7.14Deposit Accounts; Credit Card Processors.115
7.15Consolidated Fixed Charge Coverage Ratio.115
7.16Sanctions.115
7.17Anti-Corruption Laws.115
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES115
8.01Events of Default115
8.02Remedies Upon Event of Default118
8.03Application of Funds118
ARTICLE IX THE AGENT120
9.01Appointment and Authority.120
9.02Rights as a Lender120
9.03Exculpatory Provisions121
9.04Reliance by Agent.122
9.05Delegation of Duties122
9.06Resignation of Agent122
9.07Non-Reliance on Agent and Other Lenders124
9.08No Other Duties, Etc.124
9.09Agent May File Proofs of Claim125
9.10Collateral and Guaranty Matters126
(iii)
9.11Notice of Transfer.126
9.12Reports and Financial Statements. 127
9.13Agency for Perfection.127
9.14Indemnification of Agent128
9.15Relation among Lenders.128
9.16Certain ERISA Matters.128
ARTICLE X MISCELLANEOUS129
10.01Amendments, Etc.129
10.02Notices; Effectiveness; Electronic Communications.131
10.03No Waiver; Cumulative Remedies133
10.04Expenses; Indemnity; Damage Waiver.134
10.05Payments Set Aside135
10.06Successors and Assigns.136
10.07Treatment of Certain Information; Confidentiality140
10.08Right of Setoff140
10.09Interest Rate Limitation141
10.10Counterparts; Integration; Effectiveness141
10.11Survival141
10.12Severability141
10.13Replacement of Lenders142
10.14Governing Law; Jurisdiction; Etc.142
10.15Waiver of Jury Trial143
10.16No Advisory or Fiduciary Responsibility143
10.17USA PATRIOT Act Notice144
10.18Foreign Assets Control Regulations144
10.19Time of the Essence145
10.20Reserved145
10.21Press Releases.145
10.22Additional Waivers.145
10.23No Strict Construction.146
10.24Attachments.146
10.25Electronic Execution of Assignments and Certain Other Documents.146
10.26Keepwell.147
10.27Conflict of Terms..148
10.28Acknowledgement and Consent to Bail-In of an Affected Financial Institutions.148
10.29 Acknowledgement Regarding Any Supported QFCs…………………………………… 148
(iv)
SCHEDULES
1.01Borrowers
2.01Revolving Loan Commitments and Applicable Percentages
2.03[Reserved]
4.01(a)(ix)Loan Documents
5.01Loan Parties Organizational Information
5.06Litigation
5.08(b)(1)Owned Real Estate
5.08(b)(2)Leased Real Estate
5.09Environmental Matters
5.10Insurance
5.13Subsidiaries; Other Equity Investments
5.18Collective Bargaining Agreements
5.21(a)DDAs
5.21(b)Credit Card Arrangements
5.24Material Contracts
6.02Financial and Collateral Reporting
7.01Existing Liens
7.02Existing Investments
7.03Existing Indebtedness
7.09Affiliate Transactions
7.10Burdensome Agreements
10.02Agent’s Office; Certain Addresses for Notices
EXHIBITS
Form of
A-1Committed Loan Notice
A-2Swing Line Loan Notice
B-1Form of Note
B-2[Reserved]
CCompliance Certificate
DBorrowing Base Certificate
EAssignment and Assumption
(v)
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
This FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (as amended, amended and restated, restated, supplemented, modified and/or otherwise in effect from time to time, “Agreement”) is entered into as of March 29, 2019, as amended as of April 17, 2020 and as further
amended as of April 30, 2021, among
LUMBER LIQUIDATORS, INC., a Delaware corporation (the “Lead Borrower”),
the Persons named on Schedule 1.01 hereto (collectively, the “Borrowers”),
the Guarantors party hereto,
each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”),
BANK OF AMERICA, N.A., as Agent (as defined below), and
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Syndication Agent (as defined below).
WHEREAS, the Borrowers have requested that the Lenders provide a revolving credit facility and the Lenders have indicated their willingness to lend and the L/C Issuer has indicated its willingness to issue Letters of Credit, in each case on the terms and conditions set forth herein;
WHEREAS, the Borrowers, the Guarantors, the Agent and certain Lenders are party to that certain Third Amended and Restated Credit Agreement dated as of August 17, 2016 (as amended, amended and restated, restated, supplemented, modified and/or otherwise in effect from time to time immediately prior to the date hereof, the “Existing Credit Agreement”); and
WHEREAS, the Borrowers, the Guarantors, the Lenders, and the Agent desire to amend and restate the Existing Credit Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agree that the Existing Credit Agreement shall be amended and restated in its entirety to read as follows:
“2019 Financing Plan” means that certain 2019 Financing Plan of the Lead Borrower, dated as of March 5, 2019.
“Acceptable Document of Title” means, with respect to any Inventory, a waybill or Document (as defined in the UCC) that (a) is issued by a common carrier which is not an Affiliate of the foreign vendor or any Loan Party which is in actual possession of such Inventory, (b) is issued to the order of a Borrower or, while a Default or Event of Default exists, if so requested by the Agent, to the order of the Agent, (c) is not subject to any Lien (other than in favor of the Agent and Permitted Encumbrances), and (d) the Agent has not notified the Lead Borrower that such waybill or Document is not in form and content reasonably acceptable to the Agent.
“Accommodation Payment” as defined in Section 10.22(c).
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“ACH” means automated clearing house transfers.
“Acquisition” means, with respect to any Person (a) a purchase of a Controlling interest in the Equity Interests of any other Person, (b) a purchase or other acquisition of all or substantially all of the assets or properties of another Person or of any business unit of another Person, (c) any merger or consolidation of such Person with any other Person or other transaction or series of transactions resulting in the acquisition of all or substantially all of the assets, or a Controlling interest in the Equity Interests, of any Person, or (d) any acquisition of any Store locations of any Person, in each case in any transaction or group of transactions which are part of a common plan.
“Act” shall have the meaning provided in Section 10.17.
“Additional Commitment Lender” shall have the meaning provided in Section 2.15(c).
“Adjustment Date” means the first day of each Fiscal Quarter, commencing July 1, 2021.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Agent.
“Affected Financial Institution” means any EEA Financial Institution or UK Financial Institution.
“Affiliate” means, with respect to any Person, (i) 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, (ii) any director, officer, managing member, partner, trustee, or beneficiary of that Person, (iii) any other Person directly or indirectly holding 10% or more of any class of the Equity Interests of that Person, and (iv) any other Person 10% or more of any class of whose Equity Interests is held directly or indirectly by that Person. For the avoidance of doubt, Banc of America Merchant Services, LLC shall at all times be deemed to be an Affiliate of Bank of America.
“Agent” means Bank of America in its capacity as administrative agent and collateral agent under any of the Loan Documents, or any successor thereto.
“Agent’s Office” means the Agent’s address set forth on Schedule 10.02, or such other address as the Agent may from time to time notify the Lead Borrower and the Lenders.
“Aggregate Revolving Loan Commitments” means the sum of the Revolving Loan Commitments of all the Revolving Loan Lenders. As of the Second Amendment Effective Date, the Aggregate Revolving Loan Commitments shall be $200,000,000.
“Agreement” has the meaning specified in the introductory paragraph hereto.
“Allocable Amount” has the meaning specified in Section 10.22(c).
“Applicable Lenders” means the Required Lenders, all affected Lenders, or all Lenders, as the context may require.
“Applicable Margin” means:
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Level |
Average Daily Excess Availability |
LIBOR Margin |
Base Rate Margin |
I |
Greater than 60% of the Revolving Loan Cap |
1.25% |
0.25% |
II |
Less than or equal to 60% of the Revolving Loan Cap but greater than or equal to 30% of the Revolving Loan Cap |
1.50% |
0.50% |
III |
Less than 30% of the Revolving Loan Cap |
1.75% |
0.75% |
“Applicable Percentage” means, in respect of the Revolving Loan Facility, with respect to any Revolving Loan Lender at any time, the percentage (carried out to the ninth decimal place) of the Revolving Loan Facility represented by such Revolving Loan Lender’s Revolving Loan Commitment at such time, subject to adjustment provided in Section 2.16. If the commitment of each Revolving Loan Lender to make Revolving Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 2.06 or Section 8.02 or if the Aggregate Revolving Loan Commitments have expired, then the Applicable Percentage of each Revolving Loan Lender shall be determined based on the Applicable Percentage of such Revolving Loan Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
“Applicable Rate” means, at any time of calculation, (a) with respect to Commercial Letters of Credit, a per annum rate equal to fifty percent (50%) of the Applicable Margin for Loans which are LIBOR Rate Loans, and (b) with respect to Standby Letters of Credit, a per annum rate equal to the Applicable Margin for Loans which are LIBOR Rate Loans.
“Appraised Value” means (a) with respect to Inventory, the appraised orderly liquidation value, net of costs and expenses to be incurred in connection with any such liquidation, which value is expressed as a percentage of Cost of Inventory as set forth in the inventory stock ledger of the Borrowers, which value shall be determined from time to time by the most recent appraisal undertaken by an independent appraiser engaged by the Agent, and (b) with respect to Real Estate, the fair market value of Real Estate
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as set forth in the most recent appraisal of Real Estate as determined from time to time by an independent appraiser engaged by the Agent, which appraisal shall assume, among other things, a marketing time of not greater than eighteen (18) months or less than three (3) months.
“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender (c) an entity or an Affiliate of an entity that administers or manages a Lender, or (d) the same investment advisor or an advisor under common control with such Lender, Affiliate or advisor, as applicable.
“Arrangers” means each of Bank of America and Wells Fargo Bank, National Association, in their capacities as joint lead arrangers and joint book managers.
“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Agent, in substantially the form of Exhibit E or any other form approved by the Agent.
“Attributable Indebtedness” means, on any date, (a) in respect of any Capital Lease Obligation of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation (other than a Capital Lease Obligation), the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease, agreement or instrument were accounted for as a capital lease.
“Audited Financial Statements” means the audited consolidated balance sheet of the Parent and its Subsidiaries for the Fiscal Year ended December 31, 2020, and the related consolidated statements of income or operations, Shareholders’ Equity and cash flows for such Fiscal Year of the Parent and its Subsidiaries, including the notes thereto.
“Auto-Extension Letter of Credit” shall have the meaning specified in Section 2.03(b)(iii).
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (x) if the then-current Benchmark is a term rate, any tenor for such Benchmark that is or may be used for determining the length of an Interest Period or (y) otherwise, any payment period for interest calculated with reference to such Benchmark, as applicable, pursuant to this Agreement as of such date.
“Availability Period” means the period from and including the Fourth Restatement Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Revolving Loan Commitments pursuant to Section 2.06, and (c) the date of termination of the Revolving Loan Commitments and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.
“Availability Reserves” means, without duplication of any other Reserves or items that are otherwise addressed or excluded through eligibility criteria, such reserves as the Agent from time to time determines in its Permitted Discretion as being appropriate (a) to reflect the impediments to the Agent’s ability to realize upon the Collateral included in the Revolving Borrowing Base, (b) to reflect claims and liabilities that the Agent determines in its Permitted Discretion will need to be satisfied in connection with the realization upon the Collateral included in the Revolving Borrowing Base, (c) to reflect criteria, events,
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conditions, contingencies or risks which adversely affect any component of the Revolving Borrowing Base, or the assets, business, financial performance or financial condition of any Loan Party, or (d) to reflect that a Default or an Event of Default then exists. Without limiting the generality of the foregoing, Availability Reserves may include, in the Agent’s Permitted Discretion, (but are not limited to) reserves based on (without duplication): (i) rent; (ii) customs duties, and other costs to release Inventory which is being imported into the United States; (iii) outstanding Taxes and other governmental charges due and owing by a Borrower but unpaid, including, without limitation, ad valorem, real estate, personal property, sales, claims of the PBGC and other Taxes which may have priority over the interests of the Agent in the Collateral; (iv) salaries, wages and benefits due and owing to employees of any Borrower but unpaid, (v) Customer Credit Liabilities, (vi) customer deposits, (viii) reserves for reasonably anticipated changes in the Appraised Value of Eligible Inventory between appraisals, (viii) unpaid warehousemen’s or bailee’s charges due and owing by any Borrower relating to Inventory of any Borrower and other Permitted Encumbrances which may have priority over the interests of the Agent in the Collateral, (ix) Cash Management Reserves, (x) Bank Products Reserves, and (xi) Realty Reserves.
“Average Daily Excess Availability” shall mean, as of any date of determination thereof, the average daily Excess Availability for the immediately preceding Fiscal Quarter.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means with respect to (a) 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, or (b) the United Kingdom, Part I of the United Kingdom Banking Act 2009 and any other law applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bank of America” means Bank of America, N.A. and its successors.
“Bank of America Fee Letter” means that certain fee letter, dated as of March 8, 2019, by and among Bank of America, MLPFS, and the Lead Borrower.
“Bank Product Reserves” means such reserves as the Agent from time to time determines in its Permitted Discretion as being appropriate to reflect the liabilities and obligations of the Loan Parties with respect to Bank Products then provided or outstanding.
“Bank Products” means any services of facilities provided to any Loan Party by the Agent, any Revolving Loan Lender, or any of their respective Affiliates, including, without limitation, on account of (a) Swap Contracts and (b) supply chain finance services (including, without limitation, trade payable services and supplier accounts receivable purchases), but excluding Cash Management Services.
“Base Rate” means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (c) the LIBOR Rate plus 1.00% (which rate, for the avoidance of doubt, shall not be less than the Floor). The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such prime rate announced by Bank of America
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shall take effect at the opening of business on the day specified in the public announcement of such change. If the Base Rate is being used as an alternate rate of interest pursuant to Section 3.03 hereof, then the Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above.
“Base Rate Loan” means a Loan that bears interest based on the Base Rate.
“Basel III” means the set of reform measures designed to improve the regulation, supervision and risk management within the banking sector, as developed by the Basel Committee on Banking Supervision.
“Benchmark” means, initially, LIBOR; provided that if a replacement of the Benchmark has occurred pursuant to Section 3.03(d) then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate. Any reference to “Benchmark” shall include, as applicable, the published component used in the calculation thereof.
“Benchmark Replacement” means:
(1) | For purposes of Section 3.03(d)(i), the first alternative set forth below that can be determined by the Agent: |
(b) | the sum of: (i) Daily Simple SOFR and (ii) 0.11448% (11.448 basis points); |
(2)For purposes of Section 3.03(d)(ii), the sum of (a) the alternate benchmark rate and (b) an adjustment (which may be a positive or negative value or zero), in each case, that has been selected by the Agent and the Lead Borrower as the replacement Benchmark giving due consideration to any evolving or then-prevailing market convention, including any applicable recommendations made by a Relevant Governmental Body, for U.S. dollar-denominated syndicated credit facilities at such time;
provided that, if the Benchmark Replacement as determined pursuant to clause (1) or (2) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents. Any Benchmark Replacement shall be applied in a manner consistent with market practice; provided that to the extent such market practice is not administratively feasible for the Agent, such Benchmark Replacement shall be applied in a manner as otherwise reasonably determined by the Agent.
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“Beneficial Ownership Certification” means a certification regarding beneficial ownership required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Borrowers” has the meaning specified in the introductory paragraph hereto.
“Borrowing” means a Committed Revolving Loan Borrowing or a Swing Line Borrowing, as the context may require.
“Borrowing Base Certificate” means a certificate substantially in the form of Exhibit D attached hereto (with such changes therein as may be required by the Agent to reflect the components of and reserves against the Revolving Borrowing Base as provided for hereunder from time to time), executed and certified as accurate and complete by a Responsible Officer of the Lead Borrower which shall include appropriate exhibits, schedules, supporting documentation, and additional reports as reasonably requested by the Agent.
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Agent’s Office is located and, if such day relates to any LIBOR Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank market.
“Capital Expenditures” means, with respect to any Person for any period, (a) all expenditures made (whether made in the form of cash or other property) or costs incurred for the acquisition or improvement of fixed or capital assets of such Person (excluding normal replacements and maintenance which are
7
properly charged to current operations), in each case that are (or should be) set forth as capital expenditures in a Consolidated statement of cash flows of such Person for such period, in each case prepared in accordance with GAAP, and (b) Capital Lease Obligations incurred by a Person during such period. For purposes of this definition, the purchase price of Equipment that is purchased substantially contemporaneously with the trade-in or sale of similar Equipment or with insurance proceeds therefrom shall be included in Capital Expenditures only to the extent of the gross amount by which such purchase price exceeds the credit granted to such Person for the Equipment being traded in by the seller of such new Equipment, the proceeds of such sale or the amount of the insurance proceeds, as the case may be.
“Capital Lease Obligations” means, with respect to any Person for any period, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as liabilities on a balance sheet of such Person under GAAP and the amount of which obligations shall be the capitalized amount thereof determined in accordance with GAAP.
“Cash Collateral Account” means a non-interest bearing account established by one or more of the Loan Parties with Bank of America, and in the name of, the Agent (or as the Agent shall otherwise direct) and under the sole and exclusive dominion and control of the Agent, in which deposits are required to be made in accordance with Section 2.03(g) or 8.02(c).
“Cash Collateralize” means to deposit in the Cash Collateral Account or to pledge and deposit with or deliver to the Agent, for the benefit of one or more of the Agent, the L/C Issuer or the Lenders, as collateral for L/C Obligations or obligations of the Lenders to fund participations in respect thereof (as the context may require), L/C Obligations, cash or deposit account balances or, if the Agent and the L/C Issuer shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to the Agent and the L/C Issuer. “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“Cash Dominion Event” means either (i) the occurrence and continuance of any Specified Event of Default, or (ii) the failure of the Borrowers to maintain Excess Availability for three (3) or more consecutive Business Days of at least the greater of (x) 10% of the Revolving Loan Cap or (y) $17,500,000. For purposes of this Agreement, the occurrence of a Cash Dominion Event shall be deemed continuing (i) so long as such Specified Event of Default is continuing hereunder, and/or (ii) if the Cash Dominion Event arises as a result of the Borrowers’ failure to achieve Excess Availability as required hereunder, until Excess Availability has exceeded the greater of (x) 10% of the Revolving Loan Cap or (y) $17,500,000 for sixty (60) consecutive days, in which case a Cash Dominion Event shall no longer be deemed to be continuing for purposes of this Agreement; provided that a Cash Dominion Event shall be deemed continuing (even if a Specified Event of Default is no longer continuing and/or Excess Availability exceeds the required amount for sixty (60) consecutive days) at all times after a Cash Dominion Event has occurred and been discontinued on four (4) occasions after the Second Amendment Effective Date. The termination of a Cash Dominion Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Cash Dominion Event in the event that the conditions set forth in this definition again arise.
“Cash Management Reserves” means such reserves as the Agent, from time to time, determines in its Permitted Discretion as being appropriate to reflect the reasonably anticipated liabilities and obligations of the Loan Parties with respect to Cash Management Services then provided or outstanding.
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“Cash Management Services” means any cash management services provided to any Loan Party by the Agent or any Revolving Loan Lender or any of their respective Affiliates, including, without limitation, (a) ACH transactions, (b) treasury and/or cash management services, including, without limitation, controlled disbursement services, treasury, depository, overdraft, and electronic funds transfer services, (c) credit card processing services and other merchant services (other than those constituting a line of credit), and (d) credit or debit cards and purchase cards.
“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq.
“CERCLIS” means the Comprehensive Environmental Response, Compensation, and Liability Information System maintained by the United States Environmental Protection Agency.
“CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“Change of Control” means an event or series of events by which:
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“Code” means the Internal Revenue Code of 1986, and the regulations promulgated thereunder, as amended and in effect.
“Collateral” means any and all “Collateral” or “Mortgaged Property” as defined in any applicable Security Document and all other property that is or is intended under the terms of the Security Documents to be subject to Liens in favor of the Agent.
“Collateral Access Agreement” means an agreement reasonably satisfactory in form and substance to the Agent executed by (a) a bailee or other Person in possession of Collateral, and/or (b) a landlord of Real Estate leased by any Loan Party, pursuant to which such Person (i) acknowledges the Agent’s Lien on the Collateral, (ii) releases or subordinates such Person’s Liens in the Collateral held by such Person or located on such Real Estate, (iii) provides the Agent with access to the Collateral held by such bailee or other Person or located in or on such Real Estate, (iv) as to any landlord, provides the Agent with a reasonable time to sell and dispose of the Collateral from such Real Estate, and (v) makes such other agreements with the Agent as the Agent may reasonably require.
“Collection Account” has the meaning provided in Section 6.12(c).
“Commercial Letter of Credit” means any letter of credit or similar instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by a Loan Party in the ordinary course of business of such Loan Party.
“Commitment Fee” has the meaning specified in Section 2.09(a).
“Commitment Fee Percentage” means 0.25% per annum.
“Committed Loan Notice” means a notice of (a) a Committed Revolving Loan Borrowing, (b) a Conversion of Committed Revolving Loans from one Type to the other, or (c) a continuation of LIBOR Rate Loans, pursuant to Section 2.02(b), which, if in writing, shall be substantially in the form of Exhibit A-1.
“Committed Revolving Loan” has the meaning specified in Section 2.01.
“Committed Revolving Loan Borrowing” means a borrowing consisting of simultaneous Committed Revolving Loans of the same Type and, in the case of LIBOR Rate Loans, having the same Interest Period made by each of the Revolving Loan Lenders pursuant to Section 2.01.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
“Communication” has the meaning set forth in Section 10.25.
“Compliance Certificate” means a certificate substantially in the form of Exhibit C attached hereto.
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“Consolidated” means, when used to modify a financial term, test, statement, or report of a Person, the application or preparation of such term, test, statement or report (as applicable) based upon the consolidation, in accordance with GAAP, of the financial condition or operating results of such Person and its Subsidiaries.
“Consolidated EBITDA” means, at any date of determination, an amount equal to Consolidated Net Income of the Parent and its Subsidiaries on a Consolidated basis for the most recently completed Measurement Period, plus (a) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges, (ii) the provision for Federal, state, local and foreign income Taxes, (iii) depreciation and amortization expense, (iv) other non-recurring expenses reducing such Consolidated Net Income which do not represent a cash item in such period or any future period, (v) costs, fees and expenses incurred in connection with the Loan Documents and other transactions occurring on or about the Fourth Restatement Date and the Existing Credit Agreement and other transaction occurring on the Second Amendment Effective Date, (vi) impairment charges and asset write-offs pursuant to GAAP and any non-cash stock compensation expenses, (vii) non-cash or non-recurring cash charges, losses or costs (including fines, penalties or settlement costs) incurred or paid during such period relating to the litigation disclosed on Schedule 5.06, including, without limitation, the litigations and settlements set forth in the definition of Material Adverse Effect Exceptions, including, without limitation, all legal expenses incurred during such period and owing to outside legal counsel in connection therewith, and all costs and expenses incurred or paid during such period relating to the formaldehyde testing and remediation process implemented by Parent and its Subsidiaries, provided that any cash charges, losses, costs or other amounts included in this clause (vii) for all periods (excluding, for the avoidance of doubt, the periods ending prior to March 31, 2019) shall not exceed $30,000,000 in the aggregate during the term of this Agreement, and (viii) other non-cash restructuring, severance and integration charges reducing such Consolidated Net Income (provided that if any such non-cash charge represents an accrual or reserve for potential cash items in any future period with cash, payment in respect thereof in such future period shall be subtracted from Consolidated EBITDA to such extent in such future period) (in each case of or by the Parent and its Subsidiaries for such Measurement Period), minus (b) the following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and foreign income tax credits and (ii) all non-cash items increasing Consolidated Net Income (in each case of or by the Parent and its Subsidiaries for such Measurement Period), all as determined on a Consolidated basis in accordance with GAAP.
“Consolidated Fixed Charge Coverage Ratio” means, at any date of determination, the ratio of (a) (i) Consolidated EBITDA for such period minus (ii) Capital Expenditures made during such period, minus (iii) the aggregate amount of Federal, state, local and foreign income taxes paid in cash during such period (net of Federal, state, local and foreign income tax refunds received during such period) (but not less than zero) to (b) the sum of Debt Service Charges, in each case, of or by the Parent and its Subsidiaries for the most recently completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP.
“Consolidated Interest Charges” means, for any Measurement Period, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Swap Contracts, and (b) the portion of rent expense with respect to such period under Capital Lease Obligations that is treated as interest in accordance with GAAP minus (c)
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interest income during such period (excluding any portion of interest income representing accruals of amounts received in a previous period), in each case of or by the Parent and its Subsidiaries for the most recently completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP.
“Consolidated Net Income” means, as of any date of determination, the net income of the Parent and its Subsidiaries for the most recently completed Measurement Period, all as determined on a Consolidated basis in accordance with GAAP, provided, however, that there shall be excluded (a) extraordinary gains and extraordinary losses for such Measurement Period, (b) the income (or loss) of any Subsidiary during such Measurement Period in which any other Person has a joint interest, except to the extent of the amount of cash dividends or other distributions actually paid in cash to the Parent during such period, (c) the income (or loss) of such Subsidiary during such Measurement Period and accrued prior to the date it becomes a Subsidiary of the Parent or any of its Subsidiaries or is merged into or consolidated with the Parent or any of its Subsidiaries or that Person’s assets are acquired by the Parent or any of its Subsidiaries, and (d) the income of any direct or indirect Subsidiary of the Parent to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its Organization Documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, except that the Parent’s equity in any net loss of any such Subsidiary for such Measurement Period shall be included in determining Consolidated Net Income.
“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Controlled Account” has the meaning provided in Section 6.12(a)(ii).
“Controlled Account Bank” means each bank with whom deposit accounts are maintained in which any funds of any of the Loan Parties from one or more DDAs are concentrated and with whom a Deposit Account Control Agreement has been, or is required to be, executed in accordance with the terms hereof.
“Convert”, “Conversion” and “Converted” each refers to a conversion of Committed Revolving Loans of one Type into Committed Revolving Loans of the other Type.
“Cost” means the lower of cost or market value of Inventory, based upon the Borrowers’ accounting practices, known to the Agent, which practices are in effect on the Fourth Restatement Date as such calculated cost is determined from invoices received by the Borrowers, the Borrowers’ purchase journals or the Borrowers’ stock ledger. “Cost” does not include inventory capitalization costs or other non-purchase price charges (such as freight) used in the Borrowers’ calculation of cost of goods sold.
“Covenant Compliance Event” means that Excess Availability at any time is less than the greater of (i) 10% of the Revolving Loan Cap or (ii) $17,500,000. For purposes hereof, the occurrence of a Covenant Compliance Event shall be deemed continuing until Excess Availability has exceeded the greater of (i) 10% of the Revolving Loan Cap or (ii) $17,500,000 for thirty (30) consecutive days, in which case a Covenant Compliance Event shall no longer be deemed to be continuing for purposes of this Agreement. The termination of a Covenant Compliance Event as provided herein shall in no way limit, waive or delay
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the occurrence of a subsequent Covenant Compliance Event in the event that the conditions set forth in this definition again arise.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Covered Party” has the meaning set forth in Section 10.29.
“Credit Card Issuer” shall mean any person (other than a Borrower or other Loan Party) who issues or whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club, Carte Blanche and other non-bank credit or debit cards, including, without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc., Synchrony Financial, Synchrony Canada and Novus Services, Inc. and other issuers approved by the Agent.
“Credit Card Notifications” has the meaning provided in Section 6.12(a)(i).
“Credit Card Processor” shall mean any servicing or processing agent or any factor or financial intermediary who facilitates, services, processes or manages the credit authorization, billing transfer and/or payment procedures with respect to any Borrower’s sales transactions involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer, including, without limitation, PayPal and, upon at least five (5) Business Days prior notice to the Agent, any other reputable servicing or processing agent, factor, financial intermediary or provider who has established a similar electronic commerce or payment method.
“Credit Card Receivables” means each “payment intangible” (as defined in the UCC) together with all income, payments and proceeds thereof, owed by a Credit Card Issuer or Credit Card Processor to a Loan Party resulting from charges by a customer of a Loan Party on credit or debit cards issued by such Credit Card Issuer in connection with the sale of goods by a Loan Party, or services performed by a Loan Party, in each case in the ordinary course of its business.
“Credit Extensions” mean each of the following: (a) a Committed Revolving Loan Borrowing and (b) an L/C Credit Extension.
“Credit Party” or “Credit Parties” means (a) individually, (i) each Lender and its Affiliates, (ii) the Agent, (iii) the L/C Issuer, (iv) the Arrangers, (v) each beneficiary of each indemnification obligation undertaken by any Loan Party under any Loan Document, (vi) any other Person to whom Obligations under this Agreement and other Loan Documents are owing, and (vii) the successors and assigns of each of the foregoing, and (b) collectively, all of the foregoing.
“Credit Party Expenses” means (a) all reasonable and documented out-of-pocket expenses incurred by the Agent, the Arrangers and their respective Affiliates in connection with this Agreement and the other Loan Documents, including without limitation (i) the reasonable and documented fees, charges and disbursements of (A) counsel for the Agent and the Arrangers (limited to not more than one primary counsel and necessary local counsel (limited to one local counsel per jurisdiction)), (B) outside consultants for the Agent, (C) appraisers, (D) commercial finance examiners, (E) all such reasonable and documented out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Obligations, and (F) environmental site assessments, (ii) in connection with (A) the syndication of
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the credit facilities provided for herein, (B) the preparation, negotiation, administration, management, execution and delivery of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (C) the enforcement or protection of their rights in connection with this Agreement or the Loan Documents or efforts to preserve, protect, collect, or enforce the Collateral or in connection with any proceeding under any Debtor Relief Laws, or (D) any workout, restructuring or negotiations in respect of any Obligations, and (iii) all customary fees and charges (as adjusted from time to time) of the Agent with respect to the disbursement of funds (or the receipt of funds) to or for the account of Borrowers (whether by wire transfer or otherwise), together with any reasonable and documented out-of-pocket costs and expenses incurred in connection therewith, and (b) with respect to the L/C Issuer, and its Affiliates, all reasonable and documented out-of-pocket expenses incurred in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder; and (c) all reasonable and documented out-of-pocket expenses incurred by the Credit Parties who are not the Agent, the Arrangers, the L/C Issuer or any Affiliate of any of them, after the occurrence and during the continuance of an Event of Default, provided that such Credit Parties shall be entitled to reimbursement for no more than one counsel representing all such Credit Parties (absent a conflict of interest in which case the Credit Parties may engage and be reimbursed for additional counsel); provided that the Credit Party Expenses set forth in clauses (a)(i)(B) though (a)(i)(D) shall be subject to Sections 6.10(b) and (c).
“Customer Credit Liabilities” means at any time, the aggregate remaining value at such time of (a) outstanding gift certificates and gift cards of the Borrowers entitling the holder thereof to use all or a portion of the certificate or gift card to pay all or a portion of the purchase price for any Inventory, and (b) outstanding merchandise credits of the Borrowers, including, without limitation, any vouchers to be issued by the Borrowers in connection with any litigation and/or settlement set forth in clause (c) of the definition of “Material Adverse Effect Exceptions”.
“Customs Broker/Carrier Agreement” means an agreement in form and substance reasonably satisfactory to the Agent among a Borrower, a customs broker, freight forwarder, consolidator, or carrier, and the Agent, in which the customs broker, freight forwarder, consolidator, or carrier acknowledges that it has control over and holds the bill of lading or other documents evidencing ownership of the subject Inventory for the benefit of the Agent and agrees, upon notice from the Agent in accordance with the terms of the applicable Customs Broker/Carrier Agreement, to hold and dispose of the subject Inventory solely as directed by the Agent.
“Daily Simple SOFR” with respect to any applicable determination date means the secured overnight financing rate (“SOFR”) published on such date by the Federal Reserve Bank of New York, as the administrator of the benchmark (or a successor administrator) on the Federal Reserve Bank of New York’s website (or any successor source).
“DDA” means each checking, savings or other demand deposit account maintained by any of the Loan Parties. All funds in each DDA (other than Excluded Accounts) shall be conclusively presumed to be Collateral and proceeds of Collateral and the Agent and the Lenders shall have no duty to inquire as to the source of the amounts on deposit in any such DDA.
“Debt Service Charges” means for any Measurement Period, the sum of (a) Consolidated Interest Charges paid or required to be paid for such Measurement Period, plus (b) scheduled principal payments made or required to be made on account of Indebtedness (excluding the Obligations and any Synthetic Lease
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Obligations but including, without limitation, Capital Lease Obligations) for such Measurement Period, in each case determined on a Consolidated basis in accordance with GAAP.
“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.
“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
“Defaulting Lender” means, subject to Section 2.16(b), any Revolving Loan Lender that (a) has failed to (i) fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder, or (ii) pay to the Agent, the L/C Issuer, the Swing Line Lender or any other Revolving Loan Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swing Line Loans) within two Business Days of the date when due, (b) has notified the Lead Borrower, the Agent, the L/C Issuer or the Swing Line Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect, (c) has failed, within three Business Days after written request by the Agent or the Lead Borrower, to confirm in writing to the Agent and the Lead Borrower that it will comply with its prospective funding obligations hereunder (provided that such Revolving Loan Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Agent and the Lead Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity, or (iii) become the subject of a Bail-in Action; provided that a Revolving Loan Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Revolving Loan 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 Loan 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 Revolving Loan Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Agent that a Revolving Loan Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above, and of the effective date of such status, shall be conclusive and binding absent manifest error, and such Revolving Loan Lender shall be deemed to be a Defaulting Lender (subject to Section 2.16(b)) as of the date established therefor by the Agent in a written notice of such determination, which shall be delivered by the Agent to the Lead Borrower, the L/C Issuer, the Swing Line Lender and each other Revolving Loan Lender promptly following such determination.
“Default Rate” means (a) when used with respect to Loans, an interest rate equal to the interest rate (including the Applicable Margin) otherwise applicable to such Loan plus two percent (2%) per annum, (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate for Standby Letters of Credit or Commercial Letters of Credit, as applicable, plus two percent (2%) per annum, and (c) with respect to all other Obligations, an interest rate equal to the Base Rate, plus the then Applicable Margin, plus two percent (2%) per annum.
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“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“Deposit Account Control Agreement” has the meaning specified in the Security Agreement.
“Designated Jurisdiction” means any country or territory to the extent that such country or territory is the subject of any Sanction.
“Disclosed Internal Control Event” means the Internal Control Event disclosed in the Parent’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2018, filed with the SEC on March 18, 2019, related to the classification of imported products under the Harmonized Tariff Schedule.
“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction), whether in one transaction or in a series of transactions, of any property (including, without limitation, any Equity Interests other than Equity Interests of the Parent) by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
“Disqualified Lender” means any bank, financial institution or other Person or any competitor of Parent and its Subsidiaries, in each case as identified in writing by the Lead Borrower to the Agent prior to the Fourth Restatement Date and thereafter, any such other Person identified in writing by the Lead Borrower to the Agent and approved by the Agent and any Person known by the Agent to be an Affiliate of such Person.
“Disqualified Stock” means 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, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable (other than solely for Equity Interests that do not constitute Disqualified Stock), pursuant to a sinking fund obligation or otherwise, or redeemable (other than solely for Equity Interests that do not constitute Disqualified Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is ninety-one (91) days after the date on which the Loans mature; provided, however, that only the portion of such Equity Interest which so matures or is so mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock.
“Dollars” and “$” mean lawful money of the United States.
“Domestic Subsidiary” means any Subsidiary that is organized under the laws of the United States of America, any State thereof or the District of Columbia (excluding, for the avoidance of doubt, any Subsidiary organized under the laws of Puerto Rico or any other territory).
“Early Opt-in Effective Date” means, with respect to any Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, so long as the Agent has not received, by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising the Required Lenders.
“Early Opt-in Election” means the occurrence of:
(1) | a determination by the Agent, or a notification by the Lead Borrower to the Agent that the Lead Borrower has made a determination, that U.S. dollar-denominated syndicated credit facilities |
currently being executed, or that include language similar to that contained in Section 3.03(d), are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR, and |
(2) | the joint election by the Agent and the Lead Borrower to replace LIBOR with a Benchmark Replacement and the provision by the Agent of written notice of such election to the Lenders. |
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Electronic Copy” has the meaning set forth in Section 10.25.
“Electronic Record” has the meaning set forth in Section 10.25.
“Electronic Signature” has the meaning set forth in Section 10.25.
“Eligible Assignee” means (a) a Credit Party or any of its Affiliates; (b) a bank, insurance company, or company engaged in the business of making commercial loans, which Person, together with its Affiliates, has a combined capital and surplus in excess of $250,000,000; (c) an Approved Fund; (d) any Person to whom a Credit Party assigns its rights and obligations under this Agreement as part of an assignment and transfer of such Credit Party’s rights in and to a material portion of such Credit Party’s portfolio of asset based credit facilities, and (e) any other Person (other than a natural Person) satisfying the requirements of Section 10.06(b) hereof; provided that notwithstanding the foregoing, “Eligible Assignee” shall not include a Disqualified Lender, or a Loan Party or any of their respective Affiliates or Subsidiaries.
“Eligible Credit Card Receivables” means at the time of any determination thereof, each Credit Card Receivable that satisfies the following criteria at the time of creation and continues to meet the same at the time of such determination: such Credit Card Receivable (i) has been earned by performance and represents the bona fide amounts due to a Borrower from a Credit Card Issuer or Credit Card Processor, and in each case is originated in the ordinary course of business of such Borrower, and (ii) in each case is acceptable to the Agent in its Permitted Discretion, and is not ineligible for inclusion in the calculation of the Revolving Borrowing Base pursuant to any of clauses (a) through (i) below. Without limiting the foregoing, to qualify as an Eligible Credit Card Receivable, such Credit Card Receivable shall indicate no Person other than a Borrower as payee or remittance party. In determining the amount to be so included, the face amount of a Credit Card Receivable shall be reduced by, without duplication of any Reserve or any of clauses (a) through (i) below or otherwise, to the extent not reflected in such face amount, (i) the amount of all accrued and actual discounts, claims, credits or credits pending, promotional program allowances, price adjustments, finance charges or other allowances (including any amount that a Borrower may be obligated to rebate to a customer, a Credit Card Issuer or Credit Card Processor pursuant to the terms of any agreement or understanding (written or oral)) and (ii) the aggregate amount
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of all cash received in respect of such Credit Card Receivable but not yet applied by the Loan Parties to reduce the amount of such Credit Card Receivable. Except as otherwise agreed by the Agent, any Credit Card Receivable included within any of the following categories shall not constitute an Eligible Credit Card Receivable:
(a)Credit Card Receivables which do not constitute an “account” or “payment intangible” (as defined in the UCC);
(b)Credit Card Receivables that have been outstanding for more than five (5) Business Days from the date of sale;
(c)Credit Card Receivables (i) that are not subject to a perfected first-priority security interest in favor of the Agent pursuant to the Security Documents (other than Permitted Encumbrances not having priority over, or that are pari passu with, the Lien of the Agent under applicable Law), or (ii) with respect to which a Borrower does not have good and valid title thereto, free and clear of any Lien (other than Liens granted to the Agent pursuant to the Security Documents and other Permitted Encumbrances not having priority over, or that are pari passu with, the Lien of the Agent under applicable Law);
(d)Credit Card Receivables which are disputed, are with recourse, or with respect to which a claim, counterclaim, offset or chargeback has been asserted (but only to the extent of such claim, counterclaim, offset or chargeback);
(e)Credit Card Receivables as to which a Credit Card Issuer or a Credit Card Processor has the right under certain circumstances to require a Loan Party to repurchase the Credit Card Receivables from such Credit Card Issuer or Credit Card Processor;
(f)Credit Card Receivables due from a Credit Card Issuer or a Credit Card Processor of the applicable credit card which (i) is the subject of a proceeding under any Debtor Relief Law or (ii) is a target of Sanctions;
(g) Credit Card Receivables which are not a valid, legally enforceable obligation of the applicable Credit Card Issuer or a Credit Card Processor with respect thereto;
(h)Credit Card Receivables which do not conform in all material respects to all representations, warranties or other provisions in the Loan Documents relating to Credit Card Receivables; or
(i)Credit Card Receivables which the Agent determines in its Permitted Discretion to be uncertain of collection.
“Eligible In-Transit Inventory” means, as of any date of determination thereof, without duplication of other Eligible Inventory, In-Transit Inventory:
(a)Which has been shipped from a foreign location for receipt by a Borrower, but which has not yet been delivered to such Borrower, which In-Transit Inventory has been in transit for forty-five (45) days or less from the date of shipment of such Inventory;
(b)For which the purchase order is in the name of a Borrower and title and risk of loss has passed to such Borrower;
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(c)For which an Acceptable Document of Title has been issued, and in each case as to which the Agent has possession or control (as defined in the UCC) to the extent applicable under the UCC over the bills of lading and other documents of title which evidence ownership of the subject Inventory pursuant to a Customs Broker/Carrier Agreement;
(d)Which is insured by marine cargo insurance and other insurance in accordance with the provisions of this Agreement;
(e)For which payment of the purchase price has been made by the Borrowers or the purchase price is supported by a Commercial Letter of Credit; and
(f)Which otherwise would constitute Eligible Inventory if located in the United States;
provided that the Agent may, in its Permitted Discretion, exclude any particular Inventory from the definition of “Eligible In-Transit Inventory” in the event the Agent reasonably determines that such Inventory is subject to any Person’s right of reclamation, repudiation, stoppage in transit or any event has occurred or the Agent determines in its Permitted Discretion is reasonably anticipated to arise which may otherwise materially and adversely impact the value of such Inventory or the ability of the Agent to realize upon such Inventory.
“Eligible Inventory” means, as of the date of determination thereof, without duplication, (x) Eligible In-Transit Inventory, (y) Eligible Unpaid In-Transit Inventory and (z) items of Inventory of a Borrower that are finished goods, merchantable and readily saleable to the public in the ordinary course of the Borrowers’ business deemed by the Agent in its Permitted Discretion to be eligible for inclusion in the calculation of the Revolving Borrowing Base, in each case that, except as otherwise agreed by the Agent, (i) complies in all material respects with each of the representations and warranties respecting Inventory made by the Borrowers in the Loan Documents, and (ii) is not excluded as ineligible by virtue of one or more of the criteria set forth below. Except as otherwise agreed by the Agent, in its Permitted Discretion, the following items of Inventory shall not be included in Eligible Inventory:
(a)Inventory that is not solely owned by a Borrower or a Borrower does not have good and valid title thereto free and clear of any Lien (other than Liens granted to the Agent pursuant to the Security Documents and other Permitted Encumbrances not having priority over, or that are pari passu with, the Lien of the Agent under applicable Law);
(b)Inventory that is leased by or is on consignment to a Borrower or which is consigned by a Borrower to a Person which is not a Loan Party;
(c)Inventory (other than Eligible In-Transit Inventory) that is not located in the United States of America (excluding territories or possessions of the United States) at a location that is owned or leased by a Loan Party, except (i) Inventory in transit between such owned or leased locations, (ii) to the extent that the Borrowers have furnished the Agent with (A) any UCC financing statements or other documents that the Agent may determine to be necessary to perfect its security interest in such Inventory at such location, and (B) a Collateral Access Agreement executed by the Person owning any such location, or (iii) with respect to which Agent has established an Availability Reserve or an Inventory Reserve in its Permitted Discretion;
(d)Inventory that is located in a distribution center leased by a Borrower unless the applicable lessor has delivered to the Agent a Collateral Access Agreement or the Agent has established an Availability Reserve or Inventory Reserve in it Permitted Discretion with respect to such location;
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(e)Inventory that is comprised of goods which (i) are damaged, defective, “seconds,” or otherwise unmerchantable, (ii) are to be returned to the vendor, (iii) are obsolete or slow moving, or custom items, work-in-process, raw materials, or that constitute samples, spare parts, promotional, marketing, labels, bags and other packaging and shipping materials or supplies used or consumed in a Borrower’s business, (iv) are seasonal in nature and which have been packed away for sale in the subsequent season, (v) are not in compliance in all material respects with all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale, or (vi) are bill and hold goods;
(f)Inventory that is not subject to a perfected first-priority security interest in favor of the Agent (other than Permitted Encumbrances not having priority over or that are pari passu with, the Lien of the Agent under applicable Law);
(g)Inventory that is not insured in compliance with the provisions of Section 5.10 hereof;
(h)Inventory that has been sold but not yet delivered or as to which a Borrower has accepted a deposit; or
(i)Inventory acquired in a Permitted Acquisition or which is not of the type usually sold in the ordinary course of the Borrowers’ business, unless and until the Agent has completed or received (A) an appraisal of such Inventory from appraisers reasonably satisfactory to the Agent and establishes Inventory Reserves (if applicable) therefor, and (B) such other due diligence as the Agent may require in its Permitted Discretion, including an updated Borrowing Base Certificate, with all of the results of the foregoing to be reasonably satisfactory to the Agent.
“Eligible Real Estate” means, as of any date of determination thereof, Real Estate which, except as otherwise agreed by the Agent, in its Permitted Discretion, satisfies all of the following conditions:
(a)A Borrower owns such Real Estate in fee simple absolute;
(b)The Agent shall have received evidence that all actions have been taken that the Agent may reasonably deem necessary or appropriate in order to create valid first and subsisting Liens (subject only to Permitted Encumbrances (other than Liens securing Indebtedness) which have priority over the Lien of the Agent by operation of Law or otherwise reasonably acceptable to the Agent) on the property described in the Mortgages;
(c)The Agent and the Lenders shall have received an appraisal of such Real Estate complying with the requirements of FIRREA by a third party appraiser reasonably acceptable to the Agent and each Lender, and otherwise in form and substance reasonably satisfactory to the Agent and each Lender; and
(d)The applicable Loan Party has executed and delivered to the Agent a Mortgage with respect to such Real Estate;
(e)Such Real Estate is used by a Loan Party for offices or as a Store or distribution center;
(f)As to any particular property, the Loan Party is in compliance in all material respects with the representations, warranties and covenants set forth in the Mortgage relating to such Real Estate;
(g) The Agent shall have received fully paid American Land Title Association Lender’s Extended Coverage title insurance policies or marked-up title insurance commitments having the
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effect of a policy of title insurance (the “Mortgage Policies”) in form and substance, with the endorsements reasonably required by the Agent (to the extent available at commercially reasonable rates) and in amounts reasonably acceptable to the Agent, issued, coinsured and reinsured (to the extent required by the Agent) by title insurers reasonably acceptable to the Agent, insuring the Mortgages to be valid first and subsisting Liens on the property or leasehold interests described therein, free and clear of all defects (including, but not limited to, mechanics’ and materialmen’s Liens) and encumbrances, excepting only Permitted Encumbrances having priority over the Lien of the Agent under Law or otherwise reasonably acceptable to the Agent;
(h)The Agent shall have received American Land Title Association/American Congress on Surveying and Mapping form surveys, for which all necessary fees (where applicable) have been paid, certified to the Agent and the issuer of the Mortgage Policies in a manner reasonably satisfactory to the Agent by a land surveyor duly registered and licensed in the states in which the property described in such surveys is located and reasonably acceptable to the Agent, showing all buildings and other improvements, the location of any easements, parking spaces, rights of way, building set-back lines and other dimensional regulations and the absence of encroachments, either by such improvements or on to such property, and other defects, other than encroachments and other defects reasonably acceptable to the Agent;
(i)The Agent shall have received a Phase I Environmental Site Assessment in accordance with ASTM Standard E1527-05, in form and substance reasonably satisfactory to the Agent and the Lenders, from an environmental consulting firm reasonably acceptable to the Agent and the Lenders, which report shall identify recognized environmental conditions and shall to the extent possible quantify any related costs and liabilities, associated with such conditions and the Agent shall be satisfied with the nature and amount of any such matters, and, if requested by the Agent after receipt of a Phase I Environmental Site Assessment, such further environmental assessments or reports to the extent such further assessments or reports are recommended in the Phase I Environmental Site Assessment;
(j)The applicable Loan Party shall have delivered to the Agent and the Lenders evidence of flood insurance naming the Agent, on behalf of the Lenders, as mortgagee if and to the extent required by the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as amended and in effect, which shall be reasonably satisfactory in form and substance to the Agent; and
(k)The applicable Loan Party shall have delivered such other information and documents as may be reasonably requested by the Agent and the Lenders, including, without limitation, such as may be necessary to comply with FIRREA.
“Eligible Unpaid In-Transit Inventory” means Eligible Inventory that would otherwise constitute Eligible In-Transit Inventory, except for which a payment of the purchase price has not yet been made by a Borrower or supported by a Commercial Letter of Credit as required pursuant to clause (e) of the definition of Eligible In-Transit Inventory.
“Environmental Compliance Reserve” means, with respect to Eligible Real Estate, such reserves which the Agent, from time to time in its Permitted Discretion establishes for estimable amounts that are reasonably likely to be expended by any of the Loan Parties in order for such Loan Party and its operations and property (a) to comply with any notice from a Governmental Authority asserting non-compliance with Environmental Laws with respect to Eligible Real Estate, or (b) to correct any such non-
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compliance with Environmental Laws with respect to Eligible Real Estate or to provide for any Environmental Liability.
“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
“Environmental Liability” means any liability, obligation, damage, loss, claim, action, suit, judgment, order, fine, penalty, fee, expense, or cost, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal or presence of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equipment” has the meaning set forth in the UCC.
“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or non-voting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Lead Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of the Lead Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Lead Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability
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under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Lead Borrower or any ERISA Affiliate.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Event of Default” has the meaning specified in Section 8.01.
“Excess Availability” means, as of any date of determination thereof by the Agent, the result, if a positive number, of:
minus
“Excluded Account” means any DDA now or hereafter owned by any Loan Party that is used solely by such Loan Party (a) as a payroll account so long as such payroll account is a zero balance account, (b) as a petty cash account so long as the aggregate amount on deposit in all petty cash accounts of the Loan Parties does not exceed $50,000 at any one time for all such DDAs combined, (c) commodity trading accounts or other brokerage accounts holding customary initial deposits and margin deposits securing obligations under Swap Contracts incurred in the ordinary course of business and not for speculative purposes, (d) to hold amounts required to be paid in connection with workers compensation claims, unemployment insurance, social security benefits and other similar forms of governmental insurance benefits, (e) to hold amounts which are required to be pledged or otherwise provided as security as required by law or pension requirement, or (f) as a withholding tax or fiduciary account.
“Excluded Domestic Subsidiary” means any Domestic Subsidiary directly or indirectly owned by a CFC.
“Excluded Swap Obligation” means, with respect to any Loan Party, any Swap Obligation if, and to the extent that, all or a portion of the guaranty of such Loan Party under the Facility Guaranty of, or the grant under a Loan Document by such Loan Party of a security interest to secure, such Swap Obligation (or any guaranty thereof) is or becomes illegal under the Commodity Exchange Act (or the application or official interpretation thereof) by virtue of such Loan Party’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act (determined after giving effect to Section 10.26 hereof and any and all guarantees of such Loan Party’s Swap Obligations by other Loan Parties) at the time the guaranty of such Loan Party, or grant by such Loan Party of a security interest, becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a Master Agreement governing more than one Swap Contract, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to Swap Contracts for which such guaranty or security interest becomes illegal.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to any Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Revolving Loan Commitment pursuant to a law in effect on the date on
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which (i) such Lender acquires such interest in the Loan or Revolving Loan Commitment (other than pursuant to an assignment request by the Lead Borrower under Section 10.13) or (ii) such Lender changes its Lending Office, (c) Taxes attributable to such Recipient’s failure to comply with Section 3.01(e) and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.
“Executive Order” has the meaning set forth in Section 10.18.
“Existing Credit Agreement” has the meaning provided in the recitals hereto.
“Facility Guaranty” means the Guaranty made as of April 24, 2015 by the Guarantors in favor of the Agent and the other Credit Parties, in form reasonably satisfactory to the Agent.
“FASB ASC” means the Accounting Standards Codification of the Financial Accounting Standards Board.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
“Federal Funds Rate” means, for any day, the rate per annum calculated by the Federal Reserve Bank of New York based on such day’s federal funds transactions by depository institutions (as determined in such manner as the Federal Reserve Bank of New York shall set forth on its public website from time to time) and published on the next succeeding Business Day by the Federal Reserve Bank of New York as the federal funds effective rate; provided that if the Federal Funds Rate as so determined would be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“Fee Letters” means, collectively, the Bank of America Fee Letter and/or the Lender Fee Letter, as the context may require.
“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended from time to time.
“First Amendment Fee Letter” means the letter entitled “First Amendment Fee Letter” among the Lead Borrower and Bank of America, dated as of April 17, 2020.
“Fiscal Quarter” means any fiscal quarter of any Fiscal Year, which quarters shall generally end on the last day of each March, June, September and December of such Fiscal Year in accordance with the fiscal accounting calendar of the Loan Parties.
“Fiscal Year” means any period of twelve consecutive months ending on December 31 of any calendar year.
“Floor” means 0.25% per annum.
“Foreign Assets Control Regulations” has the meaning set forth in Section 10.18.
“Foreign Lender” means (a) if a Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if a Borrower is not a U.S. Person, a Lender that is resident or organized under the Laws of a jurisdiction other than that in which such Borrower is resident for tax purposes.
“Fourth Restatement Audited Financial Statements” means the audited consolidated balance sheet of the Parent and its Subsidiaries for the Fiscal Year ended December 31, 2018, and the related consolidated
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statements of income or operations, Shareholders’ Equity and cash flows for such Fiscal Year of the Parent and its Subsidiaries, including the notes thereto.
“Fourth Restatement Date” means the first date all the conditions precedent in Section 4.01 were satisfied or waived in accordance with Section 10.01.
“FRB” means the Board of Governors of the Federal Reserve System of the United States.
“Fronting Exposure” means, at any time there is a Defaulting Lender that is a Revolving Loan Lender, (a) with respect to the L/C Issuer, such Defaulting Lender’s Applicable Percentage of the outstanding L/C Obligations other than L/C Obligations as to which such Defaulting Lender’s participation obligation has been reallocated to other Revolving Loan Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect to the Swing Line Lender, such Defaulting Lender’s Applicable Percentage of Swing Line Loans other than Swing Line Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Revolving Loan Lenders in accordance with the terms hereof.
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien); provided that the term “Guarantee” shall not include endorsement of checks, drafts and other items for the payment of money for collection or deposit, in either case, in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in
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respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof. The term “Guarantee” as a verb has a corresponding meaning.
“Guarantor” means (a) the Parent and each Subsidiary of the Parent (other than (i) any Borrower, (ii) any Excluded Domestic Subsidiary and (iii) any CFC) existing on the Second Amendment Effective Date, and (b) each other Subsidiary of the Parent that shall be required to execute and deliver a Facility Guaranty pursuant to Section 6.11.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“Honor Date” has the meaning specified in Section 2.03(c)(i).
“Increase Effective Date” shall have the meaning provided therefor in Section 2.15(d).
“Impacted Loans” has the meaning specified in Section 3.03(b).
“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a)all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b)the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;
(c)net obligations of such Person under any Swap Contract;
(d)all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than 60 days after the date on which such trade account payable was created);
(e)Indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including Indebtedness arising under conditional sales or other title retention agreements), whether or not such Indebtedness shall have been assumed by such Person or is limited in recourse;
(f)All Attributable Indebtedness of such Person;
(g)all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person (including, without limitation, Disqualified Stock), or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and
(h)all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made
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non-recourse to such Person and except to the extent such Person’s liability for such Indebtedness is otherwise limited under applicable Law. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitees” has the meaning specified in Section 10.04(b).
“Information” has the meaning specified in Section 10.07.
“Intellectual Property” has the meaning given to such term in the Security Agreement.
“Interest Payment Date” means, (a) as to any LIBOR Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a LIBOR Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the first calendar day of each calendar quarter and the Maturity Date.
“Interest Period” means, as to each LIBOR Rate Loan, the period commencing on the date such LIBOR Rate Loan is disbursed or Converted to or continued as a LIBOR Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Lead Borrower in its Committed Loan Notice; provided that:
(i)any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(ii)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;
(iii)no Interest Period shall extend beyond the Maturity Date; and
(iv)notwithstanding the provisions of clause (iii), no Interest Period shall have a duration of less than one (1) month, and if any Interest Period applicable to a LIBOR Borrowing would be for a shorter period, such Interest Period shall not be available hereunder.
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.
“Internal Control Event” means a material weakness in, or fraud that involves management or other employees who have a significant role in, the Parent’s and/or its Subsidiaries’ internal controls over financial reporting.
“In-Transit Inventory” means Inventory of a Borrower which is in the possession of a common carrier and is in transit from a foreign vendor of a Borrower from a location outside of the United States to a location of a Borrower that is within the United States.
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“Inventory” has the meaning given that term in the UCC, and shall also include, without limitation, all: (a) goods which (i) are leased by a Person as lessor, (ii) are held by a Person for sale or lease or to be furnished under a contract of service, (iii) are furnished by a Person under a contract of service, or (iv) consist of raw materials, work in process, or materials used or consumed in a business; (b) goods of said description in transit; (c) goods of said description which are returned, repossessed or rejected; and (d) packaging, advertising, and shipping materials related to any of the foregoing.
“Inventory Reserves” means, without duplication of any other Reserves or items that are otherwise addressed or excluded through eligibility criteria, such reserves as may be established from time to time by the Agent in its Permitted Discretion with respect to the determination of the salability, at retail, of the Eligible Inventory, which reflect such other factors as affect the market value of the Eligible Inventory or which reflect claims and liabilities that the Agent reasonably determines will need to be satisfied in connection with the realization upon the Inventory. Without limiting the generality of the foregoing, Inventory Reserves may, in the Agent’s Permitted Discretion, include (but are not limited to) reserves based on:
(a)Obsolescence;
(b)Seasonality;
(c)Shrink;
(d)Imbalance;
(e)Change in Inventory character;
(f)Change in Inventory composition;
(g)Change in Inventory mix;
(h)Mark-downs (both permanent and point of sale);
(i)Retail mark-ons and mark-ups inconsistent with prior period practice and performance, industry standards, current business plans or advertising calendar and planned advertising events; and
(j)Out-of-date and/or expired Inventory.
“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) any Acquisition, or (d) any other investment of money or capital in order to obtain a profitable return. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
“IRS” means the United States Internal Revenue Service.
“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.
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“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
“Issuer Documents” means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and any Borrower (or any Subsidiary) or in favor the L/C Issuer and relating to any such Letter of Credit.
“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“L/C Advance” means, with respect to each Revolving Loan Lender, such Revolving Loan Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage.
“L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Revolving Loan Borrowing.
“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
“L/C Issuer” means Bank of America. The L/C Issuer may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the L/C Issuer, in which case the term “L/C Issuer” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
“L/C Obligations” means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if, on any date of determination, a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.
“Lead Borrower” has the meaning specified in the introductory paragraph hereto.
“Lease” means any agreement, whether written or oral, no matter how styled or structured, pursuant to which a Loan Party is entitled to the use or occupancy of any real property for any period of time.
“Lender” means a Revolving Loan Lender (and, as the context requires, includes the Swing Line Lender).
“Lender Fee Letter” means, collectively, (i) that certain fee letter, dated as of March 8, 2019, by and among Bank of America, MLPFS, Wells Fargo Bank, National Association and the Lead Borrower, (ii) the First Amendment Fee Letter, and (iii) Second Amendment Fee Letter, as each may be amended, supplemented or replaced and in effect from time to time.
“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Lead Borrower and the Agent.
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“Letter of Credit” means each Standby Letter of Credit and each Commercial Letter of Credit issued hereunder.
“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
“Letter of Credit Expiration Date” means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
“Letter of Credit Fee” has the meaning specified in Section 2.03(i).
“Letter of Credit Sublimit” means an amount equal to $20,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Revolving Loan Commitments. A permanent reduction of the Aggregate Revolving Loan Commitments shall not require a corresponding pro rata reduction in the Letter of Credit Sublimit; provided, however, that if the Aggregate Revolving Loan Commitments are reduced to an amount less than the Letter of Credit Sublimit, then the Letter of Credit Sublimit shall be reduced to an amount equal to (or, at Lead Borrower’s option, less than) the Aggregate Revolving Loan Commitments.
“LIBOR Borrowing” means a Committed Revolving Loan Borrowing comprised of LIBOR Rate Loans.
“LIBOR Rate” means the higher of:
(i) the Floor, and
(ii) (a) for any Interest Period with respect to a LIBOR Rate Loan, the rate per annum equal to the London Interbank Offered Rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate for U.S. Dollars) for a period equal in length to such Interest Period (“LIBOR”) as published on the applicable Bloomberg screen page (or such other commercially available source providing such quotations as may be designated by the Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period; and
(b) for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to LIBOR Rate, at or about 11:00 a.m., London time determined two London Banking Days prior to such date for U.S. Dollar deposits with a term of one month commencing that day.
“LIBOR Rate Loan” means a Committed Revolving Loan that bears interest at a rate based on the LIBOR Rate.
“Lien” means (a) any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale, Capital Lease Obligation, Synthetic Lease Obligation, or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing) and (b) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
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“Loan” means a Revolving Loan and other advances to or for the account of the Borrowers pursuant to this Agreement.
“Loan Account” has the meaning assigned to such term in Section 2.11(a).
“Loan Documents” means this Agreement, each Note, each Issuer Document, the Fee Letters, all Borrowing Base Certificates, the Deposit Account Control Agreements, the Credit Card Notifications, the Security Documents, the Facility Guaranty, and any other instrument or agreement now or hereafter executed and delivered in connection herewith, each as amended and in effect from time to time.
“Loan Parties” means, collectively, each Borrower and each Guarantor.
“London Banking Day” means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
“Master Agreement” has the meaning set forth in the definition of “Swap Contract.”
“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect on, the operations, business, assets, properties, liabilities (actual or contingent), or condition (financial or otherwise) of Parent and its Subsidiaries, taken as a whole; (b) a material impairment of the rights and remedies of the Agent or any Lender under any Loan Documents, or of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event in and of itself does not have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then-existing events would result in a Material Adverse Effect.
“Material Adverse Effect Exceptions” means, collectively, (a) a settlement (for aggregate consideration consistent with the presentation set forth in the 2019 Financing Plan) with the U.S. Attorney’s Office for the Eastern District of Virginia and the Department of Justice (“DOJ”), and a related one count criminal information to be filed by the DOJ in the United States District Court for the Eastern District of Virginia, charging the Parent with securities fraud, related to the criminal investigation being conducted by the DOJ and the SEC as disclosed in the Parent’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2018, filed with the SEC on March 18, 2019 (the “Investigation”), (b) a settlement (for aggregate consideration consistent with the presentation set forth in the 2019 Financing Plan) with the SEC pursuant to an Offer of Settlement and a related Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order issued by the SEC related to the Investigation, (c) any litigation or settlement (for aggregate consideration not to exceed $35,000,000) related to the purported class action lawsuit in the United States District Court for the Northern District of California alleging that the Morning Star bamboo flooring that the Lead Borrower sells is defective (the “Gold Litigation”), or (d) the mere filing of and/or demand for relief under any subsequent claims or lawsuits (whether by class action, derivatively or otherwise) relating to or arising under any matter set forth in clause (a) or (b) above.
“Material Contract” means (i) each settlement agreement or judgment entered into by the Loan Parties with respect to any litigation set forth on Schedule 5.06 hereof under which, as of any date of determination, any Loan Party owes more than $10,000,000 as of such date of determination, and (ii) each contract or agreement to which any Loan Party is a party involving aggregate consideration payable to or by such Loan Party of $10,000,000 or more in any Fiscal Year (other than purchase orders in the ordinary
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course of business of the Loan Parties and other than contracts that by their terms may be terminated by the applicable Loan Party in the ordinary course of its business upon less than 60 days’ notice without penalty or premium).
“Material Indebtedness” means Indebtedness (other than the Obligations) of the Loan Parties in an aggregate principal amount exceeding $10,000,000. For purposes of determining the amount of Material Indebtedness at any time, (a) the amount of the obligations in respect of any Swap Contract at such time shall be calculated at the Swap Termination Value thereof, (b) undrawn committed or available amounts shall be included, and (c) all amounts owing to all creditors under any combined or syndicated credit arrangement shall be included.
“Maturity Date” means April 30, 2026.
“Maximum Rate” has the meaning provided therefor in Section 10.09.
“Measurement Period” means, at any date of determination, the most recently completed four Fiscal Quarters of the Parent.
“MLPFS” means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.
“Mortgage Policy” has the meaning specified in the definition of Eligible Real Estate.
“Mortgages” means each and every fee mortgage or deed of trust, security agreement and assignment by the Loan Party owning or holding the leasehold interest in the Real Estate encumbered thereby in favor of the Agent.
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Lead Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
“Multiple Employer Plan” means a Plan which has two or more contributing sponsors (including the Lead Borrower or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.
“Non-Consenting Lender” has the meaning provided therefor in Section 10.01(c).
“Non-Defaulting Lender” means, at any time, each Revolving Loan Lender that is not a Defaulting Lender at such time.
“Non-Extension Notice Date” has the meaning specified in Section 2.03(b)(iii).
“Note” means a promissory note made by the Borrowers in favor of a Revolving Loan Lender evidencing Committed Revolving Loans made by such Revolving Loan Lender, substantially in the form of Exhibit B-1 attached hereto.
“NPL” means the National Priorities List under CERCLA.
“Obligations” means (a) all advances to, and debts (including principal, interest, fees, costs, and expenses), liabilities, obligations, covenants, indemnities, and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit (including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral therefor), whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to
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become due, now existing or hereafter arising and including interest, fees, costs, expenses and indemnities that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest, fees costs, expenses and indemnities are allowed claims in such proceeding, and (b) any Other Liabilities; provided that Obligations of a Loan Party shall exclude any Excluded Swap Obligations with respect to such Loan Party.
“OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.
“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity, and (d) in each case, all shareholder or other equity holder agreements, voting trusts and similar arrangements to which such Person is a party or which is applicable to its Equity Interests and all other arrangements relating to the Control or management of such Person.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Liabilities” means any obligation on account of (a) any Cash Management Services furnished to any of the Loan Parties or any of their Subsidiaries and/or (b) any Bank Product furnished to any of the Loan Parties and/or any of their Subsidiaries.
“Other Rate Early Opt-in” means the Agent and the Lead Borrower have elected to replace LIBOR with a Benchmark Replacement other than a SOFR-based rate pursuant to (1) an Early Opt-in Election and (2) Section 3.03(d)(ii) and paragraph (2) of the definition of “Benchmark Replacement”.
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 3.06).
“Outstanding Amount” means (i) with respect to Committed Revolving Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments of Loans occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrowers of Unreimbursed Amounts.
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“Overadvance” means a Credit Extension to the extent that, immediately after its having been made, Excess Availability is less than zero.
“Parent” means Lumber Liquidators Holdings, Inc., a Delaware corporation.
“Participant Register” has the meaning specified in Section 10.06(d)(iii).
“Payment Conditions” means, at the time of determination with respect to any Permitted Acquisition or prepayment of Indebtedness, that (a) no Default or Event of Default then exists or would arise as a result of entering into such Permitted Acquisition or the making of such prepayment, (b) either (x) (i) Excess Availability on a pro forma basis and on a projected (on assumptions reasonably satisfactory to the Agent) basis for the six (6) month period following and after giving effect to such Permitted Acquisition or prepayment is greater than fifteen (15%) percent of the Revolving Loan Cap, and (ii) the Consolidated Fixed Charge Coverage Ratio, as calculated on a pro forma basis after giving effect to such Permitted Acquisition or prepayment of such Indebtedness for the immediately preceding Measurement Period is equal to or greater than 1.0:1.0, or (y) Excess Availability on a pro forma basis and on a projected (on assumptions reasonably satisfactory to the Agent) basis for the six (6) month period following and after giving effect to such Permitted Acquisition or prepayment is greater than twenty-five (25%) percent of the Revolving Loan Cap. Prior to undertaking any transaction or payment which is subject to the Payment Conditions, the Loan Parties shall deliver to the Agent evidence of satisfaction of the conditions contained in clause (b) above on a basis (including, without limitation, giving due consideration to results for prior periods) reasonably satisfactory to the Agent; provided that the Borrowers shall not be required to deliver updated projections as set forth in clauses (b)(x)(i) or (y) above in the event that on a pro forma basis after giving effect to such Permitted Acquisition or prepayment of Indebtedness, as the case may be, the average daily Total Outstandings for the immediately prior sixty (60) day period are less than thirty (30%) percent of the Revolving Loan Cap.
“PBGC” means the Pension Benefit Guaranty Corporation.
“PCAOB” means the Public Company Accounting Oversight Board.
“Pension Act” means the Pension Protection Act of 2006.
“Pension Funding Rules” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.
“Pension Plan” means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by the Lead Borrower and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.
“Permitted Acquisition” means an Acquisition in which all of the following conditions are satisfied:
(a)Such Acquisition shall have been approved by the Board of Directors of the Person (or similar governing body if such Person is not a corporation) which is the subject of such Acquisition and such Person shall not have announced that it will oppose such Acquisition or shall not have commenced any action which alleges that such Acquisition shall violate applicable Law;
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(b)Solely to the extent proceeds of the Loan are used to consummate such Acquisition, the Lead Borrower shall have furnished the Agent with ten (10) days’ (or such shorter period as the Agent shall agree) prior written notice of such intended Acquisition and if such Acquisition is for a purchase price of $30,000,000 or more, with (i) a current draft of the Acquisition documents (and final copies thereof as and when executed) and (ii) pro forma projected financial statements of the acquired Person consisting of balance sheets and income statements for the twelve (12) month period following such Acquisition after giving effect to such Acquisition, and such other information as the Agent may reasonably require, all of which shall be in form reasonably satisfactory to the Agent;
(c)After giving effect to the Acquisition, if the Acquisition is an Acquisition of Equity Interests, a Loan Party or a Subsidiary shall acquire and own, directly or indirectly, a majority of the Equity Interests in the Person being acquired and shall Control a majority of any voting interests or shall otherwise Control the governance of the Person being acquired;
(d)Any assets acquired shall be utilized in, and if the Acquisition involves a merger, consolidation or acquisition of Equity Interests, the Person which is the subject of such Acquisition shall be engaged in, a business otherwise permitted to be engaged in by a Borrower under this Agreement;
(e)If the Person which is the subject of such Acquisition will be maintained as a Subsidiary of a Loan Party, such Subsidiary shall have been joined as a “Borrower” hereunder or as a Guarantor, as the Agent shall determine, and the Agent shall have received a first priority security interest (subject only to Permitted Encumbrances having priority either pursuant to applicable Law or to the extent expressly permitted to have priority pursuant to the other terms of this Agreement) in the property of such Subsidiary and of the same nature in all material respects as constitutes Collateral under the Security Documents; and
(f)The Loan Parties shall have satisfied the Payment Conditions.
“Permitted Discretion” means a determination made by the Agent in good faith and in the exercise of commercially reasonable business judgment from the perspective of an asset based lender.
“Permitted Disposition” means any of the following:
(a)Dispositions of Inventory in the ordinary course of business;
(b)bulk sales or other Dispositions of the Inventory of a Loan Party not in the ordinary course of business at arm’s length in connection with Permitted Store Closings;
(c)non-exclusive licenses of Intellectual Property of a Loan Party or any of its Subsidiaries in the ordinary course of business;
(d)licenses for the conduct of licensed departments within the Loan Parties’ Stores in the ordinary course of business; provided that, if requested by the Agent, the applicable Loan Party shall have used commercially reasonable efforts to cause the Person operating such licensed department to enter into an intercreditor agreement with the Agent on terms and conditions reasonably satisfactory to the Agent;
(e)Dispositions of Equipment and other assets (including abandonment of or other failures to maintain, preserve, renew, protect or keep in full force and effect Intellectual Property not necessary for the conduct of the Loan Parties’ business) in the ordinary course of business that is
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substantially worn, damaged, obsolete or, in the judgment of a Loan Party, no longer useful or necessary in its business or that of any Subsidiary;
(f)sales, transfers and Dispositions among the Loan Parties or by any Subsidiary to a Loan Party;
(g)sales, transfers and Dispositions by any Subsidiary which is not a Loan Party to another Subsidiary that is not a Loan Party;
(h)as long as no Default or Event of Default then exists or would arise therefrom, sales of Real Estate of any Loan Party (or sales of any Person or Persons created to hold such Real Estate or the Equity Interests in such Person or Persons), including sale-leaseback transactions involving any such Real Estate pursuant to leases on market terms, as long as, (A) such sale is made for fair market value, (B) with respect to any Eligible Real Estate, Excess Availability on a pro forma basis and on a projected (on assumptions reasonably satisfactory to the Agent) basis for the six (6) month period following and after giving effect to such sale and the removal of such Eligible Real Estate from the Revolving Borrowing Base is greater than thirty (30%) percent of the Revolving Loan Cap, and (C) in the case of any sale-leaseback transaction permitted hereunder, the Lead Borrower shall use commercially reasonable efforts to cause the Agent to receive from each such purchaser or transferee a Collateral Access Agreement on terms and conditions reasonably satisfactory to the Agent;
(i)Dispositions consisting of the compromise, settlement or collection of delinquent accounts receivable in the ordinary course of business, consistent with past practices;
(j)leases, subleases, space leases, licenses or sublicenses of Real Estate (and terminations of any of the foregoing), in each case in the ordinary course of business and which do not materially interfere with the business of the Parent and its Subsidiaries, taken as a whole;
(k)to the extent constituting a Disposition, (i) the use of cash or cash equivalents solely to the extent such use would not result in a Default or Event of Default and (ii) conversions of cash equivalents into cash or other cash equivalents;
(l)any Disposition of Real Estate to a Governmental Authority as a result of the condemnation of such Real Estate;
(m)Dispositions of property (but excluding, for the avoidance of doubt, Eligible Real Estate referenced in clause (h) above) to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property that is promptly purchased or (ii) the proceeds of such Disposition are promptly applied to the purchase price of such replacement property;
(n)to the extent constituting a Disposition, (i) transactions permitted by Section 7.04, (ii) Restricted Payments permitted by Section 7.06 and (iii) Liens permitted by Section 7.01;
(o)Dispositions of Investments in joint ventures; and
(q)other Dispositions (other than Dispositions of Collateral included in the Revolving Borrowing Base) for consideration not exceeding $15,000,000 in the aggregate during any consecutive twelve (12) month period so long as no Event of Default has occurred and is continuing or would immediately result therefrom; provided that an amount equal to the net proceeds of such Disposition received by any Loan Party is applied to the prepayment of Loans in the manner and to the extent required by Section 2.05(e).
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“Permitted Encumbrances” means:
(a)Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 6.04;
(b)Carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by applicable Laws, arising in the ordinary course of business and securing obligations that are not overdue by more than thirty (30) days or are being contested in compliance with Section 6.04;
(c)Pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations, other than any Lien imposed by ERISA;
(d)Deposits to secure or relating to the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(e)Liens in respect of judgments that would not constitute an Event of Default hereunder;
(f)Easements, covenants, conditions, restrictions, building code laws, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of the Loan Parties, taken as a whole, and such other minor title defects or survey matters that are disclosed by current surveys that, in each case, do not materially interfere with the ordinary conduct of business of the Loan Parties, taken as an whole;
(g)Liens existing on the Second Amendment Effective Date listed on Schedule 7.01 and Liens to secure any Permitted Refinancings of the Indebtedness with respect thereto;
(h)Liens on fixed or capital assets or on Real Estate of any Loan Party which secure Indebtedness permitted under clauses (c) and/or (d) of the definition of Permitted Indebtedness so long as (i) such Liens and the Indebtedness secured thereby are incurred prior to or within one hundred eighty (180) days after such acquisition (other than Permitted Refinancings), (ii) the Indebtedness secured thereby does not exceed the cost of acquisition of the applicable assets, and (iii) such Liens shall attach only to the assets or Real Estate acquired, improved or refinanced with such Indebtedness and shall not extend to any other property or assets of the Loan Parties, other than replacements thereof and additions to such property and the proceeds and the products thereof; provided that individual financings of Equipment provided by one lender may be cross-collateralized with other financings of Equipment provided by such lender;
(i)Liens in favor of the Agent;
(j)Landlords’ and lessors’ statutory Liens in respect of rent not in default for more than any applicable grace period, not to exceed thirty (30) days;
(k)Possessory Liens in favor of brokers and dealers arising in connection with the acquisition or disposition of Investments owned as of the Second Amendment Effective Date and other Permitted Investments, provided that such liens (a) attach only to such Investments or other Investments held by such broker or dealer and (b) secure only obligations incurred in the ordinary
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course and arising in connection with the acquisition or disposition of such Investments and not any obligation in connection with margin financing;
(l)Liens arising solely by virtue of any statutory or common law provisions relating to banker’s Liens, Liens in favor of securities intermediaries, rights of setoff or similar rights and remedies as to deposit accounts or securities accounts or other funds maintained with depository institutions or securities intermediaries;
(m)Liens arising from precautionary UCC filings regarding “true” operating leases or, to the extent permitted under the Loan Documents, the consignment of goods to a Loan Party;
(n)voluntary Liens on property (other than property of the type included in the Revolving Borrowing Base) in existence at the time such property is acquired pursuant to a Permitted Acquisition or on such property of a Subsidiary of a Loan Party in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition; provided, that such Liens are not incurred in connection with or in anticipation of such Permitted Acquisition and do not attach to any other assets of any Loan Party or any Subsidiary;
(o)Liens in favor of customs and revenues authorities imposed by applicable Laws arising in the ordinary course of business in connection with the importation of goods and securing obligations;
(p)Liens on cash advances or any cash earnest money deposits in favor of the seller of any property to be acquired in a Permitted Acquisition;
(q)any interest or title of a licensor, sublicensor, lessor or sublessor under licenses, leases, sublicenses or subleases entered into by the Loan Parties in the ordinary course of business; provided that such interest or title is limited to the property that is the subject of such transaction;
(r)Liens constituting contractual rights of set off relating to purchase orders and other similar agreements entered into by the Loan Parties in the ordinary course of business;
(s)Liens on insurance policies and the proceeds thereof securing the financing of the premiums with the respect thereto incurred in the ordinary course of business;
(t)Liens arising out of any sale and leaseback transaction permitted hereunder in the real property and related improvements that are they subject of such transaction and securing the related Indebtedness under clause (d) of the definition of “Permitted Indebtedness”;
(u)Liens securing Indebtedness permitted under clause (j) of the definition of “Permitted Indebtedness”; provided that such Liens either (i) do not attach to Collateral included in the Revolving Borrowing Base, or (ii) are subject to an intercreditor agreement between the Agent and the holder of such Indebtedness and Liens in form and substance reasonably satisfactory to the Agent.
“Permitted Indebtedness” means each of the following:
(a)Indebtedness outstanding on the Second Amendment Effective Date listed on Schedule 7.03 and any Permitted Refinancing thereof;
(b)Indebtedness (i) of any Loan Party to any other Loan Party; (ii) of any Subsidiary that is not a Loan Party to any other Subsidiary that is not a Loan Party; and (iii) of any Subsidiary that
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is not a Loan Party to any Loan Party in an aggregate principal amount not to exceed, together with any Investment made pursuant to clause (g)(iv) of the definition of Permitted Investments, $10,000,000 outstanding at any time; provided that, for purposes of clause (b)(iii) and notwithstanding clause (d) of the definition of “Indebtedness”, trade accounts payable in the ordinary course of business shall not constitute “Indebtedness” unless past due for more than 120 days after the date on which such trade account payable was created;
(c)Purchase money Indebtedness of any Loan Party to finance the acquisition of any personal property consisting solely of fixed or capital assets, including Capital Lease Obligations, and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and Permitted Refinancings thereof, provided, however, that the aggregate principal amount of Indebtedness permitted by this clause (c) shall not exceed $10,000,000 at any time outstanding and further provided that, if requested by the Agent, the Loan Parties shall use commercially reasonable efforts to cause the holders of such Indebtedness to enter into a Collateral Access Agreement on terms reasonably satisfactory to the Agent;
(d)Indebtedness incurred for the construction or acquisition or improvement of, or to finance or to refinance, any Real Estate owned by any Loan Party (including therein any Indebtedness incurred in connection with sale-leaseback transactions permitted hereunder and any Synthetic Lease Obligations), provided that, (A) with respect to any Eligible Real Estate, Excess Availability on a pro forma basis and on a projected (on assumptions reasonably satisfactory to the Agent) basis for the six (6) month period following and after giving effect to such refinancing and the removal of such Eligible Real Estate from the Revolving Borrowing Base is greater than thirty (30%) percent of the Revolving Loan Cap, and (B) the Loan Parties shall use commercially reasonable efforts to cause the holders of such Indebtedness and the lessors under any sale-leaseback transaction to enter into a Collateral Access Agreement on terms reasonably satisfactory to the Agent;
(e)Contingent liabilities under surety bonds or similar instruments incurred in the ordinary course of business in connection with the construction or improvement of Stores;
(f) obligations (contingent or otherwise) of any Loan Party or any Subsidiary thereof existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with fluctuations in interest rates or foreign exchange rates, and not for purposes of speculation or taking a “market view” and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
(g)Indebtedness with respect to the deferred purchase price for any Permitted Acquisition or other Investments permitted hereunder, provided that such Indebtedness does not require the payment in cash of principal (other than in respect of working capital adjustments) prior to the Maturity Date, has a final maturity which extends beyond the Maturity Date, and is subordinated to the Obligations on terms reasonably acceptable to the Agent;
(h)Indebtedness of any Person that becomes a Subsidiary of a Loan Party in a Permitted Acquisition or other Investments permitted hereunder, which Indebtedness is existing at the time such Person becomes a Subsidiary of a Loan Party (other than Indebtedness incurred solely in contemplation of such Person’s becoming a Subsidiary of a Loan Party);
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(i)The Obligations;
(j)Indebtedness not otherwise specifically described herein in an aggregate principal amount not to exceed $10,000,000 at any time outstanding;
(k)unsecured Guarantees by the Parent in connection with Indebtedness of any foreign Subsidiaries of the Parent, so long as the aggregate principal amount of the obligations Guaranteed pursuant to this clause (k) does not exceed $10,000,000;
(l)(i) Indebtedness constituting indemnification obligations or obligations in respect of purchase price or other similar adjustments in connection with Permitted Dispositions; and (ii) Indebtedness consisting of obligations of any Loan Party or any Subsidiary under deferred compensation or other similar arrangements incurred by such Person in connection with any Permitted Investment;
(m)Indebtedness consisting of the financing of insurance premiums incurred in the ordinary course of business of any Loan Party or any Subsidiary;
(n)Guarantees (i) of any Indebtedness of any Loan Party or any Subsidiary thereof described in clause (a) hereof, (ii) by any Loan Party of any Indebtedness of another Loan Party permitted hereunder, (iii) by any Loan Party of Indebtedness otherwise permitted hereunder of any Subsidiary that is not a Loan Party to the extent such Guarantees are permitted pursuant to Section 7.02, and (iv) by any Subsidiary that is not a Loan Party of Indebtedness of another Subsidiary that is not a Loan Party;
(o)Indebtedness to current or former officers, directors, managers, consultants and employees, their respective estates, spouses or former spouses to finance the purchase or redemption of Equity Interests of the Parent to the extent permitted by Section 7.06;
(p)obligations in respect of netting services, automatic clearinghouse arrangements, overdraft protections and similar arrangements;
(q)Indebtedness in an amount not to exceed $10,000,000 incurred by any Loan Party or any Subsidiary in respect of letters of credit, bank guarantees, bankers’ acceptances, warehouse receipts or similar instruments issued or created in the ordinary course of business consistent with past practice in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement-type obligations regarding workers compensation claims; provided that any such Indebtedness of a Loan Party shall be unsecured; and
(r)all premiums (if any), interest (including post-petition interest), fees, expenses, charges and additional or contingent interest, to the extent applicable, on obligations described in clauses (a) through (q) above.
“Permitted Investments” means each of the following:
(a)readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;
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(b)commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 360 days from the date of acquisition thereof;
(c)time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (b) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 360 days from the date of acquisition thereof;
(d)Fully collateralized repurchase agreements with a term of not more than thirty (30) days for securities described in clause (a) above (without regard to the limitation on maturity contained in such clause) and entered into with a financial institution satisfying the criteria described in clause (c) above or with any primary dealer and having a market value at the time that such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such counterparty entity with whom such repurchase agreement has been entered into;
(e)Investments, classified in accordance with GAAP as current assets of the Loan Parties, in any money market fund, mutual fund, or other investment companies that are registered under the Investment Company Act of 1940, as amended, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and which invest solely in one or more of the types of securities described in clauses (a) through (d) above;
(f)Investments existing on the Second Amendment Effective Date set forth on Schedule 7.02, but not any increase in the amount thereof or any other modification of the terms thereof;
(g)(i) Investments by any Loan Party and its Subsidiaries in their respective Subsidiaries outstanding on the Second Amendment Effective Date, (ii) additional Investments by any Loan Party and its Subsidiaries in Loan Parties (other than the Parent), (iii) additional Investments by Subsidiaries of the Loan Parties that are not Loan Parties in other Subsidiaries that are not Loan Parties and (iv) so long as no Event of Default is continuing, additional Investments by the Loan Parties in wholly-owned Subsidiaries that are not Loan Parties in an aggregate amount invested after the Second Amendment Effective Date not to exceed, together with any Indebtedness incurred pursuant to clause (b)(iii) of the definition of Permitted Indebtedness, $10,000,000;
(h)Investments 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 Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
(i)Guarantees constituting Permitted Indebtedness;
(j)so long as no Default or Event of Default has occurred and is continuing or would result from such Investment, Investments by any Loan Party in Swap Contracts permitted hereunder;
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(k)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;
(l)advances to officers, directors and employees of the Loan Parties and Subsidiaries in the ordinary course of business in an amount not to exceed $5,000,000 in the aggregate at any time outstanding;
(m)Investments constituting Permitted Acquisitions and earnest money deposits made in connection with any letter of intent or purchase agreement entered into in connection with any Permitted Acquisition;
(o)Other Investments so long as the Payment Conditions have been met;
(p)capital contributions made by any Loan Party to another Loan Party;
(q)Investments of any Person existing at the time such Person becomes a Subsidiary or consolidates or merges with the Parent or any of its Subsidiaries (including in connection with a Permitted Acquisition) so long as such Investments were not made in contemplation of such Person becoming a Subsidiary or of such consolidation or merger;
(r)Guarantees of leases or other obligations of any Loan Party or any Subsidiary that do not constitute Indebtedness, in each case entered into in the ordinary course of business;
(s)promissory notes and other non-cash consideration that is received in connection with any Permitted Disposition; and
(t)other Investments in an aggregate amount not to exceeds $10,000,000 at any time outstanding;
provided, however, that notwithstanding the foregoing, (i) after the occurrence and during the continuance of a Cash Dominion Event, no such Investments specified in clauses (a) through (e) and clause (o) shall be permitted unless either (A) no Revolving Loans or, if then required to be Cash Collateralized, Letters of Credit are then outstanding, or (B) the Investment is a temporary Investment pending expiration of an Interest Period for a LIBOR Rate Loan, the proceeds of which Investment will be applied to the Obligations after the expiration of such Interest Period, and (ii) such Investments shall be pledged to the Agent as additional collateral for the Obligations pursuant to such agreements as may be reasonably required by the Agent.
“Permitted Overadvance” means an Overadvance made by the Agent, in its discretion, which:
(a)Is made to maintain, protect or preserve the Collateral and/or the Credit Parties’ rights under the Loan Documents or which is otherwise for the benefit of the Credit Parties; or
(b)Is made to enhance the likelihood of, or to maximize the amount of, repayment of any Obligation;
(c)Is made to pay any other amount chargeable to any Loan Party hereunder; and
(d)Together with all other Permitted Overadvances then outstanding, shall not (i) exceed five percent (5%) of the Revolving Borrowing Base at any time or (ii) unless a liquidation of the Collateral is occurring, remain outstanding for more than forty-five (45) consecutive days, unless in each case, the Required Lenders otherwise agree;
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provided however, that the foregoing shall not (i) modify or abrogate any of the provisions of Section 2.03 regarding the Revolving Loan Lenders’ obligations with respect to Letters of Credit or Section 2.04 regarding the Revolving Loan Lenders’ obligations with respect to Swing Line Loans, or (ii) result in any claim or liability against the Agent (regardless of the amount of any Overadvance) for Unintentional Overadvances, and such Unintentional Overadvances shall not reduce the amount of Permitted Overadvances allowed hereunder, and further provided that in no event shall the Agent make an Overadvance, if after giving effect thereto, the principal amount of the Credit Extensions would exceed the Aggregate Revolving Loan Commitments (as in effect prior to any termination of the Revolving Loan Commitments pursuant to Sections 2.06 or 8.02 hereof).
“Permitted Refinancing” means, with respect to any Person, any Indebtedness issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund (collectively, to “Refinance”), the Indebtedness being Refinanced (or previous refinancings thereof constituting a Permitted Refinancing); provided, that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so Refinanced (plus unpaid accrued interest and premiums thereon and underwriting discounts, defeasance costs, fees, commissions and expenses), (b) the weighted average life to maturity of such Permitted Refinancing is greater than or equal to the weighted average life to maturity of the Indebtedness being Refinanced (c) such Permitted Refinancing shall not require any scheduled principal payments due prior to the Maturity Date in excess of, or prior to, the scheduled principal payments due prior to such Maturity Date for the Indebtedness being Refinanced, (d) if the Indebtedness being Refinanced is subordinated in right of payment to the Obligations under this Agreement, such Permitted Refinancing shall be subordinated in right of payment to such Obligations on terms at least as favorable to the Credit Parties as those contained in the documentation governing the Indebtedness being Refinanced (e) no Permitted Refinancing shall have direct or indirect obligors who were not also obligors of the Indebtedness being Refinanced, or greater guarantees or security, than the Indebtedness being Refinanced, (f) such Permitted Refinancing shall be otherwise on terms (when taken as a whole) not materially less favorable to the Credit Parties than those contained in the documentation governing the Indebtedness being Refinanced, including, without limitation, with respect to financial and other covenants and events of default, (g) the interest rate applicable to any such Permitted Refinancing shall not exceed the then applicable market interest rate for similarly situated debtors, and (h) at the time thereof, no Default or Event of Default shall have occurred and be continuing.
“Permitted Store Closings” means (a) Store closures and related Inventory dispositions which do not exceed in any Fiscal Year of the Parent and its Subsidiaries, ten (10%) percent of the number of the Borrowers’ Stores as of the beginning of such Fiscal Year (net of new Store openings), and (b) the related Inventory is either moved to a distribution center or another retail location of the Borrowers for future sale in the ordinary course of business or is disposed of at such Stores in accordance with liquidation agreements and with professional liquidators reasonably acceptable to the Agent.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, limited partnership, Governmental Authority or other entity.
“Plan” means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of the Lead Borrower or any ERISA Affiliate or any such Plan to which the Lead Borrower or any ERISA Affiliate is required to contribute on behalf of its employees.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
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“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with 12 U.S.C. 5390(c)(8)(D).
“QFC Credit Support” has the meaning set forth in Section 10.29.
“Qualified ECP Guarantor” means, at any time, each Loan Party with total assets exceeding $10,000,000 or that qualifies at such time as an “eligible contract participant” under the Commodity Exchange Act and can cause another Person to qualify as an “eligible contract participant” at such time under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
“Real Estate” means all Leases and all land, together with the buildings, structures, parking areas, and other improvements thereon, now or hereafter owned by any Loan Party, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof.
“Real Estate Advance Rate” means, (i) from and after the Second Amendment Effective Date and until the first anniversary of the Second Amendment Effective Date, sixty (60%) percent, (ii) from and after the first anniversary of the Second Amendment Effective Date and until the second anniversary of the Second Amendment Effective Date, fifty-five (55%) percent, and (iii) from the second anniversary of the Second Amendment Effective Date and thereafter, fifty (50%) percent.
“Realty Reserves” means such reserves as the Agent from time to time determines in the Agent’s Permitted Discretion as being appropriate to reflect the impediments to the Agent’s ability to realize upon any Eligible Real Estate, to reflect such factors as affect the market value of the Eligible Real Estate or to reflect claims and liabilities that the Agent determines will need to be satisfied in connection with the realization upon any Eligible Real Estate. Without limiting the generality of the foregoing, Realty Reserves may include (but are not limited to) any of the following with respect to Eligible Real Estate: (i) Environmental Compliance Reserves, (ii) reserves for (A) municipal taxes and assessments, (B) repairs and (C) remediation of title defects, and (iii) reserves for Indebtedness secured by Liens on any Eligible Real Estate having priority over the Lien of the Agent.
“Recipient” means the Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder.
“Register” has the meaning specified in Section 10.06(c).
“Registered Public Accounting Firm” has the meaning specified by the Securities Laws and shall be independent of the Parent and its Subsidiaries as prescribed by the Securities Laws.
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Relevant Governmental Body” means the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or any successor thereto.
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30-day notice period has been waived.
“Reports” has the meaning provided in Section 9.12(c).
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“Request for Credit Extension” means (a) with respect to a Committed Revolving Loan Borrowing, Conversion or continuation of Committed Revolving Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.
“Required Lenders” means, as of any date of determination, Lenders which are not Affiliates holding more than 50% of the Aggregate Revolving Loan Commitments or, if the Aggregate Revolving Loan Commitments and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated, Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition); provided that at any time when there are less than three (3) non-affiliated Lenders, the term shall mean all such Lenders; provided further that the Revolving Loan Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
“Rescindable Amount” has the meaning provided in Section 2.12 (b)(ii).
“Reserves” means all Inventory Reserves, Availability Reserves and Realty Reserves. The Agent shall have the right, at any time and from time to time after the Fourth Restatement Date in its Permitted Discretion to establish, modify or eliminate any Reserves upon three (3) Business Days prior notice to the Lead Borrower (during which period the Agent shall be available to discuss any such proposed Reserve with the Borrowers); provided that (i) no such prior notice shall be required (1) after the occurrence and during the continuation of a Cash Dominion Event, (2) for changes to any such Reserve resulting solely from changes in the mathematical calculations of the amount of such Reserve in accordance with the methodology for such calculation previously used by the Agent, (3) if a Material Adverse Effect is reasonably likely to arise by any delay in establishing or changing such Reserve, or (4) if an Event of Default is continuing and (ii) upon such notice, the Lead Borrower will not be permitted to borrow so as to exceed the Revolving Borrowing Base after giving effect to such new or modified Reserves.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer” means (a) the chief executive officer, president, chief financial officer or general corporate counsel of a Loan Party or any of the other individuals designated in writing to the Agent by an existing Responsible Officer of a Loan Party as an authorized signatory of any certificate or other document to be delivered hereunder (including the controller, treasurer or assistant treasurer of a Loan Party), (b) solely for purposes of the delivery of incumbency certificates pursuant to Section 4.01, the secretary or any assistant secretary of a Loan Party and, (c) solely for purposes of notices given pursuant to Article II, any other officer or employee of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Agent or any other officer or employee of the applicable Loan Party designated in or pursuant to an agreement between the applicable Loan Party and the Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. To the extent requested by the Agent, each Responsible Officer will provide an incumbency certificate and to the extent requested by the Agent, appropriate authorization documentation, in form and substance satisfactory to the Agent.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its
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Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to such Person’s stockholders, partners or members (or the equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment. Without limiting the foregoing, “Restricted Payments” with respect to any Person shall also include all payments made by such Person with any proceeds of a dissolution or liquidation of such Person.
“Restricted Payment Conditions” means, at the time of determination with respect to any Restricted Payment, that (a) no Default or Event of Default then exists or would arise as a result of making such Restricted Payment, (b) either (x) (i) Excess Availability on a pro forma basis and on a projected (on assumptions reasonably satisfactory to the Agent) basis for the six (6) month period following and after giving effect to such Restricted Payment is greater than fifteen (15%) percent of the Revolving Loan Cap, and (ii) the Consolidated Fixed Charge Coverage Ratio, as calculated on a pro forma basis after giving effect to such Restricted Payment for the immediately preceding Measurement Period is equal to or greater than 1.1:1.0, or (y) Excess Availability on a pro forma basis and on a projected (on assumptions reasonably satisfactory to the Agent) basis for the six (6) month period following and after giving effect to such Restricted Payment is greater than twenty-five (25%) percent of the Revolving Loan Cap. Prior to undertaking any Restricted Payment that is subject to the Restricted Payment Conditions, the Loan Parties shall deliver to the Agent evidence of satisfaction of the conditions contained in clause (b) above on a basis (including, without limitation, giving due consideration to results for prior periods) reasonably satisfactory to the Agent; provided that the Borrowers shall not be required to deliver updated projections as set forth in clause (b)(x)(i) or (y) above in the event that on a pro forma basis after giving effect to such Restricted Payment, the average daily Total Outstandings for the immediately prior sixty (60) day period are less than thirty (30%) percent of the Revolving Loan Cap.
“Revolving Borrowing Base” means, at any time of calculation, an amount equal to:
(a)the face amount of Eligible Credit Card Receivables multiplied by 90%;
plus
(b)the Cost of Eligible Inventory (other than Eligible Unpaid In-Transit Inventory), net of Inventory Reserves, multiplied by 90% (provided that, during the Seasonal Overadvance Period in each calendar year, such advance rate shall be increased to 92.5%) multiplied by the Appraised Value of Eligible Inventory;
plus
(c)the Real Estate Advance Rate multiplied by the Appraised Value of Eligible Real Estate;
plus
(d)the Cost of Eligible Unpaid In-Transit Inventory, net of Inventory Reserves, multiplied by 75% (provided that, during the Seasonal Overadvance Period in each calendar year, such advance rate shall be increased to 77.5%) multiplied by the Appraised Value of Eligible Inventory;
minus
(e)the then amount of all Availability Reserves;
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provided that, in no event shall the aggregate amounts available to be borrowed under (i) clause (c) above exceed twenty-five (25%) of the Revolving Loan Cap and (ii) clause (d) above exceed fifteen (15%) of the Revolving Loan Cap.
“Revolving Loan” means an extension of credit by a Revolving Loan Lender to the Borrowers under Article II in the form of a Committed Revolving Loan or a Swing Line Loan.
“Revolving Loan Cap” means, at any time of determination, the lesser of (a) the Aggregate Revolving Loan Commitments and (b) the Revolving Borrowing Base.
“Revolving Loan Commitment” means, as to each Revolving Loan Lender, its obligation to (a) make Committed Revolving Loans to the Borrowers pursuant to Section 2.01, (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
“Revolving Loan Facility” means, at any time, the Aggregate Revolving Loan Commitments of all Revolving Loan Lenders at such time.
“Revolving Loan Lender” means, at any time, any Lender that has a Revolving Loan Commitment at such time or, if the Revolving Loan Commitments have terminated, Revolving Credit Extensions.
“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
“Sanction(s)” means any sanction administered or enforced by the United States Government (including, without limitation, OFAC), the United Nations Security Council, the European Union, Her Majesty’s Treasury (“HMT”) or any Governmental Authority having jurisdiction over any Lender or any Loan Party or any of their respective Subsidiaries or Affiliates.
“Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.
“Seasonal Overadvance Period” shall mean a consecutive 120 day period between October 1 and January 31 in each calendar year.
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
“Second Amendment Effective Date” means April 30, 2021.
“Second Amendment Fee Letter” means the letter entitled “Second Amendment Fee Letter” among the Lead Borrower and Bank of America, dated as of April 30, 2021.
“Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley, and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.
“Security Agreement” means the Third Amended and Restated Security Agreement dated as of August 17, 2016 among the Loan Parties and the Agent.
“Security Documents” means the Security Agreement, the Mortgages, the Deposit Account Control Agreements, the Credit Card Notifications, and each other security agreement or other instrument or
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document executed and delivered to the Agent pursuant to this Agreement or any other Loan Document granting a Lien to secure any of the Obligations.
“Settlement Date” has the meaning provided in Section 2.14(a).
“Shareholders’ Equity” means, as of any date of determination, consolidated shareholders’ equity of the Parent and its Subsidiaries as of that date determined in accordance with GAAP.
“Shrink” means Inventory which has been lost, misplaced, stolen, or is otherwise unaccounted for.
“SOFR” has the meaning provided in the definition of Daily Simple SOFR.
“SOFR Early Opt-in” means the Agent and the Lead Borrower have elected to replace LIBOR pursuant to (1) an Early Opt-in Election and (2) Section 3.03(d)(i) and paragraph (1) of the definition of “Benchmark Replacement.
“Solvent” and “Solvency” means, with respect to any Person on a particular date, that on such date (a) at fair valuation, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair saleable value of the properties and assets of such Person is not less than the amount that would be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person’s ability to pay as such debts mature, and (e) such Person is not engaged in a business or a transaction, and is not about to engage in a business or transaction, for which such Person’s properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. The amount of all guarantees at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, can reasonably be expected to become an actual or matured liability.
“Specified Event of Default” means the occurrence of any Event of Default described in any of Sections 8.01(a), 8.01(b) (with respect to occurrences relating to Section 6.01, Sections 6.02(a), (b) and (d), Section 6.03(a) and (b), Sections 6.05(a) and (c), Section 6.07, Sections 6.10(b) and (c), Section 6.11, Section 6.12, Section 6.13, and Article VII) 8.01(d), 8.01(f), 8.01(j), 8.01(k), or 8.01(l).
“Specified Loan Party” means any Loan Party that is not then an “eligible contract participant” under the Commodity Exchange Act (determined prior to giving effect to Section 10.26).
“Standby Letter of Credit” means any Letter of Credit that is not a Commercial Letter of Credit and that (a) is used in lieu or in support of performance guaranties or performance, surety or similar bonds (excluding appeal bonds) arising in the ordinary course of business, (b) is used in lieu or in support of stay or appeal bonds, (c) supports the payment of insurance premiums for reasonably necessary casualty insurance carried by any of the Loan Parties, or (d) supports payment or performance for identified purchases or exchanges of products or services in the ordinary course of business.
“Stated Amount” means at any time the maximum amount for which a Letter of Credit may be honored.
“Store” means any retail store (which may include any Real Estate, fixtures, Equipment, Inventory and other property related thereto) operated, or to be operated, by any Loan Party.
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“Subordinated Indebtedness” means Indebtedness which is expressly subordinated in right of payment to the prior payment in full of the Obligations and which is in form and on terms approved in writing by the Agent.
“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the Equity Interests having ordinary voting power for the election of directors or other governing body are at the time beneficially owned, or the management of which is otherwise Controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of a Loan Party.
“Supported QFC” has the meaning set forth in Section 10.29.
“Swap Contract” means (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, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
“Swap Obligations” means with respect to any Loan Party any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
“Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.
“Swing Line Lender” means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.
“Swing Line Loan” has the meaning specified in Section 2.04(a).
“Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit A-2.
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“Swing Line Sublimit” means an amount equal to the lesser of (a) $20,000,000 and (b) the Aggregate Revolving Loan Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Revolving Loan Commitments. A permanent reduction of the Aggregate Revolving Loan Commitments shall not require a corresponding pro rata reduction in the Swing Line Sublimit; provided, however, that if the Aggregate Revolving Loan Commitments are reduced to an amount less than the Swing Line Sublimit, then the Swing Line Sublimit shall be reduced to an amount equal to (or, at Lead Borrower’s option, less than) the Aggregate Revolving Loan Commitments.
“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term SOFR” means, for the applicable corresponding tenor (or if any Available Tenor of a Benchmark does not correspond to an Available Tenor for the applicable Benchmark Replacement, the closest corresponding Available Tenor and if such Available Tenor corresponds equally to two (2) Available Tenors of the applicable Benchmark Replacement, the corresponding tenor of the shorter duration shall be applied), the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body..
“Termination Date” means the earliest to occur of (i) the Maturity Date, (ii) the date on which the maturity of the Obligations is accelerated (or deemed accelerated) and the Revolving Loan Commitments are irrevocably terminated (or deemed terminated) in accordance with Article VIII, or (iii) the termination of the Revolving Loan Commitments in accordance with the provisions of Section 2.06 hereof.
“Total Outstandings” means the aggregate Outstanding Amount of all Revolving Loans and all L/C Obligations.
“Trading With the Enemy Act” has the meaning set forth in Section 10.18.
“Type” means, with respect to a Committed Revolving Loan, its character as a Base Rate Loan or a LIBOR Rate Loan.
“UK Financial Institution” means any BRRD Undertaking (as defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any Person subject to IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“U.S. Special Resolution Regimes” has the meaning set forth in Section 10.29.
“UCC” or “Uniform Commercial Code” shall have the meaning given to such term in the Security Agreement.
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“UCP 600” means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (“ICC”) Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).
“UFCA” has the meaning specified in Section 10.22(c).
“UFTA” has the meaning specified in Section 10.22(c).
“Unintentional Overadvance” means an Overadvance which, to the Agent’s knowledge, did not constitute an Overadvance when made but which has become an Overadvance resulting from changed circumstances beyond the control of the Credit Parties, including, without limitation, a reduction in the Appraised Value of property or assets included in the Revolving Borrowing Base or misrepresentation by the Loan Parties.
“United States” and “U.S.” mean the United States of America.
“Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).
“U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” has the meaning specified in Section 3.01(e)(i)(B)(3).
“Weekly Borrowing Base Delivery Event” means either (i) the occurrence and continuance of any Specified Event of Default, or (ii) the failure of the Borrowers to maintain Excess Availability at least equal to twelve and one-half percent (12.5%) of the Revolving Loan Cap. For purposes of this Agreement, the occurrence of a Weekly Borrowing Base Delivery Event shall be deemed continuing at the Agent’s option (i) so long as such Specified Event of Default is continuing, and/or (ii) if the Weekly Borrowing Base Delivery Event arises as a result of the Borrowers’ failure to achieve Excess Availability as required hereunder, until Excess Availability has exceeded twelve and one-half percent (12.5%) of the Revolving Loan Cap for thirty (30) consecutive calendar days, in which case a Weekly Borrowing Base Delivery Event shall no longer be deemed to be continuing for purposes of this Agreement. The termination of a Weekly Borrowing Base Delivery Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Weekly Borrowing Base Delivery Event in the event that the conditions set forth in this definition again arise.
“Write-Down and Conversion Powers” means (a) the write-down and conversion powers of the applicable EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which powers are described in the EU Bail-In Legislation Schedule; or (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that Person or any other Person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
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Within the limits of each Revolving Loan Lender’s Revolving Loan Commitment, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.01, prepay under Section 2.05, and reborrow under this Section 2.01.
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The Lead Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of non-compliance with the Lead Borrower’s instructions or other irregularity, the Lead Borrower will promptly notify the L/C Issuer. The Borrowers shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.
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With respect to any payment that the Agent makes for the account of the Lenders or the L/C Issuer hereunder as to which the Agent determines (which determination shall be conclusive absent manifest error) that any of the following applies (such payment referred to as the “Rescindable Amount”): (1) the Borrowers have not in fact made such payment; (2) the Agent has made a payment in excess of the amount so paid by the Borrowers (whether or not then owed); or (3) the Agent has for any reason otherwise erroneously made such payment; then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Agent forthwith on demand the Rescindable Amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Agent, at the greater of the Federal Funds Rate and a rate determined by the Agent in accordance with banking industry rules on interbank compensation.
A notice of the Agent to any Lender or the Lead Borrower with respect to any amount owing under this clause (b) shall be conclusive, absent manifest error.
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Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation.
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(1) | in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN-E (or W-8BEN, as applicable) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN-E (or W-8BEN, as applicable) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty; |
(2) | executed originals of IRS Form W-8ECI; |
(3) | in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Internal Revenue Code, (x) a certificate to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, a “10 percent shareholder” of a Borrower within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Internal Revenue Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN-E (or W-8BEN, as applicable); or |
(4) | to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E (or W-8BEN, as |
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applicable), a U.S. Tax Compliance Certificate, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate on behalf of each such direct and indirect partner; |
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(y) On the Early Opt-in Effective Date in respect of an Other Rate Early Opt-in, the Benchmark Replacement will replace LIBOR for all purposes hereunder and under any Loan Document in respect of any setting of such Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to this Agreement or any other Loan Document.
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and the result of any of the foregoing shall be to increase the cost to such Lender of making, converting to, continuing or maintaining any LIBOR Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Loan Parties will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.
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including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrowers shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each LIBOR Rate Loan made by it at the LIBOR Rate for such Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount and for a comparable period, whether or not such LIBOR Rate Loan was in fact so funded.
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Each Request for Credit Extension (other than a Committed Loan Notice requesting only a Conversion of Committed Revolving Loans to the other Type or a continuation of LIBOR Rate Loans) submitted by the Lead Borrower shall be deemed to be a representation and warranty by the Borrowers that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension. The conditions set forth in this Section 4.02 are for the sole benefit of the Credit Parties but until the Required Lenders (or, in the event that there are only two (2) Lenders hereunder, any Lender so long as such Lender is a Lender as of the Fourth Restatement Date and maintains a Revolving Loan Commitment not less than the Revolving Loan Commitment of such Lender as of the Fourth Restatement Date) otherwise direct the Agent to cease making Loans and issuing Letters of Credit, the Lenders will fund their Applicable Percentage of all Loans and L/C Advances and participate in all Swing Line Loans and Letters of Credit whenever made or issued, which are requested by the Lead Borrower and which, notwithstanding the failure of the Loan Parties to comply with the provisions of this Article IV, agreed to
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by the Agent, provided, however, the making of any such Loans or the issuance of any Letters of Credit shall not be deemed a modification or waiver by any Credit Party of the provisions of this Article IV on any future occasion or a waiver of any rights or the Credit Parties as a result of any such failure to comply.
To induce the Credit Parties to enter into this Agreement and to make Loans and to issue Letters of Credit hereunder, each Loan Party represents and warrants to the Agent and the other Credit Parties that:
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projections will be met or realized and that actual results may vary from such projected financial information).
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So long as any Lender shall have any Revolving Loan Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnification claims for which a claim has not been asserted), or any Letter of Credit shall remain outstanding, the Loan Parties shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, and 6.03) cause each Subsidiary to:
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Documents required to be delivered pursuant to Section 6.01 or Section 6.02(c) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Lead Borrower posts such documents, or provides a link thereto on the Lead Borrower’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Lead Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Agent have access (whether a commercial, third-party website or whether sponsored by the Agent); provided that: (i) the Lead Borrower shall deliver paper copies of such documents to the Agent or any Lender that requests the Lead Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Agent or such Lender and (ii) the Lead Borrower shall notify the Agent (by telecopier or electronic mail) of the posting of any such documents filed on SEC forms 10-K, 10-Q or 8-K. The Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any
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event shall have no responsibility to monitor compliance by the Loan Parties with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Lead Borrower setting forth details of the occurrence referred to therein and stating what action the Lead Borrower has taken and proposes to take with respect thereto.
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evidencing such Indebtedness, except, in each case, where (x) (i) the validity or amount thereof is being contested in good faith by appropriate proceedings, (ii) such Loan Party has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (iii) such contest effectively suspends collection of the contested obligation and enforcement of any Lien securing such obligation, and (iv) no Lien has been filed with respect thereto or (y) the failure to make such payment could not reasonably be expected to result in a Material Adverse Effect. Nothing contained herein shall be deemed to limit the rights of the Agent with respect to determining Reserves pursuant to this Agreement.
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None of the Credit Parties, or their agents or employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section 6.07. Each Loan Party shall look solely to its insurance companies or any other parties other than the Credit Parties for the recovery of such loss or damage and such insurance companies shall have no rights of subrogation against any Credit Party or its agents or employees. If, however, the insurance policies do not provide waiver of subrogation rights against such parties, as required above, then the Loan Parties hereby agree, to the extent permitted by law, to waive their right of recovery, if any, against the Credit Parties and their agents and employees. The designation of any form, type or amount of insurance coverage by any Credit Party under this Section 6.07 shall in no event be deemed a representation, warranty or advice by such Credit Party that such insurance is adequate for the purposes of the business of the Loan Parties or the protection of their properties.
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So long as any Lender shall have any Revolving Loan Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnification claims for which a claim has not been asserted), or any Letter of Credit shall remain outstanding, no Loan Party shall, nor shall it permit any Subsidiary to, directly or indirectly:
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provided that, if any such Restricted Payment is made to a Person who is not a Loan Party and includes Intellectual Property used or useful in connection with the conduct of the Loan Parties’ business or use of the Collateral, such Intellectual Property shall be subject to a non-exclusive royalty-free worldwide license of such Intellectual Property in favor of the Agent for use in connection with the exercise of the rights and remedies of the Credit Parties, which license shall be in form and substance reasonably satisfactory to the Agent.
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of Control results therefrom, any issuances of securities of the Parent (other than Disqualified Stock and other Equity Interests not permitted hereunder) or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements, stock options and stock ownership plans (in each case in respect of Equity Interests in the Parent) of the Parent or any of its Subsidiaries.
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amendment, modification or waiver would result in a Default or Event of Default under any of the Loan Documents, would be materially adverse to the Credit Parties, or otherwise would be reasonably likely to have a Material Adverse Effect.
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provided, however, that upon the occurrence of any Default or Event of Default with respect to any Loan Party under Section 8.01(f), the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans, all interest accrued thereon and all other Obligations shall automatically become due and payable, and the obligation of the Loan Parties to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Agent or any Lender. Notwithstanding anything to the contrary in this Agreement, the remaining balance of the Cash Collateral will be returned to the Borrowers when all Letters of Credit have been terminated or discharged, all Revolving Loan Commitments have been terminated and all Obligations (other than contingent Obligations that by their terms survive the termination of this Agreement) have been paid in full in immediately available funds.
No remedy herein is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of Law.
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Second, to payment of that portion of the Obligations (excluding the Other Liabilities) constituting indemnities (including indemnities due under Section 10.04 hereof), Credit Party Expenses, and other amounts (other than principal, interest and fees) payable to the Revolving Loan Lenders and the L/C Issuer (including Credit Party Expenses to the respective Revolving Loan Lenders and the L/C Issuer and amounts payable under Article III), ratably among them in proportion to the amounts described in this clause Second payable to them;
Third, to the extent not previously reimbursed by the Revolving Loan Lenders, to payment to the Agent of that portion of the Obligations constituting principal and accrued and unpaid interest on any Permitted Overadvances;
Fourth, to the extent that Swing Line Loans have not been refinanced by a Committed Revolving Loan, payment to the Swing Line Lender of that portion of the Obligations constituting principal and accrued and unpaid interest on the Swing Line Loans;
Fifth, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Committed Revolving Loans, L/C Borrowings and other Obligations (but excluding Other Liabilities), and fees (including Letter of Credit Fees and Commitment Fees), ratably among the Revolving Loan Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Fifth payable to them;
Sixth, to payment of that portion of the Obligations constituting unpaid principal of the Committed Revolving Loans and L/C Borrowings, ratably among the Revolving Loan Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Sixth held by them;
Seventh, to the Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit;
Eighth, to payment of all other Obligations (including without limitation the cash collateralization of unliquidated indemnification obligations as provided in Section 10.04, but excluding any Other Liabilities), ratably among the Credit Parties in proportion to the respective amounts described in this clause Eighth held by them;
Ninth, to payment of that portion of the Obligations arising from Cash Management Services, ratably among the Credit Parties in proportion to the respective amounts described in this clause Ninth held by them;
Tenth, to payment of all other Obligations arising from Bank Products, ratably among the Credit Parties in proportion to the respective amounts described in this clause Thirteenth held by them; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Loan Parties or as otherwise required by Law.
Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Seventh above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above. Notwithstanding anything to the contrary in this Agreement, the remaining balance of the Cash Collateral will be returned to the Borrowers when all Letters of Credit
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have been terminated or discharged, all Revolving Loan Commitments have been terminated and all Obligations (other than contingent Obligations that by their terms survive the termination of this Agreement) have been paid in full in immediately available funds.
Excluded Swap Obligations with respect to any Guarantor shall not be paid with amounts received from such Guarantor, but appropriate adjustments shall be made with respect to payments from other Loan Parties to preserve the allocation to the Obligations otherwise set forth above in this Section.
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Affiliate thereof as if such Person were not the Agent hereunder and without any duty to account therefor to the Lenders or to provide notice to or consent of the Lenders with respect thereto.
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Loan Documents, except in its capacity as the Agent, a Lender or the L/C Issuer hereunder.
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Agent and to pay to the Agent and, in the event that the Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay the Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Agent and its agents and counsel, and any other amounts due the Agent under Sections 2.09 and 10.04.
Nothing contained herein shall be deemed to authorize the Agent to authorize or consent to or accept or adopt on behalf of any Credit Party any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Credit Party or to authorize the Agent to vote in respect of the claim of any Credit Party in any such proceeding.
The Credit Parties hereby irrevocably authorize the Agent, at the direction of the Required Lenders, to credit bid all or any portion of the Obligations (including accepting some or all of the Collateral in satisfaction of some or all of the Obligations pursuant to a deed in lieu of foreclosure or otherwise) and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (a) at any sale thereof conducted under the provisions of the Bankruptcy Code of the United States, including under Sections 363, 1123 or 1129 of the Bankruptcy Code of the United States, or any similar Laws in any other jurisdictions to which a Loan Party is subject, (b) at any other sale or foreclosure or acceptance of collateral in lieu of debt conducted by (or with the consent or at the direction of) the Agent (whether by judicial action or otherwise) in accordance with any applicable Law. In connection with any such credit bid and purchase, the Obligations owed to the Credit Parties shall be entitled to be, and shall be, credit bid on a ratable basis (with Obligations with respect to contingent or unliquidated claims receiving contingent interests in the acquired assets on a ratable basis that would vest upon the liquidation of such claims in an amount proportional to the liquidated portion of the contingent claim amount used in allocating the contingent interests) in the asset or assets so purchased (or in the Equity Interests or debt instruments of the acquisition vehicle or vehicles that are used to consummate such purchase). In connection with any such bid (i) the Agent shall be authorized to form one or more acquisition vehicles to make a bid, (ii) to adopt documents providing for the governance of the acquisition vehicle or vehicles (provided that any actions by the Agent with respect to such acquisition vehicle or vehicles, including any disposition of the assets or Equity Interests thereof shall be governed, directly or indirectly, by the vote of the Required Lenders, irrespective of the termination of this Agreement and
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without giving effect to the limitations on actions by the Required Lenders contained in Section 10.01 of this Agreement), (iii) the Agent shall be authorized to assign the relevant Obligations to any such acquisition vehicle pro rata by the Lenders, as a result of which each of the Lenders shall be deemed to have received a pro rata portion of any Equity Interests and/or debt instruments issued by such an acquisition vehicle on account of the assignment of the Obligations to be credit bid, all without the need for any Credit Party or acquisition vehicle to take any further action, and (iv) to the extent that Obligations that are assigned to an acquisition vehicle are not used to acquire Collateral for any reason (as a result of another bid being higher or better, because the amount of Obligations assigned to the acquisition vehicle exceeds the amount of debt credit bid by the acquisition vehicle or otherwise), such Obligations shall automatically be reassigned to the Lenders pro rata and the Equity Interests and/or debt instruments issued by any acquisition vehicle on account of the Obligations that had been assigned to the acquisition vehicle shall automatically be cancelled, without the need for any Credit Party or any acquisition vehicle to take any further action.
Upon request by the Agent at any time, the Applicable Lenders will confirm in writing the 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 Facility Guaranty pursuant to this Section 9.10. In each case as specified in this Section 9.10, the Agent will, at the Loan Parties’ expense, execute and deliver to the applicable Loan Party such documents as such Loan Party 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 release such Guarantor from its obligations under the Facility Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10.
The 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 the Agent’s Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
The Agent may deem and treat a Lender party to this Agreement as the owner of such Lender’s portion of the Obligations for all purposes, unless and until, and except to the extent, an Assignment and Assumption shall have become effective as set forth in Section 10.06.
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and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above, affect the rights or duties of any Agent under this Agreement or any other Loan Document; and (iv) each Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed
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only by the parties thereto. Notwithstanding anything to the contrary herein, (A) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the Applicable Lenders other than Defaulting Lenders), except that (1) the Revolving Loan Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender and (2) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender; and (B) the Required Lenders shall determine whether or not to allow a Loan Party to use cash collateral in the context of a bankruptcy or insolvency proceeding and such determination shall be binding on all of the Lenders.
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Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by fax transmission shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
Unless the Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices and other communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii), if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.
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amount so recovered from or repaid by the Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
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Subject to acceptance and recording thereof by the Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning 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 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a 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. Upon request, the Borrowers (at their expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.06(d).
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Each of the Credit Parties acknowledges that (a) the Information may include material non-public information concerning the Loan Parties or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with Law, including Federal and state securities Laws.
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such right of setoff, (x) all amounts so set off shall be paid over immediately to the Agent for further application in accordance with the provisions of Section 2.16 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Agent, the L/C Issuer and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have. Each Lender and the L/C Issuer agrees to notify the Lead Borrower and the Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
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impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section 10.12, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Agent, the L/C Issuer or the Swing Line Lender, as applicable, then such provisions shall be deemed to be in effect only to the extent not so limited.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.
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. In connection with all aspects of each transaction contemplated hereby, the Loan Parties each acknowledge and agree that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Loan Parties, on the one hand, and the Credit Parties, on the other hand, and each of the Loan Parties is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, each Credit Party is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Loan Parties or any of their respective Affiliates, stockholders, creditors or employees or any other Person; (iii) none of the Credit Parties has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Loan Parties with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether any of the Credit Parties has advised or is currently advising any Loan Party or any of its Affiliates on other matters) and none of the Credit Parties has any obligation to any Loan Party or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Credit Parties and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Loan Parties and their respective Affiliates, and none of the Credit Parties has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Credit Parties have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and each of the Loan Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. Each of the Loan Parties hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against each of the Credit Parties with respect to any breach or alleged breach of agency or fiduciary duty.USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and the Agent (for itself and not on behalf of any Lender) hereby notifies the Loan Parties that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Agent, as applicable, to identify each Loan Party in accordance with the Act. Each Loan Party is in compliance, in all material respects, with the Patriot Act. No part of the proceeds of the Loans will be used by the Loan Parties, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended. The Loan Parties shall, promptly following a request by the Agent or any Lender, provide all documentation and other information that the Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Act and the Beneficial Ownership Regulation.Foreign Assets Control Regulations. Neither of the advance of the Loans nor the use of the proceeds of any thereof will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) (the "Trading With the Enemy Act") or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the "Foreign Assets Control Regulations") or any enabling legislation or executive order relating thereto (which for the avoidance of doubt shall include, but shall not be limited to (a) Executive Order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the "Executive Order") and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)). Furthermore, none of the Borrowers or their Affiliates (a) is or will
144
become a "blocked person" as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations or (b) engages or will engage in any dealings or transactions, or be otherwise associated, with any such "blocked person" or in any manner violative of any such order.
145
146
147
Facility Guaranty voidable under applicable Law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations and undertakings of each Qualified ECP Guarantor under this Section shall remain in full force and effect until payment in full of the Obligations have been indefeasibly paid and performed in full. Each Loan Party intends this Section to constitute, and this Section shall be deemed to constitute, a guarantee of the obligations of, and a “keepwell, support, or other agreement” for the benefit of, each Specified Loan Party for all purposes of the Commodity Exchange Act.
To the extent that the Loan Documents provide support, through a guarantee or otherwise, for any Swap Contract or any other agreement or instrument that is a QFC (such support, “QFC Credit Support”, and each such QFC, a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC
148
may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):
In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
[Remainder of Page Intentionally Left Blank; Signature Pages Follows.]
149
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.
LUMBER LIQUIDATORS, INC., as Lead Borrower and as a Borrower
By:
Name:
Title:
LUMBER LIQUIDATORS SERVICES, LLC, as a Borrower
By:LUMBER LIQUIDATORS, INC., its Manager
By:
Name:
Title:
[Lumber Liquidators – Signature Page to Fourth Amended and Restated Credit Agreement]
GUARANTORS:
LUMBER LIQUIDATORS HOLDINGS, INC., as Parent and as a Guarantor
By:
Name:
Title:
LUMBER LIQUIDATORS LEASING, LLC, as a Guarantor
By:LUMBER LIQUIDATORS, INC., its Manager
By:
Name:
Title:
LUMBER LIQUIDATORS PRODUCTION, LLC, as a Guarantor
By:LUMBER LIQUIDATORS SERVICES, LLC, its Manager
By:LUMBER LIQUIDATORS, INC., its Manager
By:
Name:
Title:
[Lumber Liquidators – Signature Page to Fourth Amended and Restated Credit Agreement]
GUARANTORS (CONT’D):
Lumber Liquidators Foreign Holdings, LLC, as a Guarantor
By:LUMBER LIQUIDATORS HOLDINGS, INC., its Manager
By:
Name:
Title:
LUMBER LIQUIDATORS FOREIGN OPERATIONS, LLC, as a Guarantor
By:LUMBER LIQUIDATORS FOREIGN HOLDINGS, LLC, its Manager
By:LUMBER LIQUIDATORS HOLDINGS, INC., its Manager
By:
Name:
Title:
[Lumber Liquidators – Signature Page to Fourth Amended and Restated Credit Agreement]
[Lumber Liquidators – Signature Page to Fourth Amended and Restated Credit Agreement]
bank of america, n.a., as a Revolving Loan Lender, as L/C Issuer, and as Swing Line Lender
By:
Name: Matthew Potter
Title: Senior Vice President
[Lumber Liquidators – Signature Page to Fourth Amended and Restated Credit Agreement]
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Revolving Loan Lender
By:
Name:
Title:
[Lumber Liquidators – Signature Page to Fourth Amended and Restated Credit Agreement]
Annex B
Updated Schedules to the Credit Agreement
[See attached.]
Annex C
Updated Exhibits to the Credit Agreement
[See attached.]
Annex D
Supplement to Information Certificate
[See attached.]
Exhibit 10.2
LUMBER LIQUIDATORS HOLDINGS, INC.
FORM OF PERFORMANCE-BASED
STOCK UNIT AWARD AGREEMENT
4901 Bakers Mill Lane, Richmond, Virginia 23230
Phone: (804) 463-2000/Fax (804) 420-9701
[Date]
[Name]
[Street]
[City, State]
RE: Employee Performance-Based Stock Unit Award Agreement
Dear [Name]:
Lumber Liquidators Holdings, Inc. (the “Company”) has granted to you an Award of Stock Units pursuant and subject to the provisions of the Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan, as amended and restated (the “Plan”). All terms used herein that are defined in the Plan have the same meaning given them in the Plan.
This Award of Stock Units is made pursuant to the Plan. The Plan is administered by the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”). The terms of the Plan are incorporated into this Award Agreement, and, in the case of any conflict between the Plan and this Award Agreement, the terms of the Plan shall control. A copy of the Plan will be provided to you upon request.
17.Section 409A. This Award is intended to be exempt from Section 409A of the Code as a short-term deferral, because settlement of the Award is to occur later than 2½ months after the later of (i) the end of the Company’s fiscal year in which the Stock Units become vested or (y) the end of the calendar year in which the Stock Units become vested. Notwithstanding the preceding, neither the Company nor any Related Company shall be liable to you or any other person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that any payments hereunder are subject to taxes, penalties or interest as a result of failing to be exempt from, or comply with, Section 409A of the Code.
18.No Right to Continued Employment. Neither the Plan, the granting of this Award nor any other action taken pursuant to the Plan or this Award constitutes or is evidence of any agreement or understanding, express or implied, that the Company or any Related Company will retain you as an employee or other service provider for any period of time or at any particular rate of compensation.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Performance-Based Stock Unit Award Agreement to be signed, as of this ____ date of _____________, 2021.
LUMBER LIQUIDATORS HOLDINGS, INC.
By: _______________________________
Name: _______________________________
Its: _______________________________
Agreed and Accepted:
______________________________
[Name of Grant Recipient]
______________________________
[Date]
LUMBER LIQUIDATORS HOLDINGS, INC.
FORM OF PERFORMANCE-BASED
STOCK UNIT AWARD AGREEMENT
Exhibit A
Subject to the provisions of this award Agreement, the number of stock units covered by this award Agreement that will vest and become payable BASED ON Performance ACHIEVED FOR THE PERFORMANCE PERIOD will be determined AS FOLLOWS:
Three Year Cumulative Adjusted EBITDA |
Three Year Performance |
Three Year Cumulative Adjusted EBITDA Payout Percent |
|
Period 2021-2023 (Millions) |
|
Below Threshold Goal |
0% (No Payout) |
|
Threshold Goal $[●] |
50% |
|
Plan Goal $[●] |
100% |
|
Challenge Goal $[●] |
200% (Maximum Payout) |
The performance goals and the associated percentages will be adjusted by the Committee to reflect the pro forma impact of acquisitions or divestitures by the Company during the Performance Period. Additionally, the performance goals and the associated percentages may be adjusted by the Committee in its discretion due to (i) unforeseen changes to the macroeconomic business environment, (ii) unanticipated regulatory change or (iii) changes in US GAAP or the application thereof that would result in an inequitable dilution or enlargement of the rights granted under this Award Agreement.
“Adjusted EBITDA” means “Adjusted EBITDA” as determined and reported by the Company in its earnings release for the relevant fiscal year in the Performance Period. In addition, anything herein to the contrary notwithstanding, in the event at any time on or prior to December 31, 2023 the Company adopts converged accounting standards as outlined in the FASB and IASB project calendar or changes its financial reporting from US GAAP to IFRS, Adjusted EBITDA shall be calculated for purposes of determining whether the performance objective has been satisfied on the basis of US GAAP as in effect and applied immediately before such change to converged standards or to IFRS shall have become effective.
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Charles E. Tyson, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Lumber Liquidators Holdings, 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 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. |
Date: May 4, 2021 |
|
|
|
|
/s/ Charles E. Tyson |
|
Charles E. Tyson |
|
President and Chief Executive Officer |
|
(Principal Executive Officer) |
EXHIBIT 31.2
SECTION 302 CERTIFICATION
I, Nancy A. Walsh, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Lumber Liquidators Holdings, 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 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. |
Date: May 4, 2021 |
|
|
|
|
/s/ Nancy A. Walsh |
|
Nancy A. Walsh |
|
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 accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Charles E. Tyson, President and Chief Executive Officer of Lumber Liquidators Holdings, Inc. (the "Registrant"), and Nancy A. Walsh, Chief Financial Officer of the Registrant, each hereby certifies that, to the best of his knowledge:
1. | The Registrant's quarterly report on Form 10-Q for the quarter ended March 31, 2021, to which this Certification is attached as Exhibit 32.1 (the "Periodic Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
|
|
|
/s/ Charles E. Tyson |
|
/s/ Nancy A. Walsh |
Charles E. Tyson |
|
Nancy A. Walsh |
President and Chief Executive Officer |
|
Chief Financial Officer |
(Principal Executive Officer) |
|
(Principal Financial Officer) |
|
|
|
|
|
|
Date: May 4, 2021 |
|
Date: May 4, 2021 |